(c) 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 deducting (adding) the undistributed equity in earnings (losses) of investees. Fixed charges include interest (excluding interest on annuity benefits), 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.
Ratios From the date of the 1995 Mergers to the end of 1997, approximately $1.4 billion of AFC and American Premier debt and preferred stock was retired or replaced with lower cost financing; aggregate debt and preferred securities were reduced by approximately two-thirds. AFG's debt to total capital ratio at the parent holding company level improved from nearly 60% at the date of the 1995 Mergers to approximately 17% at December 31, 1997. These reductions and replacements reduce AFG's interest expense and preferred dividend requirements by over $110 million annually.
Prior to the 1995 Mergers, American Premier had substantial cash and short-term investments at the parent company level. Subsequent to the Mergers, AFC and two of its subsidiaries entered into separate credit agreements with American Premier. Funds borrowed from American Premier under these agreements were used for debt retirements, capital contributions to subsidiaries, and other corporate purposes. In December 1997, the parent holding companies entered into a reciprocal Master Credit Agreement under which these companies make funds available to each other for general corporate purposes.
In 1996, three nationally recognized rating agencies issued or upgraded ratings on AFC, American Premier and AAG public debentures. All of the AFC and AAG senior debentures are now rated investment grade; the APU and AAG subordinated debentures are rated investment grade by two of the agencies. Generally, the upgrades reflect the expectation that AFG's consolidated debt to total capital will remain conservative and that coverage ratios will benefit from higher subsidiary earnings and a lower level of fixed charges at AFG's subsidiaries.
A new five-year, $300 million bank credit line was established by AFC in February 1998 replacing two subsidiary holding company lines. The new credit line provides ample liquidity and can be used to obtain funds for operating subsidiaries or, if necessary, for the parent companies. At December 31, 1997, there was $45 million borrowed under the two holding company lines.
For statutory accounting purposes, equity securities are generally carried at market value. At December 31, 1997, AFG's insurance companies owned publicly traded equity securities with a market value of $1.5 billion, including equity securities of AFG affiliates (including subsidiaries) of $1.1 billion. Since significant amounts of these are concentrated in a relatively small number of companies, decreases in the market prices could adversely affect the insurance group's capital, potentially impacting the amount of dividends available or necessitating a capital contribution. Conversely, increases in the market prices could have a favorable impact on the group's dividend-paying capability.
AFG's subsidiaries are parties in a number of proceedings relating to former operations. See Note N to the financial statements.
During the early 1990's Great American designed and developed software to automate the Year 2000 conversion process. In 1995 Great American formed Millennium Dynamics, Inc. ("MDI") to publicly market its software and consultative services worldwide. In connection with the sale of MDI in the fourth quarter of 1997, AFG retained licenses to utilize MDI's software internally.
Fixed income investment funds are generally invested in securities with short-term and intermediate-term maturities with an objective of optimizing total return while allowing flexibility to react to changes in market conditions. At December 31, 1997, the average life of AFG's bonds and redeemable preferred stocks was just over 6 years.
Approximately 93% of the bonds and redeemable preferred stocks held by AFG were rated "investment grade" (credit rating of AAA to BBB) by nationally recognized rating agencies at December 31, 1997. Investment grade securities generally bear lower yields and lower degrees of risk than those that are unrated and non-investment grade. Management believes that the high quality investment portfolio should generate a stable and predictable investment return.
Prior to the 1995 Mergers, the realization of capital gains, primarily through sales of equity securities, was an integral part of AFG's investment program. Individual securities are sold creating gains or losses as market opportunities exist. Pretax capital gains recognized upon disposition of securities, including investees, during the past five years have been: 1997 - $57 million; 1996 - $166 million; 1995 - $84 million; 1994 - - $50 million and 1993 - $165 million. At December 31, 1997, the net unrealized gain on AFG's bonds and redeemable preferred stocks was $389 million; the net unrealized gain on equity securities was $293 million.
General As previously noted, financial statements for periods prior to the April 1995 Mergers are those of AFC. The operations of American Premier are included in AFG's financial statements from the date of acquisition. AFC had accounted for American Premier as an investee from the second quarter of 1993 through the first quarter of 1995. Accordingly, income statement components for 1997 and 1996 are not comparable to prior years.
Property and Casualty Insurance - Underwriting AFG manages and operates its property and casualty business as three major sectors. The nonstandard automobile insurance companies (the "NSA Group") insure risks not typically accepted for standard automobile coverage because of the applicant's driving record, type of vehicle, age or other criteria. The specialty lines are a diversified group of over twenty-five business lines that offer a wide variety of specialty insurance products. Some of the more significant areas are California workers' compensation, executive liability, inland and ocean marine, U.S.-based operations of Japanese companies, agricultural-related coverages, non-profit liability, general aviation coverages, fidelity and surety bonds, and umbrella and excess. The commercial and personal lines provide coverages in workers' compensation, commercial multi-peril, umbrella and commercial automobile, standard private passenger automobile and homeowners insurance.
Operating results for 1996 were adversely impacted by two unusual items: (i) higher than normal catastrophe losses including approximately $30 million in losses due to Hurricane Fran and (ii) increases in A&E reserves (exposures for which AFG may be liable under general liability policies written years ago). A standard insurance measure used in analyzing the adequacy of A&E reserves is the "survival ratio" (reserves divided by three-year average annual paid losses). Due in part to the greater uncertainties inherent in estimating A&E claims, management evaluates its survival ratio in relation to those published for the industry. Based primarily on industry survival ratios published in mid-1996, AFG increased A&E reserves of its discontinued insurance lines by $120 million by recording a third quarter, non-cash pretax charge of $80 million and reallocating $40 million, or approximately 2%, of reserves from its Specialty Operations. Reserves for unpaid losses and loss adjustment expenses of the Specialty Lines were approximately $2.0 billion, $2.1 billion and $2.2 billion at December 31, 1997, 1996 and 1995, respectively. A&E reserves at December 31, 1997, were approximately $348 million, an amount equal to approximately 10 times the preceding three years' average claim payments.
Specialty Operations Net written premiums for the specialty operations increased 11% in 1997 due primarily to premiums recorded by a newly acquired aviation division and the return of premiums in 1996 related to the withdrawal from a voluntary pool. The specialty operations had profitable underwriting results for 1997 despite a significant decline in the results of AFG's California workers' compensation business relating to (i) deteriorating
Commercial and Personal Operations Net written premiums for the commercial and personal operations decreased 23% in 1997 due primarily to a reinsurance agreement, effective January 1, 1997, under which 80% of all AFG's homeowners' business was reinsured, and reduced writings of personal automobile coverages in certain states. Excluding the impact of the reinsurance agreement, premiums decreased 10%. Even though underwriting results for 1997 were impacted by several current year commercial casualty losses as well as adverse development in certain prior year claims, improvements in personal lines contributed to a lower combined ratio.
Net written premiums for the commercial and personal operations decreased 8% in 1996. The decrease is due primarily to significant reductions in homeowners coverages in certain states as well as competitive pricing conditions in the commercial casualty market, partially offset by increases in writings of workers' compensation coverages. The profitability of the commercial and personal operations declined in 1996 due primarily to deterioration in personal lines operations as well as weather-related losses, including losses from Hurricane Fran.
1997 compared to 1996 Investment income increased $22.5 million (3%) from 1996 due primarily to an increase in the average amount of investments held partially offset by lower interest rates available in the marketplace.
1997 compared to 1996 AFG recorded equity in net losses of investee corporations of $5.6 million in 1997 and $17 million in 1996. Chiquita's loss attributable to common shareholders was $17 million for 1997; results were adversely affected by a stronger dollar in relation to major European currencies (mitigated in part by the company's foreign currency hedging program) and by increased banana production costs resulting primarily from widespread flooding in 1996. These factors more than offset the benefit of higher local currency banana pricing in Europe during the second half of the year. For 1996, the loss attributable to common shareholders was $63 million and included pretax writedowns and costs of $70 million resulting from (i) industry-wide flooding in Costa Rica, Guatemala and Honduras, (ii) certain strategic undertakings designed to achieve further long-term reductions in the delivered product cost of Chiquita bananas and (iii) certain claims relating to prior European Union quota restructuring actions.
Gains on Sales of Investees The gain on sale of investee in 1997 represents a pretax gain to AFG as a result of Chiquita's public issuance of 4.6 million shares of its common stock. The gain on sale of investee in 1996 represents a pretax gain, before $6.5 million of minority interest, on the sale of Citicasters common stock.
Gains on Sales of Subsidiaries The gains on sales of subsidiaries in 1997 include (i) a pretax gain of $49.9 million on the sale of MDI and (ii) a charge of $17 million relating to operations expected to be sold or otherwise disposed of in 1998. The gains on sales of subsidiaries in 1996 include a pretax gain of $33.9 million on the sale of Buckeye Management Company and the settlement of litigation related to a subsidiary sold in 1993.
Interest on Borrowed Money Changes in interest expense result from fluctuations in market rates as well as changes in borrowings. AFG has generally financed its borrowings on a long-term basis which has resulted in higher current costs.
The information required by the following Items will be included in AFG's definitive Proxy Statement for the 1998 Annual Meeting of Shareholders which will be filed with the Securities and Exchange Commission within 120 days after the end of Registrant's fiscal year and is incorporated herein by reference.
We have audited the accompanying consolidated balance sheet of American Financial Group, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of earnings and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
December 31, 1997 1996 Assets: Cash and short-term investments $ 257,117 $ 448,296 Investments: Bonds and redeemable preferred stocks: Held to maturity - at amortized cost (market - $3,202,300 and $3,528,100) 3,120,106 3,491,126 Available for sale - at market (amortized cost - $7,225,736 and $6,362,597) 7,532,836 6,494,597 Other stocks - principally at market (cost - $153,322 and $142,364) 446,222 327,664 Investment in investee corporations 200,714 199,651 Loans receivable 513,694 568,765 Real estate and other investments 219,216 208,765 Total investments 12,032,788 11,290,568
Recoverables from reinsurers and prepaid reinsurance premiums 998,743 942,450 Agents' balances and premiums receivable 691,005 609,403 Deferred acquisition costs 521,898 452,041 Other receivables 243,330 272,595 Deferred tax asset 41,413 137,284 Assets held in separate accounts 300,491 247,579 Prepaid expenses, deferred charges and other assets 369,156 372,321 Cost in excess of net assets acquired 299,408 278,581
Liabilities and Capital: Unpaid losses and loss adjustment expenses $ 4,225,336 $ 4,123,701 Unearned premiums 1,328,910 1,247,806 Annuity benefits accumulated 5,528,111 5,365,612 Life, accident and health reserves 709,899 575,380 Long-term debt: Holding companies 386,661 339,504 Subsidiaries 194,084 178,415 Liabilities related to separate accounts 300,491 247,579 Accounts payable, accrued expenses and other liabilities 906,151 924,244 Total liabilities 13,579,643 13,002,241
Shareholders' Equity: Common Stock, no par value - 200,000,000 shares authorized - 61,048,904 and 61,071,626 shares outstanding 61,049 61,072 Capital surplus 775,689 745,649 Retained earnings 477,071 559,716 Net unrealized gain on marketable securities, net of deferred income taxes 348,900 188,000 Total shareholders' equity 1,662,709 1,554,437
Changes in circumstances could cause actual results to differ materially from those estimates.
AFG's voting ownership of subsidiaries and significant investees with publicly traded common shares at December 31, was as follows: 1997 1996 1995 American Annuity Group, Inc. ("AAG") 81% 81% 81% American Financial Enterprises, Inc. ("AFEI") (a) 83% 83% Chiquita Brands International, Inc. 39% 43% 44% Citicasters Inc. - (b) 38%
(a) Became a 100%-owned subsidiary in December 1997. (b) Sold in September 1996.
Reinsurance In the normal course of business, AFG's insurance subsidiaries cede reinsurance to other companies to diversify risk and limit maximum loss arising from large claims. To the extent that any reinsuring companies are unable to meet obligations under the agreements covering reinsurance ceded, AFG's insurance subsidiaries would remain liable. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsurance policies. AFG's insurance subsidiaries report as assets (a) the estimated reinsurance recoverable on unpaid losses, including an estimate for losses incurred but not reported, and (b) amounts paid to reinsurers applicable to the unexpired terms of policies in force. AFG's insurance subsidiaries also assume reinsurance from other companies. Income on reinsurance assumed is recognized based on reports received from ceding reinsurers.
Income Taxes AFC and American Premier have each filed consolidated federal income tax returns which include all 80%- owned U.S. subsidiaries, except for certain life insurance subsidiaries and their subsidiaries. AFG (parent) was included in American Premier's consolidated return for 1996. At the close of business on December 31, 1996, AFG contributed 81% of the common stock of American Premier to AFC. Accordingly, AFC and American Premier will file a consolidated return for 1997. Because holders of AFC Preferred Stock hold in excess of 20% of AFC's voting rights, AFG (parent) and AFC Holding own less than 80% of AFC, and therefore, will file separate returns.
Included in equity securities at December 31, 1997 and 1996, are $313 million and $220 million, respectively, of securities of Provident Financial Group, Inc. which exceeded 10% of Shareholders' Equity.
Maturities and Gross Gross Purchases Redemptions Sales Gains Losses Held to Maturity $ 5.6 $422.3 $ 8.0 $ .5 ($ 1.0) Available for Sale 2,549.5 475.5 1,399.6 37.7 (25.7) Total $2,555.1 $897.8 $1,407.6 $38.2 ($26.7)
Holding Companies Subsidiaries Total 1998 $ - $ 1,983 $ 1,983 1999 90,903 2,087 92,990 2000 42,330 8,803 51,133 2001 - 38,509 38,509 2002 50,399 61,440 111,839
At December 31, 1997 and 1996, the weighted average interest rate on amounts borrowed under AAG's bank credit lines was 6.80% and 6.68%, respectively. In January 1998, AAG replaced its existing bank lines with a new $200 million unsecured credit agreement. Loans under the credit agreement mature from 2000 to 2003 and bear interest at floating rates based on prime or LIBOR. In
AFG is authorized to issue 12.5 million shares of Voting Preferred Stock and 12.5 million shares of Nonvoting Preferred Stock, each without par value. At December 31, 1995, AFG had 212,698 shares of convertible preferred stock outstanding with a stated value of $469,000 (included in Capital Surplus, net of related notes receivable). These shares were converted into 446,799 shares of AFG Common Stock in March 1996.
A progression of AFG's Shareholders' Equity is as follows (dollars in thousands):
Granted 770,500 $37.54 75,000 $32.47 Exercised (413,312) $27.32 (664,639) $22.33 Forfeited (1,500) $37.88 (18,400) $30.06
Adjusted earnings before income taxes consisted of the following (in thousands):
Cash payments for income taxes, net of refunds, were $51.6 million, $40.2 million and $14.8 million for 1997, 1996 and 1995, respectively.
M. Earnings Per Share Weighted average shares outstanding were adjusted for the following dilutive effects of stock options in calculating diluted per share amounts: 1997 - 1.1 million shares; 1996 - .7 million shares; and 1995 - .4 million shares.
American Premier's liability for environmental claims ($39.5 million at December 31, 1997) consists of a number of proceedings and claims seeking to impose responsibility for hazardous waste remediation costs at certain railroad sites formerly owned by PCTC and certain other sites where hazardous waste was allegedly generated by PCTC's railroad operation. It is difficult to estimate remediation costs for a number of reasons, including the number and financial resources of other potentially responsible parties, the range of costs for remediation alternatives, changing technology and the time period over which these matters develop. American Premier's liability is based on information currently available and is subject to change as additional information becomes available.
Payments for losses and loss adjustment expenses occurring during: Current year (840) (999) (987) Prior years (1,151) (1,121) (874) (1,991) (2,120) (1,861)
Revenues $ 4,021 $ 4,115 $3,630 Income before Extraordinary Items 199 262 190 Extraordinary Item - (Loss) Gain on Prepayment of Debt (7) (29) 1 Net Income 192 233 191
Year Ended December 31, Income: 1997 1996 1995 Dividends from: Subsidiaries $ 281 $693,758 $ 37,044 Investees - - 879 281 693,758 37,923 Equity in undistributed earnings of subsidiaries and investees 301,385 (345,484) 224,921 Investment and other income 35,470 11,723 9,131 337,136 359,997 271,975
(*) See Note A to the Consolidated Financial Statements. The Parent Only Financial Statements include the accounts of AFG and its predecessor, AFC Holding Company, a wholly-owned subsidiary. Financial Statements for 1995 include earnings of AFC (parent only) for the period prior to AFC's merger with APU in April 1995.
Year Ended December 31, 1997 1996 1995 Operating Activities: Net earnings $192,250 $233,300 $191,247 Adjustments: Equity in earnings of subsidiaries (180,581) (230,019) (194,023) Equity in net earnings of investees - - (4,462) Change in balances with affiliates 54,620 (91,453) (100,225) Increase (decrease) in payables 881 (958) (10,861) Dividends from subsidiaries and investees 281 - 36,649 Other 2,275 1,311 7,537 69,726 (87,819) (74,138)
Investing Activities: Purchases of subsidiaries and other investments (24,872) (69) (30) Other - - 255 (24,872) (69) 225
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E (a) RESERVES FOR DEFERRED UNPAID CLAIMS (b) AFFILIATION POLICY AND CLAIMS DISCOUNT (c) WITH ACQUISITION ADJSUTMENT DEDUCTED IN UNEARNED REGISTRANT COSTS EXPENSES COLUMN C PREMIUMS
(a) Grossed up for reinsurance recoverables of $736 and $720 at December 31, 1997 and 1996, respectively. (b) Discounted at rates ranging from 4% to 8%. (c) Grossed up for prepaid reinsurance premiums of $189 and $153 at December 31, 1997 and 1996, respectively. (d) Includes American Premier's Insurance Group after April 1, 1995.
Signed: March 26, 1998 BY:s/CARL H. LINDNER Carl H. Lindner Chairman of the Board and Chief Executive Officer
The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Short-term investments are carried at cost; loans receivable are stated primarily at the aggregate unpaid balance.
Investment in Investee Corporations Investments in securities of 20%- to 50%-owned companies are generally carried at cost, adjusted for AFG's proportionate share of their undistributed earnings or losses.
The Financial Accounting Standards Board issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which is scheduled to become effective during the fourth quarter of 1998. The implementation of SFAS No. 131 is not expected to have a material effect on the segments currently disclosed by AFG.
$15,755,349 $15,051,118 $14,953,870 Revenues (b) Property and casualty insurance: Premiums earned: Nonstandard automobile $ 1,205,200 $ 1,183,098 $ 954,210 Specialty lines 1,055,935 976,150 995,528 Commercial and personal lines 563,217 684,776 697,512 Other lines 29 488 1,453 2,824,381 2,844,512 2,648,703 Investment and other income 448,849 500,897 465,998 3,273,230 3,345,409 3,114,701 Annuities and life (c) 638,348 585,079 444,082 Other 114,709 201,864 55,589 4,026,287 4,132,352 3,614,372 Equity in net earnings (losses) of investees (5,564) (16,955) 15,237
F. Investment in Investee Corporations All of the companies named in the following table have been subject to the rules and regulations of the SEC. The market value of AFG's investment in Chiquita was $391 million and $306 million at December 31, 1997 and 1996, respectively. AFG's investment (and common stock ownership percentage) and equity in net earnings and losses of investees are stated below (dollars in thousands):
(a) Equity in net earnings (losses) excludes AFG's share of amounts included in extraordinary items. (b) Sold in September 1996. (c) Became a 100%-owned subsidiary on April 3, 1995.
G. Cost in Excess of Net Assets Acquired At December 31, 1997 and 1996, accumulated amortization of the excess of cost over net assets of purchased subsidiaries amounted to approximately $133 million and $121 million, respectively. Amortization expense was $11.6 million in 1997, $10.8 million in 1996 and $9.2 million in 1995.
H. Long-Term Debt Long-term debt consisted of the following at December 31, (in thousands):
At December 31, 1997, the weighted average interest rate on amounts borrowed under Great American Holding Corporation's ("GAHC") bank credit line was 6.81%. In February 1998, AFC entered into a new unsecured credit agreement with a group of banks and the GAHC and APU agreements were terminated. Under the terms of the new agreement, AFC can borrow up to $300 million through December 2002. Borrowings bear interest at floating rates based on prime or LIBOR.
February 1998, AAG borrowed $50 million under the line and retired its 11-1/8% Notes (including $24.3 million principal amount held by AAG entities).
For income tax purposes, certain members of the AFC consolidated tax group had the following carryforwards available at December 31, 1997 (in millions):
American Premier's liability for occupational injury and disease claims of $58.1 million (included in other liabilities) at December 31, 1997, includes pending and expected claims by former employees of PCTC for injury or disease allegedly caused by exposure to excessive noise, asbestos or other substances in the railroad workplace. Anticipated recoveries of $35.2 million on these liabilities are included in other assets. Recorded amounts are based on the accumulation of estimates of reported and unreported claims and related expenses and estimates of probable recoveries from insurance carriers.
In management's opinion, the outcome of the items discussed under "Uncertainties" in Management's Discussion and Analysis and the above claims and contingencies will not, individually or in the aggregate, have a material adverse effect on AFG's financial condition or results of operations.
O. Quarterly Operating Results (Unaudited) The operations of certain of AFG's business segments are seasonal in nature. While insurance premiums are recognized on a relatively level basis, claim losses related to adverse weather (snow, hail, hurricanes, tornadoes, etc.) may be seasonal. Historically, Chiquita's operations are significantly stronger in the first and second quarters than in the third and fourth quarters. Quarterly results necessarily rely heavily on estimates. These estimates and certain other factors, such as the nature of investees' operations and discretionary sales of assets, cause the quarterly results not to be necessarily indicative of results for longer periods of time. The following are quarterly results of consolidated operations for the two years ended December 31, 1997 (in millions, except per share amounts).
The following table provides an analysis of changes in the liability for losses and loss adjustment expenses, net of reinsurance (and grossed up), over the past three years on a GAAP basis (in millions): 1997 1996 1995 Balance at beginning of period $3,404 $3,393 $2,187
Provision for losses and loss adjustment expenses occurring in the current year 2,045 2,179 2,116 Net increase (decrease) in provision for claims occurring in prior years 31 (48) (139) 2,076 2,131 1,977
Unpaid losses and loss adjustment expenses included in Balance Sheet, gross of reinsurance $4,225 $4,124 $4,097
Summary Financial Information of AFC Holding AFG has guaranteed the obligations of AFC Holding relating to the preferred securities issued by a wholly-owned subsidiary trust. Summarized consolidated financial information for AFC Holding is as follows (in millions):
Transactions With Affiliates In 1995, a subsidiary of AFC sold a house to its Chairman for its appraised value of $1.8 million.
December 12, 1997 Filing of exhibits relating to the issuance of 7-1/8% Senior Debentures due 2007.
Costs and Expenses: Interest charges on borrowed money 9,702 1,805 13,997 Other operating and general expenses 7,824 4,948 11,059 17,526 6,753 25,056
Financing Activities: Additional long-term borrowings 98,987 - 70 Reductions of long-term debt - - (325) Issuance of subordinated notes to subsidiary trust - 96,464 - Issuances of common stock 13,845 26,296 211,557 Repurchases of common stock (97,320) (8,563) (17) Cash dividends paid (77,941) (79,051) (36,532) Cash of predecessor company at date of merger - - (9,529) (62,429) 35,146 165,224
4 Instruments defining the rights of Registrant has no security holders. outstanding debt issues exceeding 10% of the assets of Registrant and consolidated subsidiaries. Management Contracts: 10(a) Stock Option Plan, filed as Exhibit (10)(iii)(a)(i) to AFG's Registration Statement on Form 8-B filed on April 17, 1995. (*)
10(b) Form of stock option agreement, filed as Exhibit 10(b) to AFG's Form 10-K for 1995. (*)
10(c) Stock Option Loan Program, filed as Exhibit 10(c) to AFG's Form 10-K for 1995. (*)