Common use of CERTAIN FEDERAL INCOME TAX CONSEQUENCES Clause in Contracts

CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Consequences to the APY Public Stockholders The receipt of the Merger Consideration for shares of APY Common Stock pursuant to the Merger will be a taxable transaction for Federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, for Federal income tax purposes, an APY stockholder will recognize gain or loss equal to the difference between his or her adjusted tax basis for such shares and the amount of cash and the fair market value of the AFC Common Stock received therefor. Such gain or loss will be capital gain or loss if the shares of APY Common Stock are capital assets in the hands of the APY stockholder, and will be long-term capital gain or loss if the shares of APY Common Stock have been held by the APY stockholders for more than one year. Merger Consideration received by any APY stockholder exercising appraisal rights will also result in gain or loss equal to the difference between the cash received for his or her shares and such stockholder's adjusted basis for such shares. To prevent back-up withholding on payments of Merger Consideration in exchange for APY Common Stock in the Merger, each APY stockholder will be required to furnish, together with the certificates for his or her shares, a properly completed substitute Form W-9. If back-up withholding applies, the payor is required to withhold 31% from payments. This is not an additional tax. Rather, the amount of back-up withholding can be credited against the tax liability of the stockholder subject to back-up withholding. If withholding results in overpayment of taxes, a refund may be obtained upon the filing of an appropriate form with the Internal Revenue Service. The foregoing summary of certain income tax consequences is included for general information only and is not intended to and does not constitute a complete description of all possible Federal, state, local, foreign or other tax consequences to the holders of APY Common Stock. Also, the tax consequences of the transaction may vary depending upon the particular facts relating to each holder of APY Common Stock. ACCORDINGLY, EACH APY STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE TRANSACTION. THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT APPLY TO ALL HOLDERS OF APY COMMON STOCK. SUCH HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER. Consequences to AFC The exchange of one share of the APY Class B Common Stock for each share of APY Common Stock held by SMA immediately prior to the Merger will be treated as a tax-free recapitalization for federal income tax 41 purposes. Accordingly, no gain or loss will be recognized by APY or SMA as a result of such exchange. In addition, no gain or loss will be recognized by AFC, Merger Sub or APY as a result of the Merger. For federal income tax purposes, the existence of Merger Sub will be ignored and the Merger will be treated as a taxable acquisition of APY Common Stock by AFC in exchange for the Merger Consideration. FEDERAL SECURITIES LAWS CONSEQUENCES All shares of AFC Common Stock received by APY stockholders in the Merger will be freely transferable, except that shares of AFC Common Stock received by persons who are deemed to be "affiliates" (as such term is defined under the Act) of AFC or APY prior to the Merger may be resold by them only in transactions permitted by the resale provisions of Rule 145 promulgated under the Act (or Rule 144 in the case of such persons who become affiliates of AFC) or as otherwise permitted under the Act. Persons who are deemed to be affiliates of AFC or APY generally include individuals or entities that control, are controlled by, or are under common control with, such party and may include certain officers and directors of such party as well as principal stockholders of such party. 42 THE MERGER TRANSACTIONS GENERAL Pursuant to the Merger Agreement and subject to the terms and conditions thereof, Merger Sub, a wholly-owned subsidiary of AFC formed for the purpose of the Merger, will be merged with and into APY. As a result of the Merger Transactions, APY will become a wholly owned subsidiary of AFC. As part of the Merger Transactions, stockholders of APY, other than AFC and its wholly-owned subsidiaries, will receive the consideration described below. The following organizational chart illustrates the corporate structure of AFC, APY and their principal subsidiaries assuming the consummation of the Merger Transactions. [ORGANIZATIONAL CHART] Subject to the terms and conditions of the Merger Agreement, the closing of the transactions contemplated thereby will take place on the later of (i) 20 business days following the date that this Information Statement/Prospectus is first mailed to stockholders and (ii) the first business day following the day on which all conditions to the Merger Agreement are satisfied or waived (such later day, the "Closing Date"). The Merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware. The time at which the Merger becomes effective is referred to as the Effective Time. 43 THE MERGER AGREEMENT The following is a brief summary of the material provisions of the Merger Agreement, a copy of which is attached as Appendix A-1 to this Information Statement/Prospectus and is incorporated herein by reference. This summary is qualified in its entirety by reference to the full and complete text of the Merger Agreement. APY MERGER CONSIDERATION Standard Consideration. Pursuant to the Merger Agreement, upon consummation of the Merger each share of APY Common Stock issued and outstanding immediately prior to the Effective Time and held by an APY Public Stockholder will be converted into the right to receive (x) a fraction of a share of AFC Common Stock equal to the Standard Exchange Ratio, and (y) the Standard Cash Consideration; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Standard Cash Consideration shall be equal to (A) $32.00 less (B) the Standard Exchange Ratio multiplied by the Average Stock Price and (2) in the event the Average Stock Price is greater than $41.00, the Standard Cash Consideration shall be equal to (A) $34.00 less (B) the Standard Exchange Ratio multiplied by the Average Stock Price. Unless an APY Public Stockholder makes an affirmative election to receive all stock or all cash, such stockholder will receive the Standard Consideration. Alternatively, an APY Public Stockholder may elect to receive their merger consideration solely in stock or in cash, subject to proration in the event that the election made by such stockholder is oversubscribed. Stock Consideration. If an APY Public stockholder elects to receive stock in lieu of the Standard Consideration, each share of APY Common Stock will be converted into a fraction of a share of AFC Common Stock equal to the Stock Exchange Ratio; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Stock Exchange Ratio shall be equal to $32.00 divided by the Average Stock Price and (2) in the event the Average Stock Price is greater than $41.00, the Stock Exchange Ratio shall be equal to $34.00 divided by the Average Stock Price. Cash Consideration. If an APY Public stockholder elects to receive cash in lieu of the Standard Consideration, each share of APY Common Stock will be converted into $33.00 in cash, without interest; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Cash Consideration shall be equal to $32.00 and (2) in the event the Average Stock Price is more than $41.00, the Cash Consideration shall be equal to $34.00. Effect of AFC Common Stock Price on Value of Merger Consideration. If the Average Stock Price is below $36.00 per share or above $41.00 per share (any such Average Stock Price being referred to herein as being "Outside the Collar"), the value of the per share consideration payable to each APY Public Stockholder will be equivalent regardless of whether such holder makes a Standard Election, a Cash Election or a Stock Election. However, if the Average Stock Price is greater than or equal to $36.00 and less than or equal to $41.00, the value of the per share Merger Consideration payable to each APY Public Stockholder may vary depending on (i) the Average Stock Price, (ii) whether such holder makes a Standard Election, a Stock Election or a Cash Election, and (iii) the combination of cash and AFC Common Stock actually received by such holder as a result of the proration procedures described below. The Standard Consideration, the Stock Consideration and the Cash Consideration each are fixed in amount when the Average Stock Price is greater than $41.00 and less than $36.00. However, the impact of the fluctuation in value of AFC Common Stock varies depending upon the type of consideration selected. Thus, the value of the per share consideration received by certain holders may be greater or less than the consideration per share received by other holders. The Letter of Transmittal, which will be distributed to APY Public Stockholders promptly after the Effective Time, will provide such holders with the actual Average Stock Price and holders should carefully review the value of the consideration before making any election. The following table illustrates the different values of the Standard Consideration, the Stock Consideration and the Cash Consideration at certain assumed Average Stock Prices, and illustrates the effect of the collar without the effect of the proration procedures described below. If other than a Standard Election is made, the 44 effect of the proration may cause the mix of cash and AFC Common Stock actually received by an APY Public Stockholder to differ from the election made by such holder; as a result the value of consideration received would also vary accordingly. AMOUNT OF STANDARD CONSIDERATION ASSUMED AVERAGE ---------------------- AMOUNT OF AMOUNT OF STOCK PRICE(2) CASH STOCK(3) TOTAL STOCK CONSIDERATION(4) CASH CONSIDERATION --------------- ------ -------- ------ ---------------------- ------------------ $32.00(1) $19.20 $12.80 $32.00 $32.00 $32.00 $33.00(1) $18.80 $13.20 $32.00 $32.00 $32.00 $34.00(1) $18.40 $13.60 $32.00 $32.00 $32.00 $35.00(1) $18.00 $14.00 $32.00 $32.00 $32.00 $36.00 $17.60 $14.40 $32.00 $30.86 $33.00 $36.50 $17.60 $14.60 $32.20 $31.29 $33.00 $37.00 $17.60 $14.80 $32.40 $31.71 $33.00 $37.50 $17.60 $15.00 $32.60 $32.14 $33.00 $38.00 $17.60 $15.20 $32.80 $32.57 $33.00 $38.50 $17.60 $15.40 $33.00 $33.00 $33.00 $39.00 $17.60 $15.60 $33.20 $33.43 $33.00 $39.50 $17.60 $15.80 $33.40 $33.86 $33.00 $40.00 $17.60 $16.00 $33.60 $34.29 $33.00 $40.50 $17.60 $16.20 $33.80 $34.71 $33.00 $41.00 $17.60 $16.40 $34.00 $35.14 $33.00 $42.00(1) $17.20 $16.80 $34.00 $34.00 $34.00 $43.00(1) $16.80 $17.20 $34.00 $34.00 $34.00 $44.00(1) $16.40 $17.60 $34.00 $34.00 $34.00 $45.00(1) $16.00 $18.00 $34.00 $34.00 $34.00

CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Consequences to the APY Public Stockholders The receipt of the Merger Consideration for shares of APY Common Stock pursuant to the Merger will be a taxable transaction for Federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, for Federal income tax purposes, an APY stockholder will recognize gain or loss equal to the difference between his or her adjusted tax basis for such shares and the amount of cash and the fair market value of the AFC Common Stock received therefor. Such gain or loss will be capital gain or loss if the shares of APY Common Stock are capital assets in the hands of the APY stockholder, and will be long-term capital gain or loss if the shares of APY Common Stock have been held by the APY stockholders for more than one year. Merger Consideration received by any APY stockholder exercising appraisal rights will also result in gain or loss equal to the difference between the cash received for his or her shares and such stockholder's adjusted basis for such shares. To prevent back-up withholding on payments of Merger Consideration in exchange for APY Common Stock in the Merger, each APY stockholder will be required to furnish, together with the certificates for his or her shares, a properly completed substitute Form W-9. If back-up withholding applies, the payor is required to withhold 31% from payments. This is not an additional tax. Rather, the amount of back-up withholding can be credited against the tax liability of the stockholder subject to back-up withholding. If withholding results in overpayment of taxes, a refund may be obtained upon the filing of an appropriate form with the Internal Revenue Service. The foregoing summary of certain income tax consequences is included for general information only and is not intended to and does not constitute a complete description of all possible Federal, state, local, foreign or other tax consequences to the holders of APY Common Stock. Also, the tax consequences of the transaction may vary depending upon the particular facts relating to each holder of APY Common Stock. ACCORDINGLY, EACH APY STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE TRANSACTION. THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT APPLY TO ALL HOLDERS OF APY COMMON STOCK. SUCH HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER. Consequences to AFC The exchange of one share of the APY Class B Common Stock for each share of APY Common Stock held by SMA immediately prior to the Merger will be treated as a tax-free recapitalization for federal income tax 41 purposes. Accordingly, no gain or loss will be recognized by APY or SMA as a result of such exchange. In addition, no gain or loss will be recognized by AFC, Merger Sub or APY as a result of the Merger. For federal income tax purposes, the existence of Merger Sub will be ignored and the Merger will be treated as a taxable acquisition of APY Common Stock by AFC in exchange for the Merger Consideration. FEDERAL SECURITIES LAWS CONSEQUENCES All shares of AFC Common Stock received by APY stockholders in the Merger will be freely transferable, except that shares of AFC Common Stock received by persons who are deemed to be "affiliates" (as such term is defined under the Act) of AFC or APY prior to the Merger may be resold by them only in transactions permitted by the resale provisions of Rule 145 promulgated under the Act (or Rule 144 in the case of such persons who become affiliates of AFC) or as otherwise permitted under the Act. Persons who are deemed to be affiliates of AFC or APY generally include individuals or entities that control, are controlled by, or are under common control with, such party and may include certain officers and directors of such party as well as principal stockholders of such party. 42 41 THE MERGER TRANSACTIONS GENERAL Pursuant to the Merger Agreement and subject to the terms and conditions thereof, Merger Sub, a wholly-owned subsidiary of AFC formed for the purpose of the Merger, will be merged with and into APY. As a result of the Merger Transactions, APY will become a wholly owned subsidiary of AFC. As part of the Merger Transactions, stockholders of APY, other than AFC and its wholly-owned subsidiaries, will receive the consideration described below. The following organizational chart illustrates the corporate structure of AFC, APY and their principal subsidiaries assuming the consummation of the Merger Transactions. [ORGANIZATIONAL CHART] ---------------- Public ----------------- | 100% ----------------- ------------------ AFC Holders ----------------- ------------------ | | 100% |------- | ----------------------- | | | | ----------------- -------------------- | FAFLIC AFC Capital Trust I | ----------------- -------------------- | | 100% | | | ------------------- | SMA Financial Corp. | ------------------- | | | | 40.5% | 59.5% | ----------------------- | | | 100% ----------------------- -------------------- Allmerica P&C AFLIAC ----------------------- -------------------- | 100% ---------- ------------ Public Hanover ---------- ----------- | 17.5% | 82.5% ---------------- | ------------------ Citizens ------------------ | 100% ------------------ Citizens Insurance ------------------ Subject to the terms and conditions of the Merger Agreement, the closing of the transactions contemplated thereby will take place on the later of (i) 20 business days following the date that this Information Statement/Prospectus is first mailed to stockholders and (ii) the first business day following the day on which all conditions to the Merger Agreement are satisfied or waived (such later day, the "Closing Date"). The Merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware. The time at which the Merger becomes effective is referred to as the Effective Time. 43 42 THE MERGER AGREEMENT The following is a brief summary of the material provisions of the Merger Agreement, a copy of which is attached as Appendix A-1 to this Information Statement/Prospectus and is incorporated herein by reference. This summary is qualified in its entirety by reference to the full and complete text of the Merger Agreement. APY MERGER CONSIDERATION Standard Consideration. Pursuant to the Merger Agreement, upon consummation of the Merger each share of APY Common Stock issued and outstanding immediately prior to the Effective Time and held by an APY Public Stockholder will be converted into the right to receive (x) a fraction of a share of AFC Common Stock equal to the Standard Exchange Ratio, and (y) the Standard Cash Consideration; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Standard Cash Consideration shall be equal to (A) $32.00 less (B) the Standard Exchange Ratio multiplied by the Average Stock Price and (2) in the event the Average Stock Price is greater than $41.00, the Standard Cash Consideration shall be equal to (A) $34.00 less (B) the Standard Exchange Ratio multiplied by the Average Stock Price. Unless an APY Public Stockholder makes an affirmative election to receive all stock or all cash, such stockholder will receive the Standard Consideration. Alternatively, an APY Public Stockholder may elect to receive their merger consideration solely in stock or in cash, subject to proration in the event that the election made by such stockholder is oversubscribed. Stock Consideration. If an APY Public stockholder elects to receive stock in lieu of the Standard Consideration, each share of APY Common Stock will be converted into a fraction of a share of AFC Common Stock equal to the Stock Exchange Ratio; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Stock Exchange Ratio shall be equal to $32.00 divided by the Average Stock Price and (2) in the event the Average Stock Price is greater than $41.00, the Stock Exchange Ratio shall be equal to $34.00 divided by the Average Stock Price. Cash Consideration. If an APY Public stockholder elects to receive cash in lieu of the Standard Consideration, each share of APY Common Stock will be converted into $33.00 in cash, without interest; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Cash Consideration shall be equal to $32.00 and (2) in the event the Average Stock Price is more than $41.00, the Cash Consideration shall be equal to $34.00. Effect of AFC Common Stock Price on Value of Merger Consideration. If the Average Stock Price is below $36.00 per share or above $41.00 per share (any such Average Stock Price being referred to herein as being "Outside the Collar"), the value of the per share consideration payable to each APY Public Stockholder will be equivalent regardless of whether such holder makes a Standard Election, a Cash Election or a Stock Election. However, if the Average Stock Price is greater than or equal to $36.00 and less than or equal to $41.00, the value of the per share Merger Consideration payable to each APY Public Stockholder may vary depending on (i) the Average Stock Price, (ii) whether such holder makes a Standard Election, a Stock Election or a Cash Election, and (iii) the combination of cash and AFC Common Stock actually received by such holder as a result of the proration procedures described below. The Standard Consideration, the Stock Consideration and the Cash Consideration each are fixed in amount when the Average Stock Price is greater than $41.00 and less than $36.00. However, the impact of the fluctuation in value of AFC Common Stock varies depending upon the type of consideration selected. Thus, the value of the per share consideration received by certain holders may be greater or less than the consideration per share received by other holders. The Letter of Transmittal, which will be distributed to APY Public Stockholders promptly after the Effective Time, will provide such holders with the actual Average Stock Price and holders should carefully review the value of the consideration before making any election. The following table illustrates the different values of the Standard Consideration, the Stock Consideration and the Cash Consideration at certain assumed Average Stock Prices, and illustrates the effect of the collar without the effect of the proration procedures described below. If other than a Standard Election is made, the 44 43 effect of the proration may cause the mix of cash and AFC Common Stock actually received by an APY Public Stockholder to differ from the election made by such holder; as a result the value of consideration received would also vary accordingly. AMOUNT OF STANDARD CONSIDERATION ASSUMED AVERAGE ---------------------- AMOUNT OF AMOUNT OF STOCK PRICE(2) CASH STOCK(3) TOTAL STOCK CONSIDERATION(4) CASH CONSIDERATION --------------- ------ -------- ------ ---------------------- ------------------ $32.00(1) $19.20 $12.80 $32.00 $32.00 $32.00 $33.00(1) $18.80 $13.20 $32.00 $32.00 $32.00 $34.00(1) $18.40 $13.60 $32.00 $32.00 $32.00 $35.00(1) $18.00 $14.00 $32.00 $32.00 $32.00 $36.00 $17.60 $14.40 $32.00 $30.86 $33.00 $36.50 $17.60 $14.60 $32.20 $31.29 $33.00 $37.00 $17.60 $14.80 $32.40 $31.71 $33.00 $37.50 $17.60 $15.00 $32.60 $32.14 $33.00 $38.00 $17.60 $15.20 $32.80 $32.57 $33.00 $38.50 $17.60 $15.40 $33.00 $33.00 $33.00 $39.00 $17.60 $15.60 $33.20 $33.43 $33.00 $39.50 $17.60 $15.80 $33.40 $33.86 $33.00 $40.00 $17.60 $16.00 $33.60 $34.29 $33.00 $40.50 $17.60 $16.20 $33.80 $34.71 $33.00 $41.00 $17.60 $16.40 $34.00 $35.14 $33.00 $42.00(1) $17.20 $16.80 $34.00 $34.00 $34.00 $43.00(1) $16.80 $17.20 $34.00 $34.00 $34.00 $44.00(1) $16.40 $17.60 $34.00 $34.00 $34.00 $45.00(1) $16.00 $18.00 $34.00 $34.00 $34.00

CERTAIN FEDERAL INCOME TAX CONSEQUENCES. Consequences to the APY Public Stockholders The receipt of the Merger Consideration for shares of APY Common Stock pursuant to the Merger will be a taxable transaction for Federal income tax purposes and may also be a taxable transaction under applicable state, local, foreign and other tax laws. In general, for Federal income tax purposes, an APY stockholder will recognize gain or loss equal to the difference between his or her adjusted tax basis for such shares and the amount of cash and the fair market value of the AFC Common Stock received therefor. Such gain or loss will be capital gain or loss if the shares of APY Common Stock are capital assets in the hands of the APY stockholder, and will be long-term capital gain or loss if the shares of APY Common Stock have been held by the APY stockholders for more than one year. Merger Consideration received by any APY stockholder exercising appraisal rights will also result in gain or loss equal to the difference between the cash received for his or her shares and such stockholder's adjusted basis for such shares. To prevent back-up withholding on payments of Merger Consideration in exchange for APY Common Stock in the Merger, each APY stockholder will be required to furnish, together with the certificates for his or her shares, a properly completed substitute Form W-9. If back-up withholding applies, the payor is required to withhold 31% from payments. This is not an additional tax. Rather, the amount of back-up withholding can be credited against the tax liability of the stockholder subject to back-up withholding. If withholding results in overpayment of taxes, a refund may be obtained upon the filing of an appropriate form with the Internal Revenue Service. The foregoing summary of certain income tax consequences is included for general information only and is not intended to and does not constitute a complete description of all possible Federal, state, local, foreign or other tax consequences to the holders of APY Common Stock. Also, the tax consequences of the transaction may vary depending upon the particular facts relating to each holder of APY Common Stock. ACCORDINGLY, EACH APY STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE TRANSACTION. 37 THIS FEDERAL INCOME TAX DISCUSSION IS FOR GENERAL INFORMATION ONLY AND MAY NOT APPLY TO ALL HOLDERS OF APY COMMON STOCK. SUCH HOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER. Consequences to AFC The exchange of one share of the APY Class B Common Stock for each share of APY Common Stock held by SMA immediately prior to the Merger will be treated as a tax-free recapitalization for federal income tax 41 purposes. Accordingly, no gain or loss will be recognized by APY or SMA as a result of such exchange. In addition, no gain or loss will be recognized by AFC, Merger Sub or APY as a result of the Merger. For federal income tax purposes, the existence of Merger Sub will be ignored and the Merger will be treated as a taxable acquisition of APY Common Stock by AFC in exchange for the Merger Consideration. FEDERAL SECURITIES LAWS CONSEQUENCES All shares of AFC Common Stock received by APY stockholders in the Merger will be freely transferable, except that shares of AFC Common Stock received by persons who are deemed to be "affiliates" (as such term is defined under the Act) of AFC or APY prior to the Merger may be resold by them only in transactions permitted by the resale provisions of Rule 145 promulgated under the Act (or Rule 144 in the case of such persons who become affiliates of AFC) or as otherwise permitted under the Act. Persons who are deemed to be affiliates of AFC or APY generally include individuals or entities that control, are controlled by, or are under common control with, such party and may include certain officers and directors of such party as well as principal stockholders of such party. 42 38 THE MERGER TRANSACTIONS GENERAL Pursuant to the Merger Agreement and subject to the terms and conditions thereof, Merger Sub, a wholly-owned subsidiary of AFC formed for the purpose of the Merger, will be merged with and into APY. As a result of the Merger Transactions, APY will become a wholly owned subsidiary of AFC. As part of the Merger Transactions, stockholders of APY, other than AFC and its wholly-owned subsidiaries, will receive the consideration described below. The following organizational chart illustrates the corporate structure of AFC, APY and their principal subsidiaries assuming the consummation of the Merger Transactions. [CHART SHOWING ORGANIZATIONAL CHARTSTRUCTURE OF AFC AND IT SIGNIFICANT SUBSIDIARIES FOLLOWING CONSUMMATION OF THE MERGER TRANSACTION] 39 Subject to the terms and conditions of the Merger Agreement, the closing of the transactions contemplated thereby will take place on the later of (i) 20 business days following the date that this Information Statement/Prospectus is first mailed to stockholders and (ii) the first business day following the day on which all conditions to the Merger Agreement are satisfied or waived (such later day, the "Closing Date"). The Merger will become effective upon the filing of the certificate of merger with the Secretary of State of the State of Delaware. The time at which the Merger becomes effective is referred to as the Effective Time. 43 THE MERGER AGREEMENT The following is a brief summary of the material provisions of the Merger Agreement, a copy of which is attached as Appendix A-1 to this Information Statement/Prospectus and is incorporated herein by reference. This summary is qualified in its entirety by reference to the full and complete text of the Merger Agreement. APY MERGER CONSIDERATION Standard Consideration. Pursuant to the Merger Agreement, upon consummation of the Merger each share of APY Common Stock issued and outstanding immediately prior to the Effective Time and held by an APY Public Stockholder will be converted into the right to receive (x) a fraction of a share of AFC Common Stock equal to the Standard Exchange Ratio, and (y) the Standard Cash Consideration; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Standard Cash Consideration shall be equal to (A) $32.00 less (B) the Standard Exchange Ratio multiplied by the Average Stock Price and (2) in the event the Average Stock Price is greater than $41.00, the Standard Cash Consideration shall be equal to (A) $34.00 less (B) the Standard Exchange Ratio multiplied by the Average Stock Price. Unless an APY Public Stockholder makes an affirmative election to receive all stock or all cash, such stockholder will receive the Standard Consideration. Alternatively, an APY Public Stockholder may elect to receive their merger consideration solely in stock or in cash, subject to proration in the event that the election made by such stockholder is oversubscribed. Stock Consideration. If an APY Public stockholder elects to receive stock in lieu of the Standard Consideration, each share of APY Common Stock will be converted into a fraction of a share of AFC Common Stock equal to the Stock Exchange Ratio; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Stock Exchange Ratio shall be equal to $32.00 divided by the Average Stock Price and (2) in the event the Average Stock Price is greater than $41.00, the Stock Exchange Ratio shall be equal to $34.00 divided by the Average Stock Price. Cash Consideration. If an APY Public stockholder elects to receive cash in lieu of the Standard Consideration, each share of APY Common Stock will be converted into $33.00 in cash, without interest; provided, however, that (1) in the event the Average Stock Price is less than $36.00, the Cash Consideration shall be equal to $32.00 and (2) in the event the Average Stock Price is more than $41.00, the Cash Consideration shall be equal to $34.00. Effect of AFC Common Stock Price on Value of Merger Consideration. If the Average Stock Price is below $36.00 per share or above $41.00 per share (any such Average Stock Price being referred to herein as being "Outside the Collar"), the value of the per share consideration payable to each APY Public Stockholder will be equivalent regardless of whether such holder makes a Standard Election, a Cash Election or a Stock Election. However, if the Average Stock Price is greater than or equal to $36.00 and less than or equal to $41.00, the value of the per share Merger Consideration payable to each APY Public Stockholder may vary depending on (i) the Average Stock Price, (ii) whether such holder makes a Standard Election, a Stock Election or a Cash Election, and (iii) the combination of cash and AFC Common Stock actually received by such holder as a result of the proration procedures described below. The Standard Consideration, the Stock Consideration and the Cash Consideration each are fixed in amount when the Average Stock Price is greater than $41.00 and less than $36.00. However, the impact of the fluctuation in value of AFC Common Stock varies depending upon the type of consideration selected. Thus, the value of the per share consideration received by certain holders may be greater or less than the consideration per share received by other holders. The Letter of Transmittal, which will 40 be distributed to APY Public Stockholders promptly after the Effective Time, will provide such holders with the actual Average Stock Price and holders should carefully review the value of the consideration before making any election. The following table illustrates the different values of the Standard Consideration, the Stock Consideration and the Cash Consideration at certain assumed Average Stock Prices, and illustrates the effect of the collar without the effect of the proration procedures described below. If other than a Standard Election is made, the 44 effect of the proration may cause the mix of cash and AFC Common Stock actually received by an APY Public Stockholder to differ from the election made by such holder; as a result the value of consideration received would also vary accordingly. AMOUNT OF STANDARD CONSIDERATION ASSUMED AVERAGE ---------------------- AMOUNT OF AMOUNT OF STOCK PRICE(2) CASH STOCK(3) TOTAL STOCK CONSIDERATION(4) CASH CONSIDERATION --------------- ------ -------- ------ ---------------------- ------------------ $32.00(1) $19.20 $12.80 $32.00 $32.00 $32.00 $33.00(1) $18.80 $13.20 $32.00 $32.00 $32.00 $34.00(1) $18.40 $13.60 $32.00 $32.00 $32.00 $35.00(1) $18.00 $14.00 $32.00 $32.00 $32.00 $36.00 $17.60 $14.40 $32.00 $30.86 $33.00 $36.50 $17.60 $14.60 $32.20 $31.29 $33.00 $37.00 $17.60 $14.80 $32.40 $31.71 $33.00 $37.50 $17.60 $15.00 $32.60 $32.14 $33.00 $38.00 $17.60 $15.20 $32.80 $32.57 $33.00 $38.50 $17.60 $15.40 $33.00 $33.00 $33.00 $39.00 $17.60 $15.60 $33.20 $33.43 $33.00 $39.50 $17.60 $15.80 $33.40 $33.86 $33.00 $40.00 $17.60 $16.00 $33.60 $34.29 $33.00 $40.50 $17.60 $16.20 $33.80 $34.71 $33.00 $41.00 $17.60 $16.40 $34.00 $35.14 $33.00 $42.00(1) $17.20 $16.80 $34.00 $34.00 $34.00 $43.00(1) $16.80 $17.20 $34.00 $34.00 $34.00 $44.00(1) $16.40 $17.60 $34.00 $34.00 $34.00 $45.00(1) $16.00 $18.00 $34.00 $34.00 $34.00