As filed with the Securities and Exchange Commission on June 30, 2003
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AMERICAN FINANCIAL GROUP, INC. OHIO 31-1544320
AMERICAN FINANCIAL CORPORATION OHIO 31-0624874
(Exact Name of Registrant as (State or Other Jurisdiction (I.R.S. Employer Identification
Specified in Its Charter) of Incorporation or Number)
Organization)
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-2121
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrants' Principal Executive Offices)
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JAMES C. KENNEDY, ESQ.
VICE PRESIDENT, DEPUTY GENERAL COUNSEL AND SECRETARY
AMERICAN FINANCIAL GROUP, INC.
AMERICAN FINANCIAL CORPORATION
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-2538
FACSIMILE: (513) 579-0108
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
WITH COPIES TO:
MARK A. WEISS, ESQ.
KEATING, MUETHING & KLEKAMP, P.L.L.
1400 PROVIDENT TOWER
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-6599
FACSIMILE: (513) 579-6956
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement as determined by
market conditions and other factors.
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. [X]
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. [ ]
CALCULATION OF REGISTRATION FEE
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Title of each Class of Proposed Maximum
Securities Offering Price Per Unit Proposed Maximum Amount of Registration
to be Registered Amount to be Registered (2) Aggregate Offering Price Fee
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Senior Convertible Notes $ 511,015,000(1) $ 371.53 $ 189,857,402.70 $ 15,360
due 2033 of American
Financial Group, Inc.
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Common stock, no par 5,877,490(3) (3) (3) (3)
value per share,
of American Financial
Group, Inc.
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Guarantee of Senior (4) (4) (4) (4)
Convertible Notes due
2033 by American
Financial Corporation
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(1) Amount represents principal amount at maturity.
(2) Estimated solely for the purpose of determining the registration fee
based on the issue price per note of $371.53.
(3) Reflects the number of shares of common stock issuable upon conversion
of the notes being registered hereunder at the rate of 11.5016 shares
of common stock per $1,000 principle amount at maturity of the notes.
Pursuant to Rule 416 under the Securities Act of 1933 this registration
statement also registers such additional number of shares of America
Financial Group's common stock as may become deliverable upon
conversion of the notes to prevent dilution resulting from stock
splits, stock dividends and similar transactions. No additional
registration fee is required pursuant to Rule 457(i) under the
Securities Act.
(4) Pursuant to Rule 457(h) under the Securities Act of 1933, no
registration fee is required with respect to the guarantee.
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.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
[AMERICAN FINANCIAL GROUP, INC. LOGO]
$511,015,000 OF
SENIOR CONVERTIBLE NOTES DUE 2033
GUARANTEED BY AMERICAN FINANCIAL CORPORATION
5,877,490 SHARES OF
COMMON STOCK
THE OFFERING
This prospectus relates to $511,015,000 aggregate principal amount at
maturity of Senior Convertible Notes due 2033 of American Financial Group, Inc.
which was sold by American Financial Group during June 2003. The notes may be
sold from time to time by or on behalf of the selling securityholders named in
this prospectus or in supplements to this prospectus. This prospectus also
relates to 5,877,490 shares of American Financial Group common stock issuable
upon conversion of the notes held by selling securityholders, plus such
additional indeterminate number of shares as may become issuable upon conversion
of the notes by reason of adjustment to the conversion price in certain
circumstances.
The selling securityholders may sell all or a portion of the notes in
market transactions, negotiated transactions or otherwise and at prices which
will be determined by the prevailing market price for the notes or in negotiated
transactions. The selling securityholders also may sell all or a portion of the
shares of common stock from time to time on the New York Stock Exchange, in
negotiated transactions or otherwise, and at prices which will be determined by
the prevailing market price for the shares or in negotiated transactions. The
selling securityholders will receive all of the proceeds from the sale of the
notes and the common stock. We will not receive any proceeds from the sale of
notes or common stock by the selling securityholders.
Interest on the notes, at the rate of 1.4861% per year on the principal
amount at maturity, is payable semiannually in arrears in cash on June 2 and
December 2 of each year, beginning December 2, 2003, until June 2, 2008. After
that date, we will not pay cash interest on the notes prior to maturity unless
contingent cash interest becomes payable. Instead, on June 2, 2033, the maturity
date of the notes, a holder will receive $1,000 per note. The rate of accrual of
original issue discount represents a yield to maturity of 4.00% per year,
computed on a semiannual bond equivalent basis and calculated from June 2, 2008.
The notes are senior unsecured obligations and will rank equally with our
existing and future senior unsecured indebtedness. In addition, the notes
effectively rank junior to any future secured indebtedness as to the assets
securing such indebtedness and to all indebtedness and other obligations of our
subsidiaries, except American Financial Corporation, which is a guarantor with
respect to the notes.
CONVERTIBILITY OF THE NOTES
Holders may convert each $1,000 principal amount of their notes into
11.5016 shares of our common stock, subject to adjustment, as provided in this
prospectus. Upon conversion, we will have the right to deliver, in lieu of our
common stock, cash or a combination of cash and common stock in an amount
described herein. Our common stock currently trades on the New York Stock
Exchange under the symbol "AFG." On June 24, 2003, the last reported sale price
of our common stock on the NYSE was $22.42 per share.
CONTINGENT CASH INTEREST
We will pay contingent cash interest to the holders of the notes
payable as provided in this prospectus. You should read the discussion under
"Description of Notes--Contingent Cash Interest" beginning on page __ for a
discussion of contingent cash interest payments. For United States federal
income tax purposes, the notes will constitute contingent payment debt
instruments. You should read the discussion on "Material United States Federal
Income Tax Consequences" relevant to the notes beginning on page 49.
PURCHASE OF THE NOTES BY AFG AT THE OPTION OF THE HOLDER
Holders may require us to purchase all or a portion of their notes at
the following prices, plus accrued and unpaid interest, if any:
- $371.53 per note on June 2, 2008;
- $452.89 per note on June 2, 2013;
- $552.07 per note on June 2, 2018;
- $672.97 per note on June 2, 2023; and
- $820.35 per note on June 2, 2028.
We may choose to pay the purchase price of such notes in cash or common stock or
a combination of cash and common stock. In addition, if a change in control of
AFG, as defined herein, occurs before June 3, 2008, each holder may require us
to purchase for cash all or a portion of such holder's notes at a price equal to
the sum of the issue price plus accrued original issue discount and accrued and
unpaid cash interest, if any, to the date of purchase.
REDEMPTION OF THE NOTES AT OUR OPTION
We may redeem for cash all or a portion of the notes at any time after
June 1, 2008, at the prices set forth in the "Description of Notes -- Redemption
of Notes at Our Option."
INVESTING IN THE NOTES INVOLVES RISKS, SEE "RISK FACTORS" BEGINNING ON
PAGE 13.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is _______________, 2003
TABLE OF CONTENTS
Page
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WHERE YOU CAN FIND MORE INFORMATION....................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS......................... 3
SUMMARY................................................................... 5
RISK FACTORS.............................................................. 13
USE OF PROCEEDS........................................................... 23
PRICE RANGE AND DIVIDEND HISTORY OF OUR COMMON STOCK...................... 23
CAPITALIZATION............................................................ 24
RATIO OF EARNINGS TO FIXED CHARGES........................................ 24
DESCRIPTION OF NOTES...................................................... 26
DESCRIPTION OF OUR OTHER HOLDING COMPANY INDEBTEDNESS..................... 47
DESCRIPTION OF OUR CAPITAL STOCK.......................................... 48
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES.................... 49
ERISA MATTERS............................................................. 56
SELLING SECURITYHOLDERS................................................... 56
PLAN OF DISTRIBUTION...................................................... 60
LEGAL MATTERS............................................................. 62
EXPERTS................................................................... 62
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized any person to provide you
with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not making an offer
to sell these securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this prospectus
or any other documents incorporated by reference is accurate only as of the date
on the front cover of the applicable document. Our business, financial
condition, results of operations and prospects may have changed since that date.
This prospectus is based on information provided by us and by other
sources that we believe are reliable. We cannot assure that any information
provided by other sources is accurate or complete. This prospectus summarizes
certain documents and other information and we refer you to them for a more
complete understanding of what we discuss in this prospectus. In making an
investment decision, you should rely on your own examination of our company and
the terms of this offering and the notes, including the merits and risks
involved.
We are not making any representation to any purchaser of the notes
regarding the legality of an investment in the notes by such purchaser. You
should not consider any information in this prospectus to be legal, business or
tax advice. You should consult your own attorney, business advisor and tax
advisor for legal, business and tax advice regarding an investment in the notes.
References in this prospectus to "AFG, " "we," "us" and "our" refer to
American Financial Group, Inc., an insurance holding company incorporated in
Ohio, and its subsidiaries, including AFC, unless the context otherwise
requires. References in this prospectus to "AFC" refer to our subsidiary,
American Financial Corporation, an insurance holding company incorporated in
Ohio. Information in this prospectus regarding AFG has been provided by AFG, and
information in this prospectus regarding AFC has been provided by AFC.
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WHERE YOU CAN FIND MORE INFORMATION
We and AFC are subject to the information and reporting requirements of
the Securities Exchange Act of 1934, under which we and AFC file annual,
quarterly and special reports, proxy statements and other information with the
Securities and Exchange Commission. You may read and copy this information at
the following location of the Securities and Exchange Commission:
Public Reference Room
450 Fifth Street, N.W.
Room 1024
Washington, D.C. 20549
You may also obtain copies of this information by mail from the Public
Reference Section of the Securities and Exchange Commission, 450 Fifth Street,
N.W., Room 1024, Washington, DC 20549, at prescribed rates. Please call the
Securities and Exchange Commission at (800) 732-0330 for further information
about the Public Reference Room.
The Securities and Exchange Commission also maintains an internet
website that contains reports, proxy statements and other information about
issuers that file electronically with the Securities and Exchange Commission.
The address of that site is www.sec.gov. SEC filings may also be accessed free
of charge through our Internet site at: www.amfnl.com.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
We and AFC are "incorporating by reference" into this prospectus
certain information that we and AFC file with the Securities and Exchange
Commission, which means that we and AFC are disclosing important information to
you by referring you to those documents. The information incorporated by
reference is deemed to be part of this prospectus, except for any information
superseded by information contained directly in this prospectus. This prospectus
incorporates by reference the documents set forth below that we and AFC have
previously filed with the Securities and Exchange Commission. These documents
contain important information about us and AFC and our respective finances.
AFG SEC FILINGS (FILE NO. 1-13653) PERIOD
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Annual Report on Form 10-K, as amended Year Ended December 31, 2002
Quarterly Report on Form 10-Q, as amended Quarter Ended March 31, 2003
Current Reports on Form 8-K Dated February 19, 2003, May 1, 2003
and May 27, 2003
AFC SEC FILINGS (FILE NO. 1-07361) PERIOD
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Annual Report on Form 10-K, as amended Year Ended December 31, 2002
Quarterly Report on Form 10-Q, as amended Quarter Ended March 31, 2003
All documents that we and AFC file with the Securities and Exchange
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act from the date of this prospectus to the end of the offering of the
notes under this document shall also be deemed to be incorporated herein by
reference. Any statement contained in this prospectus or in a document
incorporated or deemed to be incorporated by reference into this prospectus will
be deemed to be modified or superseded for purposes of this prospectus to the
extent that a statement contained in this prospectus or any other subsequently
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filed document that is deemed to be incorporated by reference into this
prospectus modifies or supersedes the statement. Any statement so modified or
superseded will not be deemed, except as so modified or superseded, to
constitute a part of this prospectus.
You may request a copy of these filings, at no cost, by writing or
calling us at the following address or telephone number:
James C. Kennedy
Vice President, Deputy General Counsel and Secretary
American Financial Group, Inc.
American Financial Corporation
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2538
Exhibits to the filings will not be sent, however, unless those
exhibits have specifically been incorporated by reference in this prospectus.
Information contained on our website, other than the documents filed
with the SEC which are specifically incorporated by reference as listed above,
is not intended to be incorporated by reference in this prospectus and you
should not consider that information a part of this prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus (including the information incorporated by reference)
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are subject to numerous assumptions, risks or
uncertainties. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor for forward-looking statements. Some of the forward-looking
statements can be identified by the use of forward-looking words such as
"anticipates", "believes", "expects", "estimates", "intends", "plans", "seeks",
"could", "may", "should", "will" or the negative version of those words or other
comparable terminology. Examples of such forward-looking statements include
statements relating to: expectations concerning market and other conditions and
their effect on future premiums, revenues, earnings and investment activities;
expected losses and the adequacy of reserves for asbestos, environmental
pollution and mass tort claims, rate increases, improved loss experience and
expected expense savings resulting from recent initiatives.
Actual results could differ materially from those contained in or
implied by such forward-looking statements for a variety of factors including:
- changes in economic conditions, including interest rates,
performance of securities markets and the availability of capital;
- regulatory actions;
- changes in legal environment;
- tax law changes;
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- levels of natural catastrophes, terrorist events, incidents of war
and other major losses;
- the ultimate amount of liabilities associated with certain
asbestos and environmental-related claims;
- the unpredictability of possible future litigation if certain
settlements do not become effective;
- adequacy of insurance reserves;
- trends in mortality and morbidity;
- availability of reinsurance and ability of reinsurers to pay their
obligations;
- competitive pressures, including the ability to obtain rate
increases; and
- changes in debt and claims paying ratings.
All forward-looking statements address matters that involve risks and
uncertainties. Accordingly, there are or will be important factors that could
cause actual results to differ materially from those indicated in these
statements. We and AFC believe that these factors include but are not limited to
those described under "Risk Factors." Neither we nor AFC undertake any
obligation to publicly update or review any forward-looking statement.
We and AFC caution you that these risk factors may not be exhaustive.
We and AFC operate in a continually changing business environment, and new risk
factors emerge from time to time. We and AFC cannot predict such new risk
factors, nor can we or AFC assess the impact, if any, of such new risk factors
on our businesses or the extent to which any factor or combination of factors
may cause actual results to differ materially from those expressed or implied by
any forward-looking statements. In light of these risks, uncertainties and
assumptions, the forward-looking events discussed in this prospectus might not
occur.
You should carefully read this prospectus and the documents
incorporated by reference in their entirety. They contain information that you
should consider when making your investment decision.
-4-
SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere or incorporated by reference in this prospectus.
Because this is a summary, it may not contain all the information that may be
important to you. You should read the entire prospectus, as well as the
information incorporated by reference, before making an investment decision.
OVERVIEW
We are a holding company which, through subsidiaries, is engaged
primarily in property and casualty insurance, focusing on specialized commercial
products for businesses, and in the sale of retirement annuities, life, and
supplemental health insurance products. We were incorporated as an Ohio
corporation in 1997 for the purpose of merging predecessor holding companies
which had originated in 1955. Our insurance subsidiaries have been operating as
far back as the 1800's. Our address is One East Fourth Street, Cincinnati, Ohio
45202; our phone number is (513) 579-2121. SEC filings, news releases and other
information may be accessed free of charge through our Internet site at:
www.amfnl.com.
Our predecessor had been formed in 1994 for the purpose of acquiring
AFC and American Premier Underwriters, Inc. in merger transactions completed in
1995.
Over the years, we and our predecessors have owned, operated, and
invested in businesses in a variety of industries and geographic areas,
culminating in today's group of insurance companies. Generally, our interests
have been in the following areas: insurance, savings and loan, leasing, banking,
real estate, communications/entertainment and food distribution. A small number
of opportunistic investments have been made in troubled and other undervalued
assets.
RECENT DEVELOPMENTS
Proposed Restructuring
On April 17, 2003, we announced a proposal to merge with our
subsidiary, AFC. Through the merger, we expect to simplify our corporate
structure and eliminate the publicly-traded preferred stock of AFC by converting
it to AFG common stock. Under the proposal, the holders of the AFC preferred
stock would receive a total of approximately 3,000,000 shares of common stock of
AFG. The merger would eliminate the deferred tax liabilities associated with
AFC's holding of AFG stock. If the proposed transaction is completed, it is
expected to result in a 12% to 15% increase in our shareholders' equity.
The completion of this transaction is subject to the negotiation of
specific terms and final documentation; the approval of a special committee of
independent directors of AFC, our board of directors and the board of directors
of AFC; and the receipt of all required shareholder, stock exchange listing and
regulatory approvals. Assuming the satisfaction of all conditions, we hope to
complete this transaction during the third quarter of 2003.
Arbitration Decision
On May 21, 2003, we were notified of an adverse arbitration decision
affecting our Great American Insurance Company unit. The decision concerned the
unit's share of a 1995 property fire and business interruption claim. Our second
quarter earnings are expected to include an after tax charge of approximately
$29 million or $0.41 per share for the claim.
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Moody's Investors Service
On May 27, 2003, we were notified by Moody's Investors Service that our
ratings are being placed under review for possible downgrade. We understand that
after Moody's completes its review that our ratings would be either affirmed at
their current level or moved down one notch.
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THE OFFERING
Notes Offered........................................ $511,015,000 aggregate principal amount at maturity
of senior convertible notes due 2033. Each note has a
principal amount at maturity of $1,000 and was
originally issued at a price of $371.53 per note
(37.153% of the principal at maturity).
Maturity Date........................................ June 2, 2033
Cash Interest........................................ 1.4861% per year on the principal amount at maturity,
payable semiannually in arrears in cash on June 2 and
December 2 of each year, beginning December 2, 2003,
until June 2, 2008.
Contingent Cash Interest............................. We will pay contingent cash interest to holders of
the notes during any six-month period from June 3 to
December 2 and from December 3 to June 2, commencing
June 3, 2008, if the average market price of a note
for the Applicable Five Trading Day Period equals
120% or more of the sum of the issue price and
accrued original issue discount for a note to the day
immediately preceding the relevant six-month period.
"Applicable Five Trading Day Period" means the five
trading days ending on the third trading day
immediately preceding the relevant six-month period.
The contingent cash interest payable per note in
respect of any six-month period will be equal to a
per annum rate of 1.25% of the average market price
of a note for the Applicable Five Trading Day Period.
Contingent cash interest, if any, will accrue and be
payable to holders of notes as of the fifteenth day
preceding the last day of the relevant six-month
period. Such payments will be paid on the last day of
the relevant six-month period. Original issue
discount will continue to accrue at the yield to
maturity whether or not contingent cash interest is
paid.
Yield-to-Maturity of Notes........................... 4.00% per year, computed on a semiannual bond
equivalent basis and calculated from June 2, 2003,
excluding any contingent cash interest.
Original Issue Discount.............................. We are offering our notes at an issue price
significantly below the principal amount at maturity
of the notes. As a result, the notes will be treated
as issued with original issue discount, which for
non-tax
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purposes will accrue daily at a rate of 4.00% per
year beginning on June 2, 2008, calculated on a
semiannual bond equivalent basis using a 360-day year
comprised of twelve 30-day months.
Tax Original Issue Discount.......................... In addition, the notes are debt instruments subject
to the United States federal income tax contingent
payment debt regulations. You should be aware that,
even if we do not pay any contingent cash interest on
the notes, you will be required to include imputed
interest in your gross income for United States
federal income tax purposes. For United States
federal income tax purposes, interest, also referred
to as tax original issue discount, accrues from June
2, 2003, at a constant rate of 9.265% per year,
calculated on a semiannual bond equivalent basis,
which represents the estimated yield that a
comparable non-contingent, nonconvertible, fixed-rate
debt instrument with terms and conditions otherwise
similar to the notes would be likely to have if
offered by AFG. United States Holders will be
required to include tax original issue discount
(including the portion of the tax original issue
discount represented by cash interest payments) in
their gross income as it accrues regardless of their
method of tax accounting. The rate at which the tax
original issue discount will accrue for United States
federal income tax purposes will exceed payments of
cash interest and will exceed the stated yield of
4.00% for accrued original issue discount.
You also will recognize gain or loss on the sale,
purchase by us at your option, exchange, conversion
or redemption of a note in an amount equal to the
difference between the amount realized on the sale,
purchase by us at your option, exchange, conversion
or redemption, including the fair market value of any
common stock received upon conversion or otherwise,
and your adjusted tax basis in the note. Any gain
recognized by you on the sale, purchase by us at your
option, exchange, conversion or redemption of a note
generally will be ordinary interest income; any loss
will be ordinary loss to the extent of the interest
previously included in income, and thereafter,
capital loss. See "Material United States Federal
Income Tax Consequences."
Conversion Rights.................................... For each $1,000 principal amount of notes surrendered
for conversion, if the conditions for conversion are
satisfied, you will receive 11.5016
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shares of our common stock. In lieu of delivering
shares of our common stock upon conversion of all or
any portion of the notes, we may elect to pay holders
surrendering notes cash or a combination of cash and
shares of our common stock for the notes surrendered.
If we elect to pay holders cash for their notes, the
payment will be based on the average sale price of
our common stock for the five consecutive trading
days immediately following either:
- the date of our notice of our election to
deliver cash, which we must give within two
business days after receiving a conversion
notice, unless we have earlier given notice of
redemption as described in this prospectus; or
- the conversion date, if we have given notice of
redemption specifying that we intend to deliver
cash upon conversion thereafter.
The conversion rate may be adjusted for certain
reasons, but will not be adjusted for accrued
original issue discount, accrued cash interest or any
contingent cash interest. Upon conversion, a holder
will not receive any cash payment representing
accrued original issue discount, accrued cash
interest or contingent cash interest. Instead,
accrued original issue discount, accrued cash
interest or contingent cash interest will be deemed
paid by the shares of common stock received by the
holder on conversion.
If, as of the last day of any calendar quarter
beginning with the quarter ending September 30, 2003,
the closing sale price of our common stock for at
least 20 trading days in a period of 30 consecutive
trading days ending on the last trading day of such
quarter is more than 120% of the accreted conversion
price per share of common stock on the last day of
such quarter, then on any business day during the
following calendar quarter holders may surrender
notes for conversion into shares of common stock. The
accreted conversion price per share as of any day
will equal the sum of the issue price of the note
plus the accrued original issue discount divided by
the number of shares issuable upon conversion of a
note subject to any adjustments to the conversion
rate through that day.
-9-
Holders may also surrender notes for conversion
during any period in which the credit rating assigned
to the notes is Ba3 or lower by Moody's Investors
Service, Inc. ("Moody's") or BB or lower by Standard
& Poor's Credit Market Services, a division of the
McGraw-Hill Companies ("Standard & Poor's"), the
notes are no longer rated by either or both of
Moody's or Standard & Poor's, or the credit rating
assigned to the notes has been suspended or withdrawn
by either Moody's or Standard & Poor's.
Notes or portions of notes in integral multiples of
$1,000 principal amount at maturity called for
redemption may be surrendered for conversion until
the close of business on the second business day
prior to the redemption date. In addition, if we make
a significant distribution to our stockholders or if
we are a party to certain consolidations, mergers or
binding share exchanges, notes may be surrendered for
conversion, as provided in "Description of Notes --
Conversion Rights." The ability to surrender notes
for conversion will expire at the close of business
on June 2, 2033.
Redemption of Notes at Our Option.................... We may redeem for cash all or a portion of the notes
at any time after June 1, 2008, at redemption prices
set forth in this prospectus. See "Description of
Notes--Redemption of Notes at Our Option."
Purchase of the Notes by AFG at the Option of the
Holder............................................... Holders may require us to purchase all or a portion
of their notes on each of the following dates at the
following prices, plus accrued and unpaid cash
interest, if any, to the purchase date:
- on June 2, 2008 at a price of $371.53 per note;
- on June 2, 2013 at a price of $452.89 per note;
- on June 2, 2018 at a price of $552.07 per note;
- on June 2, 2023 at a price of $672.97 per note;
and
- on June 2, 2028 at a price of $820.35 per note.
We may pay the purchase price in cash or shares of
our common stock or in a combination of cash and
shares of our common stock. If we elect to pay the
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purchase price, in whole or in part, in shares of our
common stock, the number of shares we deliver will be
equal to the portion of the purchase price to be paid
in common stock divided by the market price of a
share of common stock. If we elect to pay all or part
of the purchase price in shares of our common stock,
we will notify holders not less than 20 business days
before the applicable purchase date, specifying the
percentages of cash and common stock.
Change in Control.................................... Upon a change in control, as defined herein, of AFG
before June 3, 2008, the holders may require us to
purchase for cash all or a portion of their notes at
a price equal to the sum of the issue price plus
accrued original issue discount and accrued and
unpaid cash interest, if any, to the date of
purchase.
Ranking.............................................. The notes are senior unsecured obligations of AFG and
rank equal in right of payment to all of our other
senior unsecured indebtedness. The notes are
effectively subordinated to any future secured
indebtedness as to the assets securing such
indebtedness.
In addition, we are structured as a holding company,
and we conduct most of our business operations
through our subsidiaries. The notes are effectively
subordinated to all existing and future indebtedness
and other liabilities and commitments of our
subsidiaries, except as to AFC, which is a guarantor
with respect to the notes. See "Description of Notes
-- Notes Guarantee."
As of June 30, 2003, we had an aggregate of $____
million of senior unsecured indebtedness outstanding
(net of discount of $_____ million) and no secured
indebtedness outstanding.
As of June 30, 2003, AFC had $___ million in
miscellaneous notes payable outstanding and a total
of $___ million available under its multi-bank credit
line.
As of June 30, 2003, our subsidiaries other than AFC
had an aggregate of approximately $_____ million of
long term indebtedness outstanding. Our subsidiaries
also have liabilities associated with insurance
policies issued by the subsidiaries, reinsurance
obligations and other trade payables and expenses.
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Use of Proceeds...................................... The selling securityholders will receive all of the
net proceeds from the sale of the notes or the shares
of common stock sold under this prospectus. We will
not receive any of the proceeds from sales by the
selling securityholders of the notes or the
underlying common stock.
Guarantees........................................... The notes are guaranteed by one of our subsidiaries,
American Financial Corporation. See "Risk Factors--
Your ability to enforce the guarantees of the notes
may be limited." As discussed under "Summary--Recent
Developments," we are proposing steps to simplify our
corporate structure by merging AFG and AFC, with AFG
as the surviving entity. If this restructuring is
consummated as proposed, the notes will continue to
be obligations of AFG, and AFC's guarantee of the
notes and our other debt securities will terminate.
Sinking Fund......................................... None.
DTC Eligibility...................................... The notes were issued in fully registered book-entry
form and are represented by one or more permanent
global notes without coupons. Global notes were
deposited with a custodian for and registered in the
name of a nominee of The Depository Trust Company in
New York, New York. Beneficial interests in global
notes will be shown on, and transfers thereof will be
effected only through, records maintained by DTC and
its direct and indirect participants, and your
interest in any global note may not be exchanged for
certificated notes, except in limited circumstances
described herein. See "Description of Notes --
Book-Entry System."
NYSE symbol for our
Common Stock...................................... Our common stock is listed on the New York Stock
Exchange under the symbol "AFG."
Risk Factors......................................... See "Risk Factors" beginning on page 13 of this
prospectus and the other information in this
prospectus for a discussion of factors you should
consider carefully before deciding to invest in the
notes.
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RISK FACTORS
You should carefully consider the following risks, as well as the other
information contained in this prospectus, before investing in the notes. If any
of the following risks actually occur, our business could be harmed. You should
refer to the other information set forth in this prospectus and our consolidated
financial statements and the related notes incorporated by reference herein.
RISKS RELATED TO THE OFFERING
Your right to receive payments on these notes will be effectively subordinated
to the rights of any future secured creditors. The notes also will be
effectively subordinated to any existing and future liabilities of our
subsidiaries.
The notes represent our unsecured obligations. Accordingly, holders of
any future secured indebtedness will have claims that are superior to your
claims as holders of the notes to the extent of the value of the assets securing
that other indebtedness. In the event of any distribution or payment of our
assets in any foreclosure, dissolution, winding-up, liquidation, reorganization,
or other bankruptcy proceeding, holders of secured indebtedness will have
superior claim to those of our assets that constitute their collateral. In any
of the foregoing events, we cannot assure you that there will be sufficient
assets to pay amounts due on the notes. Holders of the notes will participate
ratably with all holders of our unsecured indebtedness that ranks equally in
right of payment with the notes, and potentially with all of our other general
creditors, based upon the respective amounts owed to each holder or creditor, in
our remaining assets. As a result, holders of notes may receive less, ratably,
than holders of secured indebtedness.
In addition, we are a holding company and conduct substantially all our
operations through our subsidiaries. As a result, holders of the notes will be
effectively subordinated to the debt and other liabilities of our subsidiaries,
and thus, holders of our subsidiaries' indebtedness and our subsidiaries'
policyholders will generally be entitled to payment of their claims from the
assets of those subsidiaries before any assets are made available for
distribution to us. Therefore, in the event of the insolvency or liquidation of
a subsidiary, following payment by such subsidiary of its liabilities, such
subsidiary may not have sufficient remaining assets to make payments to us as a
shareholder or otherwise. In the event of a default by a subsidiary under any
credit arrangement or other indebtedness or obligation, its creditors could
accelerate such debt prior to such subsidiary distributing amounts to us that we
could have used to make payments on the notes. In addition, if we caused a
subsidiary to pay a dividend to us to make payment on the notes, and such
dividend were determined to be a fraudulent transfer, holders of the notes would
be required to return the payment to the subsidiary's creditors.
AFC, the guarantor of the notes, is a holding company and conducts
substantially all of its operations through its subsidiaries. As a result, the
guarantee will be effectively subordinated to the debt and other liabilities of
AFC's subsidiaries, and thus, holders of AFC's subsidiaries' indebtedness and
AFC's subsidiaries' policyholders will generally be entitled to payment of their
claims from the assets of those subsidiaries before any assets are made
available for distribution to AFC. Therefore, in the event of the insolvency or
liquidation of a subsidiary of AFC, following payment by such subsidiary of its
liabilities, such subsidiary may not have sufficient remaining assets to make
payments to AFC as a shareholder or otherwise. In the event of a default by a
subsidiary of AFC under any credit arrangement or other indebtedness or
obligation, its creditors could accelerate such debt prior to such subsidiary
distributing amounts to AFC that AFC could have used to make payments under the
guarantee. In addition, if AFC caused a subsidiary to pay a dividend to it to
make payment under the guarantee, and
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such dividend was determined to be a fraudulent transfer, holders of the notes
would be required to return the payment under the guarantee to AFC's
subsidiary's creditors.
We and our subsidiaries will be able to incur substantial additional
indebtedness in the future. The terms of the notes do not impose any limitation
on our or our subsidiaries' ability to issue additional debt, including secured
debt.
If we fail to deliver our common stock upon conversion of a note and
thereafter become the subject of bankruptcy proceedings, a holder's claim for
damages arising from our failure could be subordinated to all of our existing
and future obligations.
We are a holding company, and we may not have access to the cash that is needed
to make payment on the notes.
Substantially all of our operations and the operations of AFC are
conducted through subsidiaries. Accordingly, our ability to make payments on the
notes and pay dividends on the common stock that may be issued upon a conversion
of the notes, as well as AFC's ability to make payments in respect of its
guarantee of the notes, is dependent on the earnings and the distribution of
funds from subsidiaries. Restrictions on the ability of subsidiaries to pay
dividends or to make other cash payments to us may materially affect our ability
to pay principal and interest on our indebtedness and dividends on the common
stock we may issue upon a conversion of the notes, as well as AFC's ability to
make payments in respect of its guarantee of the notes. AFC's ability to pay
dividends to us may be limited by covenants relating to its net worth as
contained in AFC's multi-bank credit line.
Our subsidiaries are permitted under the terms of our indebtedness to
incur additional indebtedness that may restrict or prohibit the making of
distributions, the payment of dividends or the making of loans by our
subsidiaries to us. We cannot assure you that the agreements governing the
current and future indebtedness of our subsidiaries will permit our subsidiaries
to provide us with sufficient dividends, distributions or loans to fund payments
on the notes when due.
Our insurance subsidiaries may declare and pay dividends to us only if
they are permitted to do so under the insurance regulations of their respective
domiciliary state. State insurance laws limit the ability of our insurance
companies to pay dividends and require our insurance companies to maintain
specified levels of statutory capital and surplus. Some states require that we
give notice to the relevant state insurance commissioner prior to our insurance
subsidiaries declaring any dividends and distributions payable to us. During the
notice period, the state insurance commissioner may disallow all or part of the
proposed dividend if it determines that the insurer's surplus as regards
policyholders is not reasonable in relation to the insurer's liabilities and
adequate to its financial needs. In addition, for competitive reasons, our
insurance companies need to maintain financial strength ratings which requires
us to sustain capital levels in those subsidiaries. These restrictions affect
the ability of our insurance company subsidiaries to pay dividends and use their
capital in other ways. Our rights to participate in any distribution of assets
of our insurance company subsidiaries are subject to prior claims of
policyholders and creditors (except to the extent that our rights, if any, as a
creditor are recognized).
Notwithstanding the foregoing, if insurance regulators otherwise
determine that payment of a dividend or any other payment to an affiliate would
be detrimental to an insurance subsidiary's policyholders or creditors, because
of the financial condition of the insurance subsidiary or otherwise, the
regulators may block dividends or other payments to affiliates that would
otherwise be permitted without prior approval.
-14-
We may not have the ability to purchase notes at the option of the holders or
upon a change in control or to raise the funds necessary to finance the
purchases.
On June 2, 2008, 2013, 2018, 2023 and 2028, holders of the notes may
require us to purchase their notes. However, it is possible that we would not
have sufficient funds at that time to make the required purchase of notes. We
may be required to pay all or a portion of the purchase price in shares of our
common stock, subject to satisfying the conditions in the indenture for making
such payments. If we were unable to satisfy the conditions in the indenture to
use shares of our common stock to pay the purchase price, we could be in default
of our obligations on the notes. In addition, if a holder requires us to
purchase all or a portion of its notes and we elect to deliver shares of our
common stock, and we then become the subject of bankruptcy proceedings, a holder
may not be able to rescind its notice obligating us to purchase all or a portion
of its notes, and a holder's claim may be subordinated to all of our existing
and future obligations.
In addition, upon the occurrence of certain specific kinds of change in
control events occurring before June 3, 2008, holders may require us to purchase
for cash all or any portion of their notes. However, it is possible that, upon a
change in control, we may not have sufficient funds at that time to make the
required purchase of notes, and we may be unable to raise the necessary funds.
As described above, we are a holding company and our cash flow depends
on distributions to us from our subsidiaries, which are restricted in the manner
described above. Accordingly, our ability to purchase the notes at the option of
the holder upon a change in control event will depend in part on the ability of
our subsidiaries to make distributions to us.
In addition, the terms of any future indebtedness we incur may also
restrict our ability to purchase notes upon a change in control or if we are
otherwise required to purchase notes at the option of the holder. If such
indebtedness contained such a restriction, we would have to seek the consent of
the lenders or repay those borrowings. If we were unable to obtain the necessary
consent or unable to repay those borrowings, we would be unable to purchase the
notes and, as a result, would be in default under the notes.
Your ability to enforce the guarantees of the notes may be limited.
Although the notes are obligations of AFG, they will be unconditionally
guaranteed on an unsecured, senior basis by AFC, one of our subsidiaries. The
performance by AFC of its obligations with respect to its guarantee may be
subject to review under relevant federal and state fraudulent conveyance and
similar statutes in a bankruptcy or reorganization lawsuit by or on behalf of
unpaid creditors of AFC. If a court were to find under relevant federal or state
fraudulent conveyance statutes that AFC did not receive fair consideration or
reasonably equivalent value for incurring its guarantee of the notes, and that,
at the time of such incurrence, AFC: (i) was insolvent, (ii) was rendered
insolvent by reason of such incurrence, (iii) was engaged in a business or
transaction for which the assets remaining with AFC constituted unreasonably
small capital or (iv) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they matured, then the court, subject to
applicable statutes of limitation, could void AFC's obligations under its
guarantee, recover payments made under the guarantee, subordinate the guarantee
to other indebtedness or take other action detrimental to the holders of the
notes.
The measure of insolvency for these purposes will depend upon the
governing law of the relevant jurisdiction. Generally, however, a company will
be considered insolvent for these purposes if the sum of
-15-
that company's debts is greater than all of the assets of the company at a fair
valuation or the company generally does not pay its debts as they become due.
Moreover, regardless of solvency, a court could avoid an incurrence of
indebtedness, including the guarantee, if it determined that such transaction
was made with the intent to hinder, delay or defraud creditors. In addition, a
court could subordinate the indebtedness, including the guarantee, to the claims
of all existing and future creditors on similar grounds. The guarantee could
also be subject to the claim that, since the guarantee was incurred for our
benefit (and only indirectly for the benefit of AFC), the obligations of AFC
under the guarantee were incurred for less than reasonably equivalent value or
fair consideration.
There can be no assurance as to what standard a court would apply in
order to determine whether AFC was "insolvent" upon the sale of the notes or
that, regardless of the method of valuation, a court would not determine that
AFC was insolvent upon consummation of the sale of the notes.
You should consider the United States federal income tax consequences of owning
the notes.
The notes will be treated as indebtedness for United States federal
income tax purposes subject to the special regulations governing contingent
payment debt instruments (which we refer to as the "contingent debt
regulations"). Consequently, the notes will be treated as issued with original
issue discount for United States federal income tax purposes.
This tax original issue discount income will accrue from the original
issue date of the notes, at a rate of 9.265% per year, compounded semi-annually.
A United States Holder (as defined in "Material United States Federal Income Tax
Consequences") will be required to accrue this original issue discount on a
constant yield to maturity basis at this rate (subject to certain adjustments)
with the result that a United States Holder will recognize taxable income in
excess of both (x) the stated yield to maturity of the notes and (y) cash
interest received while the notes are outstanding. You will recognize gain or
loss on the sale, purchase by us at your option, exchange, conversion or
redemption of a note in an amount equal to the difference between the amount
realized on the sale, purchase by us at your option, exchange, conversion or
redemption, including the fair market value of any of our common stock received
upon conversion or otherwise, and your adjusted tax basis in the notes. Any gain
recognized by you on the sale, purchase by us at your option, exchange,
conversion or redemption of a note generally will be ordinary interest income;
any loss will be ordinary loss to the extent of the interest previously included
in income, and thereafter, capital loss.
The tax treatment of the notes described in the preceding paragraph
assumes that treating the notes as indebtedness subject to the contingent debt
regulations will be upheld. Notwithstanding the recent publication by the
Internal Revenue Service (the "IRS") of a Revenue Ruling regarding similar
notes, the application of the contingent debt regulations to instruments such as
the notes is uncertain in several respects, and, as a result, no assurance can
be given that the IRS or a court will agree with the treatment described herein,
and no ruling will be obtained from the IRS concerning the application of the
contingent debt regulations to the notes. Any differing treatment could affect
the amount, timing and character of income, gain or loss in respect of an
investment in the notes. In particular, a holder might be required to accrue
interest income at a higher or lower rate, might not recognize income, gain or
loss upon conversion of the notes into shares of our common stock and might
recognize capital gain or loss upon a taxable disposition of the notes.
To understand how this may affect you, you should seek advice from your
own tax advisor prior to purchasing these notes. See "Material United States
Federal Income Tax Consequences" for a more
-16-
detailed discussion of the United States federal income tax consequences to the
holders of the notes of the purchase, ownership and disposition of the notes.
An active trading market for the notes may not develop.
The notes comprise a new issue of securities for which there is
currently no public market. The notes will not be listed on any securities
exchange or included in any automated quotation system. We do not know whether
an active trading market will develop for the notes. If the notes are traded
after their initial issuance, they may trade at a discount from their initial
offering price depending on prevailing interest rates, the market for similar
securities, the price of our common stock, its and our performance and other
factors. We do not intend to apply for listing of the notes on any securities
exchange or other stock market.
We have made only limited covenants in the indenture, which may not protect your
investment if we experience significant adverse changes in our financial
condition or results of operations.
The indenture governing the notes does not:
- require us to maintain any financial ratios or specified levels of
net worth, revenues, income, cash flow or liquidity, and
therefore, does not protect holders of the notes in the event that
we experience significant adverse changes in our financial
condition or results of operations;
- limit our ability or the ability of any of our subsidiaries to
incur additional indebtedness;
- restrict our ability or that of our subsidiaries to issue
securities that would be senior to the common stock of the
subsidiary held by us; or
- restrict our ability to pledge our assets or those of our
subsidiaries.
Therefore, you should not consider the provisions of these governing instruments
as a significant factor in evaluating whether we will be able to comply with our
obligations under the notes.
Existing shareholders exercise substantial control over our affairs.
At April 30, 2003, Carl H. Lindner, S. Craig Lindner, Carl H. Lindner
III, Keith E. Lindner and trusts for their benefit, which we refer to
collectively as the Lindner family, were the beneficial owners of approximately
41% of our outstanding common stock. As a result, the Lindner family exercises
substantial control over the election of our board of directors and
significantly influences our corporate actions. In addition, the American
Financial Group, Inc. Retirement and Savings Plan owned approximately 12% of our
outstanding common stock at April 30, 2003. The interests of the Lindner family,
as well as the interests of the Retirement and Savings Plan, may differ from
those of our other stockholders and they may take actions that advance their
respective interests to the detriment of our other stockholders.
The price of our common stock, and therefore of the notes, may fluctuate
significantly, which may make it difficult for you to resell the notes or common
stock issuable upon conversion of the notes, when you want or at price you find
attractive.
-17-
The price of our common stock as listed on the New York Stock Exchange
constantly changes. We expect that market price of our common stock will
continue to fluctuate. Because the notes are convertible into our common stock,
volatility or depressed prices for our common stock could have a similar effect
on the trading price of the notes. Holders who have received common stock upon
conversion will also be subject to the risk of volatility and depressed prices.
Our common stock price can fluctuate as a result of a variety of
factors, many of which are beyond our control. These factors include:
- actual or anticipated variations in our quarterly operating
results;
- actual or anticipated changes in the dividends we pay on our
common stock;
- recommendations by securities analysts;
- significant acquisitions or business combinations, strategic
partnerships, joint ventures or capital commitments by or
involving us or our competitors;
- operating and stock price performance of other companies that
investors deem comparable to us;
- news reports relating to trends, concerns and other issues in our
industry; and
- geopolitical conditions such as acts or threats of terrorism or
military conflicts.
General market fluctuations, industry factors and general economic and political
conditions and events, such as terrorist attacks, war, economic slowdowns or
recessions, interest rate changes, credit loss trends or currency fluctuations,
could also cause our stock price to decrease regardless of our operating
results.
The stock market in general has experienced extreme volatility that has
often been unrelated to the operating performance of a particular company. These
broad market fluctuations may adversely affect the market price of our common
stock.
RISKS RELATED TO OUR BUSINESS
Intense competition could adversely affect our profitability.
The specialty insurance business is highly competitive and, except for
regulatory considerations, there are relatively few barriers to entry. We
compete with other individual insurers, state funds and insurance groups of
varying sizes, some of which are mutual insurance companies possessing
competitive advantages in that all their profits inure to their policyholders.
We also compete with self-insurance plans, captive programs and risk retention
groups. Because of the specialty nature of these coverages, competition is based
primarily on service to policyholders and agents, specific characteristics of
products offered and reputation for claims handling. Price, commissions and
profit sharing terms are also important factors. Some of our competitors have
more capital and greater resources than we have, and may offer a broader range
of products and lower prices than we offer.
Our results may fluctuate as a result of cyclical changes in the specialty
insurance industry.
-18-
The specialty insurance industry historically is cyclical in nature.
The industry has been characterized by periods of price competition and excess
capacity followed by periods of high premium rates and shortages of underwriting
capacity. These fluctuations in the business cycle would be likely to negatively
impact our revenues.
We rely upon independent agents to write our insurance policies, and if we are
not able to attract and retain independent agents, our revenues could be
negatively affected.
Our reliance on the independent agency market makes us vulnerable to a
reduction in the amount of business written by agents. Many of our competitors,
like us, rely significantly on the independent agency market. Accordingly, we
must compete with other insurance carriers for independent agents' business.
Some of our competitors offer a larger variety of products, lower price for
insurance coverage or higher commissions. While we believe that the products,
pricing, commissions and services we offer are competitive, we may not be able
to continue to attract and retain independent agents to sell our products, in
which case, our revenues could be negatively affected.
We are subject to comprehensive regulation, and our ability to earn profits may
be restricted by these regulations.
We are subject to comprehensive regulation by government agencies in
the states where our insurance company subsidiaries are domiciled and where
these subsidiaries issue policies and handle claims, and we must obtain prior
approval for certain corporate actions. We must comply with regulations
involving:
- the payment of dividends;
- the acquisition or disposition of an insurance company or of any
company controlling an insurance company;
- approval or filing of premium rates and policy forms;
- involuntary assignments of high-risk policies, participation in
reinsurance facilities and underwriting associations, assessments
and other governmental charges;
- minimum amounts of capital and surplus that must be maintained;
- limitations on types and amounts of investments;
- limitation of the right to cancel or non-renew policies;
- regulation of the right to withdraw from markets or terminate
involvement with agencies;
- licensing of insurers and agents;
- reporting with respect to financial condition; and
- transactions between an insurance company and any of its
affiliates.
-19-
In addition, state insurance department examiners perform periodic
financial and market conduct examinations of insurance companies. Such
regulation is generally intended for the protection of policyholders rather than
securityholders.
There can be no assurance that existing insurance-related laws and
regulations will not become more restrictive in the future or that new
restrictive laws will not be enacted and, therefore, it is not possible to
predict the potential effects of these laws and regulations on us.
As a holding company, we are dependent on the results of operations of our
insurance company subsidiaries to meet our obligations and pay future dividends.
We are a holding company and a legal entity separate and distinct from
our insurance company subsidiaries. As a holding company without significant
operations of our own, our principal sources of funds are dividends and other
distributions from our insurance company subsidiaries. State insurance laws
limit the ability of our insurance companies to pay dividends and require our
insurance companies to maintain specified levels of statutory capital and
surplus. Some states require that we give notice to the relevant state insurance
commissioner prior to our insurance subsidiaries declaring any dividends and
distributions payable to us. During the notice period, the state insurance
commissioner may disallow all or part of the proposed dividend if it determines
that the insurer's surplus as regards policyholders is not reasonable in
relation to the insurer's liabilities and adequate to its financial needs. In
addition, for competitive reasons, our insurance companies need to maintain
financial strength ratings which requires us to sustain capital levels in those
subsidiaries. These restrictions affect the ability of our insurance company
subsidiaries to pay dividends and use their capital in other ways. Our rights to
participate in any distribution of assets of our insurance company subsidiaries
are subject to prior claims of policyholders and creditors (except to the extent
that our rights, if any, as a creditor are recognized). Consequently, our
ability to pay debts, expenses and cash dividends to our shareholders may be
limited.
Our failure to maintain a commercially acceptable financial strength rating
would significantly and negatively affect our ability to compete successfully.
Financial strength ratings are an important factor in establishing the
competitive position of insurance companies and may be expected to have an
effect on an insurance company's sales. A.M. Best has currently assigned our
insurance company subsidiaries ratings of "A (Excellent)" and "A--(Excellent)".
According to A.M. Best, "A" and "A--" ratings are assigned to insurers which
have, on balance, excellent balance sheet strength, operating performance and
business profile when compared to the standards established by A.M. Best and, in
A.M. Best's opinion, have a strong ability to meet their ongoing obligations to
policyholders. A.M. Best bases its ratings on factors that concern policyholders
and not upon factors concerning investor protection. Such ratings are subject to
change and are not recommendations to buy, sell or hold securities. There can be
no assurance that our rating or future changes to our rating will not affect our
competitive position.
We may be adversely impacted by a change in our Standard & Poor's or Moody's
ratings.
We are rated by Standard & Poor's and Moody's, both independent
corporate credit rating agencies. On May 27, 2003, we were notified that our
rating is being placed under review by Moody's, which may result in a downgrade
of our current credit rating. An unfavorable change in either of these ratings
could make it more expensive for us to access capital markets and may increase
the interest rate charged to us under our current multi-bank credit line. We can
give no assurance that we will maintain our current Standard & Poor's or Moody's
ratings.
-20-
We are a party to litigation which, if decided adversely to us, could impact our
financial results.
We and our subsidiaries are named as defendants in a number of
lawsuits. Litigation, by its very nature, is unpredictable and the outcome of
these cases is uncertain. Further, we are unable to predict the precise nature
of the relief that may be sought or granted in any lawsuits or the effect that
pending or future cases may have on our business, operations, profitability or
financial condition.
Recently we were notified of an adverse arbitration decision affecting
our Great American Insurance Company unit. The decision concerned the unit's
share of a 1995 property fire and business interruption claim. Our second
quarter earnings are expected to include an after tax charge of approximately
$29 million or $0.41 per share for the claim.
Legal precedents regarding potential asbestos liabilities continue to evolve,
and adverse developments could impact our financial results.
Our insurance company subsidiaries and American Premier Underwriters,
Inc. are parties to litigation and receive claims asserting alleged injuries and
damages from asbestos and other hazardous and toxic substances and workplace
hazards and have established loss accruals for such potential liabilities. The
ultimate loss for these claims may vary materially from amounts currently
recorded as the conditions surrounding resolution of these claims continue to
change. We are unable to predict the precise nature of the relief that may be
granted in any lawsuits or the effect that future cases may have on our
business, operations, profitability or financial condition. In 2002 and 2001, we
increased reserves relating to prior year's asbestos and environmental claims by
$49 million and $108 million, respectively. As of March 31, 2003, the aggregate
net reserves held by our insurance company subsidiaries for asbestos claims was
$295 million and for other environmental and mass tort claims was $159 million.
We are subject to environmental claims that may impact our financial results.
American Premier Underwriters, Inc. is a party or named as a
potentially responsible party in a number of proceedings and claims by
regulatory agencies and private parties under various environmental protection
laws, including the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), seeking to impose responsibility on American Premier for
hazardous waste remediation costs at certain railroad sites formerly owned by
its predecessor, Penn Central Transportation Company, and at certain other sites
where hazardous waste allegedly generated by Penn Central's railroad operations
and American Premier's former manufacturing operations is present. It is
difficult to estimate American Premier's liability for remediation costs at
these sites for a number of reasons, including the number and financial
resources of other potentially responsible parties involved at a given site, the
varying availability of evidence by which to allocate responsibility among such
parties, the wide range of costs for possible remediation alternatives, changing
technology and the period of time over which these matters develop.
Our reserves may be inadequate, which could significantly affect our financial
results.
We record reserve liabilities for the estimated payment of losses and
loss adjustment expenses for both reported and unreported claims. Due to the
inherent uncertainty of estimating reserves, it has been necessary in the past,
and may continue to be necessary in the future, to revise estimated liabilities
as reflected in our reserves for claims and related expenses. For example, in
2002 and 2001 we took charges of $171 million and $163 million, respectively, to
increase reserves relating to prior accident years. To the extent that reserves
are inadequate and are strengthened, the amount of such increase is treated as a
charge to earnings in the period in which the deficiency is recognized. The
historic development of
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reserves for losses and loss adjustment expense may not necessarily reflect
future trends in the development of these amounts. Accordingly, it is not
appropriate to extrapolate redundancies or deficiencies based on historical
information.
Adverse securities market conditions can have significant and negative effects
on our investment portfolio.
Our results of operations depend in part on the performance of our
invested assets. As of March 31, 2003, 93% of our investment portfolio was
invested in fixed maturity securities and 4% in equity 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. An increase in interest rates lowers prices on fixed
maturity securities, and any sales we make during a period of increasing
interest rates may result in losses. Conversely, investment income earned from
future investments in fixed maturity securities will decrease if interest rates
decrease.
The continued threat of terrorism and ongoing military and other actions may
adversely affect our financial results.
The continued threat of terrorism, both within the United States of
America and abroad, and the ongoing military and other actions and heightened
security measures in response to these types of threats, may cause significant
volatility and declines in the equity markets in the United States of America,
Europe and elsewhere, loss of life, property damage, additional disruptions to
commerce and reduced economic activity. Actual terrorist attacks could cause
losses from insurance claims related to our property and casualty and life
insurance operations with adverse financial consequences. The Terrorism Risk
Insurance Act of 2002 requires that some coverage for terrorist acts be offered
by primary property insurers such as our insurance subsidiaries and provides
Federal assistance for recovery of claims through 2005. In addition, some of the
assets in our insurance subsidiaries' investment portfolios may be adversely
affected by declines in the capital markets and economic activity caused by the
continued threat of terrorism, ongoing military and other actions and heightened
security measures.
We cannot predict at this time whether and the extent to which industry
sectors in which we maintain investments may suffer losses as a result of
potential decreased commercial and economic activity, or how any such decrease
might impact the ability of companies within the affected industry sectors to
pay interest or principal on their securities, or how the value of any
underlying collateral might be affected.
We can offer no assurances that the threats of future terrorist-like
events in the United States of America and abroad or military actions by the
United States of America will not have a material adverse effect on our
business, financial condition or results of operations.
The inability to obtain reinsurance could adversely impact our results.
We rely on the use of reinsurance to limit the amount of risk we
retain. The availability and cost of reinsurance are subject to prevailing
market conditions which are beyond our control and which may affect our level of
business and profitability. We are also subject to credit risk with respect to
our reinsurers, as the ceding of risk to reinsurers does not relieve us of our
liability to insureds.
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USE OF PROCEEDS
The selling securityholders will receive all of the net proceeds from
the sale of the notes or the shares of common stock sold under this prospectus.
We will not receive any of the proceeds from sales by the selling
securityholders of the notes or the underlying common stock.
PRICE RANGE AND DIVIDEND HISTORY OF OUR COMMON STOCK
Our common stock is quoted on the New York Stock Exchange under the
symbol "AFG." On June 24, 2003, the last reported sale price of the common stock
on the NYSE was $24.22 per share. The following table sets forth for the periods
indicated below the high and low sale prices for our common stock on the NYSE,
and dividends paid, for each quarterly period during the fiscal years 2001and
2002 as well as 2003 through ___ __.
HIGH LOW DIVIDEND
---------- ---------- ------------
2001
First Quarter ........................ $ 29.00 $ 21.80 $ 0.25
Second Quarter ....................... 30.30 23.30 0.25
Third Quarter ........................ 30.75 18.35 0.25
Fourth Quarter ....................... 25.33 20.20 0.25
2002
First Quarter ........................ $ 28.81 $ 22.85 $ 0.125
Second Quarter ....................... 30.30 22.51 0.125
Third Quarter ........................ 26.30 17.90 0.125
Fourth Quarter ....................... 24.80 20.82 0.125
2003
First Quarter ........................ $ 24.21 $ 18.00 $ 0.125
Second Quarter ....................... 0.125
Third Quarter (through_______, 2003)..
As of May 31, 2003, we had 69,596,409 shares of common stock outstanding
including 1,361,711 shares held by a subsidiary for distribution to certain
creditors and approximately 13,000 record holders.
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CAPITALIZATION
The following table shows our capitalization at March 31, 2003, and as
adjusted to give effect to the sale of the notes and the application of a
portion of the proceeds to repay amounts outstanding under AFC's multi-bank
credit line.
You should read this table in conjunction with "Use of Proceeds" and
the "Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of our annual report on Form 10-K for the fiscal year ended
December 31, 2002, as amended, our quarterly report on Form 10-Q for the quarter
ended March 31, 2003, as amended, and our consolidated financial statements and
the related notes incorporated by reference in this prospectus.
MARCH 31, 2003
----------------------------
ACTUAL AS ADJUSTED (b)
---------- ---------------
(DOLLARS IN MILLIONS)
Long-term debt:
Direct Obligations of AFG, net of discount of $1.5 million
and $322.7 million ....................................... $ 380.9 $ 570.8
Other Holding Company Obligations
American Financial Corporation ........................... 103.2 8.2
American Premier Underwriters, including premium of
$0.8 million ........................................... 11.5 11.5
Obligations of Subsidiaries
Great American Financial Resources ....................... 250.2 250.2
Other Subsidiaries ....................................... 46.2 46.2
---------- ----------
Total long-term debt ................................ 792.0 886.9
---------- ----------
Minority Interest (a) ......................................... 472.2 472.2
---------- ----------
Shareholders' equity
Common Stock and capital surplus ............................ 997.7 997.7
Retained earnings ........................................... 426.3 426.3
Net unrealized gain on marketable securities, net of
deferred income tax ...................................... 292.9 292.9
---------- ----------
Total shareholders' equity .......................... 1,716.9 1,716.9
---------- ----------
Total Capitalization .......................................... $ 2,981.1 $ 3,076.0
========== ==========
Ratios:
Long-term debt to total capitalization ...................... 27% 29%
Long-term debt and subsidiary trust preferred securities
to total capitalization .................................. 35% 37%
- ----------------
(a) Minority interest represents interests of noncontrolling shareholders in
subsidiaries, including AFC preferred stock and subsidiary trust preferred
securities.
(c) Excludes effects of proposed restructuring described under "Summary --
Recent Developments -- Proposed Restructuring."
RATIO OF EARNINGS TO FIXED CHARGES
Fixed charges are computed on a "total enterprise" basis. For purposes
of calculating the ratios, "earnings" have been computed by adding to pretax
earnings the fixed charges and the minority interest in earnings of subsidiaries
having fixed charges and the undistributed equity in losses of investees. Fixed
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charges include interest (including or excluding interest credited to annuity
policyholders' accounts as indicated), amortization of debt premium/discount and
expense, preferred dividend and distribution requirements of subsidiaries and a
portion of rental expense deemed to be representative of the interest factor.
Although the ratio of earnings to fixed charges excluding interest on annuities
is not required or encouraged to be disclosed under Securities and Exchange
Commission rules, some investors and lenders may not consider interest credited
to annuity policyholders' accounts a borrowing cost for an insurance company,
and accordingly, believe this ratio is meaningful.
THREE MONTHS ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
2003 2002 2002 2001 2000 1999 1998
-------- -------- -------- -------- -------- -------- --------
Including Annuity Benefits 1.31 1.43 1.37 1.06 1.18 1.71 1.65
Excluding Annuity Benefits 2.25 2.72 2.42 1.21 1.63 3.36 3.22
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DESCRIPTION OF NOTES
We issued the notes under an indenture, dated as of June 2, 2003, among
American Financial Group, Inc., as issuer, American Financial Corporation, as
guarantor, and U.S. Bank National Association, a national banking association,
as trustee. The following summarizes the material provisions of the indenture
and the notes and does not purport to be complete and is subject to, and
qualified by reference to, all of the provisions of the indenture and the notes,
which we urge you to read because they define your rights as a note holder. A
copy of the indenture is available upon request to us. As used in this
description of notes, the words "we," "us," "our" or "AFG" refer only to
American Financial Group, Inc. and do not include any current or future
subsidiary of American Financial Group, Inc.
GENERAL
The notes are our senior unsecured obligations and will be limited to
$511,015,000 aggregate principal amount at maturity. The notes will mature on
June 2, 2033. The principal amount at maturity of each note will be $1,000. The
notes will be payable at the principal corporate trust office of the paying
agent, which initially will be an office or agency of the trustee, or an office
or agency maintained by us for such purpose, in the United States. The notes
will be senior unsecured obligations and will rank equally with our existing and
future senior unsecured indebtedness. In addition, the notes will effectively
rank junior to any future secured indebtedness as to the assets securing such
indebtedness and to all indebtedness and other obligations of our subsidiaries
(except as to AFC, which is a guarantor with respect to the notes) as to the
assets of those subsidiaries. See "Risk Factors -- Your ability to enforce the
guarantees of the notes may be limited."
The notes bear cash interest at the rate of 1.4861% per year on the
principal amount at maturity from the issue date, or from the most recent date
to which interest has been paid or provided for, until June 2, 2008. During such
period, cash interest will be payable semiannually in arrears on June 2 and
December 2 of each year, commencing on December 2, 2003, to holders of record at
the close of business on the May 18 or November 17 immediately preceding such
interest payment date. Each payment of cash interest on the notes will include
interest accrued through the day before the applicable interest payment date (or
purchase, redemption or, in certain circumstances, conversion date, as the case
may be). Any payment required to be made on any day that is not a business day
will be made on the next succeeding business day.
The notes are being offered at a substantial discount from their $1,000
principal amount at maturity. The notes will be issued at an issue price of
$371.53 per note. Beginning after June 2, 2008, for non-tax purposes the notes
will accrue original issue discount while they remain outstanding at a rate of
4.00% per year. Original issue discount is the difference between the issue
price and the principal amount (or stated redemption price for federal income
tax purposes) at maturity of a note. The calculation of the accrual of original
issue discount will be on a semiannual bond equivalent basis, using a 360-day
year composed of twelve 30-day months.
The notes will be debt instruments subject to the contingent payment
debt regulations. The notes will be issued with original issue discount for
United States federal income tax purposes. Even if we do not pay any contingent
cash interest on the notes, holders will be required to include accrued tax
original issue discount (including the portion of the tax original issue
discount represented by cash interest payments) in their gross income for
federal income tax purposes as it accrues from June 2, 2003. The rate at which
the tax original issue discount will accrue will exceed the stated yield of
4.00% for accrued original issue discount. See "Material United States Federal
Income Tax Consequences."
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Original issue discount or cash interest, as the case may be, will
cease to accrue on a note upon its maturity, conversion, purchase by us at the
option of a holder or redemption. We may not reissue a note that has matured or
been converted, purchased by us at your option, redeemed or otherwise cancelled,
except for registration of transfer, exchange or replacement of such note.
Notes may be presented for conversion at the office of the conversion
agent and for exchange or registration of transfer at the office of the
registrar. Holders may convert each of their notes into 11.5016 shares of our
common stock, subject to adjustment, (1) during any calendar quarter after
September 30, 2003, if the sale price of our common stock reaches specified
thresholds during the preceding calendar quarter, (2) during any period in which
the credit rating of the notes is below a specified level, (3) if the notes are
called for redemption or (4) if specified corporate transactions have occurred.
The conversion agent and the registrar shall initially be the trustee. No
service charge will be made for any registration of transfer or exchange of
notes. However, we may require the holder to pay any tax, assessment or other
governmental charge payable as a result of such transfer or exchange.
The notes are redeemable by us for cash at any time after June 1, 2008.
As discussed under "Summary -- Recent Developments," we are proposing
steps to simplify our corporate structure by merging AFG and AFC, with AFG as
the surviving entity. If this restructuring is consummated as proposed, the
notes will continue to be obligations of AFG, and AFC's guarantee of the notes
and our other debt securities will terminate.
RANKING OF THE NOTES
The notes will be senior unsecured obligations of AFG and will rank
equal in right of payment to all of our other senior unsecured indebtedness. The
notes will be effectively subordinated to any future secured indebtedness to the
extent of the assets securing such indebtedness. In addition, we are structured
as a holding company, and we conduct most of our business operations through our
subsidiaries. Other than with respect to AFC, which is guaranteeing the notes
(as described below), the notes will be effectively subordinated to all existing
and future indebtedness and other liabilities and obligations of our
subsidiaries, which are distinct legal entities having no obligation to pay any
amounts pursuant to the notes or to make funds available. AFC's guarantee of the
notes (described below) will be a general unsecured obligation of AFC and will
rank senior in right of payment to all future obligations of AFC that are, by
their terms, expressly subordinated in right of payment to the guarantee and
pari passu in right of payment with all existing and future unsecured
obligations of AFC that are not so subordinated, including borrowings under our
credit facility (on which AFC is the primary obligor). In addition, since our
and AFC's subsidiaries are insurance companies, their ability to pay dividends
to us is subject to regulatory limitations. See "Risk Factors -- Risks Related
to the Offering -- We are a holding company, and we may not have access to the
cash that is needed to make payment on the notes."
As of June 30, 2003, AFC had $___ million in miscellaneous notes
payable outstanding and a total of $___ million available under its multi-bank
credit line. As of June 30, 2003, our subsidiaries other than AFC had an
aggregate of approximately $_____ million of long term indebtedness outstanding.
NOTE GUARANTEE
Our obligations under the notes and indenture will be guaranteed by one
of our subsidiaries, AFC. None of our other subsidiaries will guarantee the
notes. In the event of a bankruptcy, receivership, liquidation or reorganization
of any of our non-guarantor subsidiaries, such other subsidiaries will pay the
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holders of their debts and their trade creditors before they will be able to
distribute any of their assets to us or, to the extent they are also
subsidiaries of AFC, to AFC. As of December 31, 2002 and March 31, 2003, our
non-guarantor subsidiaries accounted for approximately 99% of our consolidated
total assets. Our non-guarantor subsidiaries accounted for approximately 99% of
our consolidated revenues for the year ended December 31, 2002 and the quarter
ended March 31, 2003.
The obligations of AFC under the guarantee will be limited to the
maximum amount as will, after giving effect to all other contingent and fixed
liabilities of AFC, result in the obligations of AFC under the guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. See "Risk Factors-Your Ability to Enforce the Guarantee of the Notes
May Be Limited."
As discussed under "Summary -- Recent Developments," we are proposing
steps to simplify our corporate structure by merging AFG and AFC, with AFG as
the surviving entity. If this restructuring is consummated as proposed, the
notes will continue to be obligations of AFG, and AFC's guarantee of the notes
and our other debt securities will terminate.
CONVERSION RIGHTS
A holder may convert a note, in integral multiples of $1,000 principal
amount at maturity, into common stock only if the conditions for conversion
described below are satisfied. In addition, a holder may convert a note only
until the close of business on the second business day prior to the redemption
date if we call a note for redemption. A note for which a holder has delivered a
purchase notice or a change in control purchase notice requiring us to purchase
the note may be surrendered for conversion only if such notice is withdrawn in
accordance with the indenture.
For each $1,000 principal amount of notes surrendered for conversion,
if the conditions for conversion are satisfied, a holder will receive 11.5016
shares of our common stock, subject to adjustment upon the occurrence of certain
events described below. A holder of a note otherwise entitled to a fractional
share will receive cash equal to the applicable portion of the then current sale
price of our common stock on the trading day immediately preceding the
conversion date. Upon a conversion, we will have the option to deliver cash or a
combination of cash and shares of our common stock for the notes surrendered as
described below. The ability to surrender notes for conversion will expire at
the close of business on June 2, 2033.
To convert a note into shares of common stock, a holder must:
- complete and manually sign a conversion notice, a form of which is
on the back of the note, and deliver the conversion notice to the
conversion agent;
- surrender the note to the conversion agent;
- if required by the conversion agent, furnish appropriate
endorsements and transfer documents; and
- if required, pay all transfer or similar taxes.
On conversion of a note, a holder will not receive any cash payment of
interest representing accrued original issue discount or, except as described
below, any accrued cash interest or contingent cash interest. Instead, accrued
original issue discount or accrued cash interest or contingent cash interest
will
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be deemed paid by the shares of common stock received by the holder on
conversion. Delivery to the holder of the full number of shares of common stock
into which the note is convertible, together with any cash payment of such
holder's fractional shares, will thus be deemed:
- to satisfy our obligation to pay the principal amount at maturity
of the note;
- to satisfy our obligation to pay accrued original issue discount
or accrued cash interest attributable to the period from the issue
date through the conversion date; and
- to satisfy our obligation to pay accrued contingent interest, if
any, attributable to the most recent accrual date.
As a result, accrued original issue discount or accrued cash interest
is deemed paid in full rather than cancelled, extinguished or forfeited.
Notwithstanding the foregoing, accrued cash interest, if any, will be payable
upon any conversion of notes at the option of the holder made concurrently with
or after acceleration of the notes following an event of default described under
"-- Events of Default and Acceleration" below. Holders of notes surrendered for
conversion during the period from the close of business on any regular record
date next preceding any interest payment date to the opening of business of such
interest payment date will receive the semiannual interest payable on such notes
on the corresponding interest payment date notwithstanding the conversion, and
such notes upon surrender must be accompanied by funds equal to the amount of
such payment, unless such notes have been called for redemption, in which case
no such payment shall be required.
If contingent cash interest is payable to holders of notes during any
particular six-month period, and such notes are converted after the applicable
accrual date therefor and prior to the next succeeding interest payment date,
holders of such notes at the close of business on the accrual date will receive
the contingent cash interest payable on such notes on the corresponding interest
payment date notwithstanding the conversion. Such notes, upon surrender for
conversion, must be accompanied by funds equal to the amount of contingent cash
interest payable on the principal amount of notes so converted, unless such
notes have been called for redemption, in which case no such payment shall be
required.
The conversion rate will not be adjusted for accrued original issue
discount, accrued cash interest or any contingent cash interest. A certificate
for the number of full shares of common stock into which any note is converted,
together with any cash payment for fractional shares, will be delivered through
the conversion agent as soon as practicable following the conversion date. For a
discussion of the tax treatment of a holder receiving shares of our common stock
upon surrendering notes for conversion, see "Material United States Federal
Income Tax Consequences."
In lieu of delivery of shares of our common stock upon notice of
conversion of any notes (for all or any portion of the notes), we may elect to
pay holders surrendering notes an amount in cash per note (or a portion of a
note) based on the average sale price of our common stock for the five
consecutive trading days immediately following either (a) the date of our notice
of our election to deliver cash, which we must give within two business days
after receiving a conversion notice, unless we have earlier given notice of
redemption as described in this prospectus; or (b) the conversion date, if we
have given notice of redemption specifying that we intend to deliver cash upon
conversion thereafter, in either case multiplied by the conversion rate in
effect on that date. We will inform the holders through the trustee no later
than two business days following the conversion date of our election to deliver
shares of our common stock or to pay cash in lieu of delivery of the shares,
unless we have already informed holders of our election in
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connection with our optional redemption of the notes as described under "--
Redemption of Notes at Our Option." If we elect to deliver all of such payment
in shares of our common stock, the shares will be delivered through the
conversion agent no later than the fifth business day following the conversion
date. If we elect to pay all or a portion of such payment in cash, the payment,
including any delivery of our common stock, will be made to holders surrendering
notes no later than the tenth business day following the applicable conversion
date. If an event of default, as described under "-- Events of Default and
Acceleration" below (other than a default in a cash payment upon conversion of
the notes), has occurred and is continuing, we may not pay cash upon conversion
of any notes or portion of a note (other than cash for fractional shares).
We will adjust the conversion rate for:
(1) dividends or distributions on our common stock payable in our
common stock or other capital stock of AFG;
(2) subdivisions, combinations or certain reclassifications of our
common stock;
(3) distributions to all holders of our common stock of certain
rights to purchase shares of our common stock for a period expiring within 60
days of issuance of the notes at less than the then current sale price of our
common stock at that time; and
(4) distributions to the holders of our common stock of a portion
of our assets (including shares of capital stock of, or similar equity interests
in, a subsidiary or other business unit of ours) or debt securities issued by us
or certain rights to purchase our securities (excluding cash dividends or other
cash distributions from current or retained earnings other than extraordinary
cash dividends). "Extraordinary cash dividends" means the amount of any cash
dividend or distribution that, together with all other cash dividends paid
during the preceding 12-month period, are on a per share basis in excess of the
sum of (i) 5% of the sale price of the shares of our common stock on the day
preceding the date of declaration of such dividend or distribution and (ii) the
quotient of the amount of any contingent cash interest paid on a note during
such 12-month period divided by the number of shares of common stock issuable
upon conversion of a note at the conversion rate in effect on the payment date
of such contingent cash interest.
In the event that we elect to make a distribution to all holders of
shares of our common stock pursuant to clause (3) or (4) of the preceding
paragraph, which, in the case of clause (4), has a per share value equal to more
than 10% of the sale price of our shares of common stock on the day preceding
the declaration date for such distribution, we will be required to give notice
to the holders of notes at least 20 days prior to the date for such distribution
and, upon the giving of such notice, the notes may be surrendered for conversion
at any time until the close of business on the business day prior to the date of
distribution or until we announce that such distribution will not take place.
In the event that we pay a dividend or make a distribution on shares of
our common stock consisting of capital stock of, or similar equity interests in,
a subsidiary or other business unit of ours, the conversion rate will be
adjusted based on the market value of the securities so distributed relative to
the market value of our common stock, in each case based on the average closing
prices of those securities for the 10 trading days commencing on and including
the fifth trading day after the date on which "ex-dividend trading" commences
for such dividend or distribution on the principal United States securities
exchange or market on which the securities are then listed or quoted.
-30-
No adjustment to the conversion rate need be made if holders of the
notes may participate in the transaction without conversion or in certain other
cases.
In addition, the indenture provides that upon conversion of the notes,
the holders of such notes will receive, in addition to the shares of common
stock issuable upon such conversion, the rights related to such common stock
pursuant to our existing and any future shareholder rights plan, whether or not
such rights have separated from the common stock at the time of such conversion.
However, there shall not be any adjustment to the conversion privilege or
conversion rate as a result of:
- the issuance of the rights;
- the distribution of separate certificates representing the rights;
- the exercise or redemption of such rights in accordance with any
rights agreement; or
- the termination or invalidation of the rights.
Notwithstanding the foregoing, if a holder of notes exercising the
right of conversion attaching thereto after the distribution of rights pursuant
to our shareholder rights plan is not entitled to receive the rights that would
otherwise be attributable (but for the date of conversion) to the shares of
common stock received upon such conversion, the conversion rate will be adjusted
pursuant to clause (4) of the fourth preceding paragraph. If such an adjustment
is made and such rights are later redeemed, invalidated or terminated, then a
corresponding reversing adjustment will be made to the conversion rate on an
equitable basis. The indenture permits us to increase the conversion rate from
time to time.
Holders of the notes may, in certain circumstances, be deemed to have
received a distribution subject to United States federal income tax as a
dividend upon:
- a taxable distribution to holders of common stock that results in
an adjustment of the conversion rate on the notes;
- an increase in the conversion rate at our discretion; or
- failure to adjust the conversion rate in some instances.
See "Material United States Federal Income Tax Consequences."
If we are a party to a consolidation, merger or binding share exchange
or a transfer of all or substantially all of our assets, the right to convert a
note into common stock may be changed into a right to convert it into the kind
and amount of securities, cash or other assets of AFG or another person which
the holder would have received if the holder had converted the holder's note
immediately prior to the transaction.
The conversion agent will, on our behalf, determine if the notes are
convertible and notify the trustee and us accordingly. If the conditions to the
conversion of the notes have been satisfied, we will promptly notify the holders
of the notes thereof and use our reasonable best efforts to post this
information on our website or otherwise publicly disclose this information.
-31-
Conversion Based on Common Stock Price. If, as of the last day of any
calendar quarter beginning with the quarter ending September 30, 2003, the
closing sale price of our common stock for at least 20 trading days in a period
of 30 consecutive trading days ending on the last trading day of such calendar
quarter is more than 120% of the accreted conversion price per share of common
stock on the last day of such quarter, then on any business day during the
following calendar quarter holders may surrender notes for conversion into
shares of common stock. Upon a conversion, we will have the right to deliver
cash or a combination of cash and common stock, as described below.
The accreted conversion price per share as of any day will equal the
sum of the issue price of a note plus the accrued original issue discount
divided by the number of shares of common stock issuable upon conversion of a
note on that day, subject to any adjustments to the conversion rate through that
day. The closing sale price of our common stock on any trading day means the
closing per share sale price (or if no closing sale price is reported, the
average of the bid and ask prices or, if more than one in either case, the
average of the average bid and the average ask prices) on such date on the
principal national securities exchange on which the common stock is listed or,
if our common stock is not listed on a national securities exchange, as reported
by the Nasdaq system or otherwise as provided in the indenture.
Conversion Rights Based on Credit Ratings Downgrade. Holders may also
surrender notes for conversion during any period in which the credit rating
assigned to the notes is Ba3 or lower by Moody's or BB or lower by Standard &
Poor's, the notes are no longer rated by either Moody's or Standard & Poor's, or
the credit rating assigned to the notes has been suspended or withdrawn by
either or both of Moody's or Standard & Poor's. The notes will cease to be
convertible pursuant to this paragraph during any period or periods in which all
of the credit ratings are increased above such levels.
Conversion Based on Redemption. A holder may surrender for conversion a
note called for redemption at any time prior to the close of business on the
second business day immediately preceding the redemption date, even if it is not
otherwise convertible at such time. A note for which a holder has delivered a
purchase notice or a change in control purchase notice, as described below,
requiring us to purchase such note may be surrendered for conversion only if
such notice is withdrawn in accordance with the indenture.
A "business day" is any weekday that is not a day on which banking
institutions in The City of New York are authorized or obligated to close. A
"trading day" is any day on which the NYSE is open for trading or, if the
applicable security is quoted on the Nasdaq, a day on which trades may be made
on such market or, if the applicable security is not so listed, admitted for
trading or quoted, any business day.
Conversion Upon Occurrence of Certain Corporate Transactions. If we are
party to a consolidation, merger or binding share exchange or a transfer of all
or substantially all of our assets, a note may be surrendered for conversion at
any time from and after the date which is 15 days prior to the anticipated
effective date of the transaction until the date that is 15 days after the
actual effective date of such transaction, and at the effective date, the right
to convert a note into common stock will be changed into a right to convert it
into the kind and amount of securities, cash or other assets of AFG or another
person which the holder would have received if the holder had converted the
holder's notes immediately prior to the transaction. If such transaction also
constitutes a change in control of AFG, the holder will be able to require us to
purchase all or a portion of such holder's notes as described under "-- Change
in Control Permits Purchase of Notes by AFG at the Option of the Holder."
The notes will also be convertible upon the occurrence of certain
distributions resulting in an adjustment to the conversion price as described
above.
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CONTINGENT CASH INTEREST
Subject to the accrual date provisions described below, we will pay
contingent cash interest to the holders of the notes during any six-month period
from June 3 to December 2 and from December 3 to June 2, commencing June 3,
2008, if the average market price of a note for the Applicable Five Trading Day
Period equals 120% or more of the sum of the issue price and accrued original
issue discount for a note to the day immediately preceding the first day of the
applicable six-month period. "Applicable Five Trading Day Period" means the five
trading days ending on the third trading day immediately preceding the first day
of the relevant six-month period.
The amount of contingent cash interest payable per note in respect of
any such six-month period in which contingent interest is payable will be equal
to a per annum rate of 1.25% of the average market price of a note for the
Applicable Five Trading Day Period. For United States federal income tax
purposes, the notes will constitute contingent payment debt instruments.
Contingent cash interest, if any, will accrue and be payable to holders
of notes as of the 15th day preceding the last day of the relevant six-month
period. Such payments will be paid on the last day of the relevant six-month
period. Original issue discount will continue to accrue at the yield to maturity
whether or not contingent cash interest is paid.
The market price of a note on any date of determination means the
average of the secondary market bid quotations per note obtained by the bid
solicitation agent for $15,000,000 principal amount at maturity of notes at
approximately 4:00 p.m., New York City time, on such determination date from
three independent nationally recognized securities dealers we select, provided
that if:
- at least three such bids are not obtained by the bid solicitation
agent; or
- in our reasonable judgment, the bid quotations are not indicative
of the secondary market value of the notes,
then the market price of the note will equal (a) the then applicable conversion
rate of the notes multiplied by (b) the average sale price of our common stock
on the five trading days ending on such determination date, appropriately
adjusted.
The bid solicitation agent will initially be U.S. Bank National
Association. We may change the bid solicitation agent, but the bid solicitation
agent will not be our affiliate. The bid solicitation agent will solicit bids
from securities dealers that are believed by us to be willing to bid for the
notes.
Upon determination that note holders will be entitled to receive
contingent cash interest during a relevant six-month period, we will issue a
press release and publish such information on our website or through such other
public medium as we may use at that time.
We may unilaterally increase the amount of contingent cash interest we
may pay or pay interest or other amounts we are not obligated to pay, but we
will have no obligation to do so.
REDEMPTION OF NOTES AT OUR OPTION
No sinking fund is provided for the notes. Prior to June 2, 2008, we
cannot redeem the notes at our option. Beginning on June 2, 2008, we may redeem
the notes for cash, as a whole at any time or from
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time to time in part. We will give not less than 30 days' or more than 60 days'
notice of redemption by mail to holders of notes.
If redeemed at our option, the notes will be redeemed at a price equal
to the sum of the issue price, plus accrued original issue discount and accrued
and unpaid cash interest, if any, on such notes to the applicable redemption
date. The table below shows the redemption prices of a note on June 2, 2008, on
each June 2 thereafter prior to maturity and at maturity on June 2, 2033. In
addition, the redemption price of a note that is redeemed between the dates
listed below would include an additional amount reflecting the additional
accrued original issue discount or cash interest, if any, that has accrued on
such note since the immediately preceding date in the table below.
(2) (3)
(1) ACCRUED ORIGINAL REDEMPTION
REDEMPTION DATE JUNE 2: NOTE ISSUE PRICE ISSUE DISCOUNT PRICE (1)+(2)
- ----------------------- ---------------- ---------------- -------------
2008 ................................... $ 371.53 $ 0.00 $ 371.53
2009 ................................... 371.53 15.01 386.54
2010 ................................... 371.53 30.63 402.16
2011 ................................... 371.53 46.87 418.40
2012 ................................... 371.53 63.78 435.31
2013 ................................... 371.53 81.36 452.89
2014 ................................... 371.53 99.66 471.19
2015 ................................... 371.53 118.70 490.23
2016 ................................... 371.53 138.50 510.03
2017 ................................... 371.53 159.11 530.64
2018 ................................... 371.53 180.54 552.07
2019 ................................... 371.53 202.85 574.38
2020 ................................... 371.53 226.05 597.58
2021 ................................... 371.53 250.19 621.72
2022 ................................... 371.53 275.31 646.84
2023 ................................... 371.53 301.44 672.97
2024 ................................... 371.53 328.63 700.16
2025 ................................... 371.53 356.92 728.45
2026 ................................... 371.53 386.35 757.88
2027 ................................... 371.53 416.96 788.49
2028 ................................... 371.53 448.82 820.35
2029 ................................... 371.53 481.96 853.49
2030 ................................... 371.53 516.44 887.97
2031 ................................... 371.53 552.32 923.85
2032 ................................... 371.53 589.64 961.17
At stated maturity ..................... 371.53 628.47 1,000.00
If less than all of the outstanding notes are to be redeemed, the
trustee will select the notes to be redeemed in principal amounts at maturity of
$1,000 or integral multiples of $1,000. In this case, the trustee may select the
notes by lot, pro rata or by any other method the trustee considers fair and
appropriate. If a portion of a holder's notes is selected for partial redemption
and the holder converts a portion of the notes, the converted portion will be
deemed to be part of the portion of notes selected for redemption.
PURCHASE OF NOTES BY AFG AT THE OPTION OF THE HOLDER
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On the purchase dates of June 2, 2008, June 2, 2013, June 2, 2018, June
2, 2023, and June 2, 2028, we may, at the option of the holder, be required to
purchase, at the purchase price set forth below plus accrued and unpaid cash
interest, if any, to the purchase date, all or a portion of such holder's
outstanding notes for which a written purchase notice has been properly
delivered by the holder and not withdrawn, subject to certain additional
conditions. Holders may submit their written purchase notice to the paying agent
at any time from the opening of business on the date that is 20 business days
prior to such purchase date until the close of business on the business day
immediately preceding such purchase date.
The purchase price of a note will be:
- $371.53 per note on June 2, 2008;
- $452.89 per note on June 2, 2013;
- $552.07 per note on June 2, 2018;
- $672.97 per note on June 2, 2023; and
- $820.35 per note on June 2, 2028.
The above purchase prices reflect a price equal to the sum of the issue price
and accrued original issue discount, if any, on such notes as of the applicable
purchase date. We may, at our option, elect to pay the purchase price in cash or
shares of our common stock, or any combination thereof, see "Material United
States Federal Income Tax Consequences -- United States Holders -- Sale,
Exchange, Conversion or Redemption of Notes."
We will be required to give notice on a date not less than 20 business
days prior to each purchase date to all holders at their addresses shown in the
register of the registrar, and to beneficial owners as required by applicable
law, stating among other things:
- the amount of the purchase price;
- whether we will pay the purchase price of the notes in cash or
common stock or any combination thereof, specifying the
percentages of each;
- if we elect to pay in common stock, the calculation of the market
price of the common stock; and
- the procedures that holders must follow to require us to purchase
their notes.
The purchase notice given by each holder electing to require us to
purchase notes shall state:
- the certificate numbers of the holder's notes to be delivered for
purchase;
- the portion of the principal amount at maturity of notes to be
purchased, which must be $1,000 or an integral multiple of $1,000;
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- that the notes are to be purchased by us pursuant to the
applicable provisions of the notes; and
- in the event we elect, pursuant to the notice that we are required
to give, to pay the purchase price in common stock, in whole or in
part, but the purchase price is ultimately to be paid to the
holder entirely in cash because any of the conditions to payment
of the purchase price or portion of the purchase price in common
stock is not satisfied prior to the close of business on the
purchase date, as described below, whether the holder elects:
- to withdraw the purchase notice as to some or all of the notes to
which it relates; or
- to receive cash in respect of the entire purchase price for all
notes or portions of notes subject to such purchase notice.
If the purchase price for the notes subject to the purchase notice is
ultimately to be paid to a holder entirely in cash because we have not satisfied
one or more of the conditions to payment of the purchase price in common stock
prior to the close of business on the purchase date, a holder shall be deemed to
have elected to receive cash in respect of the entire purchase price for all
such notes unless such holder has properly notified us of its election to
withdraw the purchase notice.
Any purchase notice may be withdrawn by the holder by a written notice
of withdrawal delivered to the paying agent prior to the close of business on
the business day prior to the purchase date. The notice of withdrawal shall
state:
- the principal amount at maturity being withdrawn;
- the certificate numbers of the notes being withdrawn; and
- the principal amount at maturity, if any, of the notes that remain
subject to the purchase notice.
If we elect to pay the purchase price, in whole or in part, in shares
of our common stock, the number of shares we deliver will be equal to the
portion of the purchase price to be paid in common stock divided by the market
price of a share of common stock. We will pay cash based on the market price for
all fractional shares of common stock in the event we elect to deliver common
stock in payment, in whole, or in part, of the purchase price. For a discussion
of the tax treatment of a holder receiving cash, common stock or any combination
thereof, see "Material United States Federal Income Tax Consequences."
The market price of our common stock shall be an amount equal to the
average of the sale prices of our common stock for the five-trading-day period
ending on the third business day prior to the applicable purchase date, or, if
such business day is not a trading day, then on the last trading day prior to
such business day, appropriately adjusted to take into account any occurrence
that would result in an adjustment of the conversion rate with respect to the
common stock. See "-- Conversion Rights" for a description of the manner in
which the sale price of our common stock is determined.
Because the market price of our common stock is determined prior to the
applicable purchase date, holders of notes bear the market risk with respect to
the value of the common stock to be received from the date such market price is
determined to such purchase date. We may pay the purchase price or
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any portion of the purchase price in common stock only if the information
necessary to calculate the market price is published in a daily newspaper of
national circulation.
Upon determination of the actual number of shares of common stock in
accordance with the foregoing provisions, we will promptly issue a press release
and publish such information on our website or through such other public medium
as we may use at that time.
Our right to purchase notes, in whole or in part, with common stock is
subject to our satisfying various conditions, including:
- listing the common stock on the principal United States securities
exchange on which our common stock is then listed or, if not so
listed, on Nasdaq;
- the registration of the common stock under the Securities Act and
the Exchange Act, if required; and
- any necessary qualification or registration under applicable state
securities law or the availability of an exemption from such
qualification and registration.
If such conditions are not satisfied with respect to a holder prior to
the close of business on the purchase date, we will pay the purchase price of
the notes of the holder entirely in cash. See "Material United States Federal
Income Tax Consequences." We may not change the form or components or
percentages of components of consideration to be paid for the notes once we have
given the notice that we are required to give to holders of notes, except as
described in the first sentence of this paragraph.
In connection with any purchase offer, we will, if required:
- comply with the provisions of Rule 13e-4, Rule l4e-1 and any other
tender offer rules under the Exchange Act which may then be
applicable; and
- file Schedule TO or any other required schedule under the Exchange
Act.
Payment of the purchase price for a note for which a purchase notice
has been delivered and not validly withdrawn is conditioned upon delivery of the
note, together with necessary endorsements, to the paying agent at any time
after delivery of the purchase notice. Payment of the purchase price for the
note will be made as soon as practicable but in no event more than three
business days following the later of the purchase date or the time of delivery
of the note.
If the paying agent holds money or securities sufficient to pay the
purchase price of the note on the business day following the purchase date in
accordance with the terms of the indenture, then, immediately after the purchase
date, the note will cease to be outstanding and cash interest or original issue
discount on such note will cease to accrue, whether or not the note is delivered
to the paying agent. Thereafter, all other rights of the holder shall terminate,
other than the right to receive the purchase price upon delivery of the note.
No notes may be purchased for cash at the option of holders if there
has occurred and is continuing an event of default with respect to the notes,
other than a default in the payment of the purchase price with respect to such
notes.
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PURCHASE OF NOTES BY AFG AT THE OPTION OF THE HOLDER UPON CHANGE IN CONTROL
In the event of a change in control of AFG before June 3, 2008, each
holder will have the right, at the holder's option, subject to the terms and
conditions of the indenture, to require us to purchase for cash all or any
portion of the holder's notes. However, the principal amount at maturity
submitted for purchase by a holder must be $1,000 or an integral multiple of
$1,000.
We will be required to purchase the notes as of a date no later than 30
business days after the occurrence of such change in control at a cash price
equal to the sum of the issue price plus accrued original issue discount and
accrued cash interest, if any, on such note to such date of purchase.
Within 15 days after the occurrence of a change in control, we are
obligated to mail to the trustee and to all holders of notes at their addresses
shown in the register of the registrar and to beneficial owners as required by
applicable law a notice regarding the change in control, which notice shall
state, among other things:
- the events causing a change in control;
- the date of such change in control;
- the last date on which the purchase right may be exercised;
- the change in control purchase price;
- the change in control purchase date;
- the name and address of the paying agent and the conversion agent;
- the conversion rate and any adjustments to the conversion rate
resulting from such change in control;
- that notes with respect to which a change in control purchase
notice is given by the holder may be converted only if the change
in control purchase notice has been withdrawn in accordance with
the terms of the indenture; and
- the procedures that holders must follow to exercise these rights.
To exercise this right, the holder must deliver a written notice to the
paying agent prior to the close of business on the business day prior to the
change in control purchase date. The required purchase notice upon a change in
control shall state:
- the certificate numbers of the notes to be delivered by the
holder;
- the portion of the principal amount at maturity of notes to be
purchased, which portion must be $1,000 or an integral multiple of
$1,000; and
- that we are to purchase such notes pursuant to the applicable
provisions of the notes.
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Any such change in control purchase notice may be withdrawn by the
holder by a written notice of withdrawal delivered to the paying agent prior to
the close of business on the business day prior to the change in control
purchase date. The notice of withdrawal shall state:
- the principal amount at maturity being withdrawn;
- the certificate numbers of the notes being withdrawn; and
- the principal amount at maturity, if any, of the notes that remain
subject to a change in control purchase notice.
Payment of the change in control purchase price for a note for which a
change in control purchase notice has been delivered and not validly withdrawn
is conditioned upon delivery of the note, together with necessary endorsements,
to the paying agent at any time after the delivery of such change in control
purchase notice. Payment of this change in control purchase price for such note
will be made promptly following the later of the change in control purchase date
or the time of delivery of such note.
If the paying agent holds money sufficient to pay the change in control
purchase price of the note on the business day following the change in control
purchase date in accordance with the terms of the indenture, then immediately
after the change in control purchase date, cash interest or original issue
discount on the note will cease to accrue, whether or not the note is delivered
to the paying agent. Thereafter, all other rights of the holder shall terminate,
other than the right to receive the change in control purchase price upon
delivery of the note.
Under the indenture, a "change in control" of AFG is deemed to have
occurred upon the occurrence of any of the following:
- the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of our and our
subsidiaries' assets, taken as a whole, to any person or group; or
- the adoption of a plan relating to our liquidation or dissolution;
or
- the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is
that any person or group becomes the beneficial owner, directly or
indirectly, of more than 50% (other than the Lindner family and
their heirs, lineal descendants, legatees and legal
representatives of any of the foregoing and the trustee of any
bona fide trust of which one or more of the foregoing are the sole
beneficiaries or the grantors thereof, unless, after giving effect
to such transaction (1) our common stock ceases to be listed on a
United States national securities exchange or approved for
quotation on the Nasdaq National Market or any similar United
States system for automated dissemination of quotations of
securities prices or (2) less than 20% of the outstanding shares
of our common stock remain beneficially owned by persons other
than the Lindner family) of the voting power of our outstanding
voting stock; or
- the first day on which a majority of the members of our board of
directors are not continuing directors.
"Continuing directors" means any member of our board of directors who:
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- was a member of our board of directors on the date of original
issuance of the notes; or
- was nominated for election to our board of directors with the
approval of, or whose election to our board of directors was
ratified by, at least a majority of the continuing directors who
were members of our board of directors at the time of such
nomination or election.
The indenture does not permit our board of directors to waive our
obligation to purchase notes at the option of holders in the event of a change
in control.
In connection with any purchase offer in the event of a change in
control, we will:
- comply with the provisions of Rule 13e-4, Rule 14e-1 and any other
tender offer rules under the Exchange Act which may then be
applicable; and
- file Schedule TO or any other required schedule under the Exchange
Act.
The change in control purchase feature of the notes may, in certain
circumstances, make more difficult or discourage a takeover of AFG. The change
in control purchase feature, however, is not the result of our knowledge of any
specific effort:
- to accumulate shares of common stock;
- to obtain control of us by means of a merger, tender offer,
solicitation or otherwise; or
- part of a plan by management to adopt a series of anti-takeover
provisions.
Instead, the change in control purchase feature is a standard term
contained in securities similar to the notes that had been marketed by the
initial purchasers in previous offerings. The terms of the change in control
purchase feature resulted from negotiations between the initial purchasers and
us.
We could, in the future, enter into certain transactions, including
certain recapitalizations, that would not constitute a change in control with
respect to the change in control purchase feature of the notes but that would
increase the amount of our or our subsidiaries' outstanding indebtedness.
No notes may be purchased at the option of holders upon a change in
control if there has occurred and is continuing an event of default with respect
to the notes, other than a default in the payment of the change in control
purchase price with respect to the notes.
EVENTS OF DEFAULT AND ACCELERATION
The following are events of default under the indenture:
- default in the payment of any principal amount (including accrued
original issue discount) at maturity, redemption price, purchase
price, or change in control purchase price due with respect to the
notes, when the same become due and payable;
- default in payment of any interest under the notes, which default
continues for 30 days;
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- our or the guarantor's failure to comply with any of our or the
guarantor's other agreements in the notes or the indenture upon
our and the guarantor's receipt of notice of such default from the
trustee or our, the guarantor's and the trustee's receipt of
notice of such default from holders of not less than 25% in
aggregate principal amount at maturity of the notes, and our
failure to cure (or obtain a waiver of) such default within 60
days after we receive such notice;
- default in the payment of principal when due or resulting in
acceleration of other indebtedness of ours for borrowed money
where the aggregate principal amount with respect to which the
default or acceleration has occurred exceeds $10 million, and such
acceleration has not been rescinded or annulled within a period of
10 days after written notice to us and the guarantor by the
trustee or to us, the guarantor and the trustee by the holders of
at least 25% in principal amount at maturity of the notes;
- certain events of bankruptcy, insolvency or reorganization
affecting us or the guarantor; or
- except as permitted under the indenture, the guarantee is held in
any final, non-appealable judicial proceeding to be unenforceable
or invalid or shall cease for any reason to be in full force and
effect or the guarantor, or any person acting on behalf of the
guarantor, denies or disaffirms its obligations under the
guarantee.
If an event of default shall have happened and be continuing, either
the trustee or the holders of not less than 25% in aggregate principal amount at
maturity of the notes then outstanding may declare the issue price of the notes
plus the original issue discount on the notes accrued through the date of such
declaration, and any accrued and unpaid cash interest through the date of such
declaration, to be immediately due and payable. In the case of certain events of
bankruptcy or insolvency involving us or the guarantor, the issue price of the
notes plus the original issue discount accrued thereon, together with any
accrued and unpaid cash interest through the occurrence of such event, shall
automatically become and be immediately due and payable.
MERGERS AND SALES OF ASSETS
The indenture provides that we may not consolidate with or merge into
any person or convey, transfer or lease our properties and assets substantially
as an entity to another person unless:
- the resulting, surviving or transferee person is a corporation
organized and existing under the laws of the United States, any
state thereof or the District of Columbia, and such corporation
(if other than us) assumes all our obligations under the notes and
the indenture;
- after giving effect to the transaction no event of default, and no
event that, after notice or passage of time, would become an event
of default, has occurred and is continuing; and
- other conditions described in the indenture are met.
Upon the assumption of our obligations by such corporation in such
circumstances, subject to certain exceptions, we shall be discharged from all
obligations under the notes and the indenture. Although such transactions are
permitted under the indenture, certain of the foregoing transactions occurring
could constitute a change in control of AFG, permitting each holder to require
us to purchase the notes of such holder as described above.
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MODIFICATION
The trustee, AFG and AFC may modify or amend the indenture, the notes
or the guarantee with the consent of the holders of not less than a majority in
aggregate principal amount at maturity of the notes then outstanding. However,
the consent of the holders of each outstanding note would be required to:
- alter the manner of calculation or rate of accrual of original
issue discount or interest on any note or change the time of
payment;
- make any note payable in money or securities other than that
stated in the note;
- change the stated maturity of any note;
- reduce the principal amount at maturity, issue price, accrued
original issue discount, redemption price, purchase price or
change in control purchase price with respect to any note;
- make any change that adversely affects the rights of a holder to
convert any note;
- make any change that adversely affects the right to require us to
purchase a note;
- impair the right to institute suit for the enforcement of any
payment with respect to the notes or the guarantee or with respect
to conversion of the notes;
- release the guarantor from any of its obligations under the
guarantee or the indenture, except as permitted by the indenture;
or
- change the provisions in the indenture that relate to modifying or
amending the indenture.
Without the consent of any holder of notes, the trustee and we may
enter into supplemental indentures for any of the following purposes:
- to qualify or maintain the qualification of the Indenture under
the Trust Indenture Act;
- to evidence a successor to us or the guarantor and the assumption
by that successor of our obligations or the obligations of the
guarantor under the indenture and the notes and the guarantee, as
the case may be;
- to add to our covenants or the covenants of the guarantor for the
benefit of the holders of the notes or to surrender any right or
power conferred upon us or the guarantor;
- to secure our obligations in respect of the notes or the
obligations of the guarantor in respect of the guarantee;
- if permitted by the indenture, to release the guarantor from its
obligations under the guarantee and the indenture;
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- to cure any ambiguity or inconsistency in the indenture; or
- to make any change that does not adversely affect the rights of
any holder of the notes.
The holders of a majority in principal amount at maturity of the
outstanding notes may, on behalf of all the holders of all notes:
- waive compliance by us or the guarantor with restrictive
provisions of the indenture, as detailed in the indenture; or
- waive any past default under the indenture and its consequences,
except a default in the payment of the principal amount at
maturity, issue price, accrued and unpaid interest, accrued
original issue discount, redemption price, purchase price or
change in control purchase price or obligation to deliver common
stock upon conversion with respect to any note or in respect of
any provision which under the indenture cannot be modified or
amended without the consent of the holder of each outstanding note
affected.
DISCHARGE OF THE INDENTURE
We may satisfy and discharge our obligations under the indenture by
delivering to the trustee for cancellation all outstanding notes or by
depositing with the trustee, the paying agent or the conversion agent, if
applicable, after the notes have become due and payable, whether at stated
maturity or any redemption date, or any purchase date, or a change in control
purchase date, or upon conversion or otherwise, cash or shares of common stock
(as applicable under the terms of the indenture) sufficient to pay all of the
outstanding notes and paying all other sums payable under the indenture.
CALCULATIONS IN RESPECT OF NOTES
We will be responsible for making all calculations called for under the
notes. These calculations include, but are not limited to, determination of the
average market prices of the notes and of our common stock and amounts of
contingent cash interest payments, if any, payable on the notes. We will make
all these calculations in good faith and, absent manifest error, our
calculations will be final and binding on holders of notes. We will provide a
schedule of our calculations to the trustee, and the trustee is entitled to rely
upon the accuracy of our calculations without independent verification.
LIMITATIONS OF CLAIMS IN BANKRUPTCY
If a bankruptcy proceeding is commenced in respect of AFG, the claim of
a holder of a note is, under title 11 of the United States Code, limited to the
issue price of the note plus that portion of the original issue discount,
together with any unpaid cash interest or contingent cash interest, that has
accrued from the date of issue to the commencement of the proceeding.
GOVERNING LAW
The indenture and the notes will be governed by, and construed in
accordance with, the law of the State of New York.
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INFORMATION CONCERNING THE TRUSTEE
U.S. Bank National Association, a national banking association, will be
the trustee, registrar, paying agent and conversion agent under the indenture
for the notes. U.S. Bank serves in the same capacities with respect to other
outstanding debt of AFG and its subsidiaries. In addition, U.S. Bank is a lender
under AFC's multi-bank credit line.
BOOK-ENTRY SYSTEM
The notes will only be issued in the form of global securities without
coupons held in fully registered book-entry form. DTC or its nominee, Cede &
Co., will be the sole registered holder of the notes for all purposes under the
indenture. Owners of beneficial interests in the notes represented by the global
securities will hold their interests pursuant to the procedures and practices of
DTC. As a result, beneficial interests in any such securities will be shown on,
and may only be transferred through, records maintained by DTC and its direct
and indirect participants and any such interest may not be exchanged for
certificated securities, except in limited circumstances. Owners of beneficial
interests must exercise any rights in respect of their interests, including any
right to convert or require purchase of their interests in the notes, in
accordance with the procedures and practices of DTC. Beneficial owners will not
be holders and will not be entitled to any rights under the global securities or
the indenture. AFG, AFC and the trustee, and any of their respective agents, may
treat DTC as the sole holder and registered owner of the global securities.
EXCHANGE OF GLOBAL SECURITIES
Notes represented by a global security will be exchangeable for
certificated securities with the same terms only if:
- DTC is unwilling or unable to continue as depositary or if DTC
ceases to be a clearing agency registered under the Exchange Act
and a successor depositary is not appointed by us within 90 days;
- we decide to discontinue use of the system of book-entry transfer
through DTC (or any successor depositary); or
- a default under the indenture occurs and is continuing.
DTC has advised us as follows: DTC is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" 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
facilitates the settlement of transactions among its participants through
electronic computerized book-entry changes in participants' accounts,
eliminating the need for physical movement of securities certificates. DTC's
participants include securities brokers and dealers, including the initial
purchasers, banks, trust companies, clearing corporations and other
organizations, some of whom and/or their representatives, own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly.
REGISTRATION RIGHTS
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When we issued the notes, we and AFC entered into a registration rights
agreement with the initial purchasers pursuant to which we will, at our expense,
for the benefit of the holders, file with the SEC a shelf registration statement
covering resale of the notes and the shares of our common stock issued upon
conversion of the notes within 90 days after the first date of original issuance
of the notes. We agreed to use reasonable best efforts to cause the shelf
registration statement to become effective within 180 days of such first date of
original issuance, and to keep a shelf registration statement effective until
the earlier of (1) the sale pursuant to the shelf registration statement of all
the notes and the shares of common stock issuable upon conversion of the notes
and (2) the expiration of the holding period applicable to such securities held
by persons that are not affiliates of AFG under Rule 144(k) under the Securities
Act, or any successor provision, subject to certain permitted exceptions. We
will be permitted to suspend the use of a prospectus that is part of a shelf
registration statement under certain circumstances relating to corporate
developments, public filings with the SEC and similar events for a period not to
exceed 30 days in any three- month period and not to exceed an aggregate of 60
days in any 12-month period.
In the registration rights agreement, we and AFC have agreed to pay
predetermined liquidated damages as described herein ("liquidated damages") to
holders of the notes and holders of shares of common stock issuable upon
conversion of the notes if a shelf registration statement is not timely filed or
made effective or if the prospectus is unavailable for the periods in excess of
those permitted above. Such liquidated damages shall accrue until such failure
to file or become effective or unavailability is cured, (i) in respect of any
notes, at a rate per year equal to 0.25% for the first 90 day period after the
occurrence of such event and 0.5% thereafter of the applicable principal amount
(as defined below) thereof and, (ii) in respect of any shares of common stock
issued upon conversion at a rate per year equal to 0.25% for the first 90 day
period and 0.5% thereafter of the then applicable conversion price (as defined
below). So long as the failure to file or become effective or unavailability
continues, we and AFC will pay liquidated damages in cash on June 2 and December
2 of each year to the holders of record of the notes or shares of common stock
on the immediately preceding May 18 or November 17. When such registration
default is cured, accrued and unpaid liquidated damages will be paid in cash to
the record holder as of the date of such cure.
A holder who sells notes and shares of common stock issued upon
conversion of the notes pursuant to the shelf registration statement generally
will be required to be named as a selling securityholder in the related
prospectus, deliver a prospectus to purchasers and be bound by certain
provisions of the registration rights agreement that are applicable to such
holder, including certain indemnification provisions. We will pay all expenses
of a shelf registration statement, provide to each registered holder copies of
such prospectus, notify each registered holder when the shelf registration
statement has become effective and take certain other actions as are required to
permit, subject to the foregoing, unrestricted resales of the notes and the
shares of common stock issued upon conversion of the notes.
The term "applicable principal amount" means, as of any date of
determination, with respect to each $1,000 principal amount at maturity of
notes, the sum of the initial issue price of such notes plus accrued original
issue discount and any accrued cash interest with respect to such notes through
such date of determination or, if no notes are then outstanding, such sum
calculated as if such notes were then outstanding.
The term "applicable conversion price" means, as of any date of
determination, the applicable principal amount per $1,000 principal amount at
maturity of notes as of such date of determination
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divided by the conversion rate in effect as of such date of determination or, if
no notes are then outstanding, the conversion rate that would be in effect were
notes then outstanding.
We agreed in the registration rights agreement to give notice to all
holders of the filing and effectiveness of a shelf registration statement by
release made to Reuters Economic Services and Bloomberg Business News or other
reasonable means of distribution. We have sent holders a notice and
questionnaire (the "questionnaire") to be completed and delivered by a holder to
us at least five business days prior to any intended distribution of notes and
our shares of common stock issuable in respect of the notes pursuant to a shelf
registration statement. Holders are required to complete and deliver the
questionnaire prior to the effectiveness of a shelf registration statement so
that such holder may be named as a selling security holder in the related
prospectus. Upon receipt of such a completed questionnaire, together with such
other information as may be reasonably requested by us or AFC, from a holder
following the tenth business day prior to effectiveness of the shelf
registration statement, we and AFC will, as promptly as reasonably practicable,
but in any event, no later than five Business Days after receipt of such
completed questionnaire and any other information reasonably requested by us or
AFC, file such amendments to a shelf registration statement, additional
registration statements or supplements to a related prospectus as are necessary
to permit such holder to deliver such prospectus to purchasers of notes and our
shares of common stock issuable upon conversion of the notes, subject to our
right to suspend the use of the prospectus as described above. In addition, we
and AFC shall use our reasonable best efforts to cause any post-effective
amendments to a shelf registration statement or additional registration
statements, as the case may be, to be declared effective under the Securities
Act as promptly as is reasonably practicable, but in any event by the date that
is thirty days after the date such post-effective amendment or additional
registration statement, as the case may be, is required by the registration
rights agreement to be filed. Notwithstanding the foregoing, if a post-effective
amendment or an additional registration statement is required to be filed by the
rules and regulations of the SEC in order to permit resales by holders
submitting questionnaires after the last date pursuant to which notes and shares
of common stock issuable in respect of the notes may be included in the initial
registration statement, neither we nor AFC shall be required to file more than
one post-effective amendment or additional registration statement for such
purpose in any thirty day period. As a result, a holder submitting a
questionnaire after such date may experience additional delay prior to being
able to effect resales of notes or common stock pursuant to a shelf registration
statement. Any holder that does not complete and deliver a questionnaire or
provide such other information as may be reasonably requested will not be named
as a selling security holder in the prospectus and therefore will not be
permitted to sell the notes or our shares of common stock issuable upon
conversion of the notes pursuant to any shelf registration statement.
To the extent that any holder of registrable securities is deemed to be
an "underwriter" within the meaning of the Securities Act, such holder may be
subject to certain liabilities under the federal securities laws for
misstatements and omissions contained in a registration statement and any
related prospectus. To the extent that any holder of registrable securities
identified in any shelf registration statement is a broker-dealer, or is an
affiliate of a broker-dealer that did not acquire its registrable securities in
the ordinary course of its business or that at the time of its purchase of
registrable securities had an agreement or understanding, directly or
indirectly, with any person to distribute the registrable securities, we
understand that the SEC may take the view that such holder is, under the SEC's
interpretations, an "underwriter" within the meaning of the Securities Act.
THIS SUMMARY OF CERTAIN PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT
IS SUBJECT TO, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, ALL THE
PROVISIONS OF THE REGISTRATION RIGHTS AGREEMENT, A COPY OF WHICH IS AVAILABLE
UPON REQUEST TO US.
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DESCRIPTION OF OUR OTHER HOLDING COMPANY INDEBTEDNESS
AFG 7.125% NOTES DUE 2007 AND 2009
In December 1997 and April 1999, we issued 10-year 7.125% notes.
Interest is payable semi-annually with principal due at maturity. There were
$79.6 million in such debentures due December 2007 and $302.9 million (face
amount) due April 2009 outstanding at March 31, 2003. The notes are guaranteed
by AFC. The guarantee of AFC in respect of the notes offered hereby will rank
pari passu with AFC's guarantee of the 7.125% notes. See "Description of Notes
- -- Notes Guarantee."
AFC REVOLVING LINE OF CREDIT
We may borrow up to $280 million under AFC's unsecured, multi-bank
credit line. The bank line consists of two facilities: a 364-day revolving
facility, extendable annually, for one-third of the total line and a three-year
revolving facility for the remaining two-thirds. Amounts borrowed bear interest
at rates ranging from 1.25% to 2.25% over LIBOR based on AFG's credit rating.
The facilities mature November 25, 2005. Both AFG and AFC Holding Co. are
guarantors under the bank line. The bank line was repaid in June 2003 from the
proceeds from sale of the notes.
OTHER HOLDING COMPANY INDEBTEDNESS
At March 31, 2003, there were $10.7 million face amount of American
Premier Underwriters' 10.875% Subordinated Notes Due 2011 outstanding. These
notes pay interest semi-annually with principal due at maturity. AFC had $8.2
million in miscellaneous notes payable outstanding at March 31, 2003. Interest
charges on these notes currently range from 6.5% to 9%.
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DESCRIPTION OF OUR CAPITAL STOCK
The following is a summary of the provisions of Ohio General
Corporation Law and our Articles of Incorporation and Regulations which govern
the terms of our common stock.
COMMON STOCK
We are incorporated under the laws of the State of Ohio. The total
number of authorized shares of common stock is 200,000,000. Holders of common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of shareholders. Holders of common stock have the right to
cumulate their votes in the election of directors but are not entitled to any
preemptive rights.
Subject to restrictions under agreements related to our indebtedness
and to preferences which may be granted to holders of preferred stock, holders
of common stock are entitled to the share of such dividends as board of
directors, in its discretion, may validly declare from funds legally available.
In the event of liquidation, each outstanding share of common stock entitles its
holder to participate ratably in the assets remaining after the payment of
liabilities and any preferred stock liquidation preferences.
As of May 31, 2003, there were 69,596,409 shares of common stock issued
and outstanding, including 1,361,711 shares held by a subsidiary for
distribution to certain creditors. Shares of common stock carry no conversion
subscription rights and are not subject to redemption. All outstanding shares of
common stock are, and any shares of common stock issued upon conversion of any
convertible securities will be, fully paid and nonassessable.
The affirmative vote of the holders of a majority of the outstanding
shares of common stock is required to amend the Articles of Incorporation and to
approve mergers, reorganizations, share exchanges and similar transactions.
We act as our own transfer agent and registrar.
PREFERRED STOCK
Our Articles of Incorporation authorize 12,500,000 shares of voting
preferred stock and 12,500,000 of nonvoting preferred stock which may be issued
from time to time in series that have been designated preferences, rights,
qualifications and limitations that the board of directors, in its sole
discretion, may determine no shares hereby issued. The board of directors can
give preferred stock both voting and conversion rights which would affect the
voting power and equity of holders of common stock. Preferred stock could also
have preference to common stock with respect to dividend and liquidation rights.
The preferred stock could have the effect of acting as an anti-takeover device
to prevent a change of control of AFG. No shares of preferred stock have been
issued.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
GENERAL
The following is a summary of certain material United States federal
income tax consequences relevant to holders of the notes and, where noted,
common stock issuable upon conversion or repurchase of the notes. Our special
tax counsel, Akin Gump Strauss Hauer & Feld LLP has delivered an opinion to us
regarding many of these issues and has also rendered an opinion that this
discussion of "Material United States Federal Income Tax Consequences" is true,
correct and complete in all material respects. This summary is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), administrative
pronouncements, judicial decisions and existing and proposed Treasury
regulations now in effect, all of which are subject to change (possibly with
retroactive effect) or differing interpretations. The discussion below deals
only with notes and common stock held as capital assets and does not purport to
deal with persons in special tax situations, such as financial institutions,
insurance companies, regulated investment companies, dealers in securities or
currencies, traders in securities that elect to use a mark to market system of
tax accounting for their securities holdings, partnerships or other entities
classified as partnerships for United States federal income tax purposes,
tax-exempt entities, persons holding notes in a tax-deferred or tax-advantaged
account, persons who hold the notes whose functional currency is not the United
States dollar or persons holding notes as a hedge against currency risks, as a
position in a "straddle" or as part of a "hedge," "conversion" or other
risk-reduction transaction for tax purposes. It also is primarily concerned with
original purchasers of notes who acquire the notes at the issue price (as
defined below). Persons considering the purchase of the notes should consult
their own tax advisors concerning the application of the United States federal
income tax laws to their particular situations as well as any consequences of
the purchase, ownership and disposition of the notes or common stock arising
under the laws of any state, local, foreign or other taxing jurisdiction.
We do not address all of the tax consequences that may be relevant to a
holder of notes. In particular, we do not address:
- the United States federal income tax consequences to shareholders
in, or partners or beneficiaries of, an entity that is a holder of
notes or common stock;
- the United States federal estate, gift or alternative minimum tax
consequences of the purchase, ownership or disposition of notes or
common stock; and
- any state, local or foreign tax consequences of the purchase,
ownership or disposition of notes or common stock.
No statutory or judicial authority directly addresses the treatment of
all aspects of the notes for United States federal income tax purposes. The IRS
has recently published a Revenue Ruling with respect to instruments similar to
the notes. This Revenue Ruling supports certain aspects of the treatment
described below. No ruling has been or is expected to be sought from the IRS
with respect to the United States federal income tax consequences of the issues
that are not addressed in the published Revenue Ruling. The IRS would not be
precluded from taking contrary positions as to such issues. As a result, no
assurance can be given that the IRS or a court will agree with all of the tax
characterizations and the tax consequences described below.
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WE URGE PROSPECTIVE INVESTORS TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NOTES AND COMMON STOCK IN LIGHT OF THEIR OWN PARTICULAR
CIRCUMSTANCES, 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.
CLASSIFICATION OF THE NOTES
The notes will be treated as indebtedness for United States federal
income tax purposes subject to the contingent debt regulations. Pursuant to the
terms of the indenture, we and every holder agree (in the absence of
administrative pronouncement or judicial ruling to the contrary), for United
States federal income tax purposes, to treat the notes as debt instruments that
are subject to the contingent debt regulations and to be bound by our
application of the contingent debt regulations to the notes, including generally
our determination of the rate at which interest will be deemed to accrue on the
notes and the related "projected payment schedule" determined by us as described
below.
Notwithstanding the issuance of the previously referenced Revenue
Ruling, the proper application of the contingent debt regulations to the notes
is not entirely certain, and no assurance can be given that the IRS will not
assert that the notes should be treated differently. A different treatment from
that described below could affect the amount, timing, source and character of
income, gain or loss with respect to an investment in the notes. In particular,
a holder might be required to accrue interest income at a higher or lower rate,
might not recognize income, gain or loss upon conversion of a note into common
stock, and might recognize capital gain or loss upon a taxable disposition of a
note. Holders should consult their tax advisors concerning the tax treatment of
holding a note.
The remainder of this discussion assumes that the notes are treated as
indebtedness subject to the contingent debt regulations.
UNITED STATES HOLDERS
For purposes of this discussion, a United States Holder is a beneficial
owner of the notes or common stock who or which is:
- a citizen or individual resident of the United States for United
States federal income tax purposes;
- a corporation, including any entity treated as a corporation for
United States federal income tax purposes, created or organized in
or under the laws of the United States, any state thereof or the
District of Columbia;
- an estate if its income is subject to United States federal income
taxation regardless of its source; or
- a trust if (1) a United States court can exercise primary
supervision over its administration and (2) one or more United
States persons have the authority to control all of its
substantial decisions.
Notwithstanding the preceding sentence, certain trusts in existence on August
20, 1996 and treated as United States persons prior to such date that elect to
be treated as domestic trusts under the applicable
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Treasury regulations will also be treated as United States Holders if they are
beneficial owners of the notes or common stock.
Accrual of Interest on the Notes
Pursuant to the contingent debt regulations, United States Holders of
the notes will be required to accrue interest income on the notes on a
constant-yield basis, as described below, regardless of whether such holders use
the cash or accrual method of tax accounting. Accordingly, United States Holders
will be required to include interest in income each year in excess of the
accruals on the notes for non-tax purposes and in excess of any interest
payments actually received in that year.
The contingent debt regulations provide that a United States Holder
must accrue an amount of ordinary interest income, as original issue discount
for United States federal income tax purposes, for each accrual period prior to
and including the maturity date of the notes that equals:
1. the product of (i) the adjusted issue price (as defined below)
of the notes as of the beginning of the accrual period and (ii) the comparable
yield to maturity (as defined below) of the notes, adjusted for the length of
the accrual period;
2. divided by the number of days in the accrual period; and
3. multiplied by the number of days during the accrual period
that the United States Holder held the notes.
A note's issue price is the first price at which a substantial amount
of the notes is sold to the public, excluding sales to bond houses, brokers or
similar persons or organizations acting in the capacity of underwriters,
placement agents or wholesalers. The adjusted issue price of a note is its issue
price increased by any interest income previously accrued, determined without
regard to any adjustments to interest accruals described below, and decreased by
the projected amount of any payments previously made with respect to the notes.
The term "comparable yield" means the annual yield we would pay, as of
the initial issue date of the notes, on a fixed-rate, nonconvertible debt
security with no contingent payments, but with terms and conditions otherwise
comparable to those of the notes. We intend to take the position that the
comparable yield for the notes is 9.265%, compounded semiannually. The precise
manner of calculating the comparable yield is not entirely clear and is more
susceptible to challenge if the notes are marketed or sold in substantial part
to persons for whom the inclusion of interest is not expected to have
substantial effect on their United States federal tax liability.
The contingent debt regulations require that we provide to United
States Holders, solely for United States federal income tax purposes, a schedule
of the projected amounts of payments (to which we refer as "projected payments")
on the notes. This schedule must produce a yield to maturity that equals the
comparable yield. The projected payment schedule includes estimates for certain
contingent interest payments and an estimate for a payment at maturity taking
into account the conversion feature. In this connection, the fair market value
of any common stock (and cash, if any) received by a holder upon conversion will
be treated as a contingent payment. The comparable yield and the projected
payment schedule will be set forth in the indenture. United States Holders also
may obtain the projected payment schedule by submitting a written request for
such information to us at: American Financial Group, Inc., One East Fourth
Street, Cincinnati, Ohio, 45202.
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For United States federal income tax purposes, a United States Holder
must use the comparable yield and the projected payment schedule in the
indenture in determining its interest accruals and the adjustments thereto
(described below) in respect of the notes unless such United States Holder
timely discloses and justifies the use of other estimates to the IRS on its
federal income tax return for the year including its acquisition date of the
note. A United States Holder that determines its own comparable yield or
projected payment schedule also must establish that our comparable yield or
projected payment schedule is unreasonable.
The comparable yield and the projected payment schedule are not used
for any purpose other than to determine a holder's interest accruals and
adjustments thereto in respect of the notes for United States federal income tax
purposes. They do not constitute a projection or representation regarding the
actual amounts payable on the notes or the value at any time of the common stock
into which the notes may be converted.
Adjustments to Interest Accruals on the Notes
If, during any taxable year, a United States Holder of notes receives
actual payments with respect to such notes that, in the aggregate, exceed the
total amount of projected payments for that taxable year, the United States
Holder will incur a "net positive adjustment" under the contingent debt
regulations equal to the amount of such excess. The United States Holder will
treat a "net positive adjustment" as additional interest income. For this
purpose, the payments in a taxable year include the fair market value of
property (including common stock received upon conversion or repurchase of the
notes) received in that year.
If a United States Holder receives in a taxable year actual payments
with respect to the notes that, in the aggregate, are less than the amount of
projected payments for that taxable year, the United States Holder will incur a
"net negative adjustment" under the contingent debt regulations equal to the
amount of such deficit. This negative adjustment will (a) reduce the United
States Holder's interest income on the notes for that taxable year, and (b) to
the extent of any excess after the application of (a), give rise to an ordinary
loss to the extent of the United States Holder's interest income on the notes
during prior taxable years, reduced to the extent such interest was offset by
prior net negative adjustments. Any negative
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adjustment in excess of the amounts described in (a) and (b) will be carried
forward to offset future interest income with respect to the notes or to reduce
the amount realized on a sale, exchange, conversion or retirement of the notes.
A net negative adjustment is not subject to the two percent floor
limitation imposed on miscellaneous deductions under Section 67 of the Code. If
a United States holder purchases the notes at a discount or premium to the
adjusted issue price from an existing holder of the notes, the discount will be
treated as a positive adjustment and the premium will be treated as a negative
adjustment. The United States holder must reasonably allocate the adjustment to
daily portions of interest or projected payments over the remaining term of the
notes. Holders should consult their tax advisors regarding those allocations.
Sale, Exchange, Conversion or Redemption of Notes
Generally, the sale or exchange of a note or the redemption of a note
for cash will result in taxable gain or loss to a United States Holder. As
described above, our calculation of the projected payment schedule for the
notes, which generally is binding on holders of notes, includes the receipt of
stock upon conversion as a contingent payment with respect to the notes.
Accordingly, we will treat the receipt of common stock by a United States Holder
upon (a) the conversion of a note or (b) a United States Holder's exercise of a
put right that we elect to pay in common stock as a payment under the contingent
debt regulations. So viewed, a conversion of a note into common stock, or a
repurchase where we elect to pay in common stock, also will result in taxable
gain or loss to a United States Holder.
The amount of gain or loss on a sale, exchange, conversion or
redemption will be equal to the difference between (a) the amount of cash plus
the fair market value of any other property received by the United States
Holder, including the fair market value of any common stock received, and (b)
the United States Holder's adjusted tax basis in the note.
A United States Holder's adjusted tax basis in a note generally will be
equal to the United States Holder's original purchase price for the note,
increased by any interest income previously accrued by the United States Holder
(determined without regard to any adjustments to interest accruals described
above) and decreased by the amount of any projected payments that previously
have been scheduled to be made in respect of the notes (without regard to the
actual amount paid).
Gain recognized upon a sale, exchange, conversion or redemption of a
note generally will be treated as ordinary interest income; any loss will be
ordinary loss to the extent of interest previously included in income, and
thereafter capital loss (which will be long-term if the note is held for more
than one year). The deductibility of capital losses is subject to limitations.
A United States Holder's tax basis in common stock received upon a
conversion of a note, or upon a United States Holder's exercise of a put right
that we elect to pay in common stock, will equal the then current fair market
value of such common stock. The United States Holder's holding period for the
common stock received will commence on the day immediately following the date of
conversion or repurchase.
Constructive Dividends to Holders of Notes
If at any time we were to make a distribution of property to our
stockholders that would be taxable to the stockholders as a dividend for United
States federal income tax purposes and, in accordance with the anti-dilution
provisions of the notes, the conversion rate of the notes were increased, such
increase might be deemed to be the payment of a taxable dividend to holders of
the notes to the extent of current or accumulated earnings and profits as of the
year of distribution of the property.
For example, an increase in the conversion rate in the event of
distributions of our evidences of indebtedness or our assets or an increase in
the event of an extraordinary cash dividend generally would result in deemed
dividend treatment to holders of the notes, but an increase in the event of
stock dividends or the distribution of rights to subscribe for common stock
generally would not.
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Dividends on Common Stock
If we make distributions on our common stock, the distributions
generally will be treated as dividends to a United States Holder of our common
stock to the extent of our current or accumulated earnings and profits as of the
year of distribution, then as tax-free return of capital to the extent of the
United States Holder's adjusted tax basis in the common stock and thereafter as
gain from the sale or exchange of that stock.
Under the Jobs and Growth Tax Reconciliation Act of 2003, dividends may
be taxable to United States Holders who are individuals at a reduced rate of 15
percent (or, in some cases, a lower rate) through 2008, if holding period
requirements are satisfied.
Disposition of Common Stock
Upon the disposition of common stock received on conversion or
repurchase of a note, a United States Holder generally will recognize capital
gain or loss equal to the difference between (i) the amount of cash and the fair
market value of any property received upon the sale or exchange and (ii) the
United States Holder's adjusted tax basis in the common stock. That capital gain
or loss will be long-term if the United States Holder's holding period is more
than one year. The deductibility of capital losses is subject to limitations.
NON-UNITED STATES HOLDERS
As used herein, the term "Non-United States Holder" means a beneficial
holder of a note or common stock that is, for United States federal income tax
purposes:
- an individual who is classified as a nonresident alien for United
States federal income tax purposes;
- a foreign corporation; or
- an estate or trust that is not a United States estate or trust, as
described above.
Notes
Payments of interest on the notes made to a Non-United States Holder,
including a payment in common stock pursuant to a conversion, and any gain
realized on a sale or exchange of the notes, will be exempt from United States
income or withholding tax, provided that: (i) such Non-United States Holder does
not own, actually or constructively, 10% or more of the total combined voting
power of all classes of our stock entitled to vote, is not a controlled foreign
corporation related, directly or indirectly, to us through stock ownership, and
is not a bank receiving certain types of interest; (ii) the statement
requirement set forth in section 871(b) or section 881(c) of the Code has been
fulfilled with respect to the beneficial owner, as discussed below; (iii) such
payments and gain are not effectively connected with the conduct by such
Non-United States Holder of a trade or business in the United States; (iv) our
common stock continues to be actively traded within the meaning of section
871(h)(4)(C)(v)(I) of the Code (which, for these purposes and subject to certain
exceptions, includes trading on the New York Stock Exchange); and (v) we are not
and have not been a United States real property holding corporation ("USRPHC").
We believe that we are not and have never been, nor do we anticipate becoming, a
USRPHC. However, if a Non-United States Holder of a note were deemed to have
received a constructive dividend (see "United
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States Holders -- Constructive Dividends to Holders of Notes" above), the
Non-United States Holder generally would be subject to United States withholding
tax at a 30% rate, subject to reduction by an applicable treaty, on the taxable
amount of such dividend. Moreover, absent additional guidance from the IRS, we
intend to treat the receipt by a Non-United States Holder of liquidated damages
as described under "Description of Notes -- Registration Rights" and "Material
United States Federal Income Tax Consequences -- Accrual of Interest on the
Notes" as subject to United States withholding tax, subject to reduction by an
applicable treaty.
The statement requirement referred to in the preceding paragraph will
be fulfilled if the beneficial owner of a note certifies on IRS Form W-8BEN,
under penalties of perjury, that it is not a United States person and provides
its name and address or otherwise satisfies applicable documentation
requirements.
Common Stock
Dividends paid to a Non-United States Holder of common stock generally
will be subject to withholding tax at a 30% rate subject to reduction (a) by an
applicable treaty if the Non-United States Holder provides an IRS Form W-8BEN
certifying that it is entitled to such treaty benefits or (b) upon the receipt
of a Form W-8ECI from a Non-United States Holder claiming that the payments are
effectively connected with the conduct of a United States trade or business.
A Non-United States Holder generally will not be subject to United
States federal income tax on gain realized on the sale or exchange of common
stock unless (a) the gain is effectively connected with the conduct of a trade
or business of the Non-United States Holder, (b) in the case of a Non-United
States Holder who is a nonresident alien individual, the individual is present
in the United States for 183 or more days in the taxable year of the disposition
and certain other conditions are met, or (c) we are or have been a USRPHC. We
believe that we are not and have never been, nor do we anticipate becoming, a
USRPHC.
Income Effectively Connected with a United States Trade or Business
If a Non-United States Holder of notes or common stock is engaged in a
trade or business in the United States, and if interest on the notes, dividends
on the stock, or gain realized on the sale or exchange of the notes or common
stock is effectively connected with the conduct of such trade or business, the
Non-United States Holder, although exempt from the withholding tax discussed in
the preceding paragraphs, will generally be subject to regular United States
federal income tax on interest, dividends and any gain realized on the sale or
exchange (and, with respect to the notes, conversion of the notes into common
stock) of the notes or common stock in the same manner as if it were a United
States Holder. Such a Non-United States Holder would be required to provide to
the withholding agent a properly executed IRS Form W-8ECI (or successor form) in
order to claim an exemption from withholding tax. In addition, if such a
Non-United States Holder is a foreign corporation, such holder may be subject to
a branch profits tax equal to 30% (or such lower rate provided by an applicable
treaty) of its effectively connected earnings and profits for the taxable year,
subject to certain adjustments.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING
Payments of principal, premium, if any, and interest (including
original issue discount and a payment in common stock pursuant to a conversion
of a note) on the notes, payments on the common stock, and the proceeds of
dispositions of the notes or common stock may be subject to information
reporting and United States federal backup withholding tax if the United States
Holder thereof fails to
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supply an accurate taxpayer identification number or otherwise fails to comply
with applicable United States information reporting or certification
requirements. A Non-United States Holder may be subject to United States backup
withholding tax on payments on the notes or common stock and the proceeds from a
sale or other disposition of the notes or common stock unless the Non-United
States Holder complies with certification procedures to establish that it is not
a United States person. Any amounts so withheld will be allowed as a credit
against a United States Holder's United States federal income tax liability and
may entitle a holder to a refund, provided the required information is timely
furnished to the IRS.
ERISA MATTERS
We have insurance company subsidiaries that provide services to many
employee benefit plans. We and any of our direct or indirect subsidiaries may
each be considered a "party in interest" within the meaning of the Employee
Retirement Income Security Act of 1974 ("ERISA"), and a "disqualified person"
under corresponding provisions of the Internal Revenue Code of 1986 (the
"Code"), relating to many employee benefit plans. "Prohibited Transactions"
within the meaning of ERISA and the Code may result if any offered securities
are acquired by an employee benefit plan as to which we or any of our direct or
indirect subsidiaries is a party in interest, unless such offered securities are
acquired pursuant to an applicable exemption. Accordingly, each purchaser and
each transferee using the assets of a plan subject to ERISA or Section 4975 of
the Code to acquire the offered securities will be deemed to have represented
that the acquisition and continued holding of the offered securities will be
covered by a Department of Labor prohibited transaction class exemption. Any
employee benefit plan or other entity to which such provisions of ERISA or the
Code apply proposing to acquire the offered securities should consult with its
legal counsel.
SELLING SECURITYHOLDERS
The notes originally were issued by us and sold by Merrill Lynch,
Pierce, Fenner & Smith Incorporated, UBS Securities LLC and Credit Suisse First
Boston LLC, as the initial purchasers, in transactions exempt from the
registration requirements of the Securities Act of 1933 to persons reasonably
believed by the initial purchasers to be qualified institutional buyers. Selling
securityholders, including their transferees, pledges or donees or their
successors, may from time to time offer and sell any or all of the notes and the
common stock into which the notes are convertible pursuant to this prospectus.
The selling securityholders may offer all, some or none of the notes
and the common stock.
The table below sets forth the name of each selling securityholder, the
principal amounts of notes that may be offered by each selling securityholder
under this prospectus and the number of shares of common stock into which the
notes are convertible. The information is based on information provided to us by
or on behalf of the selling securityholders on or prior to ________ __, 2003.
The selling securityholders identified below may have sold, transferred or
otherwise disposed of all or a portion of their notes or common stock since the
date on which they provided this information in transactions exempt from the
registration requirements of the Securities Act. Information about the selling
securityholders may change from time to time. Any changed information will be
set forth in prospectus supplements or post-effective amendments, as required.
Because the selling securityholders may offer all or some portion of
the notes or the common stock into which the notes are convertible, we cannot
estimate the amount of notes or common stock that may be held by the selling
securityholders upon the completion of any sales. For information on the
procedure for sales by selling securityholders, read the disclosure under the
heading "Plan of Distribution" below.
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Principal Amount Number of Percentage
of Notes Shares of Number of Shares of Common
Beneficially Percentage of Common Stock of Common Stock Stock
Name of Selling Owned That May Be Notes Beneficially That May Be Outstanding
Securityholder Sold Outstanding Owned(2) Sold(3)(4) (5)
- ------------------- ----------------- ------------- ------------ ---------------- -----------
Bear, Stearns & $ 5,000,000 *% 0 57,508 *%
Co. Inc.
B.G.I. Global 296,000 * 0 3,404 *
Investors
Boston Safe 6,000,000 * 0 69,009 *
Deposit and Trust
Company
Forest Fulcrum 728,000 * 0 8,373 *
Fund L.L.P.
Forest Global 3,600,000 * 0 41,405 *
Convertible Fund
Series A-5
Forest 432,000 * 0 4,968 *
Multi-Strategy
Master Fund SPC,
on behalf of
Series F
Multi-Strategy
Segregated
Portfolio
Gasner Investors 2,800,000 * 0 32,204 *
Holdings Ltd.
KBC Convertible 15,831,200 3.1 0 182,084 *
Arbitrage Fund
KBC Convertible 1,439,200 * 0 16,553 *
Mac 28 Ltd.
Lyxor Master Fund 1,584,000 * 0 18,218 *
Melody IAM Ltd. 719,000 * 0 8,269 *
Nomura Securities 12,000,000 2.3 0 138,019 *
International Inc.
Peoples Benefit 10,500,000 * 0 120,766 *
Life Insurance
Company
RBC Alternative 280,000 * 0 3,220 *
Assets LP
Relay 11 Holdings 144,000 * 0 1,656 *
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Holdings
SAC Capital 1,300,000 * 100 14,952 *
Associates, LLC
St. Albans 10,500,000 * 0 120,766 *
Partners Ltd.
Sphinx 72,000 * 0 828 *
Convertible
Arbitrage
White River 5,000,000 * 0 57,508 *
Securities LLC
Xavex-Convertible 120,000 * 0 1,380 *
Arbitrage 4 Fund
Zurich Master 464,000 * 0 5,336 *
Hedge Fund
Total
========= ============= ============ ================ ===========
- -------------------
* Less than 1%
(1) Also includes any sale of the notes and the underlying common stock by
pledgees, donees, transferees or other successors in interest that receive
such securities by pledge, gift, distribution or other non-sale related
transfer from the named selling securityholders. Information about other
selling securityholders will be set forth in future prospectus supplements
or in other documents that we file from time to time with the Securities
and Exchange Commission that are incorporated by reference in the
prospectus, if required. See "Where You Can Find More Information" in this
prospectus.
(2) Excludes common stock issuable upon conversion of the selling
securityholder's notes.
(3) Assumes conversion of all of the selling securityholder's notes at a
conversion rate of 11.5016 shares of common stock per $1,000 aggregate
principal amount of notes and a cash payment in lieu of the issuance of any
fractional share interest. However, this conversion rate is subject to
adjustment as described under "Description of the Notes--Conversion Rights"
in the prospectus. As a result, the number of shares of common stock
issuable upon conversion of the notes may increase or decrease in the
future.
(4) Reflects rounding down of fractional shares of common stock issuable to
each selling securityholder upon conversion of the notes.
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(5) Does not include shares of common stock issuable upon conversion of notes.
None of the selling securityholders listed above has, or within the
past three years had, any position, office or any material relationship with us
or any of our affiliates.
To the extent that any of the selling securityholders identified above
are broker-dealers, they are deemed to be, under interpretations of the
Securities and Exchange Commission, "underwriters" within the meaning of the
Securities Act.
With respect to selling securityholders that are affiliates of
broker-dealers, we believe that such entities acquired their notes or underlying
common stock in the ordinary course of business and, at the time of the purchase
of the notes or the underlying common stock, such selling securityholders had no
agreements or understandings, directly or indirectly, with any person to
distribute the notes or underlying common stock. To the extent that we become
aware that such entities did not acquire their notes or underlying common stock
in the ordinary course of business or did have such an agreement or
understanding, we will file a post-effective amendment to the registration
statement of which this prospectus forms a part to designate such affiliate as
an "underwriter" within the meaning of the Securities Act.
Only selling securityholders identified above who beneficially own the
notes set forth opposite each such selling securityholder's name in the
foregoing table on the effective date of the registration statement, of which
this prospectus forms a part, may sell such securities pursuant to the
registration statement. Prior to any use of this prospectus in connection with
an offering of the notes or the underlying common stock by any holder not
identified above, this prospectus will be supplemented to set forth the name and
aggregate amount of notes beneficially owned by the selling securityholder
intending to sell such notes or the underlying common stock and the aggregate
amount of notes or the number of shares of the underlying common stock to be
offered. The prospectus, as supplemented, will also disclose whether any selling
securityholder selling in connection with such prospectus has held any position
or office with, has been employed by or otherwise has had a material
relationship with us during the three years prior to the date of the prospectus
if such information has not been disclosed herein.
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PLAN OF DISTRIBUTION
The notes and the underlying common stock are being registered to
permit the resale of such securities by the holders of them from time to time
after the date of this prospectus. We will not receive any of the proceeds from
the sale by the selling securityholders of the notes and common stock. We will
bear the fees and expenses incurred in connection with our obligation to
register the notes and the underlying common stock. These fees and expenses
include registration and filing fees, printing and duplications expenses, fees
and disbursements of our counsel, reasonable fees and disbursements of the
trustee and its counsel and of the registrar and transfer agent for the common
stock, and fees and disbursements of one firm of legal counsel for the
securityholders. However, the selling securityholders will pay all underwriting
discounts, commissions and agent's commissions, if any. The selling
securityholders may offer and sell the notes and the common stock into which the
notes are convertible from time to time in one or more transactions at fixed
prices, at prevailing market prices at the time of sale, at varying prices
determined at the time of sale or at negotiated prices.
Such sales may be effected by a variety of methods, including the
following:
- in market transactions;
- in privately negotiated transactions;
- through the writing of options;
- in a block trade in which a broker-dealer will attempt to sell a
block of securities as agent but may position and resell a portion
of the block as principal to facilitate the transaction;
- if we agree to it prior to the distribution, through one or more
underwriters on a firm commitment or best-efforts basis;
- through broker-dealers, which may act as agents or principals;
- directly to one or more purchasers;
- on the NYSE, with respect to common stock acquired upon the
conversion of notes;
- through agents; or
- in any combination of the above or by any other legally available
means.
In connection with the sales of the notes and the common stock into
which the notes are convertible or otherwise, the selling securityholders may
enter into hedging transactions with broker-dealers, which may in turn engage in
short sales of the offered securities, short and deliver the notes and the
common stock into which the notes are convertible to close out such short
positions, or loan or pledge the notes and the common stock into which the notes
are convertible to broker-dealers that in turn may sell such securities.
If a material arrangement with any underwriter, broker, dealer or other
agent is entered into for the sale of any notes and the common stock into which
the notes are convertible through a secondary distribution or a purchase by a
broker or dealer, or if other material changes are made in the plan of
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distribution of the notes and the common stock into which the notes are
convertible, a prospectus supplement will be filed, if necessary, under the
Securities Act disclosing the material terms and conditions of such arrangement.
The underwriter or underwriters with respect to an underwritten
offering of notes and the common stock into which the notes are convertible and
the other material terms and conditions of the underwriting will be set forth in
a prospectus supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of the prospectus supplement. In connection with the sale of the notes
and the common stock into which the notes are convertible, underwriters will
receive compensation in the form of underwriting discounts or commissions and
may also receive commissions from purchasers of notes and underlying common
stock for whom they may act as agent. Underwriters may sell to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters or commissions from the
purchasers for whom they may act as agent.
To our knowledge, there are currently no plans, arrangements or
understandings between any selling securityholders and any underwriter,
broker-dealer or agent regarding the sale of the notes or the underlying common
stock by the selling securityholders. Selling securityholders may decide to sell
only a portion of the notes or the underlying common stock offered by them
pursuant to this prospectus or may decide not to sell any notes or any of the
underlying common stock under this prospectus. In addition, any selling
securityholder may transfer, devise or give the notes or the underlying common
stock by other means not described in this prospects. Any notes or underlying
common stock covered by this prospectus that qualify for sale pursuant to Rule
144 or Rule 144A of the Securities Act may be sold under Rule 144 or Rule 144A
rather than pursuant to this prospectus.
The selling securityholders and any underwriters, broker-dealers or
agents participating in the distribution of the notes and the common stock into
which the notes are convertible may be deemed to be "underwriters" within the
meaning of the Securities Act, and any profit on the sale of the notes or common
stock by the selling securityholders and any commissions received by any such
underwriters, broker-dealers or agents may be deemed to be underwriting
commissions under the Securities Act. If the selling securityholders were deemed
to be underwriters, the selling securityholders may be subject to statutory
liabilities including, but not limited to, those of Sections 11, 12 and 17 of
the Securities Act and Rule 10b-5 under the Exchange Act.
The selling securityholders and any other person participating in the
distribution will be subject to the applicable provisions of the Exchange Act
and the rules and regulations under the Exchange Act, including, without
limitation, Regulation M, which may limit the timing of purchases and sales of
any of the notes and the common stock into which the notes are convertible by
the selling securityholders and any other relevant person. Furthermore,
Regulation M may restrict the ability of any person engaged in the distribution
of the notes and the common stock into which the notes are convertible to engage
in market-making activities with respect to the particular notes and the common
stock into which the notes are convertible being distributed. All of the above
may affect the marketability of the notes and the common stock into which the
notes are convertible and the ability of any person or entity to engage in
market-making activities with respect to the notes and the common stock into
which the notes are convertible.
Under the securities laws of certain states, the notes and the common
stock into which the notes are convertible may be sold in those states only
through registered or licensed brokers or dealers. In addition, in certain
states the notes and the common stock into which the notes are convertible may
not be
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sold unless the notes and the common stock into which the notes are convertible
have been registered or qualified for sale in the state or an exemption from
registration or qualification is available and complied with. Each selling
securityholder should consult its counsel regarding the application of the
states' Blue Sky or securities and insurance securities laws in connection with
sales of the notes and common stock into which the notes are convertible.
We have agreed to indemnify the selling securityholders against certain
civil liabilities, including certain liabilities arising under the Securities
Act, and the selling securityholders will be entitled to contribution from us in
connection with those liabilities. The selling securityholders will indemnify us
against certain civil liabilities, including liabilities arising under the
Securities Act, and will be entitled to contribution from the selling
securityholders in connection with those liabilities.
We will be permitted to suspend the use of a prospectus that is part of
a shelf registration statement under certain circumstances relating to corporate
developments, public filings with the SEC and similar events for a period not to
exceed 30 days in any three- month period and not to exceed an aggregate of 60
days in any 12-month period. If the duration of such suspension exceeds any of
the periods above-mentioned, we have agreed to pay liquidated damages. Please
refer to the section entitled "Description of Notes--Registration Rights."
LEGAL MATTERS
Certain legal matters regarding the notes, the common stock into which
the notes are convertible and the guarantee will be passed upon for us by
Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio. Certain United States
federal income taxation matters also will be passed upon for us by Akin Gump
Strauss Hauer & Feld LLP, Washington, D.C.
EXPERTS
Ernst & Young LLP, independent auditors, have audited American
Financial Corporation's and our consolidated financial statements and schedules
included in the respective Annual Reports on Form 10-K for the year ended
December 31, 2002, as set forth in their reports, which are incorporated by
reference in this prospectus and elsewhere in the registration statement.
American Financial Corporation's and our financial statements and schedules are
incorporated by reference in reliance on Ernst & Young LLP's reports, given on
their authority as experts in accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the
offering described in this Registration Statement:
Securities and Exchange Commission registration fee* $ 15,360
New York Stock Exchange listing fee 2,500
Legal fees and expenses 25,000
Accounting fees and expenses 25,000
Printing and engraving expenses 50,000
Miscellaneous 132,140
----------
TOTAL $ 250,000
==========
- ------------------
*Actual; other expenses are estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
American Financial Group, Inc. ("AFG")
Ohio Revised Code, Section 1701.13(E), allows indemnification by AFG to
any person made or threatened to be made a party to any proceedings, other than
a proceeding by or in the right of AFG, by reason of the fact that he is or was
a director, officer, employee or agent of AFG, 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 AFG 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 AFG, 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
AFG 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. AFG's Code of
Regulations extends such indemnification.
AFG 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 AFG and of the
companies which are, directly or indirectly, more than 50% owned by AFG. 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 October 24, 1978. The insurer limit of liability under the
policy is $175,000,000 in the aggregate for all losses
II-1
each year subject to certain individual and aggregate deductibles. The policy
contains various exclusions and reporting requirements.
AFG also has entered into indemnification agreements with its executive
officers and directors providing for indemnification against certain liabilities
to the fullest extent permitted under Ohio law.
American Financial Corporation ("AFC")
Ohio Revised Code, Section 1701.13(E), allows indemnification by AFC to
any person made or threatened to be made a party to any proceedings, other than
a proceeding by or in the right of AFC, by reason of the fact that he is or was
a director, officer, employee or agent of AFC, 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 AFC 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 AFC, 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
AFC 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. AFC's Code of
Regulations extends such indemnification.
Directors and officers of AFC are covered under the Directors and
Officers Liability insurance discussed above that is maintained by AFG for the
benefit of AFG's directors and officers and the directors and officers of the
companies, including AFC, which are, directly or indirectly, more than 50% owned
by AFG.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
Number Description of Document
- ------- -----------------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of AFG (incorporated
by reference to Exhibit 3(a) of AFG's Annual Report on Form 10-K for
the year ended December 31, 1997)
3.2 Code of Regulations of AFG (incorporated by reference to Exhibit 3(b)
to AFG's Annual Report on Form 10-K for the year ended December 31,
1997)
4.1 Indenture dated June 2, 2003, among AFG, as issuer, AFC, as
guarantor, and U.S. Bank National Association, as trustee, relating
to the Senior Convertible Notes due 2033 (including the form of the
Senior Convertible Notes)
4.2 Registration Rights Agreement dated June 2, 2003, among AFG, AFC and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, UBS Warburg LLC and Credit Suisse First Boston LLC
5 Opinion of Keating, Muething & Klekamp, P.L.L.
8 Opinion of Akin Gump Strauss Hauer & Feld LLP as to tax matters
12 Computation of ratios of earnings to fixed charges
23.1 Consent of Keating, Muething & Klekamp, P.L.L. (contained in Exhibit 5)
23.2 Consent of Akin Gump Strauss Hauer & Feld LLP (contained in Exhibit 8)
23.3 Consent of Ernst & Young LLP
24 Powers of Attorney (contained on the signature page)
25 Form T-1 Statement of Eligibility of Trustee under the Trust
Indenture Act of 1939 of U.S. Bank National Association
II-2
Exhibit
Number Description of Document
- ------- -----------------------------------------------------------------------
ITEM 17. UNDERTAKINGS.
(a) Each of the undersigned Registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) under the Securities Act
if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
Registration Statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply
if the information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934
that are incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual reports 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.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Cincinnati, State of Ohio, as of the 27th day of June,
2003.
AMERICAN FINANCIAL GROUP, INC.
By: Carl H. Lindner
-------------------------------
Carl H. Lindner
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below preceded by an "*" hereby constitutes and appoints James C.
Kennedy and Karl J. Grafe, and each of them acting individually, his or her true
and lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to sign any and all registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any other regulatory authority, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
Carl H. Lindner Chairman of the Board of June 27, 2003
- ---------------------- Directors (Principal Executive
*Carl H. Lindner Officer)
Carl H. Lindner III Director June 27, 2003
- ----------------------
*Carl H. Lindner III
S. Craig Lindner Director June 27, 2003
- ----------------------
*S. Craig Lindner
II-4
SIGNATURE CAPACITY DATE
James E. Evans Director June 27, 2003
- ----------------------
*James E. Evans
Theodore H. Emmerich Director June 27, 2003
- ----------------------
*Theodore H. Emmerich
Terry S. Jacobs Director June 27, 2003
- ----------------------
*Terry S. Jacobs
William R. Martin Director June 27, 2003
- ----------------------
*William R. Martin
William A. Shuzer Director June 27, 2003
- ----------------------
*William A. Shuzer
William W. Verity Director June 27, 2003
- ----------------------
*William W. Verity
Fred J. Runk Senior Vice President and June 27, 2003
- ---------------------- Treasurer (Principal Financial
Fred J. Runk and Accounting Officer)
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Cincinnati, State of Ohio, as of the 27th day of June,
2003.
AMERICAN FINANCIAL CORPORATION
By: Carl H. Lindner
------------------------
Carl H. Lindner
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below preceded by an "*"hereby constitutes and appoints James C. Kennedy
and Karl J. Grafe, and each of them acting individually, his or her true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to sign any and all registration
statements relating to the same offering of securities as this Registration
Statement that are filed pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission and any other regulatory authority, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
Carl H. Lindner Chairman of the Board of June 27, 2003
- ---------------------- Directors (Principal Executive
*Carl H. Lindner Officer)
Carl H. Lindner III Director June 27, 2003
- ----------------------
*Carl H. Lindner III
S. Craig Lindner Director June 27, 2003
- ----------------------
*S. Craig Lindner
II-6
SIGNATURE CAPACITY DATE
James E. Evans Director June 27, 2003
- ----------------------
*James E. Evans
Fred J. Runk Senior Vice President and June 27, 2003
- ---------------------- Treasurer (Principal Financial
Fred J. Runk and Accounting Officer)
II-7