SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. ___)
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[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
American Annuity Group, Inc.
(Name of Registrant as Specified In Its Charter)
American Annuity Group, Inc.
(Name of Person(s) Filing Proxy Statement)
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AMERICAN ANNUITY GROUP, INC.
250 East Fifth Street
Cincinnati, Ohio 45202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 19, 1998
To Our Stockholders:
You are invited to attend the Annual Meeting of Stockholders of
American Annuity Group, Inc. ("AAG" or the "Company"). The meeting will be
held in the Filson Room of the Cincinnatian Hotel, Sixth and Vine Streets,
Cincinnati, Ohio at 10:00 A.M. Eastern Time on Tuesday, May 19, 1998.
The purposes of the meeting are:
1. To elect seven directors;
2. To approve an amendment to the AAG 1994 Stock Option
Plan to increase the maximum number of options to be
granted from 2,000,000 to 3,000,000;
3. To transact such other business as may properly be brought before
the meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 20, 1998
are entitled to receive notice of and to vote at the meeting or any
adjournment thereof.
You are invited to be present at the meeting so that you can vote in
person. Whether or not you plan to attend the meeting, please date, sign
and return the accompanying proxy form in the enclosed, postage-paid
envelope. If you do attend the meeting, you may either vote by proxy or
revoke your proxy and vote in person. You may also revoke your proxy at any
time before the vote is taken at the meeting by written revocation or by
submitting a later-dated proxy form.
Carl H. Lindner
Chairman of the Board
Dated: March 20, 1998
PROXY STATEMENT
AMERICAN ANNUITY GROUP, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1998
INTRODUCTION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of AAG for use at the Annual Meeting of
Stockholders to be held at 10:00 A.M. on Tuesday, May 19, 1998, and any
adjournment thereof (the "Annual Meeting"). The Company will pay the cost
of soliciting proxies.
The approximate mailing date of this Proxy Statement and the
accompanying proxy form is March 31, 1998.
Outstanding Voting Securities of AAG
Holders of record of the common stock, $1.00 par value per share, of
AAG (the "Common Stock") at the close of business on March 20, 1998 (the
"Record Date") are entitled to notice of and to vote at the Annual Meeting
and at any adjournments thereof. At the Record Date, 43,092,957 shares of
Common Stock were issued and outstanding.
Holders of Common Stock are entitled to one vote per share on each
matter to be voted on at the Annual Meeting.
Principal Stockholders
As of the Record Date, the only person known to the Company to own
beneficially more than 5% of AAG's Common Stock was American Financial
Group, Inc. and its subsidiaries (collectively "AFG"), One East Fourth
Street, Cincinnati, Ohio 45202, which beneficially owned 35,059,995 shares,
or approximately 81.4% of the shares outstanding as of the Record Date.
Carl H. Lindner, Carl H. Lindner III, S. Craig Lindner, Keith E.
Lindner and trusts for the benefit of them and their families (collectively
the "Lindner Family"), the beneficial owners of approximately 44% of AFG's
voting stock, share voting and dispositive power with AFG with respect to
the shares of AAG Common Stock owned by AFG. AFG and the Lindner Family may
be deemed to be controlling persons of AAG.
Action to be Taken at the Meeting
All shares represented by a properly executed and unrevoked proxy will
be voted at the Annual Meeting or any adjournments thereof in accordance
with the directions on the proxy. Unless a contrary direction is indicated,
such shares will be voted for the seven nominees for director named herein
and for Proposal 2.
Management knows of no other matter to be presented at the Annual
Meeting upon which a vote may be taken, but if any other matter is
presented, the proxy holders will vote in accordance with their judgment as
to the best interest of AAG. Should any of the nominees for election as a
director become unable to stand for election, which is not anticipated, the
proxy holders will vote for the election of such other person as the Board
of Directors may recommend.
PROPOSAL 1: ELECTION OF DIRECTORS
Nominees for Director
Directors will be elected to hold office until the next annual meeting
and until their successors are elected and qualified.
The number of directors to be elected at the Annual Meeting is seven.
The seven directors so elected will, upon such election, constitute the
entire Board of Directors.
In accordance with AAG's Certificate of Incorporation, the only
candidates eligible for election at the Annual Meeting are candidates
nominated by the Board of Directors and candidates nominated at the meeting
by a stockholder who has complied with the procedures set forth in the
Certificate of Incorporation.
The persons nominated by the Board of Directors to serve as directors
for the ensuing year are CARL H. LINDNER, S. CRAIG LINDNER, ROBERT A.
ADAMS, A. LEON FERGENSON, RONALD G. JOSEPH, JOHN T. LAWRENCE III and WILLIAM
R. MARTIN. See "MANAGEMENT" for information relating to the nominees. The
seven nominees receiving the highest numbers of votes will be elected as
directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ELECTION OF THE SEVEN NOMINEES LISTED ABOVE. THE COMPANY HAS BEEN INFORMED
THAT AFG INTENDS TO VOTE ITS SHARES FOR THE ABOVE NOMINEES.
PROPOSAL 2: APPROVAL OF AMENDMENT TO THE
AAG 1994 STOCK OPTION PLAN
On March 2, 1994, the Board of Directors adopted, and on June 13, 1994,
stockholders of AAG approved the AAG 1994 Stock Option Plan (the "1994 Stock
Option Plan"). The 1994 Stock Option Plan provides for the issuance of both
incentive stock options ("Incentive Stock Options") and non-qualified stock
options ("Non-qualified Stock Options") to officers and certain key
management personnel ("Key Employees").
At AAG's 1997 Annual Meeting, stockholders of AAG approved an amendment
to the 1994 Stock Option Plan increasing the number of shares of AAG Common
Stock obtainable upon exercise of options granted from 1,500,000 to
2,000,000. Subject to shareholder approval, on December 18, 1997, the Board
of Directors increased that number to 2,500,000 and on February 19, 1998,
the Board further increased that number to 3,000,000. Of such 3,000,000
shares, 872,000 options to purchase shares remain available for grant and
458,000 were granted subject to shareholder approval. The Board of
Directors believes that options to purchase additional shares of AAG Common
Stock should be made available for grant under the 1994 Stock Option Plan
and is seeking stockholder approval of the increase.
Purpose of the Plan; Eligibility
The purpose of the 1994 Stock Option Plan is to promote the interests
of AAG and its stockholders by providing a means for selected Key Employees
of AAG and its subsidiaries, those eligible to receive options under the
Plan, to acquire a proprietary interest in AAG. The Board of Directors
believes that the Plan improves AAG's ability to attract capable management
personnel and provide an inducement for Key Employees to remain employed by
AAG or its subsidiaries and to perform at their maximum levels.
Securities to be Utilized
The maximum number of shares of AAG Common Stock for which options may
be granted under the 1994 Stock Option Plan is currently 3,000,000 (subject
to antidilution provisions and stockholder approval). Shares delivered by
AAG pursuant to the exercise of options may be authorized but unissued
shares of Common Stock, previously acquired treasury shares or a combination
thereof. Shares subject to options which expire or are terminated shall
again be available for the granting of other options under the 1994 Stock
Option Plan.
Plan Administration and Termination
The 1994 Stock Option Plan is administered by the Organization and
Policy Committee (the "Committee") which is comprised of not less than two
"outside directors," as such term is defined in the Internal Revenue Code of
1986, as amended (the "Code"), or rules promulgated thereunder. Each member
of the Committee is also a "Non-Employee Director" as defined in Rule 16b-
3(b) promulgated under the Securities Exchange Act of 1934. The Board of
Directors is authorized to amend the 1994 Stock Option Plan at any time
without further stockholder approval unless such amendment would cause the
1994 Stock Option Plan to cease to satisfy any applicable conditions of
either Rule 16b-3 or Section 162(m) of the Code. Unless earlier terminated,
the 1994 Stock Option Plan will continue in effect until March 2, 2004. Any
stock options granted prior to the termination of the plan will remain
outstanding for the term of such option.
Price, Exercise Period and Vesting of Options
The Committee determines the exercise price for options granted under
the 1994 Stock Option Plan. The exercise price for a Non-qualified Stock
Option may be less than the Fair Market Value per share but must not be less
than the $1.00 par value per share of Common Stock (the "Par Value"). The
exercise price for an Incentive Stock Option must not be less than the
greater of (i) 100% of the Fair Market Value per share of Common Stock on
the date of grant or (ii) the Par Value. Also, for Incentive Stock Options,
if the Optionee owns, directly or indirectly, stock representing more than
10 % of either (i) the total combined voting power of all classes of stock
of the Company or (ii) a corporation that owns 50% or more of the total
combined voting power of all classes of stock of the Company, then the
exercise price must equal at least 110% of the Fair Market Value on the date
of grant and the term of the option cannot exceed five years from the date
of grant. The Fair Market Value of the Common Stock is the closing price of
AAG Common Stock on the New York Stock Exchange Composite Tape for the most
recent day of trading.
Twenty percent of the shares underlying an option will become
exercisable upon the first anniversary of the date of grant, and twenty
percent vest on each anniversary thereafter. On March 20, 1998, the last
reported sales price of the Common Stock on the New York Stock Exchange
Composite Tape was $22.81.
Payment for shares purchased upon exercise of an option will generally
be made in cash. The Committee, however, may permit payment by (i) delivery
of shares of AAG Common Stock already owned by the Optionee having a Fair
Market Value equal to the option price of the shares being acquired; (ii) a
combination of share delivery and cash payment or (iii) any other method.
Federal Income Tax Consequences
Incentive Stock Options. AAG intends that the majority of the options
granted under the 1994 Stock Option Plan will qualify as incentive stock
options under Section 422 of the Code.
An Optionee does not recognize any taxable income at the time of the
grant of an Incentive Stock Option. If an Optionee acquiring stock pursuant
to an Incentive Stock Option does not dispose of the stock until the later
of one year after the transfer of the stock to the Optionee and at least two
years from the date of grant of the option, then, subject to the alternative
minimum tax rules discussed below, there will be no tax consequences to the
Optionee or AAG when the Incentive Stock Option is exercised. This tax
treatment is not applicable if the Optionee exercises the option more than
three months after his or her employment ends.
If stock acquired upon exercise of an option is sold by the Optionee
and the holding period requirements described in the preceding paragraph
have not been met, the Optionee will be required to report, on his or her
federal income tax return for the year in which the sale occurs, additional
compensation income equal to the difference between the Fair Market Value of
the stock at the time of exercise of the option and the purchase price at
which the stock was acquired. AAG will generally be entitled to a compensa-
tion deduction in an equivalent amount. For purposes of determining gain or
loss upon sale of the stock an amount equal to this compensation income will
be added to the exercise price of the stock and the total will be the
Optionee's adjusted basis of the stock. Gain or loss will be determined
based upon the difference between the Optionee's adjusted basis of the stock
and the net proceeds of the sale, and the Optionee will be required to
report such gain or loss as long-term or short-term (depending on how long
the Optionee held the stock) capital gain or loss on his or her federal
income tax return for the year in which the sale occurs.
The difference between the Fair Market Value of the stock on the date
of exercise and the exercise price results in an adjustment in computing
alternative minimum taxable income for purposes of Sections 55 et. seq. of
the Code, which may trigger alternative minimum tax consequences for
Optionees. Any alternative minimum tax that is payable may ultimately be
credited against taxes owed upon disposition of the stock.
Non-qualified Options. AAG may also grant Non-qualified Options under
the 1994 Stock Option Plan. In general, there will be no tax consequences
to the Optionee or the Company when the option is granted if the option does
not have a readily ascertainable fair market value. Upon exercise of the
option, the Optionee will be required to report, on his or her federal
income tax return for the year in which the exercise occurs, additional
compensation income equal to the difference between the Fair Market Value of
the stock at the time of exercise of the option and the exercise price. AAG
will generally be entitled to a compensation deduction in an equivalent
amount.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
PROPOSAL TO APPROVE THE AMENDMENT TO THE AAG 1994 STOCK OPTION PLAN TO
INCREASE THE NUMBER OF SHARES OF AAG COMMON STOCK OBTAINABLE UPON EXERCISE
OF OPTIONS FROM 2,000,000 TO 3,000,000. THE COMPANY HAS BEEN INFORMED THAT
AFG INTENDS TO VOTE ITS SHARES FOR APPROVAL OF THE AMENDMENT TO THE AAG 1994
STOCK OPTION PLAN.
MANAGEMENT
The directors and executive officers of AAG are:
Director or
Name Age* Position Officer Since
Carl H. Lindner 78 Chairman of the Board and 1987
Chief Executive Officer
S. Craig Lindner 42 Director and President 1993
Robert A. Adams 52 Director, Executive Vice 1992
President and Chief
Operating Officer
A. Leon Fergenson 85 Director 1987
Ronald G. Joseph 61 Director 1994
John T. Lawrence III 46 Director 1994
William R. Martin 68 Director 1994
John B. Berding 35 Senior Vice President, 1993
Investments
Keith A. Jensen 46 Senior Vice President 1997
William J. Maney 48 Senior Vice President, 1993
Treasurer and Chief
Financial Officer
Mark F. Muething 38 Senior Vice President, 1993
General Counsel and
Secretary
Jeffrey S. Tate 41 Senior Vice President 1993
Christopher P. Miliano 39 Vice President,
Controller and 1993
Assistant Treasurer
Richard L. Magoteaux 37 Vice President 1996
* As of March 1, 1998
Carl H. Lindner has been Chairman of the Board since 1987. Mr. Lindner
also serves as Chairman of the Board and Chief Executive Officer of AFG, a
diversified financial services company, and Chairman of the Board of
Chiquita Brands International, Inc., a leading international marketer,
producer and distributor of bananas and other quality fresh and processed
food products. AFG owns a substantial beneficial interest (approximately
40%) in Chiquita. He also serves as a director of American Financial
Corporation ("AFC"), all of the Common Stock of which is owned by AFG. Carl
H. Lindner is the father of S. Craig Lindner.
S. Craig Lindner was elected President and a director of AAG in March
1993. Mr. Lindner is President and has during the past five years been
Senior Executive Vice President of American Money Management Corporation
("AMM"), a subsidiary of AFG which provides investment services for AFG and
its affiliated companies, including AAG. He is also Co-President and a
director of AFG and AFC.
Robert A. Adams was elected a director of AAG in October 1993. Mr.
Adams has been Executive Vice President and Chief Operating Officer of the
Company since December 1992.
A. Leon Fergenson has been a director of AAG since 1987. For more than
five years, Mr. Fergenson has been a private investor and a director of
various corporations. He is also a director of Sequa Corporation.
Ronald G. Joseph was elected a director of AAG in March 1994. For more
than five years, Mr. Joseph has been Chief Executive Officer and attorney of
various Cincinnati-based automobile dealerships and real estate holdings.
John T. Lawrence III was elected a director of AAG in March 1994. Mr.
Lawrence has been a Senior Vice President with PaineWebber Incorporated, a
national investment banking firm, since January 1993.
William R. Martin was elected a director of AAG in March 1994.
Although currently retired, Mr. Martin was previously President of both
Tominy, Inc. and M.B. Computing, Inc., which are privately held software
development companies. Mr. Martin is also a director of AFG and AFC.
John B. Berding was elected Senior Vice President - Investments of AAG
in March 1993. During the past five years, he has been a Vice President and
effective January 1996 a Senior Vice President of AMM.
Keith A. Jensen was elected Senior Vice President of AAG in February
1997. Prior thereto for more than five years he was a partner with Deloitte
& Touche LLP, an independent accounting firm.
William J. Maney has been Senior Vice President, Treasurer and Chief
Financial Officer of AAG for over five years.
Mark F. Muething was elected Senior Vice President, General Counsel and
Secretary of AAG in October 1993. Prior thereto, he was a partner (from
October 1991 to October 1993) and an associate (from August 1984 to October
1991) with Keating, Muething & Klekamp LLP, a Cincinnati law firm.
Jeffrey S. Tate has been Senior Vice President of AAG for over five
years.
Christopher P. Miliano was elected Vice President and Controller of AAG
in February 1995 and Assistant Treasurer in February 1997. Prior thereto,
he served as an Assistant Vice President of AAG (since June 1993) and as a
Director of Accounting and Corporate Reporting of AFC (from October 1989 to
June 1993).
Richard L. Magoteaux was elected Vice President of AAG in May 1996.
Prior thereto for more than five years he was a Senior Manager with Ernst &
Young LLP, an independent accounting firm.
In December 1993, Citicasters Inc. completed a comprehensive financial
restructuring that included a prepackaged plan of reorganization under
Chapter 11 of the Bankruptcy Code. Although not a director or officer of
Citicasters during 1993, Carl H. Lindner had been Chairman of the Board and
Chief Executive Officer of Citicasters prior to 1993 and was again elected
Chairman of the Board of Citicasters in January 1994. In September 1996,
Citicasters was acquired by Jacor Communications. Prior to that
acquisition, AFG owned approximately 35% of the common stock of Citicasters.
Holdings of Management
Information concerning AAG's Common Stock beneficially owned by each
director and executive officer and all directors and executive officers as a
group as of March 1, 1998, is shown in the following table:
Amount and Nature of
Beneficial Percent
Name Ownership(a)(k) of Class
Robert A. Adams 245,320 (b) *
A. Leon Fergenson 10,185 *
Ronald G. Joseph 24,212 *
John T. Lawrence III 12,732 *
Carl H. Lindner 35,059,995 (c) 81.4%
S. Craig Lindner 35,148,438 (c)(d) 81.6%
William R. Martin 10,632 *
John B. Berding 41,552 *
Keith A. Jensen 21,469 (e) *
William J. Maney 48,616 (f) *
Mark F. Muething 48,704 (g) *
Jeffrey S. Tate 51,832 (h) *
Christopher P. Miliano 16,909 (i) *
Richard L. Magoteaux 2,953 (j) *
All Directors and
Executive Officers as
a Group (14 persons) 35,683,554 82.4%
* Less than 1%
(a) Unless otherwise indicated, the persons named have sole voting and
dispositive power over the shares listed opposite their names.
Includes shares which may be acquired pursuant to options which are
exercisable within 60 days of the date hereof.
(b) Includes 2,712 shares allocated to Mr. Adams' account in the American
Annuity Group, Inc. Employee Stock Ownership Retirement Plan
("ESORP") and 48,979 share equivalents allocated to Mr. Adams'
account in the American Annuity Group, Inc. Deferred Compensation
Plan ("Deferred Compensation Plan").
(c) Messrs. Carl H. Lindner and S. Craig Lindner may be deemed to own
beneficially the shares set forth under "Principal Stockholders" for
AFG, of which Mr. Carl Lindner is Chairman of the Board and Chief
Executive Officer and a principal shareholder and Mr. S. Craig
Lindner is a director, officer and principal shareholder.
(d) Includes 44,100 shares held by his spouse as custodian or as trustee
for their minor children and 8,000 shares which are held in a trust
for the benefit of their minor children for which Keith E. Lindner
acts as trustee with voting and dispositive power. Also includes
19,135 shares allocated to Mr. Lindner's account in the Deferred
Compensation Plan.
(e) Includes 3,469 share equivalents allocated to Mr. Jensen's account in
the Deferred Compensation Plan.
(f) Includes 2,711 shares allocated to Mr. Maney's account in the ESORP
and 7,122 share equivalents allocated to Mr. Maney's account in the
Deferred Compensation Plan.
(g) Includes 1,670 shares allocated to Mr. Muething's account in the
ESORP and 8,653 share equivalents allocated to Mr. Muething's account
in the Deferred Compensation Plan.
(h) Includes 2,616 shares allocated to Mr. Tate's account in the ESORP
and 4,341 share equivalents allocated to Mr. Tate's account in the
Deferred Compensation Plan.
(i) Includes 2,170 shares allocated to Mr. Miliano's account in the
ESORP.
(j) Includes 659 share equivalents allocated to Mr. Magoteaux's account
in the Deferred Compensation Plan.
(k) Messrs. Adams, Joseph, Lawrence, Carl H. Lindner, S. Craig Lindner,
Martin, Berding, Tate and Miliano also beneficially own 634; 16,000;
4,000; 6,849,988; 4,121,608; 42,858; 8,574; 500 and 10 shares,
respectively, of common stock of AFG. Mr. Martin also beneficially
owns 40,126 shares of AFC preferred stock.
Committees and Meetings of the Board of Directors
AAG's Board of Directors held seven meetings and took action in writing on
three occasions in 1997.
Audit Committee. The Audit Committee consists of three members: William
R. Martin (Chairman), A. Leon Fergenson and John T. Lawrence III, none of
whom is an officer or employee of AAG or any of its subsidiaries. The
Committee's functions include: recommending to the Board of Directors the
firm to be appointed as independent accountants to audit the financial
statements of AAG and its subsidiaries and to provide other audit-related
services and recommending the terms of such firm's engagement; reviewing the
scope and results of the audit with the independent accountants; reviewing
with management and the independent accountants AAG's interim and year-end
operating results; reviewing the adequacy and implementation of the internal
accounting and auditing procedures of AAG; and reviewing the non-audit
services to be performed by the independent accountants and considering the
effect of such performance on the accountants' independence. The Audit
Committee held four meetings in 1997.
Executive Committee. The Executive Committee consists of three members:
S. Craig Lindner (Chairman), Carl H. Lindner and Robert A. Adams. The
Committee is generally authorized to exercise the powers of the Board of
Directors between meetings of the Board of Directors, except that the
Committee's authority does not extend to certain fundamental matters, such
as: amending the By-laws of AAG; filling vacancies in the Board of
Directors; declaring a dividend; electing or removing the Company's
principal officers; adopting or approving a plan of merger; consolidation or
sale of a substantial portion of the Company's assets; dissolution or
reorganization of AAG or establishing or designating any class or series of
AAG stock (or fixing or determining the relative rights and preferences
thereof). The Executive Committee did not meet in 1997.
Organization and Policy Committee. The Organization and Policy Committee
consists of two members: Ronald G. Joseph and John T. Lawrence III, neither
of whom is an officer or employee of AAG or any of its subsidiaries. The
Committee's functions include: reviewing the duties and responsibilities of
the Company's principal officers; reviewing and making recommendations to
the Board of Directors with respect to the compensation of the Company's
principal officers; reviewing the Company's compensation and personnel
policies; administering bonus and stock option plans; reviewing and making
recommendations to the Board of Directors with respect to employee
retirement policies; and supervising, reviewing and reporting to the Board
of Directors on the performance of the management committee responsible for
the administration and investment management of the Company's pension and
savings plans. The Committee also reviews and advises the Board of
Directors with respect to the nomination of candidates for election to the
Board of Directors. The Organization and Policy Committee held one meeting
in 1997 and took action in writing on three occasions.
Compensation of Directors
Officers of AAG do not receive any additional compensation for serving as
members of the Board of Directors or any of its committees. Directors who
are not employees of AAG receive an annual retainer of $25,000 for Board
membership and an additional annual retainer of $5,000 for serving as
Chairman of a Board Committee. Under AAG's Directors' Compensation Plan,
non-employee directors will receive at least 50% of their retainers in
Common Stock. In addition, directors who are not employees of AAG are paid
a fee of $1,500 for attendance at each Board meeting, and $1,000 for
attendance at each committee meeting. All directors are reimbursed for
expenses incurred in attending board and committee meetings.
Pursuant to the 1994 Directors' Stock Appreciation Rights Plan, each non-
employee director was granted 10,000 stock appreciation rights on March 2,
1994 at an exercise price of $9.62. On each March 1 thereafter, each non-
employee director received 1,000 stock appreciation rights. The exercise
price of the stock appreciation rights was equal to the average market price
of AAG Common Stock for the ten trading days preceding the grant date. In
February 1997, the Board of Directors terminated the 1994 Directors' Stock
Appreciation Rights Plan and replaced it with the Directors' Stock Option
Plan. In connection with the termination of the 1994 Directors' Stock
Appreciation Rights Plan, each non-employee director was issued shares of
AAG Common Stock with a fair market value equal to the intrinsic value of
the Stock Appreciation Rights held by such person and was granted an option
to purchase 10,078 shares of Common Stock at $14.38 per share. Pursuant to
the Directors' Stock Option Plan, each March 1, each non-employee director
will receive a stock option to purchase 1,000 shares of AAG Common Stock,
with an exercise price based on the average market price of AAG Common Stock
for the ten trading days preceding the grant date.
Compensation of Executive Officers
The following table sets forth information concerning the annual and long-
term compensation for services in all capacities to AAG and its subsidiaries
for the three years ended December 31, 1997 paid to the chief executive
officer and the other five most highly compensated executive officers of
AAG.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Other Securities
Name and Annual Underlying All Other
Principal Compen- Options/ Compen-
Position Year Salary Bonus sation(b) SARs (c) sation (d)
Carl H. Lindner 1997 $101,959 -- $4,061 -- --
Chairman of the 1996 $101,923 -- $5,685 -- --
Board and Chief 1995 $101,923 -- $3,956 -- --
Executive
Officer (a)
S. Craig Lindner 1997 $336,346 $277,500 $1,245 -- --
President 1996 $330,231 $407,000 $735 -- --
1995 $318,000 $414,000 $1,915 -- --
Robert A. Adams 1997 $514,712 $453,600 $57,518 50,000 $30,000
Executive Vice 1996 $499,423 $445,500 $49,799 476,004 $29,965
President and Chief 1995 $479,039 $448,500 $34,527 75,000 $30,000
Operating Officer
Keith A. Jensen 1997 $230,769 $162,000 $7,765 115,000 $23,566
Senior Vice 1996 -- -- -- -- --
President (e) 1995 -- -- -- -- --
William J. Maney 1997 $193,654 $124,200 $10,922 25,000 $18,549
Senior Vice 1996 $184,481 $115,500 $3,284 127,145 $11,069
President, 1995 $176,327 $115,000 $11,769 20,000 $17,480
Treasurer and Chief
Financial Officer
Jeffrey S. Tate 1997 $193,654 $124,200 $16,515 25,000 $26,001
Senior Vice 1996 $184,481 $115,500 $7,853 127,145 $11,069
President 1995 $171,231 $115,000 $4,720 20,000 $17,174
(a) In his capacity as Chief Executive Officer of AAG, Mr. Lindner is
paid a base annual salary of $100,000. Mr. Lindner did not
participate in any other compensation plans of AAG.
(b) The amounts listed under "Other Annual Compensation" for 1997 include
the value of automobile and homeowners insurance coverage provided
pursuant to the Executive Insurance Program and the premiums paid for
group life coverage in excess of $50,000 per individual, respective-
ly, for each person as follows: Mr. Adams - $14,660 and $5,472, Mr.
Jensen $4,255 and $1,064, Mr. Maney - $8,070 and $1,148, and Mr. Tate
- $2,725 and $673. The amounts for 1997 also include spousal travel
reimbursement of $21,406 for Mr. Adams and $11,858 for Mr. Tate. The
amount for Mr. Adams also includes an auto allowance of $14,400. The
amounts for Messrs. Carl Lindner and S. Craig Lindner reflect
premiums paid for group life coverage in excess of $50,000.
(c) Amounts for 1996 include options which were granted in connection
with a program whereby holders of SARs were given the opportunity to
exercise their SARs and were granted a stock option to purchase that
number of shares of AAG Common Stock as was equal to the number of
SARs exercised by such person less the number of shares of AAG Common
Stock issued to such person upon exercise of the SARs. The number
of options issued to each person pursuant to this program were as
follows: Mr. Adams - 366,004, Mr. Maney - 82,145 and Mr. Tate -
82,145.
(d) Amounts listed under "All Other Compensation" for each of the named
persons reflect amounts contributed to the AAG ESORP and AAG
Auxiliary ESORP.
(e) Mr. Jensen became an employee of the Company effective January 27,
1997.
Stock option grants for the year ended December 31, 1997, for the
Executive Officers named in the Summary Compensation Table are as follows:
STOCK OPTION GRANTS IN 1997
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Stock Option Term(a)
% of Total
Stock Options
Stock Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price(b) Date(c) 0% 5% 10%
Carl H.
Lindner -- -- -- -- -- -- --
S. Craig
Lindner -- -- -- -- -- -- --
Robert A.
Adams 50,000 8.6% $21.375 12/19/2007 0 $672,131 $1,703,312
Keith A.
Jensen 90,000 15.6% $14.00 1/27/2007 0 $792,407 $2,008,115
25,000 4.3% $21.375 12/19/2007 0 $336,066 $851,656
William J
Maney 25,000 4.3% $21.375 12/19/2007 0 $336,066 $851,656
Jeffrey S
Tate 25,000 4.3% $21.375 12/19/2007 0 $336,066 $851,656
(a) The Potential Realizable Value is calculated based on a market price
for AAG Common Stock of $14.00 for the stock options granted on
January 27, 1997 and $21.375 for the stock options granted on
December 19, 1997.
(b) The closing price for AAG Common Stock on January 27, 1997 and
December 19, 1997 was $14.00 and $21.375, respectively .
(c) The stock options become exercisable to the extent of 20% on each of
the first five anniversaries of the date of grant.
AGGREGATED OPTION EXERCISES IN 1997
AND OPTION VALUES AT DECEMBER 31, 1997
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at Fiscal Year
Fiscal Year End End (a)
Options Value Exercisable/ Exercisable/
Name Exercised Realized Unexercisable Unexercisable
Carl H.
Lindner -- -- -- --
S. Craig
Lindner -- -- -- --
Robert A.
Adams -- -- 85,201/390,803 $739,507/$2,989,028
Keith A.
Jensen -- -- 0/115,000 $0/$735,500
William J.
Maney -- -- 21,429/110,716 $185,004/$755,515
Jeffrey S.
Tate -- -- 21,429/110,716 $185,004/$755,515
(a) The Value of Unexercised In-the-Money Options at Fiscal Year End
is calculated based on a market price for AAG Common Stock on
December 31, 1997 of $22.00 per share.
Organization and Policy Committee Report
The Organization and Policy Committee of AAG's Board of Directors consists
of two directors, neither of whom is an employee of AAG or any of its
subsidiaries. The Committee's functions include reviewing and making
recommendations to the Board of Directors with respect to the compensation
of each officer of the Company whose annual base salary exceeds $200,000.
AAG's cash compensation for executive officers in 1997 was comprised
principally of annual base salaries and payments pursuant to the 1997
Corporate Bonus Plan. The grant of stock options to executive officers
provided long-term incentive based compensation. In determining
compensation for executive officers, the Committee does not make comparisons
with other companies.
Annual Base Salaries. The Committee approves annual base salaries and
salary increases for executive officers that are appropriate for their
positions and levels of responsibilities. The Committee takes into
consideration the Company's long-term performance in establishing annual
base salaries for executive officers.
1997 Corporate Bonus Plan. Each of the named executive officers, other
than Carl H. Lindner, was eligible to participate in the 1997 Corporate
Bonus Plan. The Bonus Plan compensated participants based on the financial
and operational performance of the Company. Under the Bonus Plan, the
Organization and Policy Committee established a target bonus for each
participant based on such person's duties and responsibilities with the
Company and expected contributions during the year. The Committee also
established financial and operational goals for the Company, with the
financial goals accounting for 75% of the bonus potential and the
operational goals accounting for the other 25%. Based on the attainment of
these goals, participants in the Bonus Plan could earn up to 125% of the
target bonus amounts. The bonuses reported in the Summary Compensation
Table for 1997 are amounts awarded to participating executive officers in
December 1997. In some cases, bonuses were not paid until January 1998. In
most cases, bonuses were paid at the rate of 108% of the target bonus
amounts and were based on assessments of the achievement of the financial
and operational goals established by the Committee. The principal factors
in evaluating the Company's operational goals were the continued
improvements in the Company's capital structure as well as the growth in
operating earnings.
Compensation of the Chief Executive Officer. In April 1992, the
Organization and Policy Committee approved an annual base salary of $100,000
for Carl H. Lindner, Chief Executive Officer of the Company. In
establishing this salary, the Committee considered the fact Mr. Lindner
would not be working full-time on AAG related matters as a result of his
numerous management responsibilities with AFG and its affiliates. In
establishing Mr. Lindner's salary, the Committee gave consideration to the
Company's long-term performance. During 1997, Mr. Lindner did not
participate in any other compensation plans or arrangements of AAG.
Stock Options. Stock options represent a performance-based portion of the
Company's compensation system. The Committee believes that stockholders'
interests are well served by aligning the interests of the Company's
executive officers with those of stockholders by the grant of stock options.
Incentive stock options are granted with an exercise price equal to the fair
market value of AAG Common Stock on the date of grant and become exercisable
at the rate of 20% per year. The Committee believes that these features
provide executive officers with substantial incentives to maximize AAG's
long-term success.
Internal Revenue Code Section 162. Provisions of the Internal Revenue
Code provide that compensation in excess of $1 million per year paid to the
Chief Executive Officer as well as other executive officers listed in the
compensation table will not be deductible unless the compensation is
"performance based" and the related compensation is approved by
stockholders. It was not considered by the Committee in determining 1997
compensation.
Members of the Organization and Policy Committee:
Ronald G. Joseph
John T. Lawrence III
Organization and Policy Committee Interlocks and Insider Participation.
The members of the Organization and Policy Committee are Ronald G. Joseph
and John T. Lawrence III, neither of whom was during 1997 or prior years an
officer or employee of AAG or any of its subsidiaries.
Performance Graph. The following graph compares the cumulative total
stockholder return on AAG Common Stock with the cumulative total return of
the Standard & Poor's 500 Stock Index ("S&P 500") and the Standard & Poor's
Life Insurance Industry Index ("S&P Life") from the end of 1992 to the end
of 1997. The graph assumes $100 invested on December 31, 1992 in AAG Common
Stock, the S&P 500 and the S&P Life, including reinvestment of dividends.
(The table below contains the data points used in the Performance Graph
which appears in the printed Proxy Statement.)
PERFORMANCE GRAPH INDEX
DECEMBER 31
1992 1993 1994 1995 1996 1997
American Annuity Group, Inc. 100 161 156 196 232 363
S&P LIFE 100 101 84 121 147 184
S&P 500 100 110 112 153 189 252
Certain Transactions
AAG and AMM, a wholly-owned subsidiary of AFG, are parties to an
Investment Services Agreement pursuant to which AMM provides investment and
custodial services to AAG's insurance subsidiaries in accordance with
guidelines approved by AAG's directors who are not affiliated with AFG.
AAG and its subsidiaries pay AMM an annual fee of .10% of total invested
assets (as defined), provided that such fee does not exceed the actual cost
to AMM of providing such services, and AMM is reimbursed for certain
expenses. Investment expenses charged by AMM to AAG and its subsidiaries
were $2.9 million in 1997. In connection with the purchase of GALIC by AAG,
Great American Insurance Company ("GAI"), the former parent of GALIC and a
wholly-owned subsidiary of AFG, agreed to neutralize the financial impact on
GALIC of the adoption of an actuarial guideline that was under consideration
at the time of the transaction. This actuarial guideline was subsequently
adopted with an effective date of December 31, 1995. In fulfillment of its
commitment, on December 28, 1995, GAI agreed that until December 31, 1997,
it would purchase shares of AAG Preferred Stock in amounts necessary to
neutralize the estimated impact of the adoption of this actuarial guideline.
In addition, AMM agreed to reduce the fees owed by AAG and its subsidiaries
under certain circumstances. In December 1996 and 1995, GAI purchased $21.7
million and $17 million, respectively, of Preferred Stock. AFC bought an
additional $10.3 million of Preferred Stock from AAG on December 31, 1996 in
connection with this obligation. In March 1997, AAG repurchased all the
Series B Preferred Stock for approximately $47 million. In 1997, AAG and
GAI agreed that no additional shares of AAG Preferred Stock would be issued
pursuant to this arrangement and that the financial impact of the actuarial
guideline would be offset solely by reduction of investment management fees.
AAG, GALIC and certain of their subsidiaries are members of AFC's
consolidated tax group. AAG and GALIC have separate tax allocation
agreements with AFC which designate how tax payments are shared by members
of the tax group. In general, these companies compute taxes on a separate
return basis. GALIC is obligated to make payments to (or receive benefits
from) AFC based on taxable income without regard to temporary differences.
If GALIC's taxable income (computed on a statutory accounting basis) exceeds
a current period net operating loss of AAG, the taxes payable by GALIC
associated with the excess are payable to AFC. If the AFC tax group
utilizes any of AAG's net operating losses or deductions that originated
prior to 1993, AFC will pay to AAG an amount equal to the benefit received.
During 1997, AAG and its subsidiaries which are included in the AFC
consolidated tax group incurred income tax expense of $26.5 million. In
1997, AAG paid AFC $9.8 million in tax allocation payments.
GAI leases office space in a building owned by GALIC in Cincinnati, Ohio,
under a lease which expires in March 2009. GALIC recorded rental income of
approximately $900,000 from GAI in 1997. In 1997, AAG made payments of
approximately $633,000 to Chiquita for the use of cafeteria and other
facilities in Cincinnati, Ohio and for miscellaneous items. Chiquita paid
AAG approximately $989,000 as a rent differential in connection with the
termination of a sublease arrangement for office space in Cincinnati, Ohio.
It was determined in 1992 that the agreements governing the Company's 1987
spin-off from American Premier Underwriters, Inc. ("APU") obligate the
Company to reimburse APU for workers' compensation claim payments which
continue to be required with respect to the Company's operations from 1978
to 1987. The Company paid approximately $161,000 to APU with respect to
this liability during 1997.
AAG purchased various property and casualty insurance from GAI and paid
approximately $90,000 in premiums in 1997.
GALIC was a participating lender in a credit facility made available to
New Energy Company of Indiana Limited Partnership, the general partner of
which was 28% owned by Chiquita Brands International. New Energy Company is
engaged in the production of ethanol. Outstanding loans accrued interest at
the prime rate plus 3%. The highest outstanding balance owed to GALIC
during 1997 was $600,000, all of which was repaid in 1997.
GALIC is a participating lender under a credit agreement with American
Heritage Holding Corporation, a Florida-based home builder which is 49%
owned by AFG. Outstanding loans bear interest at 13% per annum. The
highest outstanding balance owed to GALIC during 1997 and the balance at
year-end 1997 was $2.5 million.
In connection with the acquisition of GALIC by AAG, GALIC's costs for
state guarantee funds are set at $1 million per year for a five-year period
with respect to insurance companies in receivership, rehabilitation,
liquidation or similar situation at December 31, 1992. For any year from
1993 through 1997 in which GALIC pays more than $1 million to the various
states, GAI will reimburse GALIC for the excess assessments. For any year
in which GALIC pays less than $1 million, AAG will pay GAI the difference
between $1 million and the assessed amounts. GAI reimbursed GALIC
approximately $353,000 in 1997 for certain of the assessments.
At year-end 1997, two defined benefit pension plans maintained by
subsidiaries of AFG were merged into a defined benefit pension plan
sponsored by AAG. The two pension plans maintained by AFG were overfunded
by approxmately $14 million, while the plan maintained by AAG was
underfunded by approximately $10 million. The surviving plan will continue
to be sponsored by AAG and is no longer underfunded as a result of the
merger.
Proxies
Solicitation. Solicitation of proxies is being made by management at the
direction of AAG's Board of Directors, without additional compensation,
through the mail, in person and otherwise. The cost will be borne by AAG.
In addition, AAG will request brokers and other custodians, nominees and
fiduciaries to forward proxy soliciting material to the beneficial owners of
shares held of record by such persons, and AAG will reimburse them for their
expenses in so doing.
Revocation. The execution of a proxy does not affect the right to vote in
person at the meeting, and a proxy may be revoked by the person giving it
prior to the exercise of the powers conferred by it. A stockholder may
revoke a proxy by communicating in writing to the Secretary of AAG at the
Company's principal offices or by duly executing and delivering a proxy
bearing a later date. In addition, persons attending the meeting in person
may withdraw their proxies. Unless a proxy is revoked or withdrawn, the
shares represented thereby will be voted or the votes withheld at the Annual
Meeting or any adjournments thereof in the manner described in this Proxy
Statement.
Quorum and Vote Required for Approval
The presence at the Annual Meeting, in person or by proxy, of the holders
of at least a majority of the shares of AAG Common Stock outstanding at the
Record Date shall constitute a quorum to consider Proposals 1 and 2. If a
quorum does not attend the Annual Meeting, those stockholders who attend in
person or by proxy may adjourn the meeting to such time and place as they
may determine.
The seven nominees receiving the highest number of votes will be elected
as directors.
The affirmative vote of the holders of at least a majority of the total
number of shares of AAG Common Stock represented at the Annual Meeting will
be required to adopt Proposal 2 (relating to the 1994 Stock Option Plan).
If Proposal 2 is not approved, any stock options granted subject to
stockholder approval will be cancelled.
With the exception of the election of Directors, abstentions and broker
non-votes will have the same effect as a vote against the foregoing
proposal.
Independent Auditors
The accounting firm of Ernst & Young served as the Company's independent
auditors for the fiscal year ended December 31, 1997. Ernst & Young also
serves as independent auditors for AFG and many of its affiliates.
Representatives of that firm will attend the annual meeting and will be
given the opportunity to comment, if they so desire, and to respond to
appropriate questions that may be asked by stockholders. No auditor has yet
been selected for the current year since it is generally the practice of AFG
and its subsidiaries not to select independent auditors prior to the annual
stockholders meeting.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires AAG's
officers, directors and persons who own more than ten percent of AAG's
Common Stock to file reports of ownership with the Securities and Exchange
Commission and to furnish AAG with copies of these reports. Based solely
upon its review of reports received by it, or upon written representation
from certain reporting persons that no reports were required, AAG believes
that during fiscal 1997 all filing requirements were met.
Nominations and Stockholder Proposals for 1999 Annual Meeting
The Organization and Policy Committee will consider stockholder
suggestions for nominees for director. Suggestions for director
consideration may be submitted to the Secretary of AAG at the Company's
principal executive offices. Suggestions received by the Secretary's office
by December 31 will be considered by the Committee for nomination at the
next Annual Meeting of Stockholders. Stockholders may also make nominations
for director by complying with the procedures described above under the
caption "Nominees for Director."
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders must be received by AAG not later than January 20,
1999 in order to be considered for inclusion in AAG's proxy statement for
that meeting. Any such proposal should be communicated in writing to the
Secretary of AAG at the Company's principal offices.
Annual Report and Form 10-K Report
An annual report for the year ended December 31, 1997, containing
financial and other information about the Company has previously been
provided or is being concurrently provided to all stockholders.
THE COMPANY WILL SEND, WITHOUT CHARGE, A COPY OF ITS 1997 ANNUAL REPORT ON
FORM 10-K (EXCLUDING EXHIBITS), AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, TO ANY STOCKHOLDER UPON WRITTEN REQUEST. REQUESTS SHOULD BE
SENT TO MARK F. MUETHING, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY, P.O. BOX 120, CINCINNATI, OHIO 45201-0120.
Cincinnati, Ohio
March 20, 1998
AMERICAN ANNUITY GROUP, INC.
Proxy for Annual Meeting
Registration Name and Address
The undersigned hereby appoints William J. Maney and Mark F. Muething, and
each of them, proxies of the undersigned, each with the power of
substitution, to vote all shares of Common Stock which the undersigned would
be entitled to vote at the Annual Meeting of Shareholders of American
Annuity Group, Inc. to be held on May 19, 1998 at 10:00 a.m., Eastern Time,
and any adjournment of such meeting.
The Board of Directors recommends a vote FOR each of the following
Proposals:
1. Election of Directors
/ / FOR AUTHORITY to elect the / / WITHHOLD AUTHORITY to
nominees listed below (except vote for every nominee
those whose names have been listed below
crossed out)
Robert A. Adams John T. Lawrence III S. Craig Lindner
A. Leon Fergenson Carl H. Lindner William R. Martin
Ronald G. Joseph
2. Approval of an amendment to the AAG 1994 Stock Option Plan to
increase the maximum number of options to be granted from
2,000,000 to 3,000,000.
/ / FOR / / AGAINST / / ABSTAIN
DATE: ___________________, 1998 SIGNATURE:
________________________________________
SIGNATURE:
________________________________________
(if held jointly) Important: Please
sign exactly as name appears hereon
indicating, where proper, official
position or representative capacity. In
case of joint holders, all should sign.
This proxy when properly executed will be voted in the manner dictated
herein by the above signed shareholder. If no direction is made, this proxy
will be voted FOR each Proposal. To vote your shares, please mark, sign,
date and return this proxy form using the enclosed envelope.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.