- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1 to
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File
December 31, 2002 No. 1-13653
AMERICAN FINANCIAL GROUP, INC.
Incorporated under IRS Employer I.D.
the Laws of Ohio No. 31-1544320
One East Fourth Street, Cincinnati, Ohio 45202
(513) 579-2121
Securities Registered Pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on which Registered
------------------- -----------------------
American Financial Group, Inc.:
Common Stock New York Stock Exchange
7-1/8% Senior Debentures due December 15, 2007 New York Stock Exchange
7-1/8% Senior Debentures due April 15, 2009 New York Stock Exchange
American Financial Capital Trust I (Guaranteed by Registrant):
9-1/8% Trust Originated Preferred Securities New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: None
Other securities for which reports are submitted pursuant to Section 15(d) of
the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and need not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer.
Yes X No
The aggregate market value of the Registrant's Common Stock held by
nonaffiliates as of the Registrant's most recently completed second fiscal
quarter (June 30, 2002) was approximately $960 million (based upon nonaffiliate
holdings of 40,224,462 shares and a market price of $23.90 per share).
As of April 1, 2003, there were 69,527,781 shares of the Registrant's
Common Stock outstanding, excluding 18,666,614 shares owned by subsidiaries.
- --------------------------------------------------------------------------------
This Form 10-K/A provides information required by Items 10, 11, 12, & 13 of Form
10-K.
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PART III
ITEM 10
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The directors and executive officers of American Financial Group, Inc.
("AFG") at April 15, 2003, were as follows:
Director or
Age (a) Position Executive Since
------- ------------------------------------------------- ---------------
Carl H. Lindner 83 Chairman of the Board and Chief Executive Officer 1959
S. Craig Lindner 48 Co-President and a Director 1979
Keith E. Lindner (b) 43 Co-President and a Director 1981
Carl H. Lindner III 49 Co-President and a Director 1980
Theodore H. Emmerich 76 Director 1988
James E. Evans 57 Senior Vice President and General Counsel
and a Director 1976
Terry S. Jacobs (c) 60 Nominee -
William R. Martin 74 Director 1994
William A. Shutzer (c) 56 Nominee -
William W. Verity 44 Director 2002
Keith A. Jensen 52 Senior Vice President 1999
Thomas E. Mischell 55 Senior Vice President - Taxes 1985
Fred J. Runk 60 Senior Vice President and Treasurer 1978
- ---------------------
(a) As of March 31, 2003.
(b) Keith E. Lindner has informed AFG that he will not stand for reelection
to AFG's Board of Directors in 2003 at the annual meeting of shareholders
to be held in June (the "2003 Meeting") and that he does not wish to be
re-elected as a Co-President.
(c) Messrs. Jacobs and Shutzer are Nominees for election as directors at the
2003 Meeting.
CARL H. LINDNER (Chairman of the Executive Committee) Mr. Lindner is the
Chairman of the Board and Chief Executive Officer of AFG and American Financial
Corporation ("AFC"). He is Chairman of the Board of Directors of Great American
Financial Resources, Inc., an 83%-owned subsidiary of AFG that markets
tax-deferred annuities principally to employees of educational institutions and
offers life and health insurance products.
KEITH E. LINDNER (Member of the Executive Committee) For more than five years,
Mr. Lindner has served as Co-President and a director of AFG and AFC. From March
1997 until March 2002, Mr. Lindner was Vice Chairman of the Board of Directors
of Chiquita Brands International, Inc., a worldwide marketer and producer of
bananas and other food products. Mr. Lindner has informed AFG that he will not
stand for reelection to the Board of Directors of AFG and AFC in 2003 and he
does not wish to be re-elected as a Co-President.
CARL H. LINDNER III (Member of the Executive Committee) For more than five
years, Mr. Lindner has served as Co-President and a director of AFG and AFC. For
over ten years, Mr. Lindner has been principally responsible for AFG's property
and casualty insurance operations.
S. CRAIG LINDNER (Member of the Executive Committee) For more than five years,
Mr. Lindner has served as Co-President and a director of AFG and AFC. He is also
President and a director of Great American Financial Resources, Inc. Mr. Lindner
is also President of American Money Management Corporation, a subsidiary that
provides investment services for AFG and its affiliated companies.
1
THEODORE H. EMMERICH (Chairman of the Audit Committee; Member of the
Compensation Committee) Prior to his retirement in 1986, Mr. Emmerich was
managing partner of the Cincinnati office of the independent accounting firm of
Ernst & Whinney. He is also a director of AFG and AFC and Summit Mutual Funds,
Inc.
JAMES E. EVANS For more than five years, Mr. Evans has served as Senior Vice
President and General Counsel of AFG and AFC. Mr. Evans is also a director of
AFC.
TERRY S. JACOBS Mr. Jacobs has been Chairman of the Board, Chief Executive
Officer, Treasurer and a director of Regent Communications, Inc. since its
incorporation in November 1996. Mr. Jacobs served as president and chief
executive officer of a privately-held radio broadcast company, which he
co-founded in 1993 and which acquired and operated 23 radio stations until its
merger into Jacor Communications, Inc. in February 1997. Prior to 1993, Mr.
Jacobs was chairman and chief executive officer of Jacor Communications, Inc., a
radio broadcast company. Mr. Jacobs currently serves as a director of Capital
Title Group, Inc. and National Grange Mutual Insurance Company ("National
Grange"), but has informed AFG that he is leaving the National Grange Board in
June 2003.
WILLIAM R. MARTIN (Chairman of the Compensation Committee; Member of the Audit
Committee) During the past five years, Mr. Martin has been Chairman of the Board
of MB Computing, Inc., a computer software and services company. Mr. Martin is
also a director of Great American Financial Resources and AFC.
WILLIAM A. SHUTZER Mr. Shutzer is a Managing Director of Lehman Brothers. He
served as a Partner in Thomas Weisel Partners LLC, a merchant banking firm, from
1999 through 2000, as Executive Vice President of ING Baring Furman Selz LLC
from 1998 through 1999, President of Furman Selz Inc. from 1995 through 1997 and
as a Managing Director of Lehman Brothers and its predecessors from 1978 through
1994. AFG has done business with each of these firms from time to time over the
past 20 years. Mr. Shutzer is also a member of the Boards of Directors of
Tiffany & Co., Jupiter Media Corp., Blount International, Inc., Practice Works,
Inc., and RSI Holding Corp.
WILLIAM W. VERITY (Member of the Audit Committee; Member of the Compensation
Committee) Mr. Verity has been President of Veritas Asset Management, LLC, an
investment management company, since January 1, 2002, and prior to that, he was
a partner of Pathway Guidance L.L.C., an executive consulting firm, since
October 2000. For more than five years previously, Mr. Verity was Chairman and
Chief Executive Officer of ENCOR Holdings, Inc., a developer and manufacturer of
plastic molded components.
KEITH A. JENSEN Mr. Jensen was named a Senior Vice President of AFG and AFC in
February 1999. He served as a Senior Vice President of Great American Financial
Resources from February 1997 until he was named Executive Vice President of that
company in May 1999.
THOMAS E. MISCHELL Mr. Mischell has served as Senior Vice President - Taxes of
AFG and AFC for over five years.
FRED J. RUNK Mr. Runk has served as Senior Vice President and Treasurer of AFG
and AFC for more than five years.
Carl H. Lindner is the father of Carl H. Lindner III, S. Craig Lindner
and Keith E. Lindner.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires AFG's executive officers,
directors and persons who own more than ten percent of AFG's Common Stock to
file reports of ownership with the Securities and Exchange Commission and to
furnish AFG with copies of these reports. AFG believes that all filing
requirements were met during 2002.
2
ITEM 11
EXECUTIVE COMPENSATION
----------------------
The following table summarizes the aggregate compensation for 2002, 2001
and 2000 of AFG's Chairman of the Board and Chief Executive Officer and its four
other most highly compensated executive officers during 2002 (the "Named
Executive Officers"). Such compensation includes amounts paid by AFG and its
subsidiaries and certain affiliates for the years indicated.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
---------------------------------------- -----------------
Securities
Name Other Annual Underlying All Other
And Compensation Options Granted Compensation
Principal Position Year Salary (a) Bonus (b) (c) (# of Shares) (d) (e)
----------------------------- ---- ---------- --------- ------------ ----------------- ------------
Carl H. Lindner 2002 $990,000 $950,000 $ 39,000 --- $41,000
Chairman of the Board and 2001 950,000 415,600 47,000 --- 48,000
Chief Executive Officer 2000 950,500 0 54,000 --- 44,000
-----------------------------
2002 990,000 950,000 41,000 55,000 30,000
Keith E. Lindner 2001 950,000 415,600 26,000 --- 29,400
Co-President 2000 950,500 0 35,000 110,000 34,000
-----------------------------
2002 990,000 950,000 88,000 55,000 31,000
Carl H. Lindner III 2001 950,000 415,600 74,000 --- 30,400
Co-President 2000 950,500 0 79,000 110,000 29,000
-----------------------------
2002 990,000 950,000 112,000 55,000 31,000
S. Craig Lindner 2001 950,000 415,600 106,000 --- 30,400
Co-President 2000 950,500 0 98,000 110,000 28,000
-----------------------------
James E. Evans 2002 990,000 750,000 200 50,000 34,000
Senior Vice President and 2001 950,000 400,000 4,000 --- 33,400
General Counsel 2000 950,500 290,000 500 100,000 30,000
(a) This column includes salaries paid by Chiquita to Keith E. Lindner of $8,500
in 2002, $55,000 in 2001, and $47,500 in 2000, and to Carl H. Lindner of
$12,000 in 2002, $70,000 in 2001, and $62,500 in 2000.
(b) Bonuses are for the year shown, regardless of when paid.
3
(c) This column includes amounts for personal homeowners and automobile
insurance coverage, and the use of corporate aircraft and automobile
service as follows.
Aircraft &
Name Year Insurance Automobile
-------------------- ---- --------- ----------
Carl H. Lindner 2002 $19,000 $20,000
2001 24,000 23,000
2000 25,000 29,000
Keith E. Lindner 2002 26,000 15,000
2001 21,000 5,000
2000 21,000 14,000
Carl H. Lindner III 2002 40,000 48,000
2001 37,000 47,000
2000 32,000 47,000
S. Craig Lindner 2002 52,000 60,000
2001 43,000 63,000
2000 44,000 54,000
James E. Evans 2002 -- 200
2001 -- 4,000
2000 -- 500
(d) The number of options shown as granted during 2000 includes the 2001
grant, which was made in late December 2000.
(e) Includes AFG or subsidiary contributions or allocations under the (i)
defined contribution retirement plans and (ii) employee savings plan in
which the following Named Executive Officers participate (and related
accruals for their benefit under a benefit equalization plan which
generally makes up certain reductions caused by Internal Revenue Code
limitations in contributions to certain retirement plans) and AFG paid
group life insurance as set forth below.
AFG
Auxiliary Retirement
Name Year RASP Plan Savings Plan Term Life
------------------------ ---- --------- ---------- ------------ ---------
Carl H. Lindner 2002 $15,000 $10,000 -- $16,000
2001 16,500 8,500 -- 23,000
2000 16,500 8,500 -- 19,000
Keith E. Lindner 2002 15,000 10,000 $4,000 1,000
2001 16,500 8,500 3,400 1,000
2000 16,500 8,500 8,000 1,000
Carl H. Lindner III 2002 15,000 10,000 4,000 2,000
2001 16,500 8,500 3,400 2,000
2000 16,500 8,500 2,000 2,000
S. Craig Lindner 2002 15,000 10,000 4,000 2,000
2001 16,500 8,500 3,400 2,000
2000 16,500 8,500 2,000 1,000
James E. Evans 2002 15,000 10,000 4,000 5,000
2001 16,500 8,500 3,400 5,000
2000 16,500 8,500 2,000 3,000
4
STOCK OPTIONS
The tables set forth below disclose stock options granted to, or
exercised by, the Named Executive Officers during 2002, and the number and value
of unexercised options held by them at December 31, 2002.
OPTION GRANTS IN 2002
Individual Grants
----------------------------------------------------------------
Potential Realizable
Number of Percent of Exercise Value at Assumed Annual Rates
Securities Total Price per of Stock Price
Underlying Options Options Share Appreciation for Option
Granted to (fair market Term(b)
Granted (a) Employees value at date Expiration ----------------------------
Name (# of shares) in 1999 of grant) Date 5% 10%
- ------------------- ------------------ ---------- ------------- ---------- --------- ----------
Carl H. Lindner - - - - - - -
Keith E. Lindner AFG 55,000 5.2% $25.78 2/25/12 $891,710 $2,259,767
S. Craig Lindner AFG 55,000 5.2% $25.78 2/25/12 $891,710 $2,259,767
Carl H. Lindner III AFG 55,000 5.2% $25.78 2/25/12 $891,710 $2,259,767
James E. Evans AFG 50,000 4.7% $25.78 2/25/12 $810,645 $2,054,334
(a) The options were granted under AFG's Stock Option Plan and cover AFG
Common Stock. They vest (become exercisable) to the extent of 20% per
year, beginning one year from the respective dates of grant, and become
fully exercisable in the event of death or disability or in the event
of involuntary termination of employment without cause within one year
after a change of control of AFG.
(b) Represents the hypothetical future values that would be realizable if
all the options were exercised immediately prior to their expiration in
2012 and assuming that the market price of AFG's Common Stock had
appreciated in value through the year 2012 at the annual rate of 5% (to
$41.99 per share) or 10% (to $66.87 per share). Such hypothetical
future values have not been discounted to their respective present
values, which are lower.
AGGREGATED OPTION EXERCISES IN 2002 AND 2002 YEAR-END OPTION VALUES
Number of Securities
Shares Underlying Value of Unexercised
Acquired on Unexercised Options In-the-Money Options
Exercise at Year End at Year End (a)
(# of Value ---------------------------- ---------------------------
Name Company Shares) Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------- ----------- -------- ----------- ------------- ---------------------------
Carl H. Lindner AFG - $ - - - - -
Carl H. Lindner III AFG - $ - 547,272 149,000 $144,100 $216,150
S. Craig Lindner AFG - $ - 547,272 149,000 $149,017 $216,150
Keith E. Lindner AFG - $ - 547,272 149,000 $144,100 $216,150
James E. Evans AFG - $ - 276,000 135,000 $131,000 $196,500
(a) The value of unexercised in-the-money options is calculated based on
the New York Stock Exchange closing market price of AFG's Common Stock
at year-end 2002. This price was $23.07 per share.
5
COMPENSATION COMMITTEE REPORT
The Compensation Committee of the Board of Directors consists of three
directors, none of whom is an employee of AFG 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 AFG's senior executive
officers, as defined from time to time by the Board. The term "senior executive
officers" currently includes the Chairman of the Board and Chief Executive
Officer (the "CEO") and the Co-Presidents. The Compensation Committee has the
exclusive authority to grant stock options under AFG's Stock Option Plan to
employees of AFG and its subsidiaries, including senior executive officers.
COMPENSATION OF EXECUTIVE OFFICERS AFG's compensation policy for all
executive officers of AFG has three principal components: annual base salary,
annual incentive bonuses and stock option grants. Before decisions were made
regarding 2002 compensation for the senior executives, the Committee had
discussions with AFG executives to solicit their thoughts regarding
compensation. Based in part on such discussions as well as the Committee's
review of AFG's financial results for the preceding year, the Committee
deliberated, formed its recommendations, and presented its determinations
regarding salary and bonus to the full Board for its review and approval. The
compensation decisions discussed in this report conformed with recommendations
made by the Committee, the CEO and the Co-Presidents.
ANNUAL BASE SALARIES The Committee approved annual base salaries and
salary increases for the senior executive officers that were appropriate, in the
Committee's subjective judgment, for their respective positions and levels of
responsibilities. The Committee approved the 2002 salaries of the CEO and the
Co-Presidents, noting that such salaries represented an approximately 4%
increase over the salary that had been in effect in 2001, 2000, 1999, 1998 and
the latter part of 1997.
ANNUAL BONUSES As was the case for the past five years, the Committee,
working with management, developed an annual bonus plan for 2002 for the CEO and
the Co-Presidents that would make a substantial portion of their total
compensation dependent on AFG's performance, including achievement of
pre-established earnings per share targets. Other executive officers of AFG were
included in the annual bonus plan for 2002 by action of the Executive Committee.
The annual bonus plan for 2002 made 50% of each participant's annual
bonus dependent on AFG attaining certain earnings per share targets. The other
50% is based on AFG's overall performance, as subjectively determined by the
Committee.
Under the 2002 annual bonus plan, the bonus target amount for the CEO
and each of the Co-Presidents was $990,000 with 0% to 175% of $495,000 (50% of
$990,000) to be paid depending on AFG achieving certain 2002 earnings per share
allocable to insurance operations (the "EPS Component") and 0% to 175% of
$495,000 to be paid based on AFG's overall performance, as subjectively
determined by the Committee (the "AFG Performance Component").
The earnings per share target which would result in the payment of 100%
of the EPS Component bonus was set by the Committee at $2.35. In recommending
the 2002 annual bonus plan to the Board for adoption, the Committee noted that
no bonus should be paid under the plan if 2002 earnings per share from insurance
operations are less than $1.76 (75% of the 2002 EPS target). The Committee noted
that the annual bonus plan provides that unusual or non-recurring items are not
to be included in determining earnings allocable to insurance operations. Not
including an increase in reserves in connection with asbestos related litigation
and tax resolution benefits, AFG reported earnings per share from insurance
operations of $2.42. The annual bonus plan provided that in the event earnings
per share from insurance operations exceed $2.35, more than 100% of the EPS
Component bonus could be paid, such excess to be subjectively determined. The
Committee considered the factors discussed below to determine if any amount over
100% should be paid under the EPS Component and any amount that may have been
earned under the AFG Performance Component. The Committee concurred with the
senior executives that the amount of bonus to be paid under the EPS Component to
the CEO and each of the Co-Presidents would be $495,000, and no amount over 100%
of the target of the EPS Component would be paid.
6
The Committee considered a number of factors in discussions of AFG's
performance with senior executives. The Committee viewed the following factors
positively: (i) the fact that earnings per share from insurance operations
exceeded published analyst expectations; (ii) the two segments of AFG's property
and casualty insurance operations achieved underwriting profits and were able to
increase rates more than planned; (iii) AFG raised capital through the sale of
common stock of Infinity Property and Casualty Corporation (the positive view of
this consideration was somewhat offset by the stock offering resulting in a loss
to the Company); (iv) the return on equity of earnings from insurance
operations; (v) resolution of certain tax matters; and (vi) investment portfolio
performance including the sale of an investee. The Committee viewed negatively
these factors: (i) the decline in stock price from December 31, 2001 to December
31, 2002, although it noted that the percentage decline in the stock price was
less than that of the Standard & Poors 500 Index, the Dow Jones Industrial
Average, the Standard & Poors 500 Property and Casualty Stock Index, the
Standard & Poors Mid-Cap Insurance Index and the Standard and Poors 500 Life &
Health Insurance Index; (ii) the fact that AFG's and certain subsidiaries'
credit and financial strength ratings were given a negative outlook or, in one
instance, due to a rating agency policy as opposed to AFG performance, a
downgrade; and (iii) the only asbestos-related claim known to be material to AFG
was settled for an amount in excess of existing reserves (the negative view was
somewhat offset by the fact that the settlement enhances financial certainty).
The Committee agreed with management's recommendation that a bonus of $455,000
(approximately 90% of the AFG Performance Component) under the AFG Performance
Component would be appropriate.
The annual base salary and bonus target amounts of the CEO and the
Co-Presidents are virtually identical because the Committee views them as a
management team whose skills and areas of expertise complement each other.
STOCK OPTION GRANTS Stock options represent an important part of AFG's
performance-based compensation system. The Committee believes that AFG
shareholders' interests are well served by aligning AFG's senior executives'
interests with those of its shareholders through the grant of stock options in
addition to paying a portion of any annual bonus in common stock. Options under
AFG's Stock Option Plan are granted at exercise prices equal to the fair market
value of common stock on the date of grant and vest at the rate of 20% per year.
The Committee believes that these features provide an optionee with substantial
incentive to maximize AFG's long-term success. Options for 55,000 shares were
granted to each of the Co-Presidents and additional options were granted to the
other senior executives of AFG in February 2002. No options were granted to such
persons in 2001. No options were granted to the CEO in 2001 or 2002.
Members of the Compensation Committee: William R. Martin, Chairman
Theodore H. Emmerich
William W. Verity
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
One of the adult sons of William R. Martin was an employee of the
Registrant's technology group through August 2002. He received compensation of
approximately $65,000 from AFG during 2002.
7
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return on
AFG's common stock with the cumulative total return of the Standard & Poor's
("S&P") 400 Midcap Index and the S&P 500 Property-Casualty Insurance Index.
(Assumes $100 invested on December 31, 1997 in AFG's Common Stock and the two
indexes, including reinvestment of dividends.)
[Graph omitted]
PERFORMANCE GRAPH INDEX
December 31,
---------------------------------------
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
AFG Common Stock 100 112 69 73 70 67
S&P 400 Midcap Index 100 119 136 160 159 136
S&P Property-Casualty Insurance Index 100 93 70 108 99 89
DIRECTORS' COMPENSATION
Pursuant to the Non-Employee Directors' Compensation Plan (the
"Directors' Plan"), all directors who are not officers or employees of AFG are
paid the following fees: an annual retainer of $40,000; an additional annual
retainer of $12,000 for each Board Committee on which the non-employee director
serves; and an attendance fee of $1,000 for each Board or Committee meeting
attended. Non-employee directors who become directors during the year receive a
pro rata portion of these annual retainers. The retainers and fees to be paid
under the Directors' Plan are reviewed by the Board of Directors from time to
time and are subject to change at its discretion.
In order to align further the interests of AFG's non-employee directors
with the interests of shareholders, the Directors' Plan provides that a minimum
of 50% of such directors' annual retainers are paid through the issuance of
shares of AFG Common Stock.
The Board of Directors has a program under which a retiring AFG
director (other than an officer or employee of AFG or any of its subsidiaries)
will, if the director has met certain eligibility requirements, receive upon
retirement (in a lump sum or, if elected, in deferred payments) an amount equal
to five times the then current annual director's fee. For purposes of this
program, retirement means resignation as an AFG director or not being nominated
for reelection by shareholders as an AFG director. To be eligible for the
retirement benefit, a person must have served as an AFG director for at least
four years while not an officer or employee of AFG or any of its subsidiaries.
In addition, an AFG director will not become eligible for the retirement benefit
until reaching age 55. A director who receives a retirement benefit must provide
consulting services to AFG on request for five years following retirement
without further compensation (except reimbursement for expenses). Under the
program, a death benefit equal to the retirement benefit will be paid (in lieu
of any retirement benefit under the program) to the designated beneficiary or
legal representative of any person who dies while serving as an AFG director,
whether or not eligible for a retirement benefit at time of death. This death
benefit will not be available to a director who at any time during the two years
immediately preceding death was an officer or employee of AFG or any of its
subsidiaries.
In addition to providing for the grant of stock options to key
employees, the Stock Option Plan provides for automatic annual grants of options
to each non-employee director of AFG. During 2002, each non-employee director
was granted an option under the foregoing provisions of the Stock Option Plan to
purchase 2,500 shares at an exercise price of $26.86 per share on June 1, 2002,
the exercise price being the fair market value of AFG's Common Stock on the
date of grant.
8
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
The following shareholders are the only persons known by AFG to own
beneficially 5% or more of its outstanding Common Stock as of March 31, 2003:
Amount and Nature of Beneficial Ownership
-------------------------------------------------
Name and Address Obtainable
Of Common Stock upon Exercise
Beneficial Owner Held (a) of Options (b) Total Percent of Class
- ------------------------ -------------- -------------- --------- ----------------
Carl H. Lindner
One East Fourth Street 8,646,204 (d) - 8,646,204 12.7%
Cincinnati, Ohio 45202
Carl H. Lindner III
One East Fourth Street 5,896,684 (e) 587,272 6,483,956 9.4%(c)
Cincinnati, Ohio 45202
S. Craig Lindner
One East Fourth Street 5,896,684 (f) 587,272 6,483,956 9.4%(c)
Cincinnati, Ohio 45202
Keith E. Lindner
250 East Fifth Street 5,896,684 (g) 587,272 6,483,956 9.4%(c)
Cincinnati, Ohio 45202
The American Financial
Group, Inc. Retirement 8,149,940 - 8,149,940 12.0%
and Savings Plan (h)
One East Fourth Street
Cincinnati, Ohio 45202
(a) Unless otherwise noted, the holder has sole voting and dispositive
power with respect to the shares listed.
(b) Represents shares of Common Stock that may be acquired within 60 days
of March 31, 2003 through the exercise of options granted under AFG's
Stock Option Plan. The Lindner family members listed above hold options
(both vested and unvested) to purchase the following numbers of shares
of Common Stock:
Carl H. Lindner -
Keith E. Lindner 751,272
Carl H. Lindner III 751,272
S. Craig Lindner 751,272
(c) The percentages of outstanding shares of Common Stock beneficially
owned (within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934) by Carl H. Lindner III, S. Craig Lindner and Keith E.
Lindner are 8.5%, 8.3% and 11.5%, respectively, after attributing the
shares held in various trusts for the benefit of the minor children of
S. Craig Lindner and Carl H. Lindner III (for which Keith E. Lindner
acts as trustee with voting and dispositive power) to Keith E. Lindner.
(d) Includes 4,123,443 shares held by his spouse and 252,378 shares held in
a charitable foundation over which Mr. Lindner has sole voting and
dispositive power but no pecuniary interest. Excludes 2,682,361 shares
held in a trust for the benefit of his family for which a third party
acts as trustee with voting and dispositive power.
(e) Includes 19,826 shares held by his spouse in a trust over which she has
voting and dispositive power, 19,847 shares held by one of his
children, 1,000,000 shares held by a limited liability company over
which shares he holds dispositive but not voting power, and 650,633
shares which are held in various trusts for the benefit of his children
for which Keith E. Lindner acts as trustee with voting and dispositive
power.
9
(f) Includes 74,054 shares held by his spouse as custodian for their minor
children or in a trust over which she has voting and dispositive power,
24,054 shares held by two of his children, 1,000,000 shares held by a
limited liability company over which shares he holds dispositive but
not voting power, 1,381,501 shares held in a trust for the benefit of
his children over which shares his spouse has dispositive but not
voting power, and 776,910 shares which are held in various trusts for
the benefit of his children for which Keith E. Lindner acts as trustee
with voting and dispositive power.
(g) Includes 341 shares held in a trust over which his spouse shares voting
and dispositive power with an individual not affiliated with AFG, 2,226
shares held in a trust over which he shares voting and dispositive
power with an individual not affiliated with AFG, 1,500,000 shares held
by a limited liability company over which shares he holds dispositive
but not voting power, and 2,076,807 shares held in a trust for the
benefit of his children over which shares his spouse has dispositive
but not voting power, but excludes 1,427,543 shares (described in
footnotes (e) and (f) above) which are held in various trusts for the
benefit of the minor children of his brothers, Carl H. Lindner III and
S. Craig Lindner, over which Keith E. Lindner has sole voting and
dispositive power but no pecuniary interest.
(h) The members of the Administrative Plan Committee of the American
Financial Group, Inc. Retirement and Savings Plan (the "RASP"), Sandra
W. Heimann and Thomas E. Mischell, direct the voting of the securities
held by the RASP. Both of the members of such Committee are executives
of AFG.
Carl H. Lindner, S. Craig Lindner, Carl H. Lindner III, Keith E.
Lindner and trusts for their benefit (collectively, the "Lindner Family") were
the beneficial owners of approximately 43.7% of AFG's Common Stock at March 31,
2003. The Lindner Family may be deemed to be controlling persons of AFG.
10
SECURITIES OWNERSHIP
The following table sets forth information, as of March 31, 2003,
concerning the beneficial ownership of equity securities of AFG and its
subsidiaries by each director, nominee for director, the executive officers
named in the Summary Compensation Table (see "Compensation" below) and by all of
these individuals as a group. Such information is based on data furnished by the
persons named. Except as set forth in the following table, no director or
executive officer beneficially owned 1% or more of any class of equity security
of AFG or any of its subsidiaries outstanding at March 31, 2003. Unless
otherwise indicated, the persons named have sole voting and dispositive power
over the shares reported.
Amount and Nature of Beneficial Ownership (a)
---------------------------------------------
Shares of Common Stock
Name of Shares of Common Obtainable on Exercise
Beneficial Owner Stock Held of Options (b)
- ------------------------------------- ------------------ ----------------------
Carl H. Lindner (c) 8,646,204 (d) -
Carl H. Lindner III (c) 5,896,684 (e) 587,272
S. Craig Lindner (c) 5,896,684 (f) 587,272
Keith E. Lindner (c) 5,896,684 (g) 587,272
Theodore H. Emmerich 16,944 13,000
James E. Evans 119,675 312,000
William R. Martin 41,096 16,000
William W. Verity 745 5,000
William A. Shutzer - -
Terry S. Jacobs 1,000 -
All directors, nominees and executive
officers as a group (13 persons)(c) 26,860,504 2,616,816
(a) Does not include the following ownership interests in subsidiaries of
AFG: Messrs. Emmerich, Evans, C. H. Lindner, S.C. Lindner and Martin,
and all directors and executive officers as a group beneficially own
1,561; 11,138; 6,100; 120,873; 29,275 and 302,851 shares, respectively,
of the common stock of Great American Financial Resources. Mr. Martin
and all directors and executive officers as a group beneficially own
40,126 (1.4%) and 63,494 shares (2.1%), respectively, of the preferred
stock of AFC.
(b) Consists of shares of Common Stock purchasable within 60 days of March
31, 2003 through the exercise of the vested portion of stock options
granted under AFG's Stock Option Plan.
(c) The shares set forth for Carl H. Lindner, Carl H. Lindner III, S. Craig
Lindner and Keith E. Lindner and all directors and officers as a group
constituted 12.7%, 9.4%, 9.4%, 9.4% and 43.2%, respectively, of the
Common Stock outstanding at March 31, 2003. For information as to the
percentage of outstanding shares beneficially owned (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934) by such
Lindner Family members, see "Principal Shareholders."
(d) Includes 4,123,443 shares held by his spouse and 252,378 shares held in
a charitable foundation over which Mr. Lindner has sole voting and
dispositive power but no pecuniary interest. Excludes 2,682,361 shares
held in a trust for the benefit of his family for which a third party
acts as trustee with voting and dispositive power.
(e) Includes 19,826 shares held by his spouse in a trust over which she has
voting and dispositive power, 19,847 shares held by one of his
children, 1,000,000 shares held by a limited liability company over
which shares he holds dispositive but not voting power, and 650,633
shares which are held in various trusts for the benefit of his minor
children for which Keith E. Lindner acts as trustee with voting and
dispositive power.
11
(f) Includes 74,054 shares held by his spouse as custodian for their minor
children or in a trust over which she has voting and dispositive power,
24,054 shares held by two of his children, 1,000,000 shares held by a
limited liability company over which shares he holds dispositive but
not voting power, 1,381,501 shares held in a trust for the benefit of
his children over which shares his spouse has dispositive but not
voting power, and 776,910 shares which are held in various trusts for
the benefit of his minor children for which Keith E. Lindner acts as
trustee with voting and dispositive power.
(g) Includes 341 shares held in a trust over which his spouse shares voting
and dispositive power with an individual not affiliated with AFG, 2,226
shares held in a trust over which he shares voting and dispositive
power with an individual not affiliated with AFG, 1,500,000 shares held
by a limited liability company over which shares he holds dispositive
but not voting power, and 2,076,807 shares held in a trust for the
benefit of his children over which shares his spouse has dispositive
but not voting power, but excludes 1,427,543 shares (described in
footnotes (e) and (f) above) which are held in various trusts for the
benefit of the minor children of his brothers, Carl H. Lindner III and
S. Craig Lindner, over which Keith E. Lindner has sole voting and
dispositive power but no pecuniary interest.
EQUITY COMPENSATION PLAN INFORMATION
See Item 5 for equity compensation plan information.
12
ITEM 13
CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
---------------------------------------------
Various business has been transacted between AFG and certain
affiliates, including rentals, investment management services, insurance and
sales of assets. The financial terms (costs, interest rates, collateral, risks
of collectibility and other) of these transactions are comparable to those
prevailing at the time of consummation which would apply to unrelated parties,
unless noted otherwise.
An AFG subsidiary owns a 29% interest in an aircraft, the remaining
interests in which are owned by Carl H. Lindner and his two brothers. Each owner
is committed to use and pay for a minimum number of flight hours. Capital costs
and fixed operating costs are allocated generally in proportion to ownership;
variable operating costs are allocated generally in proportion to usage.
Mr. Lindner has assigned his hours to the AFG subsidiary along with the
obligation to pay for operating costs allocated; Mr. Lindner continues to pay
allocated capital costs. Total charges paid by AFG during 2002 were $959,000.
In 1997, Carl H. Lindner and Great American Financial Resources, Inc.
(an 83%-owned subsidiary of AFG) purchased 51% and 49%, respectively, of the
outstanding common stock of a newly incorporated entity formed to acquire the
assets of a company engaged in the production of ethanol. In 2000, the ethanol
company repurchased the 49% interest from GAFRI for amounts which included an
$18.9 million subordinated debenture bearing interest at 12 1/4% with scheduled
repayments through 2005. The highest balance owed on the subordinated debenture
during 2002 was $12.9 million and interest received during the year was
$1.6 million; the balance outstanding on March 1, 2003, was $10.9 million.
Another AFG subsidiary has a working capital credit facility in place under
which the ethanol company may borrow up to $10 million at a rate of prime plus
3%. There were no borrowings outstanding under this facility in 2002. In 1998,
GAFRI made a loan to the ethanol company in the amount of $4 million, bearing
interest at the rate of 14% and maturing in September 2008. Interest received
on this loan during 2002 was $568,000.
An AFG subsidiary had a loan outstanding during part of 2002 to a
Florida-based homebuilder which was 49% owned by AFG and 51% owned by brothers
of Carl H. Lindner. The highest outstanding balance owed to the AFG subsidiary
during 2002 was $8.0 million and interest paid during the year was $693,000. The
loan was repaid and terminated in 2002 when AFG sold its investment to an
unrelated party.
Members of the Lindner Family are the principal owners of Provident
Financial Group, Inc. ("Provident"). Provident leases its main banking and
corporate offices, which are located in the same buildings as AFG's
headquarters, from AFG. Provident paid rent of $3,778,000 for this office space
in 2002. In 2002, AFG paid Provident $150,000 in connection with an expense
sharing arrangement for a cafeteria operated by Provident for the employees of
both companies. AFG provides security guard and surveillance services at the
main office of Provident for which Provident paid $100,000 in 2002. Provident
paid AFG subsidiaries $612,000 for insurance coverage and $114,000 for record
retention services in 2002.
During 2002, AFG paid the Cincinnati Reds $162,000 for tickets to
baseball games. Carl H. Lindner is the Chief Executive Officer of the Reds. In
addition, a subsidiary of AFG, and a company owned by Carl H. Lindner, Carl H.
Lindner III, Keith E. Lindner and S. Craig Lindner, are part owners of the Reds.
In July 2000, AFG's principal insurance company subsidiary, Great
American Insurance Company, entered into a thirty-two-year agreement with the
Reds, pursuant to which the Reds' home stadium was named "Great American Ball
Park". Although no payments were required to be made in 2002, payments to the
Reds average approximately $2.3 million annually over the term of the agreement.
For these payments, Great American also receives approximately $1.3 million
annually of premium seating, marketing credits, and related sponsorship rights.
A brother-in-law of S. Craig Lindner is employed by GAFRI in a sales
and marketing position. During 2002, he was paid approximately $95,000 by GAFRI.
13
SIGNATURES
----------
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, American Financial Group, Inc. has duly caused this Report to be
signed on its behalf by the undersigned, duly authorized.
American Financial Group, Inc.
Signed: April 30, 2003
BY:s/FRED J. RUNK
-------------------------------
Fred J. Runk
Senior vice President and
Treasurer
14
AMERICAN FINANCIAL GROUP, INC.
SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS
--------------------------------------------
I, Carl H. Lindner, certify that:
1. I have reviewed this amendment to the annual report on Form 10-K of
American Financial Group, Inc.;
2. Based on my knowledge, this amendment to the annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this amendment to the annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amendment to the annual report, fairly present
in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
amendment to the annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this amendment to
the annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
amendment to the annual report (the "Evaluation Date"); and
c) presented in this amendment to the annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
amendment to the annual report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
April 30, 2003 BY: /s/Carl H. Lindner
---------------------------------
Carl H. Lindner
Chairman of the Board and
Chief Executive Officer
(principal executive officer)
15
AMERICAN FINANCIAL GROUP, INC.
SARBANES-OXLEY SECTION 302(a) CERTIFICATIONS - CONTINUED
--------------------------------------------------------
I, Fred J. Runk, certify that:
1. I have reviewed this amendment to the annual report on Form 10-K of
American Financial Group, Inc.;
2. Based on my knowledge, this amendment to the annual report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this amendment to the annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amendment to the annual report, fairly present
in all material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in this
amendment to the annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this amendment to the
annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
amendment to the annual report (the "Evaluation Date"); and
c) presented in this amendment to the annual report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
amendment to the annual report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies
and material weaknesses.
April 30, 2003 BY: /s/Fred J. Runk
--------------------------------------
Fred J. Runk
Senior Vice President and Treasurer
(principal financial officer)
16
AMERICAN FINANCIAL GROUP, INC.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the filing with the Securities and Exchange Commission of the
amendment to the Annual Report of American Financial Group, Inc. (the "Company")
on Form 10-K for the period ended December 31, 2002 (the "Report"), the
undersigned officers of the Company, certify, pursuant to section 906 of the
Sarbanes-Oxley Act of 2002, that to the best of their knowledge:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
April 30, 2003 BY: s/Carl H. Lindner
- -------------------------- -------------------------------------
Date Carl H. Lindner
Chairman of the Board and
Chief Executive Officer
April 30, 2003 BY: s/Fred J. Runk
- -------------------------- -------------------------------------
Date Fred J. Runk
Senior Vice President and Treasurer
17