-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PQUP6ULhPVxC6puXM0erXZGfUN8+b2CsDhMqrEmTN4kaDiT2lasnKuNwqk8l22Fm pg6xMaWdAJ7Ld3aWmKnklQ== 0001042046-03-000108.txt : 20030430 0001042046-03-000108.hdr.sgml : 20030430 20030430113528 ACCESSION NUMBER: 0001042046-03-000108 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN FINANCIAL CORP CENTRAL INDEX KEY: 0000005016 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 310624874 STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-07361 FILM NUMBER: 03671369 BUSINESS ADDRESS: STREET 1: ONE E 4TH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5135792121 10-K/A 1 afc10ka02.txt AFC 10-K AMEND 2002 - -------------------------------------------------------------------------------- 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. 1-7361 AMERICAN FINANCIAL CORPORATION Incorporated under IRS Employer I.D. the Laws of Ohio No. 31-0624874 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 ------------------- --------------------- Series J Voting Cumulative Preferred Stock Archipelago 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 No X The aggregate market value of the Registrant's Preferred Stock as of the Registrant's most recently completed second fiscal quarter (June 30, 2002) was approximately $57.7 million (based upon nonaffiliate holdings of 2,886,161 shares and a market price of $20.00 per share). As of April 1, 2003, there were 10,593,000 shares of the Registrant's Common Stock outstanding, all of which were owned by American Financial Group, Inc. At that date there were 2,886,161 shares of Series J Voting Preferred Stock outstanding (all of which were owned by non-affiliates). - -------------------------------------------------------------------------------- This Form 10-K/A provides information required by Items 10, 11, 12, & 13 of Form 10-K. - -------------------------------------------------------------------------------- PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The directors and executive officers of American Financial Corporation ("AFC") 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 Michael R. Barrett (c) 52 Director 2003 James E. Evans 57 Senior Vice President and General Counsel and a Director 1976 Timothy J. Fogarty (c) 45 Director 2003 Joseph P. Tomain (c) 54 Director 2003 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 AFC that he will not stand for reelection to AFC's Board of Directors in 2003 at the upcoming AFG shareholders' meeting and that he does not wish to be re-elected as a Co-President. (c) On April 14, 2003, American Financial Group, Inc. submitted a merger proposal to AFC, whereby AFC would merge with AFG, and in which each outstanding share of AFC's Series J Preferred Stock would be converted into the right to receive $22.00 of value in shares of AFG common stock. In order to respond to the proposal, the AFC Board elected three new directors (who are independent of AFG) to act as a special committee of the Board to consider the proposal. Joining the AFC Board to comprise the special committee were Joseph P. Tomain, Michael R. Barrett and Timothy J. Fogarty. Upon their election, Theodore H. Emmerich, William R. Martin and William W. Verity resigned from the Board. CARL H. LINDNER Mr. Lindner is the Chairman of the Board and Chief Executive Officer of American Financial Group, Inc. ("AFG") and AFC. He is Chairman of the Board of Directors of Great American Financial Resources, Inc., an 83%-owned subsidiary of AFC that markets tax-deferred annuities principally to employees of educational institutions and offers life and health insurance products. KEITH E. LINDNER For more than five years, Mr. Lindner has served as Co-President and a director of AFC and AFG. 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 AFC that he will not stand for reelection to the Board of Directors of AFC and AFG in 2003 and he does not wish to be re-elected as a Co-President. CARL H. LINDNER III For more than five years, Mr. Lindner has served as Co-President and a director of AFC and AFG. For over ten years, Mr. Lindner has been principally responsible for AFC's property and casualty insurance operations. S. CRAIG LINDNER For more than five years, Mr. Lindner has served as Co-President and a director of AFC and AFG. 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 AFC and its affiliated companies. 1 MICHAEL R. BARRETT Mr. Barrett has been a practicing attorney for over 25 years. He is currently in private practice, concentrating in general litigation. He serves on the board of trustees of a number of civic and charitable organizations. JAMES E. EVANS For more than five years, Mr. Evans has served as Senior Vice President and General Counsel of AFC and AFG. Mr. Evans is also a director of AFG. TIMOTHY J. FOGARTY Mr. Fogarty has served as co-chief executive officer of West Chester Holdings, Inc., a private company which distributes protective clothing. For over five years prior, he was an Executive Vice President and member of the management committee of Firstar Corporation (now known as US Bancorp), a regional bank holding company. JOSEPH P. TOMAIN Mr. Tomain has served as the Dean of the University of Cincinnati College of Law for nearly fifteen years. He serves on the board of trustees of a number of civic and charitable organizations. KEITH A. JENSEN Mr. Jensen was named a Senior Vice President of AFC and AFG 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 AFC and AFG for over five years. FRED J. RUNK Mr. Runk has served as Senior Vice President and Treasurer of AFC and AFG 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 AFC's executive officers, directors and persons who own more than ten percent of AFC's Series J Preferred Stock to file reports of ownership with the Securities and Exchange Commission and to furnish AFC with copies of these reports. AFC 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 AFC'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 AFC and its subsidiaries and certain affiliates during 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 AFC 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 AFC 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 No AFC stock options were granted to, or exercised by, the Named Executive Officers during 2002. Certain executive officers of AFC also serve as executive officers of AFG and certain AFC subsidiaries and may be granted employee stock options by such companies. 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 AFC, AFG or any of its subsidiaries. This Committee also acts as the Compensation Committee for AFG. The Committee's functions include reviewing and making recommendations to the Board of Directors with respect to the compensation of the Company'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 The Company's compensation policy for all executive officers of the Company 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 Company executives to solicit their thoughts regarding compensation. Based in part on such discussions as well as the Committee's review of the Company'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 the Company's performance, including achievement of pre-established earnings per share targets. Other executive officers of the Company 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 the Company'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 the Company's overall performance, as subjectively determined by the Committee (the "Company 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 Company Performance Component. The Committee concurred with the senior executives that the amount of bonus to be paid 6 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. The Committee considered a number of factors in discussions of the Company'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 the Company's property and casualty insurance operations achieved underwriting profits and were able to increase rates more than planned; (iii) the Company 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 AFG's 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 the Company 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 Company Performance Component) under the Company 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 the Company's performance-based compensation system. The Committee believes that AFG shareholders' interests are well served by aligning the Company'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 the Company'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 the Company 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 AFC during 2002. PERFORMANCE GRAPH No performance graph is included as AFC's Common Stock is not publicly traded. 7 DIRECTORS' COMPENSATION AFC's Board of Directors receives no annual compensation from AFC. However, they are paid as directors of AFG, as follows: Pursuant to AFG's 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 to own beneficially 5% or more of AFC's outstanding voting securities as of March 31, 2003. Name and Address of Amount and Nature of Percent of Beneficial Owner Voting Securities Held Voting Securities - ---------------------------------- ---------------------- ----------------- American Financial Group, Inc. (a) One East Fourth Street Cincinnati, Ohio 45202 10,593,000 (b) 79.0% (b) (a) Carl H. Lindner, Carl H. Lindner III, S. Craig Lindner, Keith E. Lindner and trusts for their benefit (collectively the "Lindner Family") are the beneficial owners of approximately 44% of the voting stock of AFG. AFG and the Lindner Family may be deemed to be controlling persons of AFC. (b) 100% of the shares of Common Stock. Voting securities also include shares of Series J Preferred Stock. SECURITIES OWNERSHIP The voting equity securities of AFC consist of its Common Stock and voting preferred stock. All of AFC's Common Stock is owned by AFG. At March 31, 2003, the beneficial ownership of AFC voting preferred stock and the equity securities of AFC's parent and subsidiaries by each director, nominee for director, the executive officers named in the Summary Compensation Table and by all directors and executive officers as a group was as set forth below. Mr. Martin and all directors and executive officers as a group beneficially own 40,126 (1.4%) and 63,494 (2.1%) shares, respectively, of the voting preferred stock of AFC. Messrs. Emmerich, Evans, C.H. Lindner, S.C. Lindner, 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. Beneficial ownership of shares of common stock of AFG was as follows: Carl H. Lindner - 8,646,204 (12.7%); Carl H. Lindner III - 6,483,956 (9.4%); S. Craig Lindner - 6,483,956 (9.4%); Keith E. Lindner - 6,483,956 (9.4%); Mr. Emmerich - 29,944; Mr. Evans - 431,675; Mr. Martin - 57,096; Mr. Verity - 5,745; and all directors and executive officers as a group - - 29,477,320 (43.2%). EQUITY COMPENSATION PLAN INFORMATION Not Applicable - Registrant's Common Stock is owned by American Financial Group, Inc. 9 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTION --------------------------------------------- Various business has been transacted between AFC 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. On April 14, 2003, AFG submitted a merger proposal to AFC, whereby AFC would merge with AFG. See footnote(c) to the table in Item 10 for a discussion of the proposal. AFC has a reciprocal Master Credit Agreement with AFG, AFC Holding Company ("AFCH") and certain subsidiary holding companies under which these companies make funds available to each other for general corporate purposes. Amounts borrowed under the agreement bear interest based on LIBOR. In January 2003, AFC agreed to guarantee the obligations of AFG with respect to $382 million principal amount of AFG publicly-held senior debentures, in consideration of a payment of approximately $350,000 and an increase of .125% in the interest rate which AFG pays AFC under the credit agreement. The highest amount payable to AFCH during 2002 was $334.8 million and the amount due AFCH at March 1, 2003, was $332.6 million. The highest amount receivable from AFG during 2002 was $181.4 million and the amount receivable at March 1, 2003, was $190.2 million. An AFC 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 AFC subsidiary along with the obligation to pay for operating costs allocated; Mr. Lindner continues to pay allocated capital costs. Total charges paid by AFC during 2002 were $959,000. In 1997, Carl H. Lindner and Great American Financial Resources, Inc. (an 83%-owned subsidiary of AFC) 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 AFC 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 AFC 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 AFC 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 building as AFC's headquarters, from AFC. Provident paid AFC rent of $3,778,000 for this office space in 2002. In 2002, AFC paid Provident $150,000 in connection with an expense sharing arrangement for a cafeteria operated by Provident for the employees of both companies. AFC provides security guard and surveillance services at the main office of Provident for which Provident paid $100,000 in 2002. Provident paid AFC subsidiaries $612,000 for insurance coverage and $114,000 for record retention services in 2002. 10 During 2002, AFC 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 AFC, 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, AFC'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. SIGNATURES ---------- Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, American Financial Corporation has duly caused this Report to be signed on its behalf by the undersigned, duly authorized. American Financial Corporation Signed: April 30, 2003 BY:s/FRED J. RUNK ------------------------------- Fred J. Runk Senior Vice President and Treasurer 11 AMERICAN FINANCIAL CORPORATION 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 Corporation; 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) 12 AMERICAN FINANCIAL CORPORATION 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 Corporation; 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) 13 AMERICAN FINANCIAL CORPORATION 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 Corporation (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 14 -----END PRIVACY-ENHANCED MESSAGE-----