American Financial Group, Inc. DEF 14A
DEF 14A
SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Section 240.14a-12 |
AMERICAN
FINANCIAL GROUP, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11. |
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): |
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identity the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing. |
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One East Fourth Street
Cincinnati, Ohio 45202
Notice of Annual Meeting of Shareholders
and Proxy Statement
To be Held on May 18, 2006
Dear Shareholder:
We invite you to attend our Annual Meeting of Shareholders on Thursday, May 18, 2006, in
Cincinnati, Ohio. In connection with the meeting, we will report on our operations and you will
have an opportunity to meet your Companys directors and executives.
This booklet includes the formal notice of the meeting and the proxy statement. The proxy
statement tells you more about the agenda and procedures for the meeting. It also describes how
your Board of Directors operates and provides information about the director candidates.
All shareholders are important to us. We want your shares to be represented at the meeting
and urge you to vote either using our telephone voting system or by promptly returning a properly
completed proxy card.
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Sincerely, |
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Carl H. Lindner |
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Chairman of the Board |
Cincinnati, Ohio
April 12, 2006
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF AMERICAN FINANCIAL GROUP, INC.
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Date:
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Thursday, May 18, 2006 |
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Time:
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11:30 a.m. Eastern Time |
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Place:
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The Cincinnatian Hotel |
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Second Floor Filson Room |
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601 Vine Street |
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Cincinnati, Ohio |
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Purpose:
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1. Elect nine Directors |
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2. Ratify Independent Registered Public Accounting Firm |
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3. Consider Shareholder Proposal |
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4. Conduct other business if properly raised |
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Record Date:
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March 31, 2006 Shareholders registered in the records of
the Company or its agents on that date are entitled to
receive notice of and to vote at the meeting. |
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Mailing Date:
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The approximate mailing date of this proxy statement and
accompanying proxy card is April 15, 2006. |
Your vote is important.
If you are a shareholder of record you can now vote your shares via the Internet or by using a
toll-free telephone number by following the instructions on your proxy card. If voting by mail,
please complete, date and sign your proxy card and return it as soon as possible in the enclosed
postage-paid envelope.
- i -
Table Of Contents
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The Company makes available, free of charge on its website, all of its filings
that are made electronically with the SEC, including Forms 10-K, 10-Q and 8-K. To
access these filings, go to the Companys website (www.afginc.com) and click on
SEC Filings tab at the left under the Investor Relations page. Copies of the
Companys Annual Report on Form 10-K for the year ended December 31, 2005,
including financial statements and schedules thereto, filed with the SEC, are also
available without charge to shareholders upon written request addressed to:
Robert H. Ruffing
Vice President and Controller
American Financial Group, Inc.
580 Walnut Street
Cincinnati, Ohio 45202.
- ii -
GENERAL INFORMATION
Record Date; Shares Outstanding
As of March 31, 2006, the record date for determining shareholders entitled to notice of and
to vote at the meeting, the Company had 78,482,208 shares of common stock deemed outstanding and
eligible to vote. This number does not include 9,953,392 shares held by a subsidiary of AFG.
Under Ohio law, shares held by subsidiaries are not entitled to vote and are therefore not
considered to be outstanding for purposes of the meeting. Each share of outstanding common stock is
entitled to one vote on each matter to be presented at the meeting. Abstentions (including
instructions to withhold authority to vote for one or more nominees) and broker non-votes are
counted for purposes of determining a quorum, but will have no effect on the outcome of any matter
voted on at the meeting. Broker non-votes occur when a broker returns a proxy card but does not
have authority to vote on a particular proposal.
Proxies and Voting Procedures
All shareholders may vote by mail. Shareholders of record can also vote via the Internet or
by using the toll-free telephone number listed on the proxy card. Internet and telephone voting
information is provided on the proxy card. A control number, located on the lower right portion of
the proxy card, is designated to verify a shareholders identity and allow the shareholder to vote
the shares and confirm that the voting instructions have been recorded properly. If you vote via
the Internet or by telephone, please do not return a signed proxy card. Shareholders who hold
their shares through a bank or broker can vote via the Internet or by telephone if these options
are offered by the bank or broker.
If voting by mail, please complete, sign, date and return your proxy card enclosed with the
proxy statement in the accompanying postage-paid envelope.
If your shares are held in the name of your broker or bank and you wish to vote in person at
the meeting, you should request your broker or bank to issue you a proxy covering your shares.
Solicitation of proxies through the mail, in person and otherwise, is being made by management
at the direction of AFGs Board of Directors, without additional compensation. AFG will pay all
costs of soliciting proxies. In addition, AFG 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 AFG will reimburse them for their expenses.
If a choice is specified on a properly executed proxy card, the shares will be voted
accordingly. If a proxy card is signed without a preference indicated, those shares will be voted
FOR the election of the nine nominees proposed by the Board of Directors, FOR the ratification
of the Companys independent registered public accounting firm, and AGAINST the shareholder
proposal. The authority solicited by this proxy statement includes discretionary authority to
cumulate votes in the election of directors. If any other matters properly come before the meeting
or any postponement or adjournment thereof, each properly executed proxy card will be voted in the
discretion of the proxies named therein.
With respect to Proposal No. 1, the nine nominees who receive the greatest number of votes
will be elected. With respect to Proposals 2 and 3, a proposal will be adopted only if it receives
approval by a majority vote of those shares cast at the meeting.
Savings Plan Participants
If you are a participant in the Companys retirement and savings plan with a balance in either
the AFG Securities Fund or AFG Common Stock Fund, the accompanying proxy card shows the number of
shares of common stock attributed to your account balance under the plan, calculated as of the
record date. In order for your plan shares to be voted in your discretion, you must vote via the
Internet or by telephone, or return your proxy card properly signed, each at least two business
days prior to the meeting. If you vote by mail and make no direction, you do not vote via the
Internet or by telephone, or your proxy card is not received at least two business days prior to
the meeting, the Administrative Plan Committee will vote your plan shares in the Committees sole
discretion. All directions will be held in confidence.
Revoking a Proxy
Whether you vote by mail, via the Internet or by telephone, you may revoke your proxy at any
time before it is voted by submitting a new proxy with a later date, voting via the Internet or by
telephone at a later time, delivering a written notice of revocation to the Companys corporate
secretary, or voting in person at the meeting.
Cumulative Voting
Shareholders have cumulative voting rights in the election of directors and one vote per share
on all other matters. Cumulative voting allows a shareholder to multiply the number of shares
owned on the record date by the number of directors to be elected and to cast the total for one
nominee or distribute the votes among the nominees as the shareholder desires. Nominees who
receive the greatest number of votes will be elected. In order to invoke cumulative voting, notice
of cumulative voting must be given in writing to the Secretary of the Company not less than 48
hours before the time fixed for the holding of the meeting.
Adjournment and Other Matters
Approval of a motion for adjournment, postponement or other matters brought before the meeting
requires the affirmative vote of a majority of the shares voting at the meeting. Management knows
of no other matters to be presented at the meeting other than those stated in this document.
MATTERS TO BE CONSIDERED
Proposal No. 1 4 Elect Nine Directors
The Board of Directors oversees the management of the Company on your behalf. The Board
reviews AFGs long-term strategic plans and exercises direct decision-making authority in key areas
such as choosing the Co-Chief Executive Officers, setting the scope of their authority to manage
the Companys business day-to-day, and evaluating managements performance.
Upon the recommendation of the Corporate Governance Committee (the Governance Committee),
the Board of Directors has nominated nine individuals to hold office until the next annual meeting
of shareholders and until their successors are elected and qualified. If any of the nominees
should become unable to serve as a director, the proxies will be voted for any substitute nominee
designated by the Board of Directors but, in any event, no proxy may be voted for more than nine
nominees. The nine nominees who receive the greatest number of votes will be elected.
The nominees for election to the Board of Directors are:
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Carl H. Lindner
Director since 1959
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For more than five years, Mr. Lindner has served
as the Chairman of the Board, and until January
2005, also served as Chief Executive Officer of
the Company. He is also Chairman of the Board
of Directors of Great American Financial
Resources, Inc., a majority-owned subsidiary of
AFG that markets traditional fixed, indexed and
variable annuities and a variety of supplemental
insurance products. |
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Carl H. Lindner III
Director since 1991
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He has been Co-Chief Executive Officer since
January 2005, and for more than five years, Mr.
Lindner has served as Co-President of the
Company. For over ten years, Mr. Lindner has
been President of Great American Insurance
Company and has been principally responsible for
the Companys property and casualty insurance
operations. |
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S. Craig Lindner
Director since 1985
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He has been Co-Chief Executive Officer since
January 2005, and for more than five years Mr.
Lindner has served as Co-President of the
Company. He is also President and Chief
Executive Officer 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 the Company and its
affiliated companies. He is also a director of
National City Corp. |
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Kenneth C. Ambrecht
Director since 2005
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(Member of the Compensation Committee; Member of
the Corporate Governance Committee) Mr.
Ambrecht has extensive corporate finance
experience having worked in the U.S. capital
markets for over 30 years. In December 2005,
Mr. Ambrecht organized KCA Associates LLC,
through which he serves as a consultant to
several companies, advising them with respect to
financings and financial transactions. From
July 2004 to December 2005, he served as a
Managing Director with the investment banking
firm First Albany Capital. For more than five
years prior, Mr. Ambrecht was a Managing
Director with Royal Bank Canada Capital Markets.
Prior to that post, Mr. Ambrecht worked with
the investment bank Lehman Brothers as Managing
Director of its capital markets division. Mr.
Ambrecht is also a member of the Boards of
Directors of Great American Financial Resources,
Inc. and Fortescue Metals Group Limited, an
Australian mining company. |
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Theodore H. Emmerich
Director since 1988
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(Chairman of the Audit 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 Summit Mutual Funds,
Inc. |
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James E. Evans
Director since 1985
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For more than five years, Mr. Evans has served
as Senior Vice President and General Counsel of
the Company. |
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Terry S. Jacobs
Director since 2003
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(Member of the Audit Committee; Member of the
Corporate Governance Committee) Mr. Jacobs has
served as President and Chief Executive Officer
of The JFP Group, LLC, a real estate investment
and development company, since September 2005.
From its founding in September 1996 until
September 2005, Mr. Jacobs served as Chairman of
the Board and Chief Executive Officer of Regent
Communications, Inc. Mr. Jacobs currently
serves as Vice Chairman of the board of
directors of Regent Communications, which owns
and operates 75 radio stations in 15 markets.
Mr. Jacobs also currently serves as a director
of Capital Title Group, Inc. and Global
Entertainment Corp. |
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William R. Martin
Director since 1994
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(Chairman of the Compensation Committee; Member
of the Audit Committee) Prior to his retirement
in 2003, Mr. Martin had been Chairman of the
Board of MB Computing, Inc., a computer software
and services company, for more than five years.
Mr. Martin is also a director of Great American
Financial Resources, Inc. |
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William W. Verity
Director since 2002
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(Chairman of the Corporate Governance 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, from
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. |
Carl H. Lindner is the father of Carl H. Lindner III and S. Craig Lindner. All of the
nominees were elected directors at the last annual meeting of shareholders of the Company held on
May 19, 2005. See Management and Compensation below for additional information concerning the
background, securities holdings, remuneration and other matters relating to the nominees.
In March 2002, Chiquita Brands International, Inc. completed a comprehensive financial
restructuring that included a prepackaged plan of reorganization filed in November of the prior
year under Chapter 11 of the Bankruptcy Code. Carl H. Lindner was an executive officer of Chiquita
at the time of the filing.
The Board of Directors recommends that shareholders vote FOR the election of these nine
nominees as directors.
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Proposal No. 2 4 Ratification of the Companys Independent Registered Public Accounting Firm
The Companys Audit Committee Charter provides that the audit committee shall appoint annually
an independent registered public accounting firm to serve as auditors. In February 2006, the audit
committee appointed Ernst & Young LLP to serve as auditors for 2006. Ernst & Young (or its
predecessor) has served as the Companys independent auditors since the Companys founding.
Although the audit committee has the sole authority to appoint auditors, shareholders are
being asked to ratify this appointment. If the shareholders do not ratify the appointment, the
audit committee will take that fact into consideration, but may, nevertheless, continue to retain
Ernst & Young. However, the Audit Committee in its discretion may engage a different registered
public accounting firm at any time during the year if the Audit Committee determines that such a
change would be in the best interests of the Company
Audit Fees and Non-Audit Fees
The following table presents fees for professional audit services by Ernst & Young for the
audit of the Companys annual financial statements for the years ended December 31, 2005 and
December 31, 2004, and fees billed for other services rendered by them during these periods.
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2005 |
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2004 |
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Audit fees (1) |
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4,215,000 |
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4,371,000 |
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Audit related fees (2) |
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82,000 |
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231,000 |
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Tax fees |
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106,000 |
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201,000 |
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All other fees |
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55,000 |
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58,000 |
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Total |
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4,458,000 |
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$ |
4,861,000 |
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Ernst & Youngs aggregate fees for services related to the audits of the GAAP financial
statements (including services incurred to render an opinion under Section 404 of the
Sarbanes-Oxley Act of 2002), statutory insurance company audits, reviews of SEC filings,
and quarterly reviews. |
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Ernst & Youngs audit related services, including attest services not required by
regulation and due diligence services relating to dispositions. |
Representatives of Ernst & Young are expected to be at the meeting and will be given the
opportunity to make a statement if they desire to do so. They will also be available to respond to
appropriate questions from shareholders.
The Board of Directors recommends that shareholders vote FOR the ratification of the Audit
Committees appointment of Ernst & Young as our independent registered public accounting firm for
2006.
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Proposal No. 3 4 Shareholder Proposal Regarding Political Contributions
The Amalgamated Bank LongView MidCap 400 Index Fund (the Fund) submitted a letter to the
Companys Secretary requesting that the proposal set forth below be submitted to shareholders for
consideration at the annual meeting. The Fund has stated that a Fund representative is prepared to
attend the annual meeting to introduce the proposal. The Fund has represented that it beneficially
owned in excess of $2,000 of the Companys common stock. The address of the Fund is 11-15 Union
Square, New York, New York, 10003.
In accordance with applicable rules of the Securities and Exchange Commission, we have set
forth the Funds proposal and the Companys response below:
Proposal
RESOLVED: That the shareholders of American Financial Group, Inc. (AFG or the
Company) hereby request that AFG provide a report, to be updated annually, that
discloses:
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The Companys policies, procedures and guidelines with respect
to political contributions (both direct and indirect) that are made with
corporate funds, including identification of the AFG officials responsible
for making decisions about such contributions; |
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An accounting of any monetary and non-monetary contributions
made to any federal, state or local political candidates, political
parties, political committees and other political entities organized and
operating under section 527 of the Internal Revenue Code; and |
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A statement of the business rationale for the contributions so
identified. |
The report shall be presented to the Board of Directors Audit Committee or other
relevant committee and be made publicly available on AFGs website.
Supporting Statement
As shareholders, we support policies that promote transparency and accountability when it
comes to corporate political donations. In our view, such disclosure is consistent with public
policy in regard to disclosures by public companies to their shareholders. In the absence of such
transparency and accountability, it is possible for a companys management to use company assets
for political objectives without shareholders being able to evaluate the companys policies and
practices in this area and whether those practices are consistent with long-term shareholder value.
There is currently no single source of information that provides all of the information sought
by this resolution. For example, relying solely on limited data available from the Federal
Election Commission and the Internal Revenue Service, the Center for Public Integrity, a leading
campaign finance watchdog organization, can provide only an incomplete picture of AFGs political
donations. Corporate donations at the state and local levels are subject to varying reporting
requirements, and a comprehensive source of data is not readily available.
In our view, full disclosure of AFGs policies and practices is necessary in order for the
Board and shareholders to evaluate the political use of corporate assets. Although the Bipartisan
Campaign Reform Act of 2002 prohibits corporate contributions to political parties at the federal
level, it allows companies to contribute to independent political committees, also known as 527s.
Commentators report that these organizations are increasingly influential and active in the
political process, and we believe that shareholders are entitled to know how the company utilizes
shareholder assets in this arena, as well as the more traditional political arenas.
The Fund urges you to vote FOR this resolution.
Board of Directors Position
The Board of Directors opposes this shareholder proposal. Proxies solicited by management
will be voted against the shareholder proposal below unless shareholders specify a contrary choice
in their proxies.
The Board of Directors believes that the Companys political contributions constitute an
appropriate expenditure of corporate funds for valid business purposes. The Board is confident
that these contributions seek to support those candidates, initiatives and organizations whose
views are consistent with the Companys business interests of creating long-term shareholder value.
The Company has in place established reporting and
compliance procedures and believes it has made contributions to political organizations,
ballot initiatives and candidates in accordance with all applicable laws and regulations.
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The Companys resources currently allocated to political activities are negligible in
comparison to the scope and extent of the Companys business. Nevertheless, in the Boards view,
implementation of this proposal would involve additional time and expense to the Company with
little, if any, corresponding benefit for shareholders. Significant information about the
political contributions by the Company is already publicly available as required by applicable
state and federal laws. Accordingly, the Board believes there is no need for the Company to use
its financial and other resources to provide duplicative and unnecessary information.
For the foregoing reasons, the Board of Directors believes that this proposal is unnecessary
and the Board believes that the proposal is not in the best interests of the Company and its
shareholders.
The Board of Directors recommends a vote AGAINST this proposal.
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PRINCIPAL SHAREHOLDERS
The following shareholders are the only persons known by the Company to own beneficially 5% or
more of its outstanding common stock as of March 31, 2006:
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Amount and Nature of Beneficial Ownership |
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Name and Address |
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Obtainable |
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Common Stock |
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upon Exercise of |
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Beneficial Owner |
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Options (b) |
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Total |
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Carl H. Lindner
One East Fourth Street
Cincinnati, Ohio 45202 |
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9,166,224 |
(d) |
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9,166,224 |
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11.7 |
% |
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Carl H. Lindner III
One East Fourth Street
Cincinnati, Ohio 45202 |
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5,954,248 |
(e) |
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360,000 |
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6,314,248 |
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8.0% |
(c) |
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S. Craig Lindner
One East Fourth Street
Cincinnati, Ohio 45202 |
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6,130,628 |
(f) |
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360,000 |
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6,490,628 |
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8.2% |
(c) |
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Keith E. Lindner
250 East Fifth Street
Cincinnati, Ohio 45202 |
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4,620,201 |
(g) |
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140,000 |
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4,760,201 |
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6.1% |
(c) |
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The American Financial
Group, Inc. Retirement
and Savings Plan
One East Fourth Street
Cincinnati, Ohio 45202 |
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6,359,017 |
(h) |
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6,359,017 |
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8.1 |
% |
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Unless otherwise noted, the holder has sole voting and dispositive power with respect to the
shares listed. |
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Represents shares of common stock that may be acquired within 60 days of March 31, 2006
through the exercise of options granted under the Companys Stock Option Plan. |
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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 7.2%, 7.2% and 7.9%, 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. |
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Includes 2,242,326 shares held by his spouse individually and as trustee with voting and
dispositive power and 407,027 shares held in a charitable foundation over which Mr. Lindner
has sole voting and dispositive power but no pecuniary interest. Excludes 2,370,942 shares
held in a trust for the benefit of his family for which a third party acts as trustee with
voting and dispositive power. |
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Includes 21,117 shares held by his spouse in a trust over which she has voting and
dispositive power, 21,887 shares held by two of his children, 1,584 shares held as custodian
for one of his nieces, 1,000,000 shares held by a limited liability company over which shares
he holds dispositive but not voting power, 2,677,787 shares held in a trust over which shares
he has dispositive but not voting power, and 636,028 shares which are held in various trusts
for the benefit of his children for which his brother Keith E. Lindner acts as trustee with
voting and dispositive power. Includes 14,027 shares beneficially owned through a Company
retirement plan over which shares he has voting and dispositive power. |
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|
Includes 82,943 shares held by his spouse as custodian for their minor children or in a trust
over which she has voting and dispositive power, 15,826 shares held in trust 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, 1,747,737 shares held in a trust over which shares he has
dispositive but not voting power, 169,612 shares held in trusts 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 his brother Keith
E. Lindner acts as trustee with voting and dispositive power. Includes 127,238 shares held in
a charitable foundation over which he has sole voting and dispositive power but no pecuniary
interest. Includes 15,170 shares beneficially owned through a Company retirement plan over
which shares he has voting and dispositive power. |
- 7 -
|
|
|
(g) |
|
Includes 4,385,259 shares held in various trusts and a limited liability company over which
he or his spouse holds or shares voting and/or dispositive power. Also includes 234,689
shares held in his charitable foundation over which shares he has voting and dispositive
power, 140,000 shares which may be acquired through the exercise of options granted under the
Companys Stock Option Plan and 253 shares beneficially owned through a Company retirement
plan over which shares he has voting and dispositive power. Excludes 12,960 shares held in
custodial accounts for the benefit of his children over which a third party has voting and
dispositive power, and 1,412.938 shares held in various trusts for the benefit of the children
of his brothers, over which Mr. Lindner has sole voting and dispositive power but no financial
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
disposition of the securities held by the RASP and may direct the voting of Plan shares for
which voting instructions have not been received at least two days prior to the meeting. Both
are long-term senior employees of the Company. See General Information Savings Plan
Participants on page 1 of this proxy statement. |
MANAGEMENT
The directors, nominees for director and executive officers of the Company are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director or |
|
|
Age(1) |
|
Position |
|
Executive Since |
Carl H. Lindner
|
|
|
86 |
|
|
Chairman of the Board
|
|
|
1959 |
|
Carl H. Lindner III
|
|
|
52 |
|
|
Co-Chief Executive Officer, Co-President and a Director
|
|
|
1979 |
|
S. Craig Lindner
|
|
|
51 |
|
|
Co-Chief Executive Officer, Co-President and a Director
|
|
|
1980 |
|
Theodore H. Emmerich
|
|
|
79 |
|
|
Director
|
|
|
1988 |
|
James E. Evans
|
|
|
60 |
|
|
Senior Vice President, General Counsel and Director
|
|
|
1976 |
|
Terry S. Jacobs
|
|
|
63 |
|
|
Director
|
|
|
2003 |
|
William R. Martin
|
|
|
77 |
|
|
Director
|
|
|
1994 |
|
William W. Verity
|
|
|
47 |
|
|
Director
|
|
|
2002 |
|
Kenneth C. Ambrecht
|
|
|
60 |
|
|
Director
|
|
|
2005 |
|
Keith A. Jensen
|
|
|
55 |
|
|
Senior Vice President
|
|
|
1999 |
|
Thomas E. Mischell
|
|
|
58 |
|
|
Senior Vice President Taxes
|
|
|
1985 |
|
|
|
|
(1) |
|
As of March 31, 2006. |
Keith A. Jensen has served as Senior Vice President of the Company for over five years. Since
January 2005, he has also served as the Companys chief financial officer.
Thomas E. Mischell has served as Senior Vice President Taxes of the Company for over five
years.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires AFGs executive officers, directors and
persons who own more than ten percent of AFGs common stock to file reports of ownership with the
Securities and Exchange Commission and to furnish AFG with copies of these reports. Based on a
review of these reports, the Company believes that all filing requirements were met during 2005,
other than a Form 4 to report the purchase of 10,100 shares of AFG common stock by Carl H. Lindner
which was filed one day late.
- 8 -
Securities Ownership
The following table sets forth information, as of March 31, 2006, concerning the beneficial
ownership of equity securities of the Company 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 footnotes below or under Principal Shareholders on
page 7 of this proxy statement, no director or executive officer beneficially owned 1% or more of
any class of equity security of the Company or any of its subsidiaries outstanding at March 31,
2006. 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 |
|
|
|
|
|
|
|
Obtainable on Exercise of Options |
|
Name of |
|
Shares of Common |
|
|
or Beneficially Owned Through |
|
Beneficial Owner |
|
Stock Held |
|
|
Employee Retirement Plans (b) |
|
Carl H. Lindner (c) |
|
|
9,166,224 |
(d) |
|
|
0 |
|
Carl H. Lindner III (c) |
|
|
5,940,221 |
(e) |
|
|
374,027 |
|
S. Craig Lindner (c) |
|
|
6,115,458 |
(f) |
|
|
375,170 |
|
Kenneth C. Ambrecht |
|
|
1,864 |
|
|
|
0 |
|
Theodore H. Emmerich |
|
|
20,491 |
|
|
|
12,500 |
|
James E. Evans |
|
|
123,306 |
|
|
|
349,587 |
|
Terry S. Jacobs |
|
|
13,731 |
|
|
|
0 |
|
William R. Martin |
|
|
57,438 |
|
|
|
12,500 |
|
Fred J. Runk |
|
|
(g |
) |
|
|
(g |
) |
William W. Verity |
|
|
6,073 |
|
|
|
7,500 |
|
Keith A. Jensen |
|
|
4,873 |
|
|
|
290,253 |
|
Thomas E. Mischell (h) |
|
|
113,718 |
|
|
|
236,707 |
|
All directors and executive officers
as a group (11 persons)(c) |
|
|
21,563,397 |
|
|
|
1,658,244 |
|
|
|
|
(a) |
|
Does not include the following ownership interests in subsidiaries of AFG: Messrs.
Emmerich, Evans, C. H. Lindner, S. C. Lindner, Martin, Jensen, Mischell and Ambrecht and all
directors and executive officers as a group beneficially own 1,561; 5,700; 536,808 (1.1%);
126,407; 44,861; 84,000; 11,000; 4,600 and 814,937 (1.7%) shares, respectively, of the common
stock of Great American Financial Resources. Mr. Jensen owns 500 shares of common stock of
the Companys subsidiary, National Interstate Corporation. |
|
(b) |
|
Consists of shares of common stock purchasable within 60 days of March 31, 2006 through the
exercise of the vested portion of stock options granted under the Companys Stock Option Plan
and shares which the executive may be deemed to beneficially own through one or more of the
Companys retirement plans. The amount of shares so beneficially owned through a Company
retirement plan as follows: C. H. Lindner III 14,027; S. C. Lindner 15,170; J. E. Evans
39,587; K. A. Jensen 253; T. E. Mischell 26,707; and all directors and executive officers
as a group 95,744 |
|
(c) |
|
The shares beneficially owned by Carl H. Lindner, Carl H. Lindner III, and S. Craig Lindner,
and all directors and officers as a group, constituted 11.7%, 8.0%, 8.2%, and 29.0%,
respectively, of the common stock outstanding at March 31, 2006. See footnote (c) to the
Principal Shareholders table on page 7. |
|
(d) |
|
I Includes 2,242,326 shares held by his spouse individually and as trustee with voting and
dispositive power and 407,027 shares held in a charitable foundation over which Mr. Lindner
has sole voting and dispositive power but no pecuniary interest. Excludes 2,370,942 shares
held in a trust for the benefit of his family for which a third party acts as trustee with
voting and dispositive power. |
- 9 -
|
|
|
(e) |
|
Includes 21,117 shares held by his spouse in a trust over which she has voting and
dispositive power, 21,887 shares held by two of his children, 1,584 shares held as custodian
for one of his nieces, 1,000,000 shares held by a limited liability company over which shares
he holds dispositive but not voting power, 2,677,787 shares held in a trust over which shares
he has dispositive but not voting power, and 636,028 shares which are held in various trusts
for the benefit of his children for which his brother Keith E. Lindner acts as trustee with
voting and dispositive power. |
|
(f) |
|
Includes 82,943 shares held by his spouse as custodian for their minor children or in a trust
over which she has voting and dispositive power, 15,826 shares held in trust 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, 1,747,737 shares held in a trust over which shares he has
dispositive but not voting power, 169,612 shares held in trusts 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 his brother Keith
E. Lindner acts as trustee with voting and dispositive power. Includes 127,238 shares held in
a charitable foundation over which he has sole voting and dispositive power but no pecuniary
interest. |
|
(g) |
|
Mr. Runk, formerly Senior Vice President and Treasurer, retired March 31, 2005. Ownership
information as of his last Form 4 Report filed March 18, 2005 reflected that he beneficially
owned 259,614 shares of common stock. In addition, as of the record date, he held exercisable
employee stock options to purchase 245,000 shares of common stock. As of the record date, Mr.
Runk beneficially owned 90,510 shares through a Company retirement plan. |
|
(h) |
|
Excludes shares held in the RASP, for which he serves on the Administrative Plan Committee. |
- 10 -
COMPENSATION
The following table summarizes the aggregate compensation for 2005, 2004 and 2003 of the
Companys former Chief Executive Officer, the current Co-Chief Executive Officers and its four
other most highly compensated executive officers during 2005 (the Named Executive Officers).
Such compensation includes amounts paid by AFG and its subsidiaries and certain affiliates for the
years indicated. Bonuses are for the year shown, regardless of when paid.
SUMMARY COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
|
|
|
|
|
|
|
|
Annual Compensation |
|
|
Securities |
|
|
|
|
Name |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Annual |
|
|
Underlying |
|
|
All Other |
|
And |
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation |
|
|
Options Granted |
|
|
Compensation |
|
Principal Position |
|
Year |
|
|
Salary |
|
|
Bonus |
|
|
(d) |
|
|
(# of Shares) |
|
|
(e) |
|
Carl H.
Lindner (a) (b)
|
|
|
2005 |
|
|
$ |
130,000 |
|
|
$ |
|
|
|
$ |
296,100 |
|
|
|
|
|
|
$ |
27,600 |
|
Chairman of the Board |
|
|
2004 |
|
|
|
990,000 |
|
|
|
|
|
|
|
215,300 |
|
|
|
|
|
|
|
41,000 |
|
(Chief Executive Officer |
|
|
2003 |
|
|
|
990,000 |
|
|
|
425,000 |
|
|
|
123,800 |
|
|
|
|
|
|
|
26,500 |
|
until January 2005) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl H. Lindner III (a) |
|
|
2005 |
|
|
|
990,000 |
|
|
|
1,925,000 |
|
|
|
462,700 |
|
|
|
55,000 |
|
|
|
31,800 |
|
Co-Chief Executive |
|
|
2004 |
|
|
|
990,000 |
|
|
|
1,287,000 |
|
|
|
183,400 |
|
|
|
55,000 |
|
|
|
31,100 |
|
Officer and Co-President |
|
|
2003 |
|
|
|
990,000 |
|
|
|
425,000 |
|
|
|
196,700 |
|
|
|
55,000 |
|
|
|
31,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. Craig Lindner (a) |
|
|
2005 |
|
|
|
990,000 |
|
|
|
1,925,000 |
|
|
|
330,300 |
|
|
|
55,000 |
|
|
|
31,800 |
|
Co-Chief Executive |
|
|
2004 |
|
|
|
990,000 |
|
|
|
1,287,000 |
|
|
|
238,000 |
|
|
|
55,000 |
|
|
|
31,100 |
|
Officer and Co-President |
|
|
2003 |
|
|
|
990,000 |
|
|
|
425,000 |
|
|
|
172,100 |
|
|
|
55,000 |
|
|
|
31,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Evans |
|
|
2005 |
|
|
|
990,000 |
|
|
|
1,000,000 |
|
|
|
35,300 |
|
|
|
50,000 |
|
|
|
33,000 |
|
Senior Vice President and |
|
|
2004 |
|
|
|
990,000 |
|
|
|
750,000 |
|
|
|
15,500 |
|
|
|
50,000 |
|
|
|
34,100 |
|
General Counsel |
|
|
2003 |
|
|
|
990,000 |
|
|
|
400,000 |
|
|
|
15,500 |
|
|
|
50,000 |
|
|
|
31,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith A. Jensen |
|
|
2005 |
|
|
|
525,000 |
|
|
|
600,000 |
|
|
|
30,600 |
|
|
|
40,000 |
|
|
|
31,800 |
|
Senior Vice President |
|
|
2004 |
|
|
|
477,000 |
|
|
|
528,750 |
|
|
|
21,900 |
|
|
|
40,000 |
|
|
|
33,300 |
|
|
|
|
2003 |
|
|
|
442,000 |
|
|
|
375,000 |
|
|
|
22,400 |
|
|
|
40,000 |
|
|
|
31,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas E. Mischell |
|
|
2005 |
|
|
|
515,000 |
|
|
|
436,500 |
|
|
|
25,800 |
|
|
|
35,000 |
|
|
|
32,900 |
|
Senior Vice President - |
|
|
2004 |
|
|
|
495,000 |
|
|
|
357,500 |
|
|
|
18,700 |
|
|
|
35,000 |
|
|
|
35,700 |
|
Taxes |
|
|
2003 |
|
|
|
495,000 |
|
|
|
275,000 |
|
|
|
17,500 |
|
|
|
35,000 |
|
|
|
33,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fred J. Runk
(c)
|
|
|
2005 |
|
|
|
700,000 |
|
|
|
300,000 |
|
|
|
12,700 |
|
|
|
|
|
|
|
36,700 |
|
Former Senior Vice |
|
|
2004 |
|
|
|
700,000 |
|
|
|
350,000 |
|
|
|
16,300 |
|
|
|
35,000 |
|
|
|
32,500 |
|
President and Treasurer |
|
|
2003 |
|
|
|
700,000 |
|
|
|
285,000 |
|
|
|
16,200 |
|
|
|
35,000 |
|
|
|
27,000 |
|
(retired March 31, 2005) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In January 2005, Carl H. Lindner stepped down as Chief Executive Officer, and Messrs. Carl H.
Lindner III and S. Craig Lindner were elected Co-Chief Executive Officers and Co-Presidents.
Carl H. Lindner requested that no 2004 bonus be paid to him. |
|
(b) |
|
For his 2005 annual salary, Carl H. Lindner requested that he receive no more than the
compensation paid to the Companys independent directors, which is approximately $130,000. |
|
(c) |
|
In connection with the retirement of Fred J. Runk as Senior Vice President & Treasurer in
March 2005, the Company and Mr. Runk entered into a salary continuation and consulting
agreement which remains in effect until November 2007. During the term of the agreement, Mr.
Runk will be available to provide advice and counsel to the Company, will be paid
approximately $83,000 per month and be provided office space and secretarial support. All
employee stock options held by Mr. Runk became fully vested and were made exercisable for
three years from his retirement date in March 2005. |
- 11 -
|
|
|
(d) |
|
This column includes amounts for personal homeowners and automobile insurance coverage, the
use of corporate aircraft, automobiles and security and administrative services as follows. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive, Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
& Administrative |
Name |
|
Year |
|
Insurance |
|
Aircraft (1) |
|
Entertainment (2) |
|
Services |
|
Carl H. Lindner |
|
|
2005 |
|
|
|
$14,500 |
|
|
$ |
105,000 |
|
|
|
$35,000 |
|
|
|
$141,600 |
|
|
|
|
2004 |
|
|
|
36,500 |
|
|
|
113,200 |
|
|
|
12,000 |
|
|
|
53,600 |
|
|
|
|
2003 |
|
|
|
20,300 |
|
|
|
44,500 |
|
|
|
12,000 |
|
|
|
47,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl H.
Lindner III |
|
|
2005 |
|
|
|
205,700 |
|
|
|
160,500 |
|
|
|
28,500 |
|
|
|
68,000 |
|
|
|
|
2004 |
|
|
|
63,700 |
|
|
|
87,000 |
|
|
|
5,000 |
|
|
|
27,700 |
|
|
|
|
2003 |
|
|
|
43,000 |
|
|
|
124,000 |
|
|
|
2,000 |
|
|
|
27,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. Craig Lindner |
|
|
2005 |
|
|
|
96,300 |
|
|
|
138,000 |
|
|
|
17,000 |
|
|
|
79,000 |
|
|
|
|
2004 |
|
|
|
116,200 |
|
|
|
92,500 |
|
|
|
2,000 |
|
|
|
27,300 |
|
|
|
|
2003 |
|
|
|
66,500 |
|
|
|
76,800 |
|
|
|
2,000 |
|
|
|
26,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Evans |
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
32,800 |
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
15,000 |
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
500 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith A. Jensen |
|
|
2005 |
|
|
|
5,600 |
|
|
|
|
|
|
|
3,000 |
|
|
|
22,000 |
|
|
|
|
2004 |
|
|
|
4,900 |
|
|
|
|
|
|
|
2,000 |
|
|
|
15,000 |
|
|
|
|
2003 |
|
|
|
4,900 |
|
|
|
|
|
|
|
2,500 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas E.
Mische ll |
|
|
2005 |
|
|
|
3,800 |
|
|
|
|
|
|
|
1,000 |
|
|
|
21,000 |
|
|
|
|
2004 |
|
|
|
3,200 |
|
|
|
|
|
|
|
500 |
|
|
|
15,000 |
|
|
|
|
2003 |
|
|
|
2,000 |
|
|
|
|
|
|
|
500 |
|
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fred J. Runk |
|
|
2005 |
|
|
|
7,700 |
|
|
|
|
|
|
|
|
|
|
|
5,000 |
|
|
|
|
2004 |
|
|
|
6,400 |
|
|
|
|
|
|
|
500 |
|
|
|
10,000 |
|
|
|
|
2003 |
|
|
|
6,200 |
|
|
|
|
|
|
|
500 |
|
|
|
10,000 |
|
|
|
|
1. |
|
The Board of Directors has encouraged the Companys Chairman and Co-Chief
Executive Officers to use corporate aircraft for all travel whenever practicable for
security and productivity reasons. On certain occasions, an executives spouse or
other family members or guests may also fly on the corporate aircraft. The value of the
use of corporate aircraft is calculated based on the aggregate variable operating costs
to the Company, including fuel costs, trip-related maintenance, universal
weather-monitoring costs, on-board catering, landing/ramp fees and other miscellaneous
variable costs. Fixed costs which do not change based on usage, such as pilot
salaries, the amortized costs of the company aircraft, and the cost of maintenance not
related to trips, are excluded. Amounts for personal use of company aircraft are
included in the table. The amounts reported utilize a different valuation methodology
than used for income tax purposes, where the cost of the personal use of corporate
aircraft has been calculated using the Standard Industrial Fare Level (SIFL) tables
found in the tax regulations. |
|
2. |
|
Includes meals and personal use of Company tickets to sporting events. |
- 12 -
|
|
|
(e) |
|
Includes Company 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 the Companys
benefit equalization plan which generally makes up certain reductions caused by Internal
Revenue Code limitations in the Companys contributions to certain of the Companys retirement
plans) and Company paid group life insurance as set forth below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFG Auxiliary |
|
|
|
|
|
|
Name |
|
Year |
|
RASP |
|
Retirement Plan |
|
Savings Plan |
|
Term Life |
Carl H. Lindner |
|
|
2005 |
|
|
|
$14,500 |
|
|
|
$10,500 |
|
|
$ |
|
|
|
$ |
2,600 |
|
|
|
|
2004 |
|
|
|
14,750 |
|
|
|
10,250 |
|
|
|
|
|
|
|
16,000 |
|
|
|
|
2003 |
|
|
|
15,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl H. Lindner III |
|
|
2005 |
|
|
|
14,500 |
|
|
|
10,500 |
|
|
|
4,200 |
|
|
|
2,600 |
|
|
|
|
2004 |
|
|
|
14,750 |
|
|
|
10,250 |
|
|
|
4,100 |
|
|
|
2,000 |
|
|
|
|
2003 |
|
|
|
15,000 |
|
|
|
10,000 |
|
|
|
4,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S. Craig Lindner |
|
|
2005 |
|
|
|
14,500 |
|
|
|
10,500 |
|
|
|
4,200 |
|
|
|
2,600 |
|
|
|
|
2004 |
|
|
|
14,750 |
|
|
|
10,250 |
|
|
|
4,100 |
|
|
|
2,000 |
|
|
|
|
2003 |
|
|
|
15,000 |
|
|
|
10,000 |
|
|
|
4,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Evans |
|
|
2005 |
|
|
|
14,500 |
|
|
|
10,500 |
|
|
|
3,000 |
|
|
|
5,000 |
|
|
|
|
2004 |
|
|
|
14,750 |
|
|
|
10,250 |
|
|
|
4,100 |
|
|
|
5,000 |
|
|
|
|
2003 |
|
|
|
15,000 |
|
|
|
10,000 |
|
|
|
4,000 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keith A. Jensen |
|
|
2005 |
|
|
|
14,500 |
|
|
|
10,500 |
|
|
|
4,200 |
|
|
|
2,600 |
|
|
|
|
2004 |
|
|
|
14,750 |
|
|
|
10,250 |
|
|
|
5,800 |
|
|
|
2,500 |
|
|
|
|
2003 |
|
|
|
15,000 |
|
|
|
10,000 |
|
|
|
4,000 |
|
|
|
2,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas E. Mischell |
|
|
2005 |
|
|
|
14,500 |
|
|
|
10,500 |
|
|
|
3,000 |
|
|
|
4,900 |
|
|
|
|
2004 |
|
|
|
14,750 |
|
|
|
10,250 |
|
|
|
5,800 |
|
|
|
4,900 |
|
|
|
|
2003 |
|
|
|
15,000 |
|
|
|
10,000 |
|
|
|
4,000 |
|
|
|
4,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fred J. Runk |
|
|
2005 |
|
|
|
14,500 |
|
|
|
10,500 |
|
|
|
4,200 |
|
|
|
7,500 |
|
|
|
|
2004 |
|
|
|
14,750 |
|
|
|
10,250 |
|
|
|
|
|
|
|
7,500 |
|
|
|
|
2003 |
|
|
|
15,000 |
|
|
|
10,000 |
|
|
|
|
|
|
|
2,000 |
|
- 13 -
Stock Options
The tables set forth below disclose stock options granted to, or exercised by, the Named
Executive Officers during 2005, and the number and value of unexercised options held by them at
December 31, 2005.
OPTION GRANTS IN 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual Grants |
|
Potential Realizable |
|
|
Number of |
|
Percent of |
|
Exercise |
|
|
|
|
|
Value at Assumed Annual |
|
|
Securities |
|
Total |
|
Price per |
|
|
|
|
|
Rates of Stock Price |
|
|
Underlying |
|
Options |
|
Share |
|
|
|
|
|
Appreciation for Option |
|
|
Options |
|
Granted to |
|
(fair market |
|
|
|
|
|
Term (b) |
|
|
Granted (a) |
|
Employees |
|
value at date |
|
Expiration |
|
|
|
|
Name |
|
(# of shares) |
|
in 2005 |
|
of grant) |
|
Date |
|
5% |
|
10% |
Carl H. Lindner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl H. Lindner III |
|
AFG |
|
|
55,000 |
|
|
|
6.0 |
% |
|
$ |
30.42 |
|
|
|
2/27/15 |
|
|
$ |
1,052,204 |
|
|
$ |
2,666,490 |
|
S. Craig Lindner |
|
AFG |
|
|
55,000 |
|
|
|
6.0 |
% |
|
$ |
30.42 |
|
|
|
2/27/15 |
|
|
$ |
1,052,204 |
|
|
$ |
2,666,490 |
|
James E. Evans |
|
AFG |
|
|
50,000 |
|
|
|
5.5 |
% |
|
$ |
30.42 |
|
|
|
2/24/15 |
|
|
$ |
956,549 |
|
|
$ |
2,424,082 |
|
Keith A. Jensen |
|
AFG |
|
|
40,000 |
|
|
|
4.4 |
% |
|
$ |
30.42 |
|
|
|
2/24/15 |
|
|
$ |
765,239 |
|
|
$ |
1,939,266 |
|
Thomas E. Mischell |
|
AFG |
|
|
35,000 |
|
|
|
3.8 |
% |
|
$ |
30.42 |
|
|
|
2/24/15 |
|
|
$ |
669,584 |
|
|
$ |
1,696,858 |
|
Fred J. Runk |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The options were granted under the Companys Stock Option Plan and cover Company common
stock. They vest (become exercisable) at the rate 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 within one year after a change of control of the Company. |
|
(b) |
|
Represents the hypothetical future values that would be realizable if all of the options
were exercised immediately prior to their expiration in 2015 and assuming that the market
price of the Companys common stock had appreciated in value through the year 2015 at the
annual rate of 5% (to $49.55 per share) or 10% (to $78.90 per share). Such hypothetical
future values have not been discounted to their respective present values, which are lower. |
AGGREGATED OPTION EXERCISES IN 2005 AND 2005 YEAR-END OPTION VALUES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
Acquired on |
|
|
|
|
|
Underlying |
|
Value of Unexercised |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Unexercised Options |
|
In-the-Money Options |
|
|
|
|
|
|
(# of |
|
Value |
|
at Year End |
|
at Year End (a) |
Name |
|
Company |
|
Shares) |
|
Realized |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
Carl H. Lindner |
|
AFG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carl H. Lindner III |
|
AFG |
|
|
267,210 |
|
|
$ |
1,768,182 |
|
|
|
316,000 |
|
|
|
154,000 |
|
|
$ |
3,130,860 |
|
|
$ |
1,730,190 |
|
S. Craig Lindner |
|
AFG |
|
|
166,181 |
|
|
$ |
1,115,075 |
|
|
|
316,000 |
|
|
|
154,000 |
|
|
$ |
3,130,860 |
|
|
$ |
1,730,860 |
|
James E. Evans |
|
AFG |
|
|
150,000 |
|
|
$ |
1,058,185 |
|
|
|
270,000 |
|
|
|
140,000 |
|
|
$ |
2,838,400 |
|
|
$ |
1,572,900 |
|
Keith A. Jensen |
|
AFG |
|
|
|
|
|
|
|
|
|
|
258,000 |
|
|
|
112,000 |
|
|
$ |
3,042,730 |
|
|
$ |
1,258,320 |
|
Thomas E. Mischell |
|
AFG |
|
|
80,000 |
|
|
$ |
486,443 |
|
|
|
182,000 |
|
|
|
98,000 |
|
|
$ |
1,982,520 |
|
|
$ |
1,101,030 |
|
Fred J. Runk |
|
AFG |
|
|
80,000 |
|
|
$ |
692,000 |
|
|
|
245,000 |
|
|
|
|
|
|
$ |
2,807,400 |
|
|
|
|
|
|
|
|
(a) |
|
The value of unexercised in-the-money options is calculated based on the New York Stock
Exchange and NASDAQ closing market price of the Companys common stock at year-end 2005. This
price was $38.31 per share. |
- 14 -
NONQUALIFIED DEFINED CONTRIBUTION AND OTHER
DEFERRED COMPENSATION PLANS
The Company maintains a Deferred Compensation Plan pursuant to which certain key employees of
AFG and its subsidiaries may defer up to 80% of their annual salary and /or bonus. Participants
may elect to have the value of deferrals (i) earn a fixed rate of interest, set annually by the
Board of Directors (5% in 2005), or (ii) fluctuate based on the market value of AFG Common Stock,
as adjusted to reflect stock splits, distributions, dividends, and a 7-1/2% match to participant
deferrals. The deferral term of either a fixed number of years or upon termination of employment
must be elected at the time of deferral. Under the plan, no federal or state income taxes are paid
on deferred compensation. Rather, such taxes will be due upon receipt at the end of the deferral
period. The table below discloses compensation earned in connection with the Deferred Compensation
Plan. Any amounts deferred are included in compensation figures disclosed in the Compensation
Table on page 11 of this proxy statement.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
Registrant |
|
|
|
|
|
Aggregate |
|
Aggregate |
|
|
contributions in |
|
contributions in |
|
Aggregate |
|
withdrawals / |
|
balance at |
Name |
|
2005 |
|
2005 |
|
earnings in 2005 |
|
distributions |
|
12/31/05 |
Carl H. Lindner |
|
$ |
|
|
|
$ |
|
|
|
$ |
97,237.95 |
|
|
$ |
|
|
|
$ |
496,854.42 |
|
Carl H. Lindner III |
|
|
|
|
|
|
|
|
|
|
97,237.95 |
|
|
|
|
|
|
|
496,854.42 |
|
S. Craig Lindner |
|
|
|
|
|
|
|
|
|
|
97,237.95 |
|
|
|
|
|
|
|
496,854.42 |
|
James E. Evans |
|
|
326,700.14 |
|
|
|
24,502.4 |
|
|
|
237,949.34 |
|
|
|
|
|
|
|
1,310,856.77 |
|
Keith A. Jensen |
|
|
552,750.04 |
|
|
|
22,314.44 |
|
|
|
76,115.16 |
|
|
|
(266,537.59 |
) |
|
|
897,945.03 |
|
Thomas E. Mischell |
|
|
|
|
|
|
|
|
|
|
(7,854.86 |
) |
|
|
(234,600.67 |
) |
|
|
|
|
Fred J. Runk |
|
|
|
|
|
|
|
|
|
|
102,483.33 |
|
|
|
|
|
|
|
523,656.62 |
|
Compensation Committee Report
Each of the three members of our Compensation Committee (the Committee) is an independent
director as determined by our Board of Directors, based on the New York Stock Exchange and NASDAQ
listing rules. The Committees charter is available on the corporate governance section of the AFG
website at www.afginc.com.
The Committee approves the policies under which compensation is paid or awarded to AFGs
executives, and individually reviews the performance of, and all compensation actions affecting,
our senior executive officers, which in 2005 included our Co-Chief Executive Officers. The
Committee determines and approves the compensation levels of the Co-CEOs based on its evaluation of
their performance in light of the corporate goals and objectives it reviews and approves. The
Committee also reviews and provides policy oversight of the Companys executive compensation
program. The Committee has the exclusive authority to grant stock options under AFGs Stock Option
Plan to employees of AFG and its subsidiaries, including the Co-CEOs. All 2005 stock-based awards
were made under the American Financial Group Stock Option Plan. In 2005, other than options
granted to the Co-CEOs, we designated all stock options granted under the AFG Stock Option Plan as
incentive options to the extent permitted under the Internal Revenue Code.
Executive Compensation Philosophy
AFGs executive compensation programs are designed to motivate, reward and retain executives
who create long-term investor value. The Committee uses three primary compensation elements to
achieve these goals: base salary, stock option grants and incentive bonuses which are discussed in
greater detail below. A significant portion of each senior executive officers compensation is
dependent upon achieving business and financial goals, and realizing other performance objectives.
Before final decisions are made regarding compensation for the Co-CEOs, the Committee engages
in discussions with AFG executives to solicit their thoughts regarding compensation. Based in part
on those discussions as well as our review of AFGs financial results for the preceding year, the
achievement of pre-determined business objectives, the compensation paid to senior executives at
certain peer companies, and a review of all compensation elements provided by the Company, the
Committee deliberated, determined and approved the compensation levels of the Co-CEOs. The
compensation discussions in this report conform with the recommendations made by the Committee.
- 15 -
Compensation Elements for Executive Officers
1. Base Salary
The Company pays salaries that are designed to attract and retain superior leaders. Annual
base salary is paid for ongoing performance throughout the year. The Committee approves annual
base salaries for the Co-CEOs that are appropriate, in its subjective judgment, based on each
officers respective level of responsibility. The Committee approved the 2005 salaries of the
Co-CEOs, noting that such salaries were the same for such individuals since 2002 and represented a
4% increase over the salaries in effect for four years prior to 2002. The salaries paid to the
Companys five most highly paid executive officers for the past three years are shown in the table
on page 11.
2. Incentive Bonuses
The Committee pays annual bonuses to reward the positive performance of AFG as compared to
AFGs performance in prior years and its performance versus other companies in its market segment.
The Committee believes that the overall performance of AFG is substantially related to the
performance of its executives. Bonuses are paid each year, generally in the first quarter, for the
prior years performance. The bonuses paid to our five most highly paid executive officers for the
past three years also are shown in the table on page 11.
As has been the case for more than five years, we, working with management, developed an
annual bonus plan for 2005 for the Co-CEOs that made a substantial portion of their 2005
compensation dependent on AFGs performance. Specifically, annual bonus determinations are based
on a two-part analysis of AFG and executive performance as set forth in the Companys 2005 Annual
Bonus Plan, adopted by the Committee in 2005, and discussed in greater detail below.
3. Stock Option Grants
The Committee awards stock options that it believes provide incentives for superior long-term
performance and to promote retention of top executives. The Committee believes that stock options
represent an important part of AFGs performance-based compensation system. We believe that AFG
shareholders interests are well served by aligning AFGs senior executives interests with those
of its shareholders through the grant of stock options. In determining the size of the overall
annual grant, the Committee takes into consideration the possible dilutive effect to shareholders
of the additional shares which may be issued upon option exercise. The Committee believes that
several features present in stock options award recipients with substantial incentive to maximize
AFGs long-term success. Options under AFGs Stock Option Plan are granted at exercise prices
equal to the fair market value of common stock on the date of grant. Additionally, the Committee
believes that because the stock options vest at the rate of 20% per year, it promotes executive
retention due to the forfeiture of options that have not fully vested upon departure from AFG.
Other Benefits
Perquisites, such as insurance coverage, security services, certain meals and tickets,
personal office staff, and the personal use of corporate aircraft, are made available to AFGs
executive officers. These benefits are described below and the estimated costs to the Company of
such benefits are included in the table on page 12.
The Company owns a corporate airplane, used primarily for the business travel of senior
management of the Company and its subsidiaries. The Board has endorsed the use of this corporate
aircraft for the travel needs of the Companys Chairman of the Board and Co-Chief Executive
Officers, including personal travel, in order to minimize and more efficiently utilize their travel
time, protect the confidentiality of their travel and the Companys business, and to enhance their
personal security. Notwithstanding, the Committee and the Chairman of the Board and Co-CEOs
jointly acknowledge that such aircraft use is a personal benefit, and as such, the Committee
considers the cost to the Company of such use to be an element of the total compensation paid to
these individuals.
A number of the Companys senior executives, including the Companys Chairman of the Board and
Co-CEOs, receive Company-paid homeowners and automobile insurance coverage, are provided with
administrative assistance for personal matters, and have the benefit of Company security personnel
who look after the safety of these executives and their families.
The Committee believes these perquisites to be reasonable, comparable with peer companies and
consistent with the Companys overall executive compensation program.
- 16 -
Executive Compensation Actions For 2005
1. The 2005 Annual Bonus Plan
The 2005 Annual Bonus Plan for the Co-CEOs (the 2005 Bonus Plan) makes 50% of each
participants annual bonus dependent on AFG attaining certain earnings per share targets and the
other 50% based on AFGs overall performance, relative to several factors. The 50% portion of the
annual bonus based on pre-established earnings per share targets is referred to in this report as
the EPS Component. The 50% portion of the annual bonus based on our subjective determination of
AFGs overall performance is referred to in this report as the AFG Performance Component. Under
the 2005 Bonus Plan, the bonus target amount approved by us for the Co-CEOs was $1,100,000.
EPS Component: 0% to 175% of $550,000 (50% of the $1,100,000 bonus target). Payment of this
amount to the participants was dependent upon AFG achieving certain 2005 earnings per share
allocable to its insurance operations. The earnings per share target which would result in the
payment of 100% of the EPS Component bonus was set by the Committee at $3.30. In our adoption of
the 2005 Bonus Plan, the Committee noted that no EPS Component bonus should be paid if 2005
earnings per share from insurance operations are less than $3.00, which is 104% of earnings in 2004
and 91% of the amount set by the Committee to be attained to have earned 100% of the EPS Component.
The 2005 Bonus Plan further provided that if the Companys EPS was $3.60 or above, 175% of the EPS
Component of the bonus ($962,500) was to be paid. Finally, if the EPS was greater than $3.00 and
less than $3.30, or greater than $3.30 and less than $3.60, the bonus attributable to the EPS
component would be determined by straight-line interpolation. The 2005 Bonus Plan notes that core
earnings do not include investee results, realized gains and losses in the investment portfolio and
unusual or non-recurring items. Further, any charge taken as a result of the study of asbestos,
environmental and other mass torts was to be considered a non-recurring item.
For 2005, AFG reported earnings per share from insurance operations of $3.78. The Committee
concluded that a bonus of $962,500 must be paid under the EPS Component of the 2005 Bonus Plan to
each of the Co-CEOs, noting that the earnings from insurance operations of $3.78 per share is after
$.44 per share in losses due to hurricanes Katrina, Rita and Wilma.
AFG Performance Component: 0% to 175% of $550,000 (50% of the $1,100,000 bonus target).
Payment of this amount is based on AFGs overall performance, as subjectively determined by the
Committee after considering certain factors determined at the time of adoption of the 2005 Bonus
Plan. The 2005 Bonus Plan provides that each participants bonus allocated to the AFG Performance
Component will range from $0 to $962,500 (175% of the $550,000 bonus target allocated to the AFG
Performance Component). The Committee considered all factors deemed relevant, including financial,
non-financial and strategic factors, in determining whether to grant and/or how much to grant of
the AFG Performance Bonus. Specifically, pursuant to the terms of the 2005 Bonus Plan, the
Committee considered the factors discussed below, which if achieved, would increase long-term
shareholder value.
During 2005, the Companys book value per share grew, the return on equity increased and our
specialty property & casualty combined ratio goal was exceeded. The Company opportunistically
realized $73.6 million of pre-tax gains on real estate sales, improved the debt and preferred to
total capital ratio, reduced corporate overhead in excess of $5 million on an annualized basis,
completed a ground-up study of A&E Reserves, and enhanced organizational intellectual capital by
identifying and developing future leaders of the Company. The Committee noted that AFGs stock
price outperformed the S&P 500 & S&P Insurance Stock Indices, and the Companys investment
portfolio continued to outperform industry benchmarks.
The Committee considered these factors and determined that a bonus of $962,500 (175% of the
$550,000 bonus target allocated to the AFG Performance Component) was appropriate. As a result,
the Committee approved the bonus to be paid to each Co-CEO under the 2005 Bonus Plan to be
$1,925,000.
2. Stock Option Awards
Options for 55,000 shares of AFG stock were granted to each of the Co-Chief Executive
Officers, and additional options were granted to other executives and employees of AFG in February
2006.
- 17 -
Factors The Committee Considers in Making Compensation Decisions
As in prior years, all of our judgments regarding the compensation of the Co-CEOs were based
primarily upon our assessment of each such executive officers leadership performance and potential
to enhance long-term shareholder value. The Committee relies upon a combination of judgment and
guidelines in determining the amount and mix of compensation elements for each executive officer.
Key factors affecting our judgments included the nature and scope of these executive officers
responsibilities, their effectiveness in leading the Board of Directors initiatives to increase
shareholder value, productivity and growth. The Committee also considered the compensation levels
and performances of a comparison group of major companies that are most likely to compete with us
for the services of executive officers.
Based upon all the factors the Committee considered relevant, and in light of our strong
financial and operating performance in a challenging economic environment, the Committee believes
it was in AFG shareholders best long-term interest for the Committee to ensure that the overall
level of our salary, bonus and option awards was competitive with companies in the comparison
group. The Committee continues to believe that the quality, skills and dedication of executive
leaders are critical factors affecting the long-term value of the Company. Therefore, the
Committee continues to try to maintain an executive compensation program that will attract,
motivate and retain the highest level of executive leadership possible.
The Committees decisions concerning the specific 2005 compensation elements for the Co-CEOs
were made within this framework. We also considered each such executive officers performance,
current salary, prior-year bonus and other compensation. In all cases our specific decisions
involving 2005 compensation were ultimately based upon our judgment about the individual executive
officers performance, potential future contributions and about whether each particular payment or
award would provide an appropriate incentive and reward for performance that sustains and enhances
long-term shareholder value.
Basis for Chief Executive Officer Compensation
Messrs. Carl H. Lindner III and S. Craig Lindner each assumed the additional position of
Co-Chief Executive Officer in January 2005 and continued to serve as the Companys Co-Presidents,
positions they have held for more than five years. For 2005, the Company paid each Co-CEO $990,000
in salary, which is the annual salary that each has been paid since 2002. No additional
compensation was paid to them upon their assuming the additional responsibilities associated with
becoming Co-CEOs.
The Committee considers the amount of salary paid to each CEO appropriate for the following
reasons: their execution of the strategy to manage AFGs business to enhance long-term investor
value through better profit margins and higher returns on equity; their actions to ensure that AFG
has a strong capital structure and cash flow; their role in leading AFG to solid financial results;
and their leadership in realizing cost savings while at the same time driving successful growth
initiatives.
Each CEOs role has been clearly defined: Carl H. Lindner III is responsible for the Companys
property and casualty insurance operations and investor relations and S. Craig Lindner is
responsible for the Companys annuity and supplemental health insurance operations and investments.
In addition, they work closely with one another and are significantly involved in all aspects of
Company management so that either could succeed the other in the event such a need arose. We
believe that this structure aids in succession planning and provides the Company with significant
executive depth and leadership experience appropriate for the Company.
Review of All Components of Executive Compensation
The Committee has reviewed all compensation components of the Companys Co-CEOs and the three
other most highly compensated executive officers, including salary, bonus, equity and long-term
incentive compensation, accumulated realized and unrealized stock option gains, the value to the
executive and cost to the Company of perquisites and other personal benefits.
The Committees Conclusion
Based on this review, the Committee finds the Companys Co-CEOs and the three other most
highly compensated executive officers total 2005 compensation (and, in the case of the severance
and change-in-control scenarios, any potential payouts) in the aggregate to be reasonable and not
excessive. The Committee specifically considered that the Company does not maintain any employment
contracts or change of control agreements with such individuals.
- 18 -
It should be noted that when the Committee considers any component of total compensation of
the Companys Co-CEOs and the three other most highly compensated executive officers, the aggregate
amounts and mix of all the components, including perquisites and accumulated (realized and
unrealized) option gains, are taken into consideration in the Committees decisions.
Internal Pay Equity
The Committee believes that any relative difference between the compensation of the Co-CEOs
and the compensation of the Companys other executives is not inconsistent with such differences
found in our peer group and is appropriate based upon the contributions to the success of the
Company and as a means of motivation to other executives and employees.
William R. Martin (Chairman)
William W. Verity
Kenneth C. Ambrecht
- 19 -
Performance Graph
The following graph compares the cumulative total shareholder return on the Companys common
stock with the cumulative total return of the Standard & Poors (S&P) 400 Midcap Index and the
S&P 500 Property-Casualty Insurance Index. (Assumes $100 invested on December 31, 2000 in the
Companys common stock and the two indexes, including reinvestment of dividends.)
Performance Graph Index
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December 31, |
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2000 |
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2001 |
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2002 |
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2003 |
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2004 |
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2005 |
AFG Common Stock |
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100 |
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96 |
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92 |
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108 |
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131 |
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163 |
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S&P 400 Midcap Index |
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100 |
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99 |
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85 |
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115 |
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134 |
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151 |
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S&P Property-Casualty Insurance Index |
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100 |
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92 |
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82 |
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103 |
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114 |
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131 |
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- 20 -
Directors Compensation
In early 2004, the Board of Directors adopted the Companys Non-Employee Director Compensation
Plan, which was then approved at the 2004 annual meeting of shareholders.
During 2005, under the Plan, all directors who were not officers or employees of the Company
were paid the following fees: an annual board retainer of $30,000 and $1,750 per each board meeting
attended. The Audit Committee Chairman received a $20,000 retainer. All other committee Chairman
received a $12,000 annual retainer. The members (non-chairman) received a $6,000 annual retainer
for each committee served. All committee members received $1,250 for each meeting attended.
Non-employee directors who become directors during the year receive a pro rata portion of these
annual retainers. In addition, non-employee directors receive an annual award of stock worth
$60,000.
Compensation earned for director service in 2005 is set forth in the following table. Other
than the restricted stock grants, all amounts were paid in cash.
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Annual |
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Board |
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Committee |
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Committee |
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Committee |
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Annual |
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Board |
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Meeting |
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Chairman |
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Member |
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Meeting |
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Stock |
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Name |
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Total |
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Retainer |
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Fees |
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Retainer |
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Retainer |
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Fees |
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Grant(1) |
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Other |
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Theodore H. Emmerich |
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$ |
139,500 |
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$ |
30,000 |
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$ |
15,750 |
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$ |
20,000 |
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$ |
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$ |
13,750 |
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$ |
60,000 |
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Kenneth C.
Ambrecht(2) |
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104,462 |
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18,544 |
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12,250 |
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7,418 |
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6,250 |
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60,000 |
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Terry S. Jacobs |
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139,000 |
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30,000 |
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15,750 |
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12,000 |
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21,250 |
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60,000 |
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William R. Martin |
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140,250 |
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30,000 |
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15,750 |
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12,000 |
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22,500 |
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60,000 |
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William W. Verity |
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134,000 |
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30,000 |
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15,750 |
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12,000 |
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16,250 |
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60,000 |
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1 |
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The number of shares issued to the independent directors pursuant
to the annual stock grant portion of their compensation before December 31, 2005;
Mr. Emmerich 3,986; Mr. Ambrecht 1,864; Mr. Jacobs 3,896; Mr. Martin 3,986
and Mr. Verity 3,896. Before shareholder approval in 2004 of the Non-Employee
Directors Compensation Plan, independent directors received an annual stock option
grant. Such options outstanding as of December 31, 2005 held by independent
directors are: Mr. Emmerich 12,500; Mr. Ambrecht 0; Mr. Jacobs 0; Mr. Martin
12,500 and Mr. Verity 7,500. |
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2 |
|
Mr. Ambrecht was elected to the Board on May 19, 2005. As a result,
his Board and Committee retainers were pro-rated for the second quarter. |
William R. Martin and Kenneth C. Ambrecht, directors of the Company, each also serve as
non-management directors of Great American Financial Resources, Inc. During 2005, Messrs. Martin
and Ambrecht received directors fees from GAFRI in the amount of $61,125 and $54,250,
respectively.
The Plan also sets forth stock ownership guidelines for the non-employee directors.
Specifically, within three years after a non-employee director receives the first restricted stock
award under the Plan, such non-employee director, as a consideration in the determination of his or
her future service to AFGs Board of Directors, is required to beneficially own a minimum number of
shares of AFG common stock, the value of which shall be equal to six times the then-current annual
board retainer.
Board Retirement Program
Until 2003, the Board of Directors had a program under which a retiring non-employee director,
who is at least 55 years old and has served as a director for at least four years, would receive
upon retirement an amount equal to five times the then current annual board retainer. In 2003, the
Board of Directors terminated the plan, except as it applied to those directors then eligible,
Messrs. Martin and Emmerich. In early 2006, the Company, upon the recommendation of the Governance
Committee and at the request of Messrs. Martin and Emmerich, terminated the plan entirely.
- 21 -
Certain Transactions
From time to time, the Company has transacted business with affiliates. The financial terms
of these transactions are comparable to those which would apply to unrelated parties.
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 usage to the AFG subsidiary along with the obligation to pay for
allocated operating costs, but Mr. Lindner continues to pay allocated capital costs. Total charges
paid by AFG for use of this aircraft during 2005 were $949,500.
During 2005, AFG paid the Cincinnati Reds $97,000 for tickets to baseball games for employees,
customers and charitable purposes. Until January 2006, Carl H. Lindner was the Chief Executive
Officer of the Reds. A subsidiary of AFG and certain members of the Lindner family were part
owners of the Reds during 2005.
The son of one of the Companys Co-Chief Executive Officers, S. Craig Lindner, Jr., earned
$67,000 as an employee of a subsidiary during 2005.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Companys Board of Directors held nine meetings in 2005. The Board has an Audit
Committee, a Compensation Committee, and a Corporate Governance Committee. The charters for each
of these Committees as well as the Companys Corporate Governance Guidelines are available at
www.afginc.com and upon written request to the Companys Secretary, the address of whom is set
forth under Communications with Directors on page 24.
Compensation Committee: The Compensation Committee consulted among themselves and with
management informally throughout the year, and met seven times in 2005.
Audit Committee: The Audit Committee met 11 times in 2005. The Companys Board has
determined that each of the Audit Committees members, namely, Theodore H. Emmerich, William R.
Martin and Terry S. Jacobs, is an audit committee financial expert as defined under SEC Regulation
S-K Item 401(h). Each of Messrs. Emmerich, Martin and Jacobs satisfies the NYSE and NASDAQ
independence standards.
Corporate Governance Committee: The Corporate Governance Committee met seven times in 2005.
The Governance Committee is responsible for, among other things, establishing criteria for
selecting new directors, identifying individuals qualified to be Board members as needed, and
recommending to the Board director nominees for the next annual meeting of shareholders. The
charter of the Governance Committee is available at the Companys website, http://www.afginc.com.
The Committee is comprised of members who are independent as defined under NYSE and NASDAQ
listing standards.
Director Attendance Policy
AFG expects its directors to attend meetings of shareholders. All of AFGs directors attended
last years meeting.
Executive Sessions
NYSE and NASDAQ rules require non-management directors to meet regularly in executive
sessions. Four of these sessions were held during 2005. The non-management directors select one
of such directors to preside over each session. Shareholders and other interested parties may
communicate with any of the non-management directors, individually or as a group, by following the
procedures set forth on page 24.
- 22 -
Audit Committee Report
The Audit Committee is comprised of Theodore H. Emmerich (Chairman), William R. Martin and
Terry S. Jacobs, each of whom is experienced with financial statements and has past accounting or
related financial management experience. Each of the members of the Audit Committee is independent
as defined by the New York Stock Exchange and NASDAQ listing standards. The Board has determined
that each of the three members of the Audit Committee is an audit committee financial expert as
defined in Securities and Exchange Commission regulations. The Audit Committee operates under a
Charter, adopted in 2000 and amended in March 2004, which was attached to the 2004 proxy statement.
The 2004 amendments to the Audit Committee Charter were made in response to requirements imposed
in Sarbanes-Oxley and NYSE rules.
The primary function of the Audit Committee is to assist the Board in fulfilling its oversight
responsibilities by reviewing the financial information which will be provided to shareholders and
others, the systems of internal control which management has established, and the audit process.
Management is responsible for the Companys internal controls and the financial reporting process.
The independent accountants are responsible for performing an independent audit of the Companys
consolidated financial statements in accordance with generally accepted auditing standards and
issuing a report thereon. The Committees responsibility is to monitor and oversee these
processes. Additionally, the Audit Committee engages the Companys independent accountants who
report directly to the Committee.
The Committee has met and held discussions with management and the independent registered
public accounting firm. Management represented to the Committee that the Companys consolidated
financial statements were prepared in accordance with generally accepted accounting principles, and
the Committee has reviewed and discussed the consolidated financial statements with management and
the independent accountants. The Committee discussed with the independent accountants the matters
required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit
Committees).
The Companys independent registered public accounting firm also provided to the Committee the
written disclosures and the letter required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees) and disclosures required by the Audit Committee
Charter, and the Committee discussed with independent accountants that firms independence. As
part of its discussions, the Committee determined that Ernst & Young LLP was independent of AFG.
Based on the Committees discussions with management and the independent registered public
accounting firm and the Committees review of the representation of management and the report of
the independent registered public accounting firm to the Committee, the Committee recommended that
the audited consolidated financial statements be included in the Companys Annual Report on Form
10-K for the year ended December 31, 2005 filed with the Securities and Exchange Commission.
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Members of the Audit Committee:
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Theodore H. Emmerich, Chairman |
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William R. Martin |
|
|
Terry S. Jacobs |
Audit Committee Pre-Approval Policies
The Audit Committee has adopted policies that require its approval for any audit and non-audit
services to be provided to AFG. The Audit Committee delegated authority to the Committee Chairman
to approve certain non-audit services. Pursuant to these procedures and delegation of authority,
the Audit Committee was informed of and approved all of the audit and other services described
above. No services were provided with respect to the de minimus waiver process provided by rules of
the Securities and Exchange Commission.
Independence Determinations
New York Stock Exchange corporate governance rules require that listed companies disclose the
determination of a board of directors that a director considered to be independent has no material
relationship with the listed company. The board has made this determination based primarily on a
review of the responses of the directors to questions regarding employment and compensation
history, family relationships and affiliations and discussions with the directors. AFGs Board has
determined Messrs. Ambrecht, Emmerich, Jacobs, Martin, and Verity to be independent.
Messrs. Martin and Ambrecht currently serve as directors of the Companys subsidiary, Great
American Financial Resources, Inc. Mr. Ambrecht was a Managing Director with First Albany Capital
from July 2004 until December 2005. For more than five years prior to that, Mr. Ambrecht was a
Managing Director with Royal Bank Canada Capital Markets. From time to time, the Company has
purchased or sold securities through these
- 23 -
companies in the ordinary course of business, for which
we paid customary commissions or discounts. The amounts involved were deemed by AFGs Board of
Directors not to be material in amount.
NOMINATIONS AND SHAREHOLDER PROPOSALS
In accordance with the Companys Code of Regulations (the Regulations), the only candidates
eligible for election at a meeting of shareholders are candidates nominated by or at the direction
of the Board of Directors and candidates nominated at the meeting by a shareholder who has complied
with the procedures set forth in the Regulations. Shareholders will be afforded a reasonable
opportunity at the meeting to nominate candidates for the office of director. However, the
Regulations require that a shareholder wishing to nominate a director candidate must have first
given the Secretary of the Company at least five and not more than thirty days prior written notice
setting forth or accompanied by (1) the name and residence of the shareholder and of each nominee
specified in the notice, (2) a representation that the shareholder was a holder of record of the
Companys voting stock and intended to appear, in person or by proxy, at the meeting to nominate
the persons specified in the notice and (3) the consent of each such nominee to serve as director
if so elected. Directors nominated through this process will be considered by the Corporate
Governance Committee.
The proxy card used by AFG for the annual meeting typically grants authority to management to
vote in its discretion on any matters that come before the meeting as to which adequate notice has
not been received. In order for a notice to be deemed adequate for the 2007 annual meeting, it must
be received by March 1, 2007. In order for a proposal to be considered for inclusion in AFGs proxy
statement for that meeting, it must be received by December 18, 2006.
The Corporate Governance Committee does not have a policy with regard to the consideration of
director candidates recommended by shareholders because Ohio law and the Companys Code of
Regulations affords shareholders certain rights related to such matters. Nominees for directorship
will be recommended by the Governance Committee to the Board in accordance with the principles in
its charter and the Corporate Governance Guidelines also on AFGs website. When considering an
individual candidates suitability for the Board, the Corporate Governance Committee will evaluate
each individual on a case-by-case basis. Although the Committee does not prescribe minimum
qualifications or standards for directors, candidates for Board membership should have the highest
personal and professional integrity, demonstrated exceptional ability and judgment, and
availability and willingness to take the time necessary to properly discharge the duties of a
director. The Committee will make its determinations on whether to nominate an individual based on
the Boards then-current needs, the merits of each such candidate and the qualifications of other
available candidates. The Committee will have no obligation to respond to shareholders who propose
candidates that it has determined not to nominate for election to the Board, but the Committee may
do so in its sole discretion. All director candidates are evaluated similarly, whether nominated
by the Board or by a shareholder.
The Corporate Governance Committee did not seek, nor did it receive the recommendation of any
of the director candidates named in this proxy statement from any shareholder, non-management
director, executive officer or third-party search firm in connection with its own approval of such
candidates. The Company has not paid any fee to a third party to assist it in identifying or
evaluating nominees.
COMMUNICATIONS WITH DIRECTORS
The Board of Directors has adopted procedures for shareholders to send written communications
to the Board as a group. Such communications must be clearly addressed either to the Board of
Directors or any or all of the non-management directors, and sent to either of the following, at
the election of the shareholder, who will forward any communications so received:
|
|
|
James C. Kennedy |
|
|
Vice President, Deputy General
|
|
Theodore H. Emmerich |
Counsel & Secretary
|
|
Chairman of the Audit Committee |
American Financial Group, Inc.
|
|
American Financial Group, Inc. |
One East Fourth Street
|
|
One East Fourth Street |
Cincinnati, Ohio 45202
|
|
Cincinnati, Ohio 45202 |
- 24 -
CODE OF ETHICS
The Companys Board of Directors adopted a Code of Ethics applicable to the Companys
directors, officers and employees. The Code of Ethics is available at www.afginc.com and upon
written request to the Companys Secretary, the address of whom is set forth immediately above.
The Company intends to disclose amendments and any waivers to the Code of Ethics on its website
within four business days after such amendment of waiver.
- 25 -
[This page left blank intentionally]
- 26 -
One East Fourth Street
Cincinnati, Ohio 45202
ANNUAL
MEETING OF SHAREHOLDERS OF
AMERICAN FINANCIAL GROUP, INC.
May 18,
2006
Please date, sign and mail
your proxy card in the
envelope provided as soon
as possible.
ê Please detach along perforated line and mail in the envelope provided. ê
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF
DIRECTORS, FOR PROPOSAL 2 AND AGAINST PROPOSAL 3. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE ý
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The
Board of Directors recommends a vote FOR all
nominees:
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The Board of Directors recommends a vote FOR the following Proposal: |
1. Proposal to Elect Directors:
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NOMINEES: |
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FOR
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AGAINST
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ABSTAIN |
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FOR ALL NOMINEES
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Carl H. Linder
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Proposal to
ratify the Audit Committees appointment of Ernst
& Young LLP as the Companys Independent Public Accountants for
2006. |
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Carl H. Linder III |
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S. Craig Linder
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WITHHOLD AUTHORITY FOR ALL NOMINEES |
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Kenneth C. Ambrecht
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The Board of Directors recommends a vote AGAINST the following Proposal: |
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Theodore H. Emmerich
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James E. Evans |
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FOR
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AGAINST
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ABSTAIN |
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FOR ALL EXCEPT (See instructions below)
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¡ ¡ |
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Terry S. Jacobs
William R. Martin
William W. Verity
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3. |
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Shareholder Proposal Regarding Political Contributions.
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The named proxy holders will vote the shares represented by this proxy in the
manner indicated. Unless a contrary direction is indicated, the proxy holders
will, except to the extent they exercise their discretion to cumulate votes in
the election of directors, vote such shares FOR Proposals 1 and 2 and
AGAINST Proposal 3. If cumulative voting is invoked by a shareholder through
proper notice to the Company, this proxy will give the proxy holders authority,
in their discretion, to cumulate all votes to which the undersigned is entitled
in respect of the shares represented by this proxy and allocate them in favor of
any one or more of the nominees for director if any situation arises which, in
the opinion of the proxy holders, makes such action necessary or desirable. If
any further matters properly come before the meeting, such shares shall be voted
on such matters in accordance with the best judgment of the proxy holders.
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INSTRUCTION:
To withhold authority to vote for any individual nominee(s),
mark FOR ALL EXCEPT and fill in the circle next to each
nominee
you wish to
withhold, as shown here:
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To change the address on your account, please check the box
at right and indicate your new address in the address space
above. Please note that changes to the registered name(s)
on the account may not be submitted
via this method. |
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Signature
of Shareholder
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Date:
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Signature
of Shareholder
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Date:
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Note: |
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Please sign exactly as your name or names appear on this Proxy.
When shares are held jointly, each holder should sign. When signing
as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name
by duly authorized officer, giving full title as such. If signer is a partnership,
please sign in partnership name by authorized person. |
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AMERICAN FINANCIAL GROUP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James C. Kennedy and Karl J. Grafe, and either of them, attorneys and
proxies, with the power of substitution to each, to vote all shares of Common Stock of the Company that the
undersigned may be entitled to vote at the Annual Meeting of Shareholders of the Company to be held May 18, 2006
at 11:30 A.M., on the matters set forth below (and at their discretion to cumulate votes in the election of
directors if cumulative voting is invoked by a shareholder through proper notice to the Company), and on such
other matters as may properly come before the meeting or any adjournment thereof.
(Continued and to be signed on the reverse side.)
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ANNUAL
MEETING OF SHAREHOLDERS OF
AMERICAN FINANCIAL GROUP, INC.
May 18,
2006
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PROXY VOTING INSTRUCTIONS
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MAIL
- Date, sign and mail your proxy card in the
envelope provided as soon as possible.
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or -
TELEPHONE
- Call toll-free
1-800-PROXIES
(1-800-776-9437) from
any touch-tone telephone and follow the instructions.
Have your proxy card available when you call.
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INTERNET
- Access www.voteproxy.com and follow
the on-screen instructions. Have your proxy card
available when you access the web page.
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COMPANY NUMBER
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ACCOUNT NUMBER
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You may enter your voting instructions at 1-800-PROXIES or
www.voteproxy.com up until 11:59 PM
Eastern Time the day before the cut-off or meeting date.
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ê Please
detach along perforated line and mail in the envelope provided
IF you are not voting via telephone or the
Internet. ê
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
ELECTION OF DIRECTORS, FOR PROPOSAL 2 AND
AGAINST PROPOSAL 3. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR
BLACK INK AS SHOWN HERE
ý
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The
Board of Directors recommends a vote FOR all
nominees: 1. Proposal to Elect Directors:
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The Board of Directors recommends a vote FOR the following Proposal: |
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NOMINEES: |
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FOR
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AGAINST
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ABSTAIN |
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FOR ALL NOMINEES
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¡ |
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Carl H. Lindner
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2. |
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Proposal to
ratify the Audit Committees appointment of Ernst
& Young LLP as the Companys Independent Public Accountants for
2006. |
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o |
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¡ |
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Carl H. Lindner III |
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S. Craig Lindner
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WITHHOLD AUTHORITY FOR ALL NOMINEES |
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¡ |
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Kenneth C. Ambrecht
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The Board of Directors recommends a vote AGAINST the following Proposal: |
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¡ |
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Theodore H. Emmerich
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¡ |
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James E. Evans |
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|
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FOR
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AGAINST
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ABSTAIN |
o
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FOR ALL EXCEPT (See instructions below)
|
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¡ ¡ |
|
Terry S. Jacobs
William R. Martin
William W. Verity
|
|
|
|
|
3. |
|
Shareholder Proposal Regarding Political Contributions.
|
|
o
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o
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o |
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¡ |
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The named proxy holders will vote the shares represented by this proxy in the
manner indicated. Unless a contrary direction is indicated, the proxy holders
will, except to the extent they exercise their discretion to cumulate votes in
the election of directors, vote such shares FOR Proposals 1 and 2 and
AGAINST Proposal 3. If cumulative voting is invoked by a shareholder through
proper notice to the Company, this proxy will give the proxy holders authority,
in their discretion, to cumulate all votes to which the undersigned is entitled
in respect of the shares represented by this proxy and allocate them in favor of
any one or more of the nominees for director if any situation arises which, in
the opinion of the proxy holders, makes such action necessary or desirable. If
any further matters properly come before the meeting, such shares shall be voted
on such matters in accordance with the best judgment of the proxy holders.
|
INSTRUCTION:
To withhold authority to vote for any individual nominee(s),
mark FOR ALL EXCEPT and fill in the circle next to each
nominee
you wish to
withhold, as shown here: = |
|
|
|
|
|
|
|
|
|
|
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|
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|
|
To change the address on your account, please check the box
at right and indicate your new address in the address space
above. Please note that changes to the registered name(s)
on the account may not be submitted
via this method. |
|
o |
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Signature
of Shareholder
|
|
Date:
|
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Signature
of Shareholder
|
|
Date:
|
|
|
|
|
Note: |
|
Please sign exactly as your name or names appear on this Proxy.
When shares are held jointly, each holder should sign. When signing
as executor, administrator, attorney, trustee or guardian, please give full
title as such. If the signer is a corporation, please sign full corporate name
by duly authorized officer, giving full title as such. If signer is a partnership,
please sign in partnership name by authorized person. |
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