SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 1-7981
American General Corporation
(Exact name of registrant as specified in its articles of incorporation)
Texas 74-0483432
(State of Incorporation) (I.R.S. Employer
Identification No.)
2929 Allen Parkway, Houston, Texas 77019-2155
(Address of principal executive offices) (Zip Code)
(713) 522-1111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
As of July 31, 1998, there were 253,099,226 shares (excluding shares held in
treasury and by a subsidiary) of American General's Common Stock and 2,317,701
shares of American General's 7% Convertible Preferred Stock outstanding.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
INDEX TO FORM 10-Q
Page
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Statement of Income for the six
months and quarters ended June 30, 1998 and 1997 . 2
Consolidated Balance Sheet at June 30, 1998 and
December 31, 1997 ................................ 3
Consolidated Statement of Shareholders' Equity for
the six months ended June 30, 1998 and 1997 ...... 4
Consolidated Condensed Statement of Cash Flows for
the six months ended June 30, 1998 and 1997 ...... 5
Notes to Consolidated Financial Statements ......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............. 11
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings .................................. 25
Item 4. Submission of Matters to a Vote of Security
Holders ............................................ 25
Item 5. Other Information .................................. 26
Item 6. Exhibits and Reports on Form 8-K ................... 26
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN GENERAL CORPORATION
Consolidated Statement of Income
(Unaudited)
(In millions, except per share data)
Six Months Ended Quarter Ended
June 30, June 30,
1998 1997 1998 1997
Revenues
Premiums and other considerations. $ 1,769 $ 1,633 $ 891 $ 832
Net investment income ............ 2,506 1,973 1,280 1,002
Finance charges .................. 658 635 331 315
Realized investment gains ........ 5 14 4 20
Equity in earnings of Western
National Corporation ............ - 26 - 13
Other ............................ 97 87 50 44
Total revenues ............... 5,035 4,368 2,556 2,226
Benefits and expenses
Insurance and annuity benefits ... 2,510 2,123 1,286 1,083
Operating costs and expenses ..... 770 692 388 345
Commissions ...................... 504 424 255 214
Change in deferred policy
acquisition costs and cost of
insurance purchased ............. (84) (51) (50) (26)
Provision for finance receivable
losses .......................... 100 131 51 63
Interest expense
Corporate ....................... 92 77 42 41
Consumer Finance ................ 246 226 124 113
Other charges
Year 2000 costs ................. 17 6 8 4
Merger-related costs ............ - 272 - 272
Losses on sale of non-strategic
assets ......................... - 113 - 113
Litigation settlement ........... - 50 - 50
Total benefits and expenses .. 4,155 4,063 2,104 2,272
Earnings
Income (loss) before income tax
expense, minority interest, and
dividends on preferred
securities ...................... 880 305 452 (46)
Income tax expense ............... 316 180 165 56
Income (loss) before minority
interest and dividends on
preferred securities ............ 564 125 287 (102)
Minority interest in net income of
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Western National Corporation .... 11 - - -
Net dividends on preferred
securities of subsidiaries ...... 45 39 23 22
Net income (loss) ............ $ 508 $ 86 $ 264 $ (124)
Net income (loss) per share
Basic ........................... $ 2.02 $ .34 $ 1.03 $ (.52)
Diluted ......................... $ 1.97 $ .34 $ 1.01 $ (.52)
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
(In millions, except share data)
June 30, December 31,
1998 1997
Assets
Investments
Fixed maturity securities (amortized cost:
$58,216; $44,961) ........................... $ 61,615 $47,747
Mortgage loans on real estate ................. 3,498 3,272
Equity securities (cost: $96; $93) ............ 114 116
Policy loans .................................. 2,256 2,156
Investment real estate ........................ 232 233
Other long-term investments ................... 253 176
Short-term investments ........................ 1,324 306
Total investments ......................... 69,292 54,006
Assets held in Separate Accounts ............... 14,297 11,482
Finance receivables, net ....................... 8,257 7,639
Deferred policy acquisition costs .............. 3,132 2,718
Cost of insurance purchased .................... 879 680
Goodwill ....................................... 1,558 677
Other assets ................................... 3,610 2,835
Investment in Western National Corporation ..... - 583
Total assets .............................. $101,025 $80,620
Liabilities
Insurance and annuity liabilities .............. $ 60,860 $47,659
Liabilities related to Separate Accounts ....... 14,297 11,482
Debt (short-term)
Corporate ($1,552; $575) ...................... 2,687 1,916
Consumer Finance ($3,610; $3,255) ............. 7,864 7,266
Income tax liabilities ......................... 1,626 1,380
Other liabilities .............................. 3,167 1,608
Total liabilities ......................... 90,501 71,311
Redeemable equity
Company-obligated mandatorily redeemable
preferred securities of subsidiaries
holding solely company subordinated notes
Non-convertible ............................. 1,480 1,479
Convertible ................................. 247 247
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Total redeemable equity ................... 1,727 1,726
Shareholders' equity
Convertible preferred stock (shares issued
and outstanding: 2,317,701) ................... 85 85
Common stock (shares issued: 269,298,493;
259,135,053; outstanding: 253,132,936;
243,206,215) .................................. 929 326
Cost of treasury stock ......................... (660) (621)
Retained earnings .............................. 6,943 6,624
Accumulated other comprehensive income ......... 1,500 1,169
Total shareholders' equity ................ 8,797 7,583
Total liabilities and equity .............. $101,025 $80,620
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Statement of Shareholders' Equity
(Unaudited)
(In millions, except per share data)
Six Months Ended
June 30,
1998 1997
Compre- Compre-
hensive hensive
Total Income Total Income
Convertible preferred stock
Balance at beginning and end of
period ........................... $ 85 $ 85
Common stock
Balance at beginning of period .... 326 572
Issuance for Western National
Corporation acquisition .......... 580 -
Valuation of stock options issued
for acquisition .................. 37 -
Retirement of USLIFE treasury
shares ........................... - (346)
Issuance of treasury shares ....... (14) 95
Balance at end of period .......... 929 321
Cost of treasury stock
Balance at beginning of period .... (621) (860)
Share repurchases ................. (78) (363)
Retirement of USLIFE treasury
shares ........................... - 346
Issuance for acquisition .......... - 304
Issuance under employee benefit
plans and other .................. 39 36
Balance at end of period .......... (660) (537)
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Retained earnings
Balance at beginning of period .... 6,624 6,420
Net income ........................ 508 $ 508 86 $ 86
Cash dividends (per share)
Preferred stock ($1.29; $1.29) ... (3) (3)
Common stock ($.75; $.70) ........ (186) (159)
Balance at end of period .......... 6,943 6,344
Accumulated other comprehensive
income
Balance at beginning of period.... 1,169 627
Change in net unrealized gains
(losses) on securities, net of
reclassification adjustment ..... 331 331 (94) (94)
Balance at end of period ......... 1,500 533
Comprehensive income (loss) ..... $ 839 $ (8)
Total shareholders' equity ...... $8,797 $6,746
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In millions)
Six Months Ended
June 30,
1998 1997
Operating activities
Net cash provided by operating activities ... $ 1,059 $ 929
Investing activities
Investment purchases .............................. (5,290) (6,969)
Investment dispositions and repayments ............ 4,625 6,489
Finance receivable originations and purchases ..... (3,069) (2,256)
Finance receivable principal payments received .... 2,353 2,146
Disposition of non-strategic assets ............... - 733
Net increase in short-term investments ............ (386) (44)
Acquisitions ...................................... (590) (283)
Other, net ........................................ (152) (15)
Net cash used for investing activities ...... (2,509) (199)
Financing activities
Retirement Services and Life Insurance
Policyholder account deposits ................... 2,122 1,595
Policyholder account withdrawals ................ (2,231) (1,472)
Net policyholder account deposits
(withdrawals) ............................... (109) 123
Short-term collateralized financings ............ 446 -
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Total Retirement Services and Life Insurance. 337 123
Consumer Finance
Net increase (decrease) in short-term debt ...... 355 (348)
Long-term debt issuances ........................ 873 163
Long-term debt redemptions ...................... (632) (711)
Total Consumer Finance ..................... 596 (896)
Corporate
Net increase in short-term debt ................. 882 135
Long-term debt redemptions ...................... (354) -
Dividends on common and preferred stock ......... (189) (162)
Common stock repurchases ........................ (74) (365)
Issuance of preferred securities of subsidiaries. - 498
Other, net ...................................... 184 50
Total Corporate ............................ 449 156
Net cash provided by (used for)
financing activities ..................... 1,382 (617)
Net increase (decrease) in cash .................... (68) 113
Cash at beginning of period ........................ 263 176
Cash at end of period .............................. $ 195 $ 289
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income taxes .................................... $ 143 $ 188
Interest
Corporate ...................................... 98 67
Consumer Finance ............................... 240 254
Dividends on preferred securities of
subsidiaries ................................... 68 59
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 1998
1. Accounting Policies. The accompanying unaudited consolidated financial
statements of American General Corporation and its subsidiaries (American
General or the company) have been prepared in accordance with generally
accepted accounting principles for interim periods. In the opinion of
management, these statements include all adjustments that are necessary
for a fair presentation of the company's consolidated financial position
at June 30, 1998, the consolidated results of operations for the three
months and six months ended June 30, 1998 and 1997, and the consolidated
shareholders' equity and cash flows for the six months ended June 30,
1998 and 1997.
2. New Accounting Standards. During first quarter 1998, the company adopted
Statement of Financial Accounting Standards (SFAS) 130, "Reporting
Comprehensive Income," which establishes standards for reporting and
displaying comprehensive income and its components in the financial
statements. American General elected to report comprehensive income and
its components in the consolidated statement of shareholders' equity,
which is included herein. Application of this statement did not change
recognition or measurement of net income and, therefore, did not impact
the company's consolidated results of operations or financial position.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities," which
requires all derivative instruments to be recognized at fair value as
either assets or liabilities in the balance sheet. Changes in the fair
value of a derivative instrument are to be reported as earnings or other
comprehensive income, depending upon the intended use of the derivative
instrument. This statement is effective for years beginning after June
15, 1999. Adoption of SFAS 133 is not expected to have a material impact
on the company's consolidated results of operations or financial
position.
3. Acquisitions.
Western National. On February 25, 1998, the company acquired the
remaining 54% equity interest of Western National Corporation (Western
National) for $1.2 billion. The purchase price consisted of $580 million
cash and 10.2 million shares of American General common stock. In
addition, the company issued options to acquire 1.4 million shares of
American General common stock to replace outstanding options to acquire
Western National common stock. The fair value of these options,
excluding options surrendered for $10 million cash pursuant to a pre-
existing employment agreement, was $37 million.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 1. Financial Statements (continued).
Western National's results of operations and cash flows have been
consolidated in the company's financial statements effective January 1,
1998. Earnings attributable to minority interests through February 25,
1998 have been reflected as a charge against consolidated income.
The acquisition was accounted for using the purchase method, and the
purchase price has been allocated to Western National's specific assets
and liabilities based on management's best estimate of their fair values
at the date of acquisition. Evaluation of fair values assigned to
Western National's assets and liabilities (primarily related to insurance
and annuity liabilities) is continuing, and allocation of the purchase
price may be adjusted when additional information is available. The
difference between the aggregate purchase price and the net assets
acquired is attributed to goodwill that will be amortized on a straight-
line basis over 40 years.
Non-cash activities related to the acquisition that are not reflected in
the consolidated condensed statement of cash flows for the six months
ended June 30, 1998 were as follows:
(In millions)
Fair value of assets acquired $ 7,169
Liabilities assumed (5,962)
Issuance of common stock (580)
Fair value of stock options issued (37)
Net cash paid $ 590
Western National is the parent of Western National Life Insurance
Company, which changed its name to American General Annuity Insurance
Company (American General Annuity) effective May 1, 1998.
Provident. Effective April 30, 1998, the Retirement Services division of
the company completed the acquisition of substantially all of the in-
force individual annuity business of Provident Companies, Inc.
(Provident) in a coinsurance transaction with a ceding commission of
approximately $32 million. The transaction increased insurance and
annuity liabilities by $2.3 billion.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 1. Financial Statements (continued).
4. Calculation of Earnings Per Share. The calculation of basic and diluted
earnings per share follows:
Six Months Ended Quarter Ended
(In millions, June 30, June 30,
except share data) 1998 1997 1998 1997
Net income (loss) .... $508 $ 86 $264 $(124)
Dividends on
convertible preferred
stock ............... (3) (3) (2) (2)
Earnings available
to common
shareholders (a)..... 505 83 262 (126)
Dividends on
dilutive securities
Convertible preferred
securities of
subsidiary, net of
tax ............... 5 - 2 -
Convertible preferred
stock ............. 3 - 2 -
Earnings available
to common
shareholders assuming
dilution (b) ........ $513 $ 83 $266 $(126)
Average shares
outstanding (a) ..... 250,380,928 240,785,292 253,464,428 241,925,669
Dilutive securities
Convertible preferred
securities of
subsidiary ........ 6,144,016 - 6,144,016 -
Convertible preferred
stock ............. 2,317,701 - 2,317,701 -
Stock options ...... 1,276,659 1,114,004 1,634,096 -
Average shares
outstanding assuming
dilution (b) ........ 260,119,304 241,899,296 263,560,241 241,925,669
Net income (loss)
per share
Basic .............. $2.02 $ .34 $1.03 $(.52)
Diluted ............ $1.97 $ .34 $1.01 $(.52)
(a) Used to compute basic earnings per share.
(b) Used to compute diluted earnings per share.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 1. Financial Statements (continued).
5. Investing Activities. Cash flows related to investing activities were as
follows:
Dispositions and
Purchases Repayments
Six Months Ended Six Months Ended
(In millions) June 30, June 30,
1998 1997 1998 1997
Fixed maturity securities $5,103 $6,728 $4,264 $5,848
Mortgage loans 145 198 280 433
Equity securities 1 2 37 65
Other 41 41 44 143
Total $5,290 $6,969 $4,625 $6,489
6. Derivative Financial Instruments. During the six months ended June 30,
1998, the company purchased options to enter into interest rate swap
agreements (swaptions) to limit its exposure to reduced spreads between
investment yields and interest crediting rates should interest rates
decline significantly over prolonged periods. These swaptions, with a
total notional amount of $1.5 billion and strike rates ranging from 4.00%
to 5.00%, expire during 1998 and 1999.
During the six months ended June 30, 1998, the company entered into
interest rate swap agreements with a total notional amount of $35
million. In addition, American General Annuity had interest rate swap
agreements with a total notional amount of $120 million outstanding at
the acquisition date, of which $80 million is outstanding at June 30,
1998. These interest rate swap agreements, which require the receipt of
fixed rates and the payment of floating rates, were entered into to
convert specific investment securities from a floating rate to a fixed
rate basis.
In June 1998, the company entered into a treasury rate lock agreement
with a notional amount of $190 million to hedge against the risk of
rising interest rates on an anticipated debt issuance expected to occur
in 1998.
Derivative financial instruments did not have a material effect on net
investment income, interest expense, or net income during the six months
ended June 30, 1998 or 1997.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 1. Financial Statements (continued).
7. Dollar Rolls. American General has entered into dollar roll agreements
as part of its strategy to increase investment yields. Dollar rolls are
agreements to sell mortgage-backed securities (MBSs) and repurchase
substantially the same securities at a specified price and date in the
future. The dollar rolls are accounted for as short-term collateralized
financings and are included in other liabilities. American General
Annuity had outstanding dollar rolls of $520 million at the acquisition
date. At June 30, 1998, the company had outstanding dollar roll
agreements of $976 million, which were collateralized by MBSs with
approximately the equivalent fair value. The average amount outstanding
and the weighted average interest rate on dollar rolls for the six months
ended June 30, 1998 were $828 million and 5.19%, respectively.
8. Legal Contingencies.
Market Conduct. In recent years, various life insurance companies have
been named as defendants in class action lawsuits relating to life
insurance pricing and sales practices, and a number of these lawsuits
have resulted in substantial settlements. Certain of American General's
subsidiaries are defendants in such purported class action lawsuits filed
since 1996, asserting claims related to pricing and sales practices.
These claims are being defended vigorously by the subsidiaries. Given
the uncertain nature of litigation and the early stages of this
litigation, the outcome of these actions cannot be predicted at this
time. American General nevertheless believes that the ultimate outcome
of all such pending litigation should not have a material adverse effect
on American General's consolidated financial position. It is possible
that settlements or adverse determinations in one or more of these
actions or other future proceedings could have a material adverse effect
on American General's consolidated results of operations for a given
period. No provision for any adverse determinations in this pending
litigation has been made in the consolidated financial statements because
the amount of the loss, if any, from these actions cannot be reasonably
estimated at this time.
Other. In addition to those lawsuits or proceedings disclosed herein,
and in the company's 1997 annual report on Form 10-K, the company is a
party to various other lawsuits and proceedings arising in the ordinary
course of business. Many of these lawsuits and proceedings arise in
jurisdictions, such as Alabama, that permit damage awards
disproportionate to the actual economic damages incurred. Based upon
information presently available, the company believes that the total
amounts that will ultimately be paid, if any, arising from these lawsuits
and proceedings will not have a material adverse effect on the company's
consolidated results of operations and financial position. However, it
should be noted that the frequency of large damage awards, including
large punitive damage awards, that bear little or no relation to actual
economic damages incurred by plaintiffs in jurisdictions like Alabama
continues to create the potential for an unpredictable judgment in any
given suit.
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 1. Financial Statements (continued).
9. Tax Return Examinations. American General and the majority of its
subsidiaries file a consolidated federal income tax return. The Internal
Revenue Service (IRS) has completed examinations of the company's tax
returns through 1988 and has raised certain issues related to 1987 and
1988 that the company is currently contesting in the United States Tax
Court. The IRS is currently examining the company's tax returns for 1989
through 1996. Although the final outcome of any issue raised is
uncertain, the company believes that the ultimate liability, including
interest, will not materially exceed amounts recorded in the consolidated
financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This item presents specific comments on material changes to the company's
consolidated results of operations, capital resources, and liquidity for the
periods reflected in the interim financial statements filed with this report.
This analysis should be read in conjunction with the consolidated financial
statements and related notes on pages 2 through 11 of this Quarterly Report on
Form 10-Q.
OVERVIEW
American General reported financial highlights as follows:
Six Months Ended Quarter Ended
(In millions, June 30, June 30,
except share data) 1998 1997 1998 1997
Net income (loss) $ 508 $ 86 $ 264 $ (124)
Net income (loss) per
share (diluted) 1.97 .34 1.01 (.52)
Revenues and deposits 8,876 6,890 4,450 3,487
Assets 101,025 77,387 101,025 77,387
Shareholders' equity 8,797 6,746 8,797 6,746
As discussed below, the acquisitions of Home Beneficial Life on April 16, 1997
and American General Annuity on February 25, 1998 affected the comparability
of the company's year over year financial results. The reasons for any
significant variations between the quarters ended June 30, 1998 and 1997 are
the same as those discussed below for the respective six month periods, unless
otherwise noted.
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
BUSINESS DIVISIONS
To facilitate meaningful period-to-period comparisons, earnings of each
business division include earnings from its business operations and earnings
on that amount of equity considered necessary to support its business, and
exclude non-recurring items and net realized investment gains. Division
earnings were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1998 1997 1998 1997
Retirement Services $ 229 $ 127 $ 117 $ 64
Life Insurance 323 278 165 140
Consumer Finance 89 79 44 40
Division earnings $ 641 $ 484 $ 326 $ 244
Retirement Services
Retirement Services division results were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1998 1997 1998 1997
Earnings $ 229 $ 127 $ 117 $ 64
Assets
Investments 38,495 22,703 38,495 22,703
Separate Accounts 13,168 8,902 13,168 8,902
Sales
Tax-qualified 786 744 395 323
Non-qualified 1,081 51 502 24
Deposits
Fixed
Tax-qualified 735 844 363 419
Non-qualified 1,026 - 477 -
Variable (mainly tax-qualified) 1,152 862 601 441
Operating expenses 107 75 50 39
Earnings. Division earnings increased 81% for the six months ended June 30,
1998 compared to the same period in 1997. American General Annuity's
operations, which were included in the division's results effective January 1,
1998, increased division earnings by $56 million. Earnings attributable to
minority interests through February 25, 1998 are reported in corporate
operations. Asset growth, higher investment income from prepayment of
investments, and management of fixed investment spread also contributed to the
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
division's profitability. Asset growth, excluding $13.1 billion and $2.3
billion related to the acquisitions of American General Annuity and Provident,
respectively, and the fair value adjustment related to the division's
securities, was 18% from June 30, 1997 to June 30, 1998, and 11% from December
31, 1997. This growth was due to an increase in variable deposits in each of
the division's primary markets, interest credited to fixed account deposits,
and stock market appreciation on assets held in Separate Accounts.
Sales and Deposits. American General Annuity, which primarily markets non-
qualified fixed annuities through financial institutions, contributed $1.0
billion to sales and total deposits in the first six months of 1998.
Excluding American General Annuity, 1998 year-to-date sales were 5% higher and
second quarter 1998 sales were 21% higher than in the same periods in 1997.
Excluding American General Annuity, total deposits increased 10% and variable
account deposits increased 32% for the six months ended June 30, 1998 compared
to the same period in 1997, as a result of new sales and customers' preference
for equity-based investments. The division's Separate Account assets, which
relate to variable account options, increased $4.3 billion from June 30, 1997
to June 30, 1998 and $2.6 billion from December 31, 1997, reflecting variable
deposit growth and stock market appreciation.
Fixed Investment Spread. Investment results and crediting rates on fixed
accounts were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1998 1997 1998 1997
Net investment income $1,333 $ 845 $ 687 $ 425
Investment yield 8.03% 7.91% 8.16% 7.89%
Average crediting rate 5.85 6.13 5.88 6.09
Fixed investment spread 2.18 1.78 2.28 1.80
Net investment income increased 58% in 1998 as a result of the acquisition of
American General Annuity, income on the Provident investments acquired as of
April 30, 1998, growth in invested assets, and an increase in investment
yield. Investment yield for the six months and quarter ended June 30, 1998
increased 12 basis points and 27 basis points, respectively, compared to the
same periods in 1997 due to changes in investment strategy and higher premium
income on investments called or tendered before their maturity dates. This
increase was partially offset by lower market rates on new investment
purchases. In response to the effect of declining market rates on investment
yield, the company adjusted the rates credited to policyholders. The higher
yields and reduced crediting rates increased the investment spread on fixed
accounts by 40 basis points in the six months and 48 basis points in the
quarter ended June 30, 1998 compared to the same periods in 1997.
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Separate Account Fees. Separate Account fees include mortality,
administrative, and investment advisory fees. These fees increased $28
million, or 57%, for the first six months of 1998 compared to the same period
in 1997, due to growth in Separate Account assets.
Surrenders. Policyholder surrenders are influenced by both competition and
market performance. The division's rate of policyholder surrenders for tax-
qualified accounts was 5.52% of average reserves for the first six months of
1998 (5.49% for the quarter) compared to 4.61% (4.06% for the quarter) for the
same period in 1997. The policyholder surrender rate for non-qualified
accounts, which relate to American General Annuity's fixed annuity business,
was 11.40% of average reserves for the first six months and 12.28% for the
second quarter of 1998. The higher levels of surrenders were primarily due to
participants seeking variable investments to take advantage of the strong
stock market in 1998.
Operating Expenses. Operating expenses increased $32 million for the six
months and $11 million for the quarter ended June 30, 1998 compared to the
same periods of 1997 due to the addition of American General Annuity's
operating expenses and the increase in variable expenses to support the
division's growth in deposits. The ratio of operating expenses to average
assets decreased from .48% in 1997 to .42% in 1998, reflecting growth in
assets in excess of growth in operating expenses and American General
Annuity's lower overall expense ratio.
Life Insurance
Life Insurance division results were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1998 1997 1998 1997
Earnings $ 323 $ 278 $ 165 $ 140
Premiums and other considerations 1,551 1,490 775 760
Net investment income 1,114 1,034 566 524
Insurance and annuity benefits 1,468 1,445 737 741
Operating expenses 369 356 182 178
Assets 35,478 34,087 35,478 34,087
Insurance and annuity liabilities 25,323 25,332 25,323 25,332
Earnings. Division earnings for the six months and quarter ended June 30,
1998 increased 16% and 18%, respectively, compared to the same periods in
1997. The increases were due to the acquisition of Home Beneficial Life in
April 1997, higher investment income from prepayment of investments, and
expense savings from consolidation of recently acquired companies, partially
offset by higher death claims and startup costs for new product initiatives.
-15-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Premiums and Deposits. Sales and deposits of individual life insurance and
annuities were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
(In millions) 1998 1997 1998 1997
Individual life insurance
Sales $ 320 $ 257 $ 143 $ 141
Deposits 641 565 301 284
Annuities
Sales 245 194 136 98
Deposits 287 251 152 117
Premiums and other considerations increased 4% for the first six months of
1998 compared to the same period of 1997 primarily due to the acquisition of
Home Beneficial Life in April 1997 and growth in sales of group and credit
insurance. Individual life insurance sales and deposits for the first six
months of 1998 exceeded comparable 1997 amounts by 25% and 13%, respectively,
primarily due to the recent entry into corporate executive benefits markets.
Sales in these markets can fluctuate significantly quarter to quarter due to
large case size.
Annuity sales increased 26% and 40% for the six months and quarter ended June
30, 1998, respectively, compared to the same periods in the prior year.
Annuity deposits increased 14% and 30% for the comparable periods. These
increases were due to recently introduced variable annuity products, partially
offset by a decrease in sales of fixed annuities and structured settlements
due to an unfavorable interest-rate environment.
Investment Spread. Investment results and interest crediting rates were as
follows:
Six Months Ended Quarter Ended
June 30, June 30,
1998 1997 1998 1997
Investment yield 8.48% 8.11% 8.61% 8.15%
Average crediting rate 6.01 6.06 6.01 6.08
Investment spread 2.47 2.05 2.60 2.07
Net investment income increased 8% in 1998 compared to 1997, primarily due to
an increase in premiums on investments called or tendered before their
maturity dates and asset growth from the Home Beneficial Life acquisition.
Although market rates were lower on new investment purchases, investment yield
and spread increased due to the higher premiums on calls and tenders and lower
investment expenses.
-16-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Mortality and Persistency. Death claims and premium termination rates were as
follows:
Six Months Ended Quarter Ended
June 30, June 30,
1998 1997 1998 1997
Death claims (in millions) $ 502 $ 453 $ 251 $ 222
Death claims per $1,000
in force $ 3.64 $ 3.37 $ 3.64 $ 3.30
Premium termination rate 12.23% 13.13% 11.79% 13.22%
Death claims, included in insurance and annuity benefits, increased 11% in the
first six months of 1998 and 13% in the second quarter compared to the same
periods of 1997 reflecting the acquisition of Home Beneficial Life and less
favorable mortality experience in 1998. The higher death claims were
partially offset by the reduction of insurance reserves due to normal runoff
of older policies. The lower premium termination rate in 1998 compared to
1997 reflected lower terminations in ancillary lines of business. Overall,
mortality and persistency experience was within pricing assumptions.
Operating Expenses. Operating expenses increased $13 million for the first
six months of 1998 and $4 million for the second quarter compared to the same
periods in 1997. During 1998, the division achieved significant cost savings
from the ongoing consolidation and integration of acquired companies. These
cost savings were more than offset by startup costs to introduce new variable
and annuity products in 1998, as well as higher expenses to support increased
group sales. In addition, 1998 included Home Beneficial's operating expenses
for six months compared to two months in 1997. The ratio of operating
expenses to direct premiums and deposits was 16.49% and 16.38% for the first
six months and second quarter, respectively, of 1998 compared to 16.97% and
16.76% in the same periods of 1997. The lower ratios for 1998 reflected
smaller percentage increases in operating expenses compared to the percentage
increases in life insurance premiums and deposits.
Consumer Finance
Consumer Finance division results were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1998 1997 1998 1997
Earnings $ 89 $ 79 $ 44 $ 40
Average finance receivables 8,122 7,501 8,242 7,453
Yield on finance receivables 16.30% 17.02% 16.13% 16.95%
Borrowing cost 6.66 6.76 6.60 6.82
Interest spread 9.64 10.26 9.53 10.13
Operating expenses $ 235 $ 225 $ 116 $ 113
-17-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Earnings. Division earnings increased 13% for the six months ended June 30,
1998, compared to the same period of 1997, primarily due to improved credit
quality and an increase in average finance receivables.
Finance Receivables. Average finance receivables for the first six months of
1998 increased $621 million compared to the same period of 1997 and increased
$789 million for the comparable second quarter periods. Finance receivables
at June 30, 1998 increased $1.2 billion compared to the June 30, 1997 balance
and $610 million compared to the December 31, 1997 balance. These increases
were due to higher loan production and bulk purchases of real estate secured
loans, which reflect the company's program to improve credit quality by
increasing the proportion of real estate secured loans. The increase from
June 30, 1997 was also attributable to growth in retail sales contracts
resulting from the introduction of new marketing programs.
Credit Quality.
Charge offs, the allowance for finance receivable losses, and delinquencies
were as follows:
Six Months Ended Quarter Ended
June 30, June 30,
($ in millions) 1998 1997 1998 1997
Charge offs $ 108 $ 141 $ 54 $ 68
Annualized % of average
finance receivables 2.66% 3.76% 2.62% 3.68%
June 30, December 31,
1998 1997 1997
Allowance for finance
receivable losses $ 365 $ 385 $ 373
% of finance receivables 4.24% 5.20% 4.65%
Delinquencies $ 317 $ 300 $ 310
% of finance receivables 3.43% 3.73% 3.60%
The decreases in the charge off and delinquency ratios compared to prior
periods reflect the positive impact of the company's credit quality
improvement program, which included an increase in the proportion of real
estate secured loans and higher underwriting standards. The decrease in the
allowance reflects the improvement in charge-off experience, partially offset
by an increase in the allowance to support the growth in receivables.
-18-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Interest Spread. The interest spread between yield and borrowing cost
decreased 62 basis points for the six months of 1998 and 60 basis points for
the second quarter of 1998, compared to the same periods in 1997. The decline
in spread reflected lower yields from the increased proportion of real estate
secured loans, which generally have a higher level of credit quality and lower
yields, and lower yields on retail sales contracts due to increased
competition, partially offset by lower borrowing cost.
Operating Expenses. Operating expenses as a percentage of average finance
receivables decreased to 5.80% for the first six months of 1998 from 5.98% for
the same period of 1997, and to 5.73% from 5.99% for the comparable second
quarter periods, due to the increase in average finance receivables, which
more than offset the increase in operating expenses.
INVESTMENTS
Invested assets consist primarily of fixed maturity securities, mortgage loans
on real estate, and policy loans.
Fair Value of Securities. A decrease in interest rates and resulting
increases in bond values in second quarter 1998 caused a $555 million increase
in the fair value adjustment to fixed maturity securities and a related $335
million positive adjustment to shareholders' equity from December 31, 1997.
The components of the adjustment to report fixed maturity and equity
securities at fair value at June 30, 1998 and December 31, 1997, and the 1998
change, were as follows:
June 30, December 31,
(In millions) 1998 1997 Change
Fair value adjustment to fixed
maturity securities $3,399 $ 2,844 $ 555
Decrease in deferred policy
acquisition costs and cost of
insurance purchased (1,097) (1,062) (35)
Increase in deferred income taxes (813) (628) (185)
Net unrealized gains
Fixed maturity securities 1,489 1,154 335
Equity securities 11 15 (4)
Net unrealized gains on
securities $1,500 $ 1,169 $ 331
-19-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Fixed Maturity Securities. At June 30, 1998, fixed maturity securities
included $45.9 billion of corporate bonds, $13.4 billion of mortgage-backed
securities, and $2.2 billion of bonds issued by governmental agencies. The
average credit rating of the fixed maturity securities was A+ at June 30, 1998
and December 31, 1997. Average credit ratings by category at June 30, 1998
were as follows:
June 30, Average Credit
(In millions) 1998 % Rating
Investment grade $44,793 72% A
Mortgage-backed 13,429 22 AAA
Below investment grade 3,393 6 BB-
Total fixed maturity
securities $61,615 100% A+
Below Investment Grade. Below investment grade securities have credit ratings
below BBB-. Below investment grade securities were 5% of invested assets at
June 30, 1998 and 4% at December 31, 1997. The company invests in below
investment grade securities to enhance the overall yield of the portfolio.
Investment income from below investment grade securities was $148 million for
the six months ended June 30, 1998 and $85 million for the same period in
1997. Realized investment gains (losses) were immaterial.
Non-Performing. Bonds are deemed to be non-performing when the payment of
interest is sufficiently uncertain as to preclude accrual of interest. Non-
performing bonds were less than 0.1% of total fixed maturity securities at
June 30, 1998 and December 31, 1997.
Mortgage Loans. Mortgage loans on real estate, consisting primarily of loans
on office and retail properties, represented 5% of invested assets at June 30,
1998 and 6% at December 31, 1997. Mortgage loan statistics at June 30, 1998
and December 31, 1997 were as follows:
June 30, December 31,
(In millions) 1998 1997
Mortgage loans $ 3,544 $ 3,326
Allowance for losses (46) (54)
Mortgage loans, net $ 3,498 $ 3,272
Allowance for losses 1.3% 1.6%
Delinquent loans (60+ days) $ 43 $ 20
% of mortgage loans 1.2% .6%
Restructured loans $ 99 $ 115
% of mortgage loans 2.8% 3.5%
Yield on restructured loans 7.9% 8.6%
-20-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Watch List. At June 30, 1998, $106 million of mortgage loans were on the
company's watch list, compared to $128 million at December 31, 1997. The
decrease was due to loans that were no longer undercollateralized or were
reinstated, refinanced, or repaid. While the watch list loans may be
predictive of future delinquent loans, the company does not anticipate a
significant effect on operations, liquidity, or capital from these loans.
CAPITAL RESOURCES
Corporate Capital. American General's target capital structure consists of
25% corporate debt, 15% redeemable equity, and 60% shareholders' equity. At
June 30, 1998, corporate capital totaling $11.7 billion, excluding the fair
value adjustment on securities, consisted of $2.7 billion corporate debt
(23%), $1.7 billion redeemable equity (15%), and $7.3 billion shareholders'
equity (62%).
On February 25, 1998, American General issued 10.2 million shares of common
stock and paid $580 million cash to complete the $1.2 billion acquisition of
Western National. The cash portion of the purchase price was financed through
short-term borrowings. Additionally, the company issued options to acquire
1.4 million shares of American General common stock with an average exercise
price of $24.75 to replace outstanding options to acquire Western National
common stock. The fair value of these options, excluding options surrendered
for $10 million cash pursuant to a pre-existing employment agreement, was $37
million. In connection with the acquisition, the company assumed Western
National's long-term debt of $148 million.
The ratings assigned by rating agencies serve as an indicator of an insurance
company's financial strength and ability to meet its future obligations to
policyholders. During second quarter 1998, A.M. Best adjusted its ratings of
American General's principal insurance companies to A+, its second highest
rating. In August 1998, Moody's assigned an initial rating of Aa3 to American
General Life and Accident. As of August 10, 1998, financial strength ratings
were as follows:
A.M. Standard Duff &
Best & Poor's Phelps Moody's
American General Annuity A+ AA- AAA Aa3
All American Life A+ AA+ Aa3
American General Life A+ AA+ AAA Aa3
American General Life & Accident A+ AA+ AAA Aa3
Franklin Life A+ AA+ AAA Aa3
Old Line Life A+ AA+ Aa3
United States Life A+ AA+ Aa3
VALIC A+ AA+ AAA Aa2
-21-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Consumer Finance. The Consumer Finance division's capital varies directly
with the amount of total finance receivables. The capital mix of consumer
finance debt and equity is based primarily upon maintaining leverage at a
level that supports cost-effective funding.
Consumer finance capital of $9.2 billion at June 30, 1998 included $7.9
billion of consumer finance debt, which was not guaranteed by the parent
company, and $1.3 billion of equity. The Consumer Finance division's target
ratio of debt to tangible net worth, a standard measure of financial risk in
the consumer finance industry, is 7.5 to 1. The ratio equaled the target at
June 30, 1998 and December 31, 1997.
LIQUIDITY
The company's overall liquidity is based on cash flows from the business
divisions and its ability to borrow in both the long-term and short-term
markets at competitive rates. At June 30, 1998, the company had committed and
unused credit facilities of $4.8 billion. The company believes that its
overall sources of liquidity will continue to be sufficient to satisfy its
foreseeable financial obligations.
Parent Company. The parent company received $536 million of dividends, net of
capital contributions, from subsidiaries during the six months ended June 30,
1998 compared to $26 million (excluding dividends paid to USLIFE Corporation
prior to its acquisition by the company) for the same period in 1997. Net
dividends were low in 1997 because the company was re-evaluating the capital
requirements for its business divisions. While the subsidiaries are
restricted in the amount of dividends they may pay to the parent company,
these restrictions are not expected to affect American General's ability to
meet its cash obligations. In 1998, the company repurchased 1.2 million
shares of its common stock for a total cost of $78 million, of which 700,000
shares at a cost of $47 million were purchased in the second quarter.
Retirement Services and Life Insurance. Principal sources (uses) of cash for
the Retirement Services and Life Insurance divisions were as follows:
Six Months Ended
June 30,
(In millions) 1998 1997
Operating activities $1,028 $1,040
Fixed policyholder account deposits,
net of withdrawals (109) 123
Variable account deposits, net of
withdrawals 1,366 952
Short-term collateralized financings 446 -
-22-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Operating cash flows for the Retirement Services and Life Insurance divisions
in the first six months of 1998 approximated the amounts in the same period of
1997. The decrease in net fixed policyholder account deposits and the
increase in net variable account deposits in 1998 related to policyholders
seeking higher returns in equity-based investments, including the company's
Separate Accounts. Because the investment risk on variable accounts lies
solely with the policyholder, deposits and withdrawals related to Separate
Accounts are not included in the company's consolidated condensed statement of
cash flows. The company had adequate cash liquidity to fund the net
withdrawals of fixed account deposits in 1998. Short-term collateralized
financings relate to dollar roll agreements entered into in 1998.
Major uses of cash were the net purchase of investments necessary to support
increases in insurance and annuity liabilities, and net dividends paid to the
parent. The subsidiaries in these divisions paid dividends, net of capital
contributions, of $367 million in the first six months of 1998 and $103
million for the same period of 1997. The 1998 net dividends also reflect $188
million of capital contributions made by an intermediate holding company to
the Retirement Services division in second quarter 1998 to support the
Provident acquisition.
Consumer Finance. Principal sources (uses) of cash for the Consumer Finance
division were as follows:
Six Months Ended
June 30,
(In millions) 1998 1997
Operating activities $ 259 $ 283
Increase (decrease) in borrowings 596 (896)
Cash provided by operating activities decreased in the first six months of
1998 since 1997 included operations related to non-strategic assets sold in
second quarter 1997. Cash provided by borrowings increased in the six months
ended June 30, 1998 compared to the same period in 1997 due to growth in
receivables.
Other major uses of cash were to fund finance receivables and net dividends
paid to the parent company. Net cash used to fund finance receivables was
$716 million for the six months ended June 30, 1998, up from $110 million for
the same period in 1997. Net dividends paid to the parent company totaled $18
million in the first six months of 1998 compared to $66 million for the same
period in 1997.
-23-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
YEAR 2000
American General has numerous technology systems which are managed on a
decentralized basis. The company's Year 2000 readiness efforts are being
undertaken by its key business units with centralized oversight. Each
business unit has developed and is implementing a plan to minimize the risk of
a significant negative impact on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of the company's information technology
and non-information technology systems; (2) assess which items in the
inventory may expose the company to business interruptions due to Year 2000
issues; (3) test systems for Year 2000 readiness; (4) reprogram or replace
systems that are not Year 2000 ready; and (5) return the systems to
operations. The company expects to substantially complete the foregoing for
significant systems by December 31, 1998. However, activities (3) through (5)
for certain systems will continue in 1999.
In addition, the company has relationships with various third parties that
must also be Year 2000 ready. Therefore, the plans also assess and attempt to
mitigate the risks associated with the potential failure of third parties to
achieve Year 2000 readiness. Due to the various stages of third parties' Year
2000 readiness, these activities will extend through 1999.
Through June 30, 1998, the company has incurred and expensed $33 million
(pretax) related to Year 2000 readiness, including $17 million incurred during
the first six months of 1998. The company currently anticipates that it will
incur future costs of approximately $30 to $40 million (pretax) for additional
internal staff, third-party vendors, and other expenses to achieve Year 2000
readiness. In addition, the company has elected to accelerate the planned
replacement of certain systems as part of its Year 2000 plans. Costs of the
replacement systems will be capitalized and amortized over their useful lives,
in accordance with the company's normal accounting policies.
Due to the magnitude and complexity of this project, risks and uncertainties
exist. If conversion of the company's systems is not completed on a timely
basis (due to non-performance by significant third-party vendors, lack of
qualified personnel to perform the Year 2000 work, or other unforeseen
circumstances in completing the company's plans), or if significant third
parties fail to achieve Year 2000 readiness on a timely basis, the Year 2000
issue could have a material adverse impact on the operations of the company.
-24-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
FORWARD-LOOKING STATEMENTS
All statements, trend analyses, and other information contained in this report
and elsewhere (such as other filings by the company with the Securities and
Exchange Commission, press releases, presentations by management of the
company, or oral statements) relative to markets for the company's products
and trends in the company's operations or financial results, as well as other
statements including words such as "anticipate," "believe," "plan,"
"estimate," "expect," "intend," and other similar expressions, constitute
forward-looking statements under the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are made based upon management's current
expectations and beliefs concerning future developments and their potential
effects upon the company. There can be no assurance that future developments
affecting the company will be those anticipated by management. Actual results
may differ materially from those included in the forward-looking statements.
These forward-looking statements involve risks and uncertainties including,
but not limited to, the following: (1) changes in general economic conditions,
including the performance of financial markets and interest rates; (2)
customer responsiveness to both new products and distribution channels; (3)
competitive, regulatory, or tax changes that affect the cost of or demand for
the company's products; (4) the company's ability to achieve Year 2000
readiness for significant systems and operations on a timely basis; (5)
adverse litigation results or resolution of litigation, including market
conduct litigation; and (6) the company's failure to achieve anticipated
levels of earnings or operational efficiencies related to recently acquired
companies, as well as other cost-saving initiatives. Investors are also
directed to other risks and uncertainties discussed in other documents filed
by the company with the Securities and Exchange Commission. The company
undertakes no obligation to update or revise any forward-looking information,
whether as a result of new information, future developments, or otherwise.
-25-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Reference is made to Note 8 to the Registrant's Unaudited Consolidated
Financial Statements in Part I of this Form 10-Q for the quarter ended
June 30, 1998.
Item 4. Submission of Matters to a Vote of Security Holders.
Annual Meeting.
On April 30, 1998, American General held its annual meeting of shareholders.
As of that date, shareholders of the company's common and preferred shares
outstanding were entitled to 255,594,219 votes. At the meeting, the company's
shareholders voted on the following matters: 1) election of twelve directors
constituting the company's entire board, for one-year terms; 2) approval of an
amendment to the Restated Articles of Incorporation increasing the number of
shares of common stock authorized for issuance from 300,000,000 to
800,000,000; 3) approval of an Employee Stock Purchase Plan; and 4)
ratification of the appointment of Ernst & Young LLP as independent auditors
for 1998. Each matter was approved by the shareholders. The votes cast for,
against, and abstentions as to each such matter were as follows:
Votes For Votes Against Abstentions
ELECTIONS OF DIRECTORS:
J. Evans Attwell 225,804,723 2,598,311 -
Brady F. Carruth 226,280,858 2,122,176 -
James S. D'Agostino Jr. 226,618,920 1,784,114 -
W. Lipscomb Davis Jr. 226,553,624 1,849,410 -
Robert M. Devlin 226,579,535 1,823,499 -
Larry D. Horner 226,600,890 1,802,144 -
Richard J. V. Johnson 226,562,343 1,840,691 -
Michael E. Murphy 226,583,331 1,819,703 -
Jon P. Newton 226,607,939 1,795,095 -
Michael J. Poulos 226,562,933 1,840,101 -
Robert E. Smittcamp 226,622,693 1,780,341 -
Anne M. Tatlock 226,610,670 1,792,364 -
AMENDMENT TO RESTATED
ARTICLES OF INCORPORATION: 206,915,976 20,961,989 525,069
APPROVAL OF THE EMPLOYEE
STOCK PURCHASE PLAN: 222,266,724 3,343,323 2,792,987
INDEPENDENT AUDITORS: 227,704,960 313,304 384,770
A more detailed description of the matters voted on by shareholders of the
company at this meeting is included in the definitive Proxy Statement dated
March 17, 1998 and incorporated herein by reference.
-26-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
Item 5. Other Information.
The company's bylaws provide generally that nominations of persons for
election to the board of directors and shareholder proposals for an annual
meeting may be made by a shareholder only if the shareholder is a shareholder
of record and such shareholder gives timely written notice of such
shareholder's intent to make such nomination or nominations or shareholder
proposals to the corporate secretary. In the case of the company's 1999
annual meeting, to be timely, notice of shareholder proposals or director
nominations must be given to the corporate secretary by December 31, 1998, but
no earlier than December 1, 1998; in the event the 1999 annual meeting is
called for a date that is not within 30 days before or after April 30, 1999,
notice by the shareholder in order to be timely must be given not later than
the close of business on the tenth day following the day on which notice of
the date of such annual meeting is mailed or public disclosure of the date of
such annual meeting is made, whichever first occurs.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
Exhibit 10.1 1984 Stock and Incentive Plan (As Amended and Restated)
Exhibit 10.2 1994 Stock and Incentive Plan (As Amended and Restated)
In the Annual Report on Form 10-K for the year ended
December 31, 1997, this plan was referred to as "1984
Stock and Incentive Plan (As Amended and Restated
Effective as of February 8, 1994)".
Exhibit 10.3 1997 Stock and Incentive Plan (As Amended and Restated)
Exhibit 11 Computation of Earnings per Share (included in Note 4 of
Notes to Financial Statements)
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
Exhibit 27 Financial Data Schedule
b. Reports on Form 8-K.
None.
-27-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on August 12, 1998.
AMERICAN GENERAL CORPORATION
(Registrant)
By: PAMELA J. PENNY
Pamela J. Penny
Vice President and Controller
(Duly Authorized Officer and
Chief Accounting Officer)
-28-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1998
EXHIBIT INDEX
Exhibit
10.1 1984 Stock and Incentive Plan (As Amended and Restated)
10.2 1994 Stock and Incentive Plan (As Amended and Restated)
In the Annual Report on Form 10-K for the year ended
December 31, 1997, this plan was referred to as "1984
Stock and Incentive Plan (As Amended and Restated
Effective as of February 8, 1994)".
10.3 1997 Stock and Incentive Plan (As Amended and Restated)
11 Computation of Earnings per Share (included in Note 4 of
Notes to Financial Statements)
12 Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
27 Financial Data Schedule
-29-
<PAGE>
<PAGE>
EXHIBIT 10.1
AMERICAN GENERAL CORPORATION
1984 STOCK AND INCENTIVE PLAN
AS AMENDED AND RESTATED AS OF FEBRUARY 1, 1998
1. PURPOSE
The purpose of the American General Corporation 1984 Stock and
Incentive Plan (the "Plan") is to provide a means through which American General
Corporation, a Texas corporation, and its subsidiaries (collectively, the
"Company") may attract able persons to enter the employ of the Company and to
provide a means whereby those key employees upon whom the responsibilities of
the successful administration and management of the Company rest, and whose
present and potential contributions to the welfare of the Company are of
importance, can acquire and maintain stock ownership, thereby strengthening
their concern for the welfare of the Company and their desire to remain in its
employ. A further purpose of the Plan is to provide such key employees with
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company. So that the maximum incentive can be provided each
employee, the Plan provides for granting Incentive Stock Options, nonqualified
Options, Restricted Stock Awards, Performance Awards and Incentive Awards, or
any combination of the foregoing, as is best suited to the circumstances of the
particular employee.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Award" means, individually or collectively, any Option,
Restricted Stock Award , Performance Award or Incentive Award.
(b) "Board" means the Board of Directors of American General
Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. Reference in the Plan to any section of the Code shall be
deemed to include any amendments or successor provisions to such section
and any regulations under such section.
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(d) "Committee" means not less than three members of the Board who are
selected by the Board as provided in Section 4(a).
(e) "Common Stock" means the common stock of American General
Corporation.
(f) "Company" means, collectively, American General Corporation and
its subsidiaries, except that, in Section 14 hereof, "Company" means only
American General Corporation.
(g) "Fair Market Value" means, as of any specified date, the average
of the highest and lowest quoted selling prices of the Common Stock as
reported on the Composite Tape for issues listed on the New York Stock
Exchange on the specified date, or, if no sales were reported on the
Composite Tape on such specified date, the average of the highest and
lowest quoted selling prices of the Common Stock on the nearest dates
before and after such specified date on which sales of the Common Stock
were so reported.
(h) "Grant Document" means the document or documents evidencing an
Award under the Plan, which may be either an agreement between the Company
and the Holder as to the Award or a notice of grant of the Award from the
Company to the Holder (including any attached statement of the terms and
conditions of the Award).
(i) "Holder" means an employee of the Company who has been granted an
Option, a Restricted Stock Award, a Performance Award or an Incentive
Award.
(j) "Incentive Award" means an Award granted under Section 10 of the
Plan.
(k) "Incentive Stock Option" means an incentive stock option within
the meaning of section 422(b) of the Code.
(l) "Option" means an Award under Section 7 of the Plan and includes
both nonqualified Options and Incentive Stock Options to purchase Common
Stock.
(m) "Performance Award" means an Award granted under Section 9 of the
Plan.
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(n) "Personal Representative" means the person or persons who upon the
death, disability or incompetency of a Holder shall have acquired, by will
or by the laws of descent and distribution or by other legal proceedings,
the right to exercise an Option or the right to any Restricted Stock Award,
Performance Award or Incentive Award theretofore granted or made to such
Holder.
(o) "Plan" means the American General Corporation 1984 Stock and
Incentive Plan, as Amended and Restated as of February 1, 1998, and as
amended from time to time.
(p) "Restricted Stock Award" means an Award granted under Section 8 of
the Plan.
3. EFFECTIVE DATE AND DURATION OF THE PLAN
The American General Corporation 1984 Stock and Incentive Plan became
effective upon adoption by the Board on February 8, 1984, subject to approval by
the shareholders of American General Corporation at the annual meeting of
shareholders held on May 2, 1984, which was given. No further Awards can be
granted under the Plan after ten years from the date the Plan was adopted by the
Board. The Plan (as amended and restated as of February 1, 1998) shall remain in
effect until all Options granted under the Plan have been exercised or expired
by reason of lapse of time, all restrictions imposed upon Restricted Stock
Awards have been eliminated or the Restricted Stock Awards have been forfeited
and all Performance Awards and Incentive Awards have been satisfied or have
terminated.
4. ADMINISTRATION
(a) Composition of Committee. The Committee shall be selected and
appointed by the Board to administer the Plan. The members of the Committee
shall not include any employee of the Company or any individual who is or was
within the 12-month period immediately preceding the date he or she became a
member of the Committee eligible for selection to receive any stock option,
stock appreciation right, stock option surrender right or other stock allocation
under the Plan or under any other plan of the Company. A majority of the
Committee shall constitute a quorum.
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The Committee shall act by majority action at a meeting, except that action
permitted to be taken at a meeting may be taken without a meeting if written
consent thereto is given by all member of the Committee.
(b) Powers. Subject to the express provisions of the Plan, the
Committee shall have authority, in its discretion, to determine which employees
of the Company shall receive an Award, the time or times when such Award shall
be made, whether an Incentive Stock Option or nonqualified Options shall be
granted, the number of shares to be subject to each Option and Restricted Stock
Award and the value of each Performance Award and Incentive Award. In making
such determinations the Committee shall take into account the nature of the
services rendered by the respective employees, their present and potential
contribution to the Company's success and such other factors as the Committee
shall deem relevant.
(c) Additional Powers. The Committee shall have such additional powers
as are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, this shall include the power to construe the
Plan and the respective Grant Documents thereunder, to prescribe rules and
regulations relating to the Plan, and to determine the terms, restrictions and
provisions of the Grant Document for each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options, and
to make all other determinations necessary or advisable for administering the
Plan. The Committee may correct any defect or supply any omission or reconcile
any inconsistency in the Plan or in any Grant Document relating to an Award in
the manner and to the extent it shall deem expedient to carry it into effect.
The Committee may delegate to other persons the responsibility of performing
ministerial acts in furtherance of the Plan's purposes, but only the Committee
may act on any aspect of the Plan affecting (i) an officer or director of the
Company who is an employee of the Company or (ii) an employee to whom the
Committee delegates authority with respect to the Plan. The determinations of
the Committee on the matters referred to in this Section 4 shall be conclusive.
5. GRANT OF OPTIONS, RESTRICTED STOCK AWARDS,
PERFORMANCE AWARDS AND INCENTIVE AWARDS;
SHARES SUBJECT TO THE PLAN
(a) Stock Grant Limit. The Committee may from time to time grant
Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Section 6.
Subject to Section 11, the
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aggregate number of shares of Common Stock that may be issued under the Plan
shall not exceed 4,500,000 shares. Shares shall be deemed to have been issued
under Plan only to the extent actually issued and delivered pursuant to an
Award. To the extent that an Award lapses or the rights of its Holder terminate
or the Award is paid in cash, any shares of Common Stock subject to such Award
shall again be available to the grant of an Award.
(b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
6. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
key employees of the Company. Awards may not be granted to (i) any director who
is not an employee of the Company or (ii) any person who immediately after such
grant is the owner directly or indirectly of more than 10% of the total combined
voting power of all classes of stock of the Company. An Award may be granted on
more than one occasion to the same person, and such Award may include an
Incentive Stock Option, nonqualified Option, Restricted Stock Award, Performance
Award, Incentive Award or any combination thereof.
7. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by
the Committee at the date of grant but shall not exceed ten years.
(b) Limitations on Exercise of Option. An Option shall be exercisable
in whole or in such installments and at such times, commencing not earlier
than six months from the date of grant, as determined by the Committee.
(c) Special Limitation on Exercise of Incentive Stock Options.
Notwithstanding any other provisions of the Plan, an Incentive Stock Option
granted hereunder before January 1, 1987 shall not be exercisable while
there is outstanding (within the meaning of former section 422A(c)(7) of
the Code) any Incentive Stock Option previously granted to the Holder under
the Plan or under any other stock option plan to purchase stock in American
General Corporation, or the subsidiary by which the Holder is employed, or
in a predecessor corporation of any such corpora-
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tions, unless otherwise permitted by former section 422A of the Code (or any
other provision of the Code or successor provision to section 422A of the Code).
(d) Stock Option Grant Document. Each Option shall be evidenced by an
Option Grant Document in such form and containing such provisions not
inconsistent with the provisions of the Plan as the Committee from time to time
shall approve, including, without limitation, provisions to qualify an Incentive
Stock Option under former section 422A of the Code (or successor provision
thereto).
(e) Option Price and Payment. The price at which a share of Common
Stock may be purchased upon exercise of an Option shall be determined by the
Committee but, subject to adjustment as provided in Section 11, shall not be
less than the Fair Market Value of a share of Common Stock at the date such
Option is granted. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.
(f) Restrictions on Transfer. An Option shall not be transferable
otherwise than by will or the laws of descent and distribution and may be
exercisable during the lifetime of the Holder only by such Holder.
(g) Shareholder Rights and Privileges. The Holder shall be entitled to
all the privileges and rights of a shareholder only with respect to such shares
of Common Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Holder's name.
(h) Individual Dollar Limitations. In the case of an Incentive Stock
Option, the aggregate Fair Market Value (determined as of the time such Option
is granted) of the stock for which any employee may be granted Incentive Stock
Options in any calendar year (under this Plan and any other plan of his or her
employer corporation, its parent or subsidiary corporation which provide for the
granting of incentive stock options) shall not exceed $100,000 (or such other
individual grant limit as may be in effect under the Code on the date of grant)
plus any unused limit carry-over to such year permitted under the Code.
(i) Surrender of Options. The Committee (concurrently with the grant
of an Option or subsequent to such grant) may, in its sole discretion, grant to
any Option Holder the right, upon written request, to surrender any exercisable
Option or portion thereof in exchange for cash, whole shares of Common Stock or
a combination thereof, as determined by the Committee, with a value equal to the
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excess of the Fair Market Value, as of the date of such request, of one share of
Common Stock over the Option price for such share multiplied by the number of
shares covered by the Option or portion thereof to be surrendered. In the case
of any such surrender right which is granted in connection with an Incentive
Stock Option, such right shall be exercisable only when the Fair Market Value of
the Common Stock exceeds the price specified therefor in the Option or portion
thereof to be surrendered. In the event of the exercise of any surrender right
granted hereunder, the number of shares reserved for issuance under the Plan
shall be reduced only to the extent that shares of Common Stock are actually
issued in connection with the exercise of such surrender right. Additional terms
and conditions governing any such surrender rights may from time to time be
prescribed by the Committee in its sole discretion.
8. RESTRICTED STOCK AWARDS
(a) Restriction Period to be Established by the Committee. At the time
a Restricted Stock Award is made, the Committee shall establish a period of time
(the "Restriction Period") applicable to such Award. Each Restricted Stock Award
may have a different Restriction Period, in the discretion of the Committee. The
Restriction Period applicable to a particular Restricted Stock Award shall not
be changed except as permitted by Section 8(b).
(b) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have the
right to receive dividends during the Restriction Period, to vote Common Stock
subject thereto and to enjoy all other shareholder rights, except that (i) the
Holder shall not be entitled to delivery of the stock certificate until the
Restriction Period shall have expired, (ii) the Company shall retain custody of
the stock during the Restriction Period, (iii) the Holder may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of the stock during
the Restriction Period and (iv) a breach of the terms and conditions established
by the Committee pursuant to the Restricted Stock Award, shall cause a
forfeiture of the Restricted Stock Award. At the time of such Award, the
Committee may, in its sole discretion, prescribe additional terms, conditions or
restrictions relating to Restricted Stock Awards, including, but not limited to,
rules pertaining to the termination of employment (by retirement, disability,
death or otherwise) of a Holder prior to expiration of the Restriction Period.
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(c) Payment for Restricted Stock. A Holder shall not be required to
make any payment for Common Stock received pursuant to a Restricted Stock Award,
except to the extent otherwise required by law or the Committee.
9. PERFORMANCE AWARDS
(a) Performance Period. The Committee shall establish, with respect to
and at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(b) Performance Awards. Each Performance Award shall have a maximum
value established by the Committee at the time of such Award.
(c) Performance Measures. A Performance Award shall be awarded to an
employee contingent upon future performance of the Company or any subsidiary,
division or department thereof by or in which he is employed during the
performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period
but subject to such later revisions as the Committee shall deem appropriate to
reflect significant, unforeseen events or changes.
(d) Awards Criteria. In determining the value of Performance Awards,
the Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(e) Payment. Following the end of the performance period, the Holder
of a Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash, Common Stock or a
combination thereof, as determined by the Committee. Payment shall be made in a
lump sum or installments as prescribed by the Committee. Any payment to be made
in Common Stock shall be based on the Fair Market Value of the Common Stock on
the payment date.
(f) Termination of Employment. A Performance Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
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times during the applicable performance period, except as may be determined by
the Committee.
10. INCENTIVE AWARDS
(a) Incentive Awards. Incentive Awards are rights to receive shares of
Common Stock (or the Fair Market Value thereof), or rights to receive an amount
equal to any appreciation or increase in the Fair Market Value of Common Stock
over a specified period of time, which vest over a period of time as established
by the Committee, without payment of any amounts by the Holder thereof or
satisfaction of any performance criteria or objectives. Each Incentive Award
shall have a maximum value established by the Committee at the time of such
Award.
(b) Award Period. The Committee shall establish, with respect to and
at the time of each Incentive Award, a period over which the Award shall vest
with respect to the Holder.
(c) Awards Criteria. In determining the value of Incentive Awards, the
Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(d) Payment. Following the end of the vesting period for an Incentive
Award, the Holder of an Incentive Award shall be entitled to receive payment of
an amount, not exceeding the maximum value of the Incentive Award, based on the
then vested value of the Award. Payment of an Incentive Award may be made in
cash, Common Stock or a combination thereof as determined by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee. Any payment to be made in Common Stock shall be based on the Fair
Market Value of the Common Stock on the payment date. Cash dividend equivalents
may be paid during or after the vesting period with respect to an Incentive
Award, as determined by the Committee.
(e) Termination of Employment. An Incentive Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable vesting period, except as may be otherwise
determined by the Committee.
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11. EQUITABLE ADJUSTMENTS
Subject to any required action by the Company's shareholders, upon the
occurrence of any event which affects the shares of Common Stock in such a way
that an adjustment of outstanding Awards is appropriate in order to prevent the
dilution or enlargement of rights under the Awards (including, without
limitation, any extraordinary dividend or other distribution (whether in cash or
in kind), recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event), the Committee shall make appropriate
equitable adjustments, which may include, without limitation, adjustments to any
or all of the number and kind of shares of stock (or other securities) which may
thereafter be issued in connection with such outstanding Awards and adjustments
to any exercise price specified in the outstanding Awards and shall also make
appropriate equitable adjustments to the number and kind of shares of stock (or
other securities) authorized by or to be granted under the Plan. Further, the
Committee, in its sole discretion, may make appropriate equitable adjustments,
including, without limitation, those described in the immediately preceding
sentence, in any other circumstances under which the Committee deems such
adjustments to be desirable. Any adjustment made to an Incentive Stock Option
hereunder, with respect to either (i) the number or price of shares of stock
subject to Incentive Stock Options or (ii) the aggregate number of shares which
may be issued pursuant to Incentive Stock Options, shall be made in a manner
which will permit such option to continue to constitute an Incentive Stock
Option within the meaning of section 422 of the Code.
12. AMENDMENT OF THE PLAN
The Board may amend the Plan at any time and the Committee may amend
any Award (and its related Grant Document) at any time, except as otherwise
specifically provided in such Grant Document; provided that no change in any
Award theretofore granted may be made that would impair the rights of the Holder
of any Award under the Plan without the consent of the Holder, and provided,
further, that the Board may not, without approval of the shareholders, amend the
Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of Options or pursuant to Restricted Stock Awards,
Performance Awards or Incentive Awards, except as provided in Section 11;
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(b) to change the minimum Option price;
(c) to extend the maximum Option term;
(d) to change the class of employees eligible to receive Awards;
(e) to extend the maximum period during which Awards may be granted
under the Plan; or
(f) to materially increase the benefits accruing to employees under
the Plan.
13. EFFECT OF THE PLAN
(a) No Right to an Award. Neither the adoption of the Plan nor any
action of the Board or of the Committee shall be deemed to give an employee any
right to be granted an Option to purchase Common Stock, a right to a Restricted
Stock Award or a right to a Performance Award or Incentive Award or any other
rights hereunder except as may be evidenced by an Award or by a Grant Document
with respect to an Option or other Award, and then only to the extent and on the
terms and conditions expressly set forth therein. The Plan shall be unfunded.
The Company shall not be required to establish any special or separate fund or
to make any other segregation of funds or assets to assure the payment of any
Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any employee any right with respect to continuation of
employment with the Company or (ii) interfere in any way with the right of the
Company to terminate his or her employment at any time.
(c) Other Laws; Withholding. The Company shall not be obligated to
issue any shares of Common Stock until there has been compliance with such laws
and regulations as the Company may deem applicable. No fractional shares of
Common Stock shall be delivered. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
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14. MODIFICATION OF OUTSTANDING AWARDS
Except as specified in this Section 14, notwithstanding the provisions
of any Grant Document evidencing any Award outstanding hereunder on February 1,
1998, if such Grant Document contains provisions with respect to the effect of a
"Change of Control" upon such Award, certain of those provisions shall be deemed
modified as follows (subject to any consent of the Holder specifically required
by the Grant Document):
(a) Any provision in the applicable Grant Document which states that a
Change of Control shall be deemed to have occurred in circumstances described
substantially as follows:
"the Company shall (i) merge or consolidate with or into another
corporation or entity or enter into a share exchange between shareholders
of the Company and another corporation or entity pursuant to Article 5.02
of the Texas Business Corporation Act and as a result of such merger,
consolidation or share exchange less than seventy percent (70%) of the
outstanding voting securities of the surviving or resulting corporation or
entity shall then be owned in the aggregate by the former shareholders of
the Company, other than (x) affiliates (within the meaning of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the
Company or (y) any party to such merger, consolidation or share exchange or
(ii) sell, lease, exchange or otherwise dispose of all or substantially all
of the Company's property and assets in one transaction or a series of
related transactions to one or more other corporations or entities that are
not subsidiaries of the Company;"
shall be modified to provide that a Change of Control shall be deemed to have
occurred if:
"(i) the Company or any direct or indirect subsidiary of the Company
shall merge or consolidate with or into another corporation or entity
or enter into a share exchange between shareholders of the Company or
any direct or indirect subsidiary of the Company and another
corporation or entity pursuant to Article 5.02 of the Texas Business
Corporation Act and as a result of such merger, consolidation or share
exchange less than seventy percent (70%) of the outstanding voting
securities of the surviving or resulting corporation or entity or any
parent thereof shall then be owned in the aggregate by the former
shareholders of the Company, other than (x) affiliates (within the
meaning of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of the Company or (y) any party to such merger,
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consolidation or share exchange or (ii) the Company shall sell, lease,
exchange or otherwise dispose of all or substantially all of the
Company's property and assets in one transaction or a series of
related transactions to one or more other corporations or entities
that are not subsidiaries of the Company;"
(b) Any provisions in the Grant Document of a stock option which would
require the payment of the "Merger Spread" in connection with the automatic
surrender and cancellation of the stock option when a Change of Control occurs
because of a merger, consolidation or share exchange shall be deemed modified by
the addition of the following provision:
"Notwithstanding any other provision hereof, if a Change of Control
occurs which would otherwise require the payment to the Holder of the
Merger Spread and the automatic surrender and cancellation of the
option hereunder, there shall be no payment of the Merger Spread and
no automatic surrender and cancellation of the option. Instead,
immediately prior to the occurrence of that particular type of Change
of Control, the option shall become fully vested and exercisable. As
used in the immediately preceding sentence, "immediately prior" to the
Change of Control shall mean sufficiently in advance of the Change of
Control to permit the Holder to take all steps reasonably necessary to
exercise the option fully and to deal with the shares purchased under
the option so that those shares may be treated in the same manner in
connection with the Change of Control as the shares of Stock of other
shareholders."
(c) Any provision in a Grant Document which might limit the Change-of-
Control vesting of, or the Change-of-Control lapse of Forfeiture Restrictions
with respect to, the Award under the Grant Document in the event that such
vesting or lapse might constitute a "parachute payment" shall not apply if the
Holder of the Award also holds, immediately prior to any such Change of Control,
an individual employment or severance agreement with the Company pursuant to
which the Company undertakes to pay the excise tax which might otherwise be
imposed upon the Holder under section 280G of the Code in connection with such
vesting or lapse.
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EXHIBIT 10.2
AMERICAN GENERAL CORPORATION
1984 STOCK AND INCENTIVE PLAN,
RESTATED AS OF FEBRUARY 8, 1994,
AS FURTHER AMENDED AND RESTATED
AS OF FEBRUARY 1, 1998
1. PURPOSE
The purpose of the American General Corporation 1984 Stock and
Incentive Plan, Restated as of February 8, 1994, as further amended and restated
through February 1, 1998 (the "Plan") is to provide a means through which
American General Corporation, a Texas corporation, and its subsidiaries
(collectively, the "Company") may attract able persons to enter the employ of
the Company and to provide a means whereby those key employees upon whom the
responsibilities of the successful administration and management of the Company
rest, and whose present and potential contributions to the welfare of the
Company are of importance, can acquire and maintain stock ownership, thereby
strengthening their concern for the welfare of the Company and their desire to
remain in its employ. A further purpose of the Plan is to provide such key
employees with additional incentive and reward opportunities designed to enhance
the profitable growth of the Company. So that the maximum incentive can be
provided each employee, the Plan provides for granting Incentive Stock Options,
Non-Qualified Options, Restricted Stock Awards, Performance Awards, and
Incentive Awards, or any combination of the foregoing, as is best suited to the
circumstances of the particular employee.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Award" means, individually or collectively, any Option,
Restricted Stock Award, Performance Award or Incentive Award.
(b) "Board" means the Board of Directors of American General
Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. Reference in the Plan to any section of the Code shall be deemed
<PAGE>
to include any amendments or successor provisions to such section and any
regulations under such section.
(d) "Committee" means not less than three members of the Board who are
selected by the Board as provided in Section 4(a).
(e) "Common Stock" means the common stock of American General
Corporation.
(f) "Company" means, collectively, American General Corporation and
its subsidiaries, except that, in Section 14 hereof, "Company" means only
American General Corporation.
(g) "Fair Market Value" means, as of any specified date, the average
of the highest and lowest quoted selling prices of the Common Stock as reported
on the Composite Tape for issues listed on the New York Stock Exchange on the
specified date, or, if no sales were reported on the Composite Tape on such
specified date, the average of the highest and lowest quoted selling prices of
the Common Stock on the nearest dates before and after such specified date on
which sales of the Common Stock were so reported.
(h) "Grant Document" means the document or documents evidencing an
Award under the Plan, which may be either an agreement between the Company and
the Holder as to the Award or a notice of grant of the Award from the Company to
the Holder (including any attached statement of the terms and conditions of the
Award).
(i) "Holder" means an employee of the Company who has been granted an
Option, a Restricted Stock Award, a Performance Award or an Incentive Award.
(j) "Incentive Award" means an Award granted under Section 10 of the
Plan.
(k) "Incentive Stock Option" means an incentive stock option within
the meaning of section 422(b) of the Code.
(l) "Option" means an Award under Section 7 of the Plan and includes
both Non-Qualified Options and Incentive Stock Options to purchase Common Stock.
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(m) "Performance Award" means an Award granted under Section 9 of the
Plan.
(n) "Personal Representative" means the person who upon the death,
disability or incompetency of a Holder shall have acquired, by will or by the
laws of descent and distribution or by other legal proceedings, the right to
exercise an Option or the right to any Restricted Stock Award, Performance Award
or Incentive Award theretofore granted or made to such Holder.
(o) "Plan" means the American General Corporation 1984 Stock and
Incentive Plan, Restated as of February 8, 1994, as Further Amended and Restated
as of February 1, 1998, and as amended from time to time.
(p) "Restricted Stock Award" means an Award granted under Section 8 of
the Plan.
3. EFFECTIVE DATE AND DURATION OF THE PLAN
The 1994 restatement of the Plan became effective as of February 8,
1994 upon its adoption by the Board, following its approval by the shareholders
of American General Corporation on April 29, 1993. No further Awards can be
granted under the Plan after February 8, 2004 and no Incentive Stock Options can
be granted under the Plan after April 29, 2003. The 1998 restatement of the Plan
became effective as of February 1, 1998. The Plan (as so restated) shall remain
in effect until all Options granted under the Plan have been exercised or
expired by reason of lapse of time, all restrictions imposed upon Restricted
Stock Awards have been eliminated or the Restricted Stock Awards have been
forfeited and all Performance Awards and Incentive Awards have been satisfied or
have terminated.
4. ADMINISTRATION
(a) Composition of Committee. The Committee shall be selected and
appointed by the Board to administer the Plan. The Members of the Committee
shall be not include any employee of the Company or any individual who is or was
within
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the 12-month period immediately preceding the date he or she became a member of
the Committee eligible for selection to receive any stock option, stock
appreciation right, stock option surrender right or other stock allocation under
the Plan or under any other plan of the Company. A majority of the Committee
shall constitute a quorum. The Committee shall act by majority action at a
meeting, except that action permitted to be taken at a meeting may be taken
without a meeting if written consent thereto is given by all members of the
Committee.
(b) Powers. Subject to the express provisions of the Plan, the
Committee shall have authority, in its discretion, to determine which employees
of the Company shall receive an Award, the time or times when such Award shall
be made, whether an Incentive Stock Option or Non-Qualified Option shall be
granted, the number of shares to be subject to each Option and Restricted Stock
Award, and the value of each Performance Award and Incentive Award. In making
such determinations the Committee shall take into account the nature of the
services rendered by the respective employees, their present and potential
contribution to the Company's success and such other factors as the Committee
shall deem relevant.
(c) Additional Powers. The Committee shall have such additional powers
as are delegated to it by the other provisions of the Plan. Subject to the
express provisions of the Plan, this shall include the power to construe the
Plan and the respective Grant Documents thereunder, to prescribe rules and
regulations relating to the Plan, and to determine the terms, restrictions, and
provisions of the Grant Document for each Award, including such terms,
restrictions and provisions as shall be requisite in the judgment of the
Committee to cause designated Options to qualify as Incentive Stock Options, to
ensure that grants of Awards are exempt under Rule 16b-3 under the Securities
Exchange Act of 1934, as amended from time to time, and to make all other
determinations necessary or advisable for administering the Plan. Without
limiting the generality of the foregoing, Grant Documents for Awards under the
Plan may contain such provisions covering a change of control (sometimes called
a "change in control") of the Company, as defined by the Committee in its sole
discretion, as the Committee may approve, not inconsistent with the terms of
this Plan, including without limitation provisions for the acceleration of,
vesting of, or the payment of cash in lieu of, any Award. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan or in any Grant Document relating to an Award in the manner and to the
extent it shall deem expedient to carry it into effect. The Committee may
delegate to other persons the responsibility of performing ministerial acts in
furtherance of the Plan's purposes, but only the Committee may act on any aspect
of the Plan affecting (i) an officer or director of the Company who is an
employee of the Company or (ii) an employee to
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whom the Committee delegates authority with respect to the Plan. The
determinations of the Committee on the matters referred to in this Section 4
shall be conclusive.
5. GRANT OF OPTIONS, RESTRICTED STOCK AWARDS,
PERFORMANCE AWARDS, AND INCENTIVE AWARDS;
SHARES SUBJECT TO THE PLAN
(a) Stock Grant Limit. The Committee may from time to time grant
Awards to one or more employees determined by it to be eligible for
participation in the Plan in accordance with the provisions of Section 6.
Subject to Section 11, the aggregate number of shares of Common Stock that may
be issued under the Plan shall not exceed the number of shares originally
authorized by shareholders in 1984, 9,000,000 (formerly 4,500,000 prior to the
2-for-1 stock split effected March 1, 1993), less the aggregate number of shares
issued or issuable under the Plan prior to its amendment and restatement as of
February 8, 1994. In addition to the foregoing limit on the aggregate number of
shares that may be issued under all Awards, the aggregate number of Restricted
Stock Awards that may granted during any calendar year shall not exceed one-
tenth of one percent (0.1%) of the number of shares of Common Stock outstanding
as of December 31 of the prior year. Shares shall be deemed to have been issued
under the Plan only to the extent actually issued and delivered pursuant to an
Award. To the extent that an Award lapses or the rights of its Holder terminate
or the Award is paid in cash, any shares of Common Stock subject to such Award
shall again be available to the grant of an Award.
(b) Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
6. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are
key employees of the Company. Awards may not be granted to (i) any director who
is not an employee of the Company or (ii) any person who immediately after such
grant is the owner, directly or indirectly, of more than 10% of the total
combined voting power of all classes of stock of the Company. An Award may be
granted on more than one occasion to the same person, and such Award may include
an Incentive Stock Option, Non-Qualified Option, Restricted Stock Award,
Performance Award, Incentive Award or any combination thereof.
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7. STOCK OPTIONS
(a) Option Period. The term of each Option shall be as specified by
the Committee at the date of grant but shall not exceed ten years.
(b) Limitations on Exercise of Option. An Option shall be exercisable
in whole or in such installments and at such times, commencing not earlier than
six months from the date of grant, as determined by the Committee.
(c) Stock Option Grant Document. Each Option shall be evidenced by a
Grant Document in such form and containing such provisions not inconsistent with
the provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify an Incentive Stock Option
under section 422 of the Code.
(d) Option Price and Payment. The price at which a share of Common
Stock may be purchased upon exercise of an Option shall be determined by the
Committee but, subject to adjustment as provided in Section 11, shall not be
less than the Fair Market Value of a share of Common Stock at the date such
Option is granted. The Option or portion thereof may be exercised by delivery of
an irrevocable notice of exercise to the Company. The purchase price of the
Option or portion thereof shall be paid in full in the manner prescribed by the
Committee.
(e) Restrictions on Transfer. An Option shall not be transferable
otherwise than by will or the laws of descent and distribution and may be
exercisable during the lifetime of the Holder only by such Holder.
(f) Shareholder Rights and Privileges. The Holder shall be entitled to
all the privileges and rights of a shareholder only with respect to such shares
of Common Stock as have been purchased under the Option and for which
certificates of stock have been registered in the Holder's name.
(g) Individual Dollar Limitations. In the case of Incentive Stock
Options, the value of shares of stock for which such Options are exercisable for
the first time in any one calendar year cannot exceed $100,000 based on the Fair
Market Value of the stock at the date of grant according to section 422(d)(1) of
the Code (or such other individual limit as may be in effect under the Code on
the date of grant).
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(h) Surrender of Options. The Committee (concurrently with the grant
of an Option or subsequent to such grant) may, in its sole discretion, grant to
any Option Holder the right, upon written request, to surrender any exercisable
Option or portion thereof in exchange for cash, whole shares of Common Stock or
a combination thereof, as determined by the Committee, with a value equal to the
excess of the Fair Market Value, as of the date of such request, of one share of
Common Stock over the Option price for such share multiplied by the number of
shares covered by the Option or portion thereof to be surrendered. In the case
of any such surrender right which is granted in connection with an Incentive
Stock Option, such right shall be exercisable only when the Fair Market Value of
the Common Stock exceeds the price specified therefor in the Option or portion
thereof to be surrendered. In the event of the exercise of any surrender right
granted hereunder, the number of shares reserved for issuance under the Plan
shall be reduced only to the extent that shares of Common Stock are actually
issued in connection with the exercise of such surrender right. Additional terms
and conditions governing any such surrender rights may from time to time be
prescribed by the Committee in its sole discretion.
8. RESTRICTED STOCK AWARDS
(a) Restriction Period to be Established by the Committee. At the time
a Restricted Stock Award is made, the Committee shall establish a period of time
(the "Restriction Period") applicable to such Award. Each Restricted Stock Award
may have a different Restriction Period, in the discretion of the Committee. The
Restriction Period applicable to a particular Restricted Stock Award shall not
be changed except as permitted by Section 8(b).
(b) Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. The Holder shall have the
right to receive dividends during the Restriction Period, to vote Common Stock
subject thereto and to enjoy all other shareholder rights, except that (i) the
Holder shall not be entitled to delivery of the stock certificate until the
Restriction Period shall have expired, (ii) the Company shall retain custody of
the stock during the Restriction Period, (iii) the Holder may not sell,
transfer, pledge, exchange, hypothecate or otherwise dispose of the stock during
the Restriction Period and (iv) a breach of the terms and conditions established
by the Committee pursuant to the Restricted Stock Award, shall cause a
forfeiture of the Restricted Stock Award. At the time of such Award, the
Committee may, in its sole discretion, prescribe additional terms, conditions or
restrictions relating to Restricted Stock Awards, including, but not limited to,
rules
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pertaining to the termination of employment (by retirement, disability, death or
otherwise) of a Holder prior to expiration of the Restriction Period.
(c) Payment for Restricted Stock. A Holder shall not be required to
make any payment for Common Stock received pursuant to a Restricted Stock Award,
except to the extent otherwise required by law or the Committee.
9. PERFORMANCE AWARDS
(a) Performance Period. The Committee shall establish, with respect to
and at the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
(b) Performance Awards. Each Performance Award shall have a maximum
value established by the Committee at the time of such Award.
(c) Performance Measures. A Performance Award shall be awarded to an
employee contingent upon future performance of the Company or any subsidiary,
division or department thereof by or in which he is employed during the
performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period
but subject to such later revisions as the Committee shall deem appropriate to
reflect significant, unforeseen events or changes.
(d) Awards Criteria. In determining the value of Performance Awards,
the Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(e) Payment. Following the end of the performance period, the Holder
of a Performance Award shall be entitled to receive payment of an amount, not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash, Common Stock or a
combination thereof, as determined by the Committee. Payment shall be made in a
lump sum or in installments as prescribed by the Committee. Any payment to be
made in Common Stock shall be based on the Fair Market Value of the Common Stock
on the payment date.
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(f) Termination of Employment. A Performance Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable performance period, except as may be determined by
the Committee.
10. INCENTIVE AWARDS
(a) Incentive Awards. Incentive Awards are rights to receive shares of
Common Stock (or the Fair Market Value thereof), or rights to receive an amount
equal to any appreciation or increase in the Fair Market Value of Common Stock
over a specified period of time, which vest over a period of time as established
by the Committee, without payment of any amounts by the Holder thereof or
satisfaction of any performance criteria or objectives. Each Incentive Award
shall have a maximum value established by the Committee at the time of such
Award.
(b) Award Period. The Committee shall establish, with respect to and
at the time of each Incentive Award, a period over which the Award shall vest
with respect to the Holder.
(c) Awards Criteria. In determining the value of Incentive Awards, the
Committee shall take into account an employee's responsibility level,
performance, potential, other Awards and such other considerations as it deems
appropriate.
(d) Payment. Following the end of the vesting period for an Incentive
Award, the Holder of an Incentive Award shall be entitled to receive payment of
an amount, not exceeding the maximum value of the Incentive Award, based on the
then vested value of the Award. Payment of an Incentive Award may be made in
cash, Common Stock or a combination thereof as determined by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee. Any payment to be made in Common Stock shall be based on the Fair
Market Value of the Common Stock on the payment date. Cash dividend equivalents
may be paid during or after the vesting period with respect to an Incentive
Award, as determined by the Committee.
(e) Termination of Employment. An Incentive Award shall terminate if
the Holder does not remain continuously in the employ of the Company at all
times during the applicable vesting period, except as may be otherwise
determined by the Committee.
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11. EQUITABLE ADJUSTMENTS
Subject to any required action by the Company's shareholders, upon the
occurrence of any event which affects the shares of Common Stock in such a way
that an adjustment of outstanding Awards is appropriate in order to prevent the
dilution or enlargement of rights under the Awards (including, without
limitation, any extraordinary dividend or other distribution (whether in cash or
in kind), recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event), the Committee shall make appropriate
equitable adjustments, which may include, without limitation, adjustments to any
or all of the number and kind of shares of stock (or other securities) which may
thereafter be issued in connection with such outstanding Awards and adjustments
to any exercise price specified in the outstanding Awards and shall also make
appropriate equitable adjustments to the number and kind of shares of stock (or
other securities) authorized by or to be granted under the Plan. Further, the
Committee, in its sole discretion, may make appropriate equitable adjustments,
including, without limitation, those described in the immediately preceding
sentence, in any other circumstances under which the Committee deems such
adjustments to be desirable. Any adjustment made to an Incentive Stock Option
hereunder, with respect to either (i) the number or price of shares of stock
subject to Incentive Stock Options or (ii) the aggregate number of shares which
may be issued pursuant to Incentive Stock Options, shall be made in a manner
which will permit such option to continue to constitute an Incentive Stock
Option within the meaning of section 422 of the Code.
12. AMENDMENT OF THE PLAN
The Board may amend the Plan at any time and the Committee may amend
any Award (and its related Grant Document) at any time, except as otherwise
specifically provided in such Grant Document; provided that no change in any
Award theretofore granted may be made that would impair the rights of the Holder
of any Award under the Plan without the consent of the Holder, and provided,
further, that the Board may not, without approval of the shareholders, amend the
Plan:
(a) to increase the maximum number of shares which may be issued on
exercise or surrender of Options or pursuant to Restricted Stock Awards,
Performance Awards or Incentive Awards, except as provided in Section 11;
(b) to change the minimum Option price;
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(c) to extend the maximum Option term;
(d) to change the class of employees eligible to receive Awards;
(e) to extend the maximum period during which Awards may be granted
under the Plan; or
(f) to materially increase the benefits accruing to employees under
the Plan.
13. EFFECT OF THE PLAN
(a) No Right to an Award. Neither the adoption of the Plan nor any
action of the Board or of the Committee shall be deemed to give an employee any
right to be granted an Option to purchase Common Stock, a right to a Restricted
Stock Award or a right to a Performance Award or Incentive Award or any other
rights hereunder except as may be evidenced by an Award or by a Grant Document
with respect to an Option or other Award, and then only to the extent and on the
terms and conditions expressly set forth therein. The Plan shall be unfunded.
The Company shall not be required to establish any special or separate fund or
to make any other segregation of funds or assets to assure the payment of any
Award.
(b) No Employment Rights Conferred. Nothing contained in the Plan shall
(i) confer upon any employee any right with respect to continuation of
employment with the Company or (ii) interfere in any way with the right of the
Company to terminate his or her employment at any time.
(c) Other Laws; Withholding. The Company shall not be obligated to
issue any shares of Common Stock until there has been compliance with such laws
and regulations as the Company may deem applicable. No fractional shares of
Common Stock shall be delivered. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
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14. MODIFICATION OF OUTSTANDING AWARDS
Except as specified in this Section 14, notwithstanding the provisions
of any Grant Document evidencing any Award outstanding hereunder on February 1,
1998, if such Grant Document contains provisions with respect to the effect of a
"Change of Control" upon such Award, certain of those provisions shall be deemed
modified as follows (subject to any consent of the Holder specifically required
by the Grant Document):
(a) Any provision in the applicable Grant Document which states that a
Change of Control shall be deemed to have occurred in circumstances described
substantially as follows:
"the Company shall (i) merge or consolidate with or into another
corporation or entity or enter into a share exchange between
shareholders of the Company and another corporation or entity pursuant
to Article 5.02 of the Texas Business Corporation Act and as a result
of such merger, consolidation or share exchange less than seventy
percent (70%) of the outstanding voting securities of the surviving or
resulting corporation or entity shall then be owned in the aggregate
by the former shareholders of the Company, other than (x) affiliates
(within the meaning of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of the Company or (y) any party to such merger,
consolidation or share exchange or (ii) sell, lease, exchange or
otherwise dispose of all or substantially all of the Company's
property and assets in one transaction or a series of related
transactions to one or more other corporations or entities that are
not subsidiaries of the Company;"
shall be modified to provide that a Change of Control shall be deemed to have
occurred if:
"(i) the Company or any direct or indirect subsidiary of the Company
shall merge or consolidate with or into another corporation or entity
or enter into a share exchange between shareholders of the Company or
any direct or indirect subsidiary of the Company and another
corporation or entity pursuant to Article 5.02 of the Texas Business
Corporation Act and as a result of such merger, consolidation or share
exchange less than seventy percent (70%) of the outstanding voting
securities of the surviving or resulting corporation or entity or any
parent thereof shall then be owned in the aggregate by the former
shareholders of the Company, other than (x) affiliates (within the
meaning of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of the Company or (y) any party to such merger,
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consolidation or share exchange or (ii) the Company shall sell, lease,
exchange or otherwise dispose of all or substantially all of the
Company's property and assets in one transaction or a series of
related transactions to one or more other corporations or entities
that are not subsidiaries of the Company;"
(b) Any provisions in the Grant Document of a stock option which would
require the payment of the "Merger Spread" in connection with the automatic
surrender and cancellation of the stock option when a Change of Control occurs
because of a merger, consolidation or share exchange shall be deemed modified by
the addition of the following provision:
"Notwithstanding any other provision hereof, if a Change of Control
occurs which would otherwise require the payment to the Holder of the
Merger Spread and the automatic surrender and cancellation of the
option hereunder, there shall be no payment of the Merger Spread and
no automatic surrender and cancellation of the option. Instead,
immediately prior to the occurrence of that particular type of Change
of Control, the option shall become fully vested and exercisable. As
used in the immediately preceding sentence, "immediately prior" to the
Change of Control shall mean sufficiently in advance of the Change of
Control to permit the Holder to take all steps reasonably necessary to
exercise the option fully and to deal with the shares purchased under
the option so that those shares may be treated in the same manner in
connection with the Change of Control as the shares of Stock of other
shareholders."
(c) Any provision in a Grant Document which might limit the Change-of-
Control vesting of, or the Change-of-Control lapse of Forfeiture Restrictions
with respect to, the Award under the Grant Document in the event that such
vesting or lapse might constitute a "parachute payment" shall not apply if the
Holder of the Award also holds, immediately prior to any such Change of Control,
an individual employment or severance agreement with the Company pursuant to
which the Company undertakes to pay the excise tax which might otherwise be
imposed upon the Holder under section 280G of the Code in connection with such
vesting or lapse.
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EXHIBIT 10.3
AMERICAN GENERAL CORPORATION 1997 STOCK AND INCENTIVE PLAN
AS AMENDED AND RESTATED AS OF FEBRUARY 1, 1998
1. PURPOSE
The purpose of the American General Corporation 1997 Stock and Incentive Plan
(the "Plan") is to provide a means through which American General Corporation,
a Texas corporation, and its subsidiaries (collectively, the "Company") may
attract able persons to enter the employ or become directors of the Company and
to provide a means whereby those persons upon whom the responsibilities of the
successful administration and management of the Company rest, and whose present
and potential contributions to the welfare of the Company are of importance, can
acquire and maintain stock ownership, thereby strengthening their concern for
the welfare of the Company and their desire to remain in its employ or as
directors. A further purpose of the Plan is to provide such persons with
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company. So that the maximum incentive can be provided, the Plan
provides for granting Incentive Stock Options, Non-Qualified Options, Restricted
Stock Awards, Performance Awards, and Incentive Awards, or any combination of
the foregoing, as is best suited to the circumstances of the particular person.
2. DEFINITIONS
The following definitions shall be applicable throughout the Plan:
(a) "Award" means, individually or collectively, any Option, Restricted Stock
Award, Performance Award, or Incentive Award.
(b) "Board" means the Board of Directors of American General Corporation.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time to
time. Reference in the Plan to any section of the Code shall be deemed to
include any amendments or successor provisions to such section and any
regulations under such section.
(d) "Committee" means a committee of the Board that is selected by the Board
as provided in Section 4(a).
(e) "Common Stock" means the common stock of American General Corporation.
(f) "Company" means, collectively, American General Corporation and its
subsidiaries, except that, in Section 14 hereof, "Company" means only American
General Corporation.
(g) "Director" means an individual elected to the Board by the shareholders
of American General Corporation or by the Board under applicable corporate law.
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(h) "Employee" means any person (including a Director) in an employment
relationship with the Company or any parent or subsidiary corporation (as
defined in section 424 of the Code).
(i) "Fair Market Value" means, as of any specified date, the average of the
highest and lowest quoted selling prices of the Common Stock as reported on the
Composite Tape for issues listed on the New York Stock Exchange on the specified
date, or, if no sales were reported on the Composite Tape on such specified
date, the average of the highest and lowest quoted selling prices of the Common
Stock on the nearest dates before and after such specified date on which sales
of the Common Stock were so reported.
(j) "Grant Document" means the document or documents evidencing an Award
under the Plan, which may be either an agreement between the Company and the
Holder as to the Award or a notice of grant of the Award from the Company to the
Holder (including any attached statement of the terms and conditions of the
Award).
(k) "Holder" means an employee or a non-employee Director who has been
granted an Option, a Restricted Stock Award, a Performance Award, or an
Incentive Award.
(l) "Incentive Award" means an Award granted under Section 10 of the Plan.
(m) "Incentive Stock Option" means an incentive stock option within the
meaning of section 422(b) of the Code.
(n) "Immediate Family" means, with respect to a Holder, the Holder's spouse,
children or grandchildren (including adopted and step children and
grandchildren).
(o) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(p) "Non-Qualified Option" means an Option that is not an Incentive Stock
Option.
(q) "Option" means an Award under Section 7 of the Plan and includes both
Non-Qualified Options and Incentive Stock Options to purchase Common Stock.
(r) "Performance Award" means an Award granted under Section 9 of the Plan.
(s) "Personal Representative" means the person who upon the death,
disability, or incompetency of a Holder shall have acquired, by will or by the
laws of descent and distribution or by other legal proceedings, the right to
exercise an Option or the right to any Restricted Stock Award, Performance
Award, or Incentive Award theretofore granted or made to such Holder.
(t) "Plan" means the American General Corporation 1997 Stock and Incentive
Plan, as amended from time to time.
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(u) "Restricted Stock Award" means an Award granted under Section 8 of the
Plan.
(v) "Rule 16b-3" means Securities and Exchange Commission Rule 16b-3
promulgated under the 1934 Act, as such may be amended from time to time, and
any successor rule, regulation, or statute fulfilling the same or similar
function.
3. EFFECTIVE DATE AND DURATION OF THE PLAN
The Plan shall become effective on February 6, 1997, following adoption by
the Board, provided the Plan is approved by the shareholders of American General
Corporation within twelve months thereafter. Notwithstanding any provision in
the Plan or in any Grant Document under the Plan, no Option shall be exercisable
and no Award shall vest prior to such shareholder approval. No further Awards
may be granted under the Plan after ten years from the date the Plan becomes
effective. The Plan shall remain in effect until all Options granted under the
Plan have been exercised or expired by reason of lapse of time, all restrictions
imposed upon Restricted Stock Awards have been eliminated or the Restricted
Stock Awards have been forfeited, and all Performance Awards and Incentive
Awards have been satisfied or have terminated.
4. ADMINISTRATION
(a) Composition of Committee. The Plan shall be administered by a committee
of, and appointed by, the Board, and such Committee shall be comprised solely of
two or more outside Directors of American General Corporation (within the
meaning of section 162(m) of the Code and applicable interpretive authority
thereunder) who are also non-employee Directors (within the meaning of Rule 16b-
3). A majority of the Committee shall constitute a quorum. The Committee shall
act by majority action at a meeting, except that action permitted to be taken at
a meeting may be taken without a meeting if written consent thereto is given by
all members of the Committee.
(b) Powers. Subject to the express provisions of the Plan and except as
otherwise provided below with respect to non-employee Directors, the Committee
shall have authority, in its discretion, to determine which Employees or
Directors of the Company shall receive an Award, the time or times when such
Award shall be made, whether an Incentive Stock Option or Non-Qualified Option
shall be granted, the number of shares to be subject to each Option and
Restricted Stock Award, and the value of each Performance Award and Incentive
Award. In making such determinations, the Committee shall take into account the
nature of the services rendered by the respective Employees or Directors, their
present and potential contribution to the Company's success, and such other
factors as the Committee shall deem relevant. Notwithstanding the foregoing, the
Board shall have authority, in its discretion, to make the determinations set
forth above with respect to non-employee Directors.
(c) Additional Powers. The Committee shall have such additional powers as are
delegated to it by the other provisions of the Plan. Subject to the express
provisions of the Plan and except as
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otherwise provided below with respect to non-employee Directors, this shall
include the power to construe the Plan and the respective Grant Documents
thereunder, to prescribe rules and regulations relating to the Plan and to
determine the terms, restrictions, and provisions of the Grant Document for each
Award, including such terms, restrictions, and provisions as shall be requisite
in the judgment of the Committee to cause designated Options to qualify as
Incentive Stock Options, to ensure that the grants of Awards are exempt under
Rule 16b-3, and to make all other determinations necessary or advisable for
administering the Plan. Without limiting the generality of the foregoing, Grant
Documents providing for Awards under the Plan may contain such provisions
covering a change of control (sometimes called a "change in control") of the
Company, as defined by the Committee in its sole discretion, as the Committee
may approve, not inconsistent with the terms of this Plan, including without
limitation provisions for the acceleration of, vesting of, or the payment of
cash in lieu of, any Award. The Committee may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Grant Document
relating to an Award in the manner and to the extent it shall deem expedient to
carry it into effect. The Committee may delegate to other persons the
responsibility of performing ministerial acts in furtherance of the Plan's
purposes. The determinations of the Committee on the matters referred to in this
Section 4 shall be conclusive. Notwithstanding the foregoing, the Board, in its
discretion, shall have the power to determine the terms, restrictions, and
provisions of the Grant Document for each Award with respect to non-employee
Directors.
5. GRANT OF OPTIONS, RESTRICTED STOCK AWARDS, PERFORMANCE AWARDS, AND INCENTIVE
AWARDS; SHARES SUBJECT TO THE PLAN
(a) Stock Grant Limit. The Committee may from time to time grant Awards to
one or more Employees or Directors determined by it to be eligible for
participation in the Plan in accordance with the provisions of Section 6.
Subject to adjustment in the same manner as provided in Section 11 with respect
to shares of Common Stock subject to Awards then outstanding, the aggregate
number of shares of Common Stock that may be issued under the Plan shall not
exceed 7,000,000. Shares shall be deemed to have been issued under the Plan only
to the extent actually issued and delivered pursuant to an Award. To the extent
that an Award lapses or the rights of its Holder terminate or the Award is paid
in cash, any shares of Common Stock subject to such Award shall again be
available for the grant of an Award. The separate limitations contained in
Sections 7, 8, and 9 with respect to specific types of Awards shall be applied
in a manner which will permit compensation generated under the Plan which is
intended to constitute "performance-based" compensation for purposes of section
162(m) of the Code to be treated as such "performance-based" compensation.
(b) Stock Offered. The stock to be offered pursuant to the grant of an Award
may be authorized but unissued Common Stock or Common Stock previously issued
and outstanding and reacquired by the Company.
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6. ELIGIBILITY
Awards may be granted only to persons who, at the time of grant, are key
Employees of the Company or Directors. Awards may not be granted to any person
who immediately after such grant is the owner, directly or indirectly, of more
than 10% of the total combined voting power of all classes of stock of the
Company. An Award may be granted on more than one occasion to the same person,
and such Award may include an Incentive Stock Option, Non-Qualified Option,
Restricted Stock Award, Performance Award, Incentive Award, or any combination
thereof.
7. STOCK OPTIONS
(a) Limitations on Awards. The maximum number of shares of Common Stock that
may be subject to Option Awards granted to any one individual during any
calendar year may not exceed 500,000 shares of Common Stock (subject to
adjustment in the same manner as provided in Section 11 with respect to shares
of Common Stock subject to Options then outstanding).
(b) Option Period. The term of each Option shall be as specified by the
Committee at the date of grant but shall not exceed ten years.
(c) Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times, commencing not earlier than six
months from the date of grant, as determined by the Committee.
(d) Stock Option Grant Document. Each Option shall be evidenced by an Option
Grant Document in such form and containing such provisions not inconsistent with
the provisions of the Plan as the Committee from time to time shall approve,
including, without limitation, provisions to qualify as an Incentive Stock
Option under section 422 of the Code.
(e) Option Price and Payment. The price at which a share of Common Stock may
be purchased upon exercise of an Option shall be determined by the Committee,
but, subject to adjustment in the same manner as provided in Section 11, shall
not be less than the Fair Market Value of a share of Common Stock at the date
such Option is granted. Notwithstanding the foregoing, Non-Qualified Options
granted pursuant to the Letter Agreement dated February 12, 1997, between USLIFE
Corporation and American General Corporation respecting Non-Qualified Options to
be granted following the `Effective Time' of the `Merger Agreement' as
referenced in such Letter Agreement, may be at a price less than the Fair Market
Value of a share of Common Stock at the date such Non-Qualified Options are
granted. The Option or portion thereof may be exercised by delivery of an
irrevocable notice of exercise to the Company. The purchase price of the Option
or portion thereof shall be paid in full in the manner prescribed by the
Committee.
(f) Shareholder Rights and Privileges. The Holder shall be entitled to all
the privileges and rights of a shareholder only with respect to such shares of
Common Stock as have been purchased under the Option, for which certificates of
stock have been registered in the Holder's name, and as to which the Grant
Document for the respective Option requires no further restrictions.
5
<PAGE>
(g) Special Limitations on Incentive Stock Options. An Incentive Stock Option
may be granted only to an individual who is an Employee at the time the Option
is granted. In the case of Incentive Stock Options, the value of shares of stock
for which such Options are exercisable for the first time in any one calendar
year cannot exceed $100,000 based on the Fair Market Value of the stock at the
date of grant according to section 422(d)(1) of the Code (or such other
individual limit as may be in effect under the Code on the date of grant). An
Incentive Stock Option shall not be transferable or assignable otherwise than by
will or the laws of descent and distribution.
(h) Stock Appreciation Rights. The Committee (concurrently with the grant of
an Option or subsequent to such grant) may, in its sole discretion, grant to any
Holder of an Option stock appreciation rights ("SARs"). SARs may give the
Holder of an Option the right, upon written request, to surrender any
exercisable Option or portion thereof in exchange for cash, whole shares of
Common Stock, or a combination thereof, as determined by the Committee, with a
value equal to the excess of the Fair Market Value, as of the date of such
request, of one share of Common Stock over the Option price for such share
multiplied by the number of shares covered by the Option or portion thereof to
be surrendered. In the case of any SAR which is granted in connection with an
Incentive Stock Option, such SAR shall be exercisable only when the Fair Market
Value of the Common Stock exceeds the price specified therefor in the Option or
portion thereof to be surrendered. In the event of the exercise of any SAR
granted hereunder, the number of shares reserved for issuance under the Plan
shall be reduced only to the extent that shares of Common Stock are actually
issued in connection with the exercise of such SAR. Additional terms and
conditions governing any such SARs may from time to time be prescribed by the
Committee in its sole discretion.
8. RESTRICTED STOCK AWARDS
(a) Limitations on Awards. The maximum number of shares of Common Stock that
may be subject to Restricted Stock Awards granted to any one individual during
any calendar year may not exceed 50,000 shares of Common Stock (subject to
adjustment in the same manner as provided in Section 11 with respect to shares
of Common Stock subject to Restricted Stock Awards then outstanding). Subject to
adjustment in the same manner as provided in Section 11 with respect to shares
of Common Stock subject to Restricted Stock Awards then outstanding, the
aggregate number of shares of Common Stock that may be issued under the Plan
with respect to Restricted Stock Awards shall not exceed 700,000.
(b) Restriction Period to be Established by the Committee. At the time a
Restricted Stock Award is made, the Committee shall establish a period of time
(the "Restriction Period") applicable to such Award. Each Restricted Stock
Award may have a different Restriction Period, in the discretion of the
Committee.
(c) Forfeiture Restrictions to be Established by the Committee. Shares of
Common Stock that are the subject of a Restricted Stock Award shall be subject
to restrictions on disposition by the Holder and an obligation of the Holder to
forfeit and surrender the shares to the Company under
6
<PAGE>
certain circumstances (the "Forfeiture Restrictions"). The Forfeiture
Restrictions shall be determined by the Committee in its sole discretion, and
the Committee may provide that the Forfeiture Restrictions shall lapse upon (i)
the attainment of one or more performance measures established by the Committee
that are based on (1) the price of a share of Common Stock, (2) net income, (3)
market share, (4) return on shareholders' equity, (5) the payment of cash
dividends, (6) operating income, (7) operating return on shareholders' equity,
(8) finance receivables, (9) premium growth, or (10) total shareholder return,
(ii) the Holder's continued employment with the Company or continued service as
a Director for a specified period of time, (iii) the occurrence of any event or
the satisfaction of any other condition specified by the Committee in its sole
discretion, or (iv) a combination of any of the foregoing. The performance
measures may be subject to adjustment for specified significant extraordinary
items or events, and may be absolute, relative to one or more other companies,
or relative to one or more indexes, and may be contingent upon future
performance of the Company or any subsidiary, division, or department thereof by
or in which the Holder is employed during the performance period. Each
Restricted Stock Award may have different Forfeiture Restrictions, in the
discretion of the Committee.
(d) Other Terms and Conditions. Common Stock awarded pursuant to a Restricted
Stock Award shall be represented by a stock certificate registered in the name
of the Holder of such Restricted Stock Award. The Holder shall have the right to
receive dividends during the Restriction Period, to vote Common Stock subject
thereto, and to enjoy all other shareholder rights, except that (i) the Holder
shall not be entitled to delivery of the stock certificate until the Restriction
Period shall have expired, (ii) the Company shall retain custody of the stock
during the Restriction Period, (iii) the Holder may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of the stock during the Restriction
Period, and (iv) a breach of the terms and conditions established by the
Committee pursuant to the Restricted Stock Award shall cause a forfeiture of the
Restricted Stock Award.
(e) Payment for Restricted Stock. A Holder shall not be required to make any
payment for Common Stock received pursuant to a Restricted Stock Award, except
to the extent otherwise required by law or the Committee.
9. PERFORMANCE AWARDS
(a) Limitations on Awards. The maximum number of shares of Common Stock that
may be subject to Performance Awards granted to any one individual during any
calendar year may not exceed 100,000 shares of Common Stock, subject to
adjustment in the same manner as provided in Section 11 with respect to shares
of Common Stock subject to Performance Awards then outstanding.
(b) Performance Period. The Committee shall establish, with respect to and at
the time of each Performance Award, a performance period over which the
performance of the Holder shall be measured.
7
<PAGE>
(c) Performance Measures. A Performance Award shall be awarded to a Holder
contingent upon future performance of the Company or any subsidiary, division,
or department thereof by or in which such Holder is employed during the
performance period. The Committee shall establish the performance measures
applicable to such performance prior to the beginning of the performance period;
provided such measures may be made subject to adjustment for specified
significant extraordinary items or events. The performance measures may be
absolute, relative to one or more other companies, or relative to one or more
indexes. The performance measures established by the Committee may be based upon
(i) the price of a share of Common Stock, (ii) net income, (iii) market share,
(iv) return on shareholders' equity, (v) the payment of cash dividends, (vi)
operating income, (vii) operating return on shareholders' equity, (viii) finance
receivables, (ix) premium growth, (x) total shareholder return, or (xi) a
combination of any of the foregoing. The Committee, in its sole discretion, may
provide for an adjustable Performance Award value based upon the level of
achievement of performance measures.
(d) Awards Criteria. In determining the value of Performance Awards, the
Committee shall take into account a Holder's responsibility level, performance,
potential, other Awards, and such other considerations as it deems appropriate.
The Committee, in its sole discretion, may provide for a reduction in the value
of a Holder's Performance Award during the performance period.
(e) Payment. Following the end of the performance period, the Holder of a
Performance Award shall be entitled to receive payment of an amount not
exceeding the maximum value of the Performance Award, based on the achievement
of the performance measures for such performance period, as determined by the
Committee. Payment of a Performance Award may be made in cash, Common Stock, or
a combination thereof, as determined by the Committee. Payment shall be made in
a lump sum or in installments as prescribed by the Committee. Any payment to be
made in cash shall be based on the Fair Market Value of the Common Stock on the
payment date.
(f) Termination of Employment. A Performance Award shall terminate if the
Holder does not remain continuously in the employ (or in service as a Director)
of the Company at all times during the applicable performance period, except as
may be determined by the Committee.
10. INCENTIVE AWARDS
(a) Incentive Awards. Incentive Awards are rights to receive shares of
Common Stock (or the Fair Market Value thereof), or rights to receive an amount
equal to any appreciation or increase in the Fair Market Value of Common Stock
over a specified period of time, which vest over a period of time as established
by the Committee, without satisfaction of any performance criteria or
objectives. The Committee may, in its discretion, require payment or other
conditions of the Holder respecting any Incentive Award.
(b) Award Period. The Committee shall establish, with respect to and at the
time of each Incentive Award, a period over which the Award shall vest with
respect to the Holder.
8
<PAGE>
(c) Awards Criteria. In determining the value of Incentive Awards, the
Committee shall take into account a Holder's responsibility level, performance,
potential, other Awards, and such other considerations as it deems appropriate.
(d) Payment. Following the end of the vesting period for an Incentive Award,
the Holder of an Incentive Award shall be entitled to receive payment of an
amount, not exceeding the maximum value of the Incentive Award, based on the
then vested value of the Award. Payment of an Incentive Award may be made in
cash, Common Stock, or a combination thereof as determined by the Committee.
Payment shall be made in a lump sum or in installments as prescribed by the
Committee. Any payment to be made in cash shall be based on the Fair Market
Value of the Common Stock on the payment date. Cash dividend equivalents may be
paid during or after the vesting period with respect to an Incentive Award, as
determined by the Committee.
(e) Termination of Employment. An Incentive Award shall terminate if the
Holder does not remain continuously in the employ (or in service as a Director)
of the Company at all times during the applicable vesting period, except as may
be otherwise determined by the Committee.
11. EQUITABLE ADJUSTMENTS
Subject to any required action by the Company's shareholders, upon the
occurrence of any event which affects the shares of Common Stock in such a way
that an adjustment of outstanding Awards is appropriate in order to prevent the
dilution or enlargement of rights under the Awards (including, without
limitation, any extraordinary dividend or other distribution (whether in cash or
in kind), recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event), the Committee shall make appropriate
equitable adjustments, which may include, without limitation, adjustments to any
or all of the number and kind of shares of stock (or other securities) which may
thereafter be issued in connection with such outstanding Awards and adjustments
to any exercise price specified in the outstanding Awards and shall also make
appropriate equitable adjustments to the number and kind of shares of stock (or
other securities) authorized by or to be granted under the Plan. Further, the
Committee, in its sole discretion, may make appropriate equitable adjustments,
including, without limitation, those described in the immediately preceding
sentence, in any other circumstances under which the Committee deems such
adjustments to be desirable. Any adjustment made to an Incentive Stock Option
hereunder, with respect to either (i) the number or price of shares of stock
subject to Incentive Stock Options or (ii) the aggregate number of shares which
may be issued pursuant to Incentive Stock Options, shall be made in a manner
which will permit such option to continue to constitute an Incentive Stock
Option within the meaning of section 422 of the Code.
12. AMENDMENT AND TERMINATION OF THE PLAN
The Board may amend the Plan at any time and the Committee may amend any
Award (and its
9
<PAGE>
related Grant Document) at any time, except as otherwise specifically provided
in such Grant Document; provided that no change in any Award theretofore granted
may be made that would impair the rights of the Holder of any Award under the
Plan without the consent of the Holder, and provided, further, that the Board
may not, without approval of the shareholders, amend the Plan (a) to increase
the maximum aggregate number of shares which may be issued under the Plan or (b)
to change the class of individuals eligible to receive Awards under the Plan.
The Board, in its discretion, may terminate the Plan at any time with respect to
any shares of Common Stock for which Awards have not theretofore been granted.
13. EFFECT OF THE PLAN
(a) No Right to an Award. Neither the adoption of the Plan nor any action of
the Board or of the Committee shall be deemed to give an Employee or Director
any right to an Award except as may be evidenced by a written instrument from
the Company reflecting a grant by the Company of an Award and setting forth the
terms and conditions thereof. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of funds or assets to assure the payment of any Award.
(b) No Employment/Membership Rights Conferred. Nothing contained in the Plan
shall (i) confer upon any employee any right with respect to continuation of
employment with the Company or (ii) interfere in any way with the right of the
Company to terminate his or her employment at any time. Nothing contained in the
Plan shall confer upon any Director any right with respect to continuation of
membership on the Board.
(c) Other Laws; Withholding. The Company shall not be obligated to issue any
shares of Common Stock until there has been compliance with such laws and
regulations as the Company may deem applicable. No fractional shares of Common
Stock shall be delivered. The Company shall have the right to deduct in
connection with all Awards any taxes required by law to be withheld and to
require any payments required to enable it to satisfy its withholding
obligations.
(d) No Restriction on Corporate Action. Nothing contained in the Plan shall
be construed to prevent the Company from taking any corporate action which is
deemed by the Company to be appropriate or in its best interests, whether or not
such action would have an adverse effect on the Plan or any Award made under the
Plan. No Employee, Director, beneficiary, or other person shall have any claim
against the Company as a result of any such action.
(e) Restrictions on Transfer. An Award (other than an Incentive Stock
Option, which shall be subject to the transfer restrictions set forth in Section
7(g)) shall not be transferable or assignable otherwise than (i) by will or the
laws of descent and distribution, (ii) pursuant to a "qualified domestic
relations order" (as defined by the Code), (iii) with respect to Awards of Non-
Qualified Options, if such transfer is permitted in the sole discretion of the
Committee, by transfer by a Holder to a member of the Holder's Immediate Family,
to a trust solely for the benefit of the Holder and the
10
<PAGE>
Holder's Immediate Family, or to a partnership or limited liability company
whose only partners or shareholders are the Holder and members of the Holder's
Immediate Family, or (iv) with the consent of the Committee.
(f) Section 162(m). It is intended that the Plan comply fully with and meet
all the requirements of section 162(m) of the Code so that Options and
Performance Awards granted hereunder and, if determined by the Committee,
Restricted Stock Awards shall constitute "performance-based" compensation
within the meaning of such section. If any provision of the Plan would
disqualify the Plan or would not otherwise permit the Plan to comply with
section 162(m) as so intended, such provision shall be construed or deemed
amended to conform to the requirements or provisions of section 162(m); provided
that no such construction or amendment shall have an adverse effect on the
economic value to a Holder of any Award previously granted hereunder.
(g) Governing Law. This Plan shall be construed in accordance with the laws
of the State of Texas.
14. MODIFICATION OF OUTSTANDING AWARDS
Except as specified in this Section 14, notwithstanding the provisions of
any Grant Document evidencing any Award outstanding hereunder on February 1,
1998, if such Grant Document contains provisions with respect to the effect of a
"Change of Control" upon such Award, certain of those provisions shall be deemed
modified as follows (subject to any consent of the Holder specifically required
by the Grant Document):
(a) Any provision in the applicable Grant Document which states that a
Change of Control shall be deemed to have occurred in circumstances described
substantially as follows:
"the Company shall (i) merge or consolidate with or into another corporation
or entity or enter into a share exchange between shareholders of the Company
and another corporation or entity pursuant to Article 5.02 of the Texas
Business Corporation Act and as a result of such merger, consolidation or
share exchange less than seventy percent (70%) of the outstanding voting
securities of the surviving or resulting corporation or entity shall then be
owned in the aggregate by the former shareholders of the Company, other than
(x) affiliates (within the meaning of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of the Company or (y) any party to such
merger, consolidation or share exchange or (ii) sell, lease, exchange or
otherwise dispose of all or substantially all of the Company's property and
assets in one transaction or a series of related transactions to one or more
other corporations or entities that are not subsidiaries of the Company;"
shall be modified to provide that a Change of Control shall be deemed to have
occurred if:
"(i) the Company or any direct or indirect subsidiary of the Company shall
merge or consolidate
11
<PAGE>
with or into another corporation or entity or enter into a share exchange
between shareholders of the Company or any direct or indirect subsidiary of
the Company and another corporation or entity pursuant to Article 5.02 of
the Texas Business Corporation Act and as a result of such merger,
consolidation or share exchange less than seventy percent (70%) of the
outstanding voting securities of the surviving or resulting corporation or
entity or any parent thereof shall then be owned in the aggregate by the
former shareholders of the Company, other than (x) affiliates (within the
meaning of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of the Company or (y) any party to such merger, consolidation or
share exchange or (ii) the Company shall sell, lease, exchange or otherwise
dispose of all or substantially all of the Company's property and assets in
one transaction or a series of related transactions to one or more other
corporations or entities that are not subsidiaries of the Company;"
(b) Any provisions in the Grant Document of a stock option which would
require the payment of the "Merger Spread" in connection with the automatic
surrender and cancellation of the stock option when a Change of Control occurs
because of a merger, consolidation or share exchange shall be deemed modified by
the addition of the following provision:
"Notwithstanding any other provision hereof, if a Change of Control occurs
which would otherwise require the payment to the Holder of the Merger Spread
and the automatic surrender and cancellation of the option hereunder, there
shall be no payment of the Merger Spread and no automatic surrender and
cancellation of the option. Instead, immediately prior to the occurrence of
that particular type of Change of Control, the option shall become fully
vested and exercisable. As used in the immediately preceding sentence,
"immediately prior" to the Change of Control shall mean sufficiently in
advance of the Change of Control to permit the Holder to take all steps
reasonably necessary to exercise the option fully and to deal with the
shares purchased under the option so that those shares may be treated in the
same manner in connection with the Change of Control as the shares of Stock
of other shareholders."
(c) Any provision in a Grant Document which might limit the Change-of-
Control vesting of, or the Change-of-Control lapse of Forfeiture Restrictions
with respect to, the Award under the Grant Document in the event that such
vesting or lapse might constitute a "parachute payment" shall not apply if the
Holder of the Award also holds, immediately prior to any such Change of Control,
an individual employment or severance agreement with the Company pursuant to
which the Company undertakes to pay the excise tax which might otherwise be
imposed upon the Holder under section 280G of the Code in connection with such
vesting or lapse.
12
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Six Months Ended
June 30,
1998 1997
Consolidated operations:
Income before income tax expense, minority interest,
and dividends on preferred securities ............. $ 880 $ 305
Undistributed income of Western National ............ - (23)
Fixed charges deducted from income
Interest expense .................................. 338 326
Implicit interest in rents ........................ 10 10
Total fixed charges deducted from income ........ 348 336
Earnings available for fixed charges........... $1,228 $ 618
Fixed charges per above ............................. $ 348 $ 336
Capitalized interest ................................ - 6
Total fixed charges ............................. 348 342
Dividends on preferred stock and securities ..... 73 65
Combined fixed charges and preferred
stock dividends ............................. $ 421 $ 407
Ratio of earnings to fixed charges .......... 3.53 1.80
Ratio of earnings to combined fixed charges
and preferred stock dividends ............. 2.91 1.52
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income before income tax expense, minority
interest, and dividends on preferred securities . $ 880 $ 305
Undistributed income of Western National .......... - (23)
Corporate fixed charges deducted from income -
corporate interest expense ...................... 104 87
Earnings available for fixed charges ............ $ 984 $ 369
Total corporate fixed charges per above ........... $ 104 $ 87
Capitalized interest related to real estate
operations ...................................... - 5
Total corporate fixed charges ................... 104 92
Dividends on preferred stock and securities ..... 73 65
Combined corporate fixed charges and
preferred stock dividends ................... $ 177 $ 157
Ratio of earnings to corporate fixed charges 9.44 3.99
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................. 5.54 2.35
<PAGE>
Exhibit 12 (continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Six Months Ended
June 30,
1998 1997
American General Finance, Inc.:
Income before income tax expense .................... $ 144 $ 83
Fixed charges deducted from income
Interest expense .................................. 246 249
Implicit interest in rents ........................ 6 5
Total fixed charges deducted from income ........ 252 254
Earnings available for fixed charges .......... $ 396 $ 337
Ratio of earnings to fixed charges .......... 1.57 1.33
<PAGE>
Exhibit 12 (continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Quarter Ended
June 30,
1998 1997
Consolidated operations:
Income (loss) before income tax expense, minority
interest, and dividends on preferred securities ... $ 452 $ (46)
Undistributed income of Western National ............ - (11)
Fixed charges deducted from income
Interest expense .................................. 166 164
Implicit interest in rents ........................ 5 5
Total fixed charges deducted from income ........ 171 169
Earnings available for fixed charges........... $ 623 $ 112
Fixed charges per above ............................. $ 171 $ 169
Capitalized interest ................................ - 3
Total fixed charges ............................. 171 172
Dividends on preferred stock and securities ..... 36 37
Combined fixed charges and preferred
stock dividends ............................. $ 207 $ 209
Ratio of earnings to fixed charges .......... 3.65 -*
Ratio of earnings to combined fixed charges
and preferred stock dividends ............. 3.00 -*
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Income (loss) before income tax expense, minority
interest, and dividends on preferred securities . $ 452 $ (46)
Undistributed income of Western National .......... - (11)
Corporate fixed charges deducted from income -
corporate interest expense ...................... 50 47
Earnings available for fixed charges ............ $ 502 $ (10)
Total corporate fixed charges per above ........... $ 50 $ 47
Capitalized interest related to real estate
operations ...................................... - 2
Total corporate fixed charges ................... 50 49
Dividends on preferred stock and securities ..... 36 37
Combined corporate fixed charges and
preferred stock dividends ................... $ 86 $ 86
Ratio of earnings to corporate fixed charges 10.07 -*
Ratio of earnings to combined corporate
fixed charges and preferred stock
dividends ................................. 5.81 -*
<PAGE>
Exhibit 12 (continued)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
(Unaudited)
($ in millions)
Quarter Ended
June 30,
1998 1997
American General Finance, Inc.:
Income before income tax expense .................... $ 73 $ 21
Fixed charges deducted from income
Interest expense .................................. 124 124
Implicit interest in rents ........................ 3 2
Total fixed charges deducted from income ........ 127 126
Earnings available for fixed charges .......... $ 200 $ 147
Ratio of earnings to fixed charges .......... 1.57 1.17
* Earnings were inadequate to cover fixed charges. The amount of
deficiency was as follows:
Amount
Consolidated operations:
Ratio of earnings to fixed charges ....................... $ 60
Ratio of earnings to combined fixed charges
and preferred stock dividends .......................... 97
Consolidated operations, corporate fixed charges
and preferred stock dividends only:
Ratio of earnings to corporate fixed charges ............. 59
Ratio of earnings to combined corporate fixed
charges and preferred stock dividends .................. 96
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<DEBT-HELD-FOR-SALE> 61,615<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 114
<MORTGAGE> 3,498
<REAL-ESTATE> 232
<TOTAL-INVEST> 69,292
<CASH> 195
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 4,011<F2>
<TOTAL-ASSETS> 101,025
<POLICY-LOSSES> 57,831<F3>
<UNEARNED-PREMIUMS> 189<F3>
<POLICY-OTHER> 422<F3>
<POLICY-HOLDER-FUNDS> 2,418<F3>
<NOTES-PAYABLE> 10,551
1,727<F4>
85<F5>
<COMMON> 929
<OTHER-SE> 7,783<F6>
<TOTAL-LIABILITY-AND-EQUITY> 101,025
1,769<F7>
<INVESTMENT-INCOME> 2,506
<INVESTMENT-GAINS> 5
<OTHER-INCOME> 755<F8>
<BENEFITS> 2,510
<UNDERWRITING-AMORTIZATION> 321<F9>
<UNDERWRITING-OTHER> (405)<F10>
<INCOME-PRETAX> 880<F11>
<INCOME-TAX> 316<F12>
<INCOME-CONTINUING> 508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 508
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 1.97
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>MOST FIXED MATURITY SECURITIES ARE CLASSIFIED AS AVAILABLE-FOR-SALE AND
RECORDED AT FAIR VALUE.
<F2>INCLUDES COST OF INSURANCE PURCHASED (CIP).
<F3>THE SUM OF POLICY LOSSES, UNEARNED PREMIUMS, POLICY-OTHER, AND POLICYHOLDER
FUNDS COMPRISES INSURANCE AND ANNUITY LIABILITIES.
<F4>CONSISTS OF NON-CONVERTIBLE AND CONVERTIBLE MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARIES.
<F5>CONSISTS OF CONVERTIBLE PREFERRED STOCK.
<F6>CONSISTS OF NET OF THE FOLLOWING: NET UNREALIZED GAINS (LOSSES) ON
SECURITIES; RETAINED EARNINGS; COST OF TREASURY STOCK; AND FOREIGN CURRENCY
TRANSLATION GAINS (LOSSES).
<F7>INCLUDES INSURANCE CHARGES.
<F8>INCLUDES PRIMARILY FINANCE CHARGES ON FINANCE RECEIVABLES.
<F9>CONSISTS OF AMORTIZATION OF POLICY ACQUISITION COSTS AND CIP, NET OF
ACCRETION OF INTEREST.
<F10>CONSISTS OF CAPITALIZATION OF POLICY ACQUISITION COSTS AND CIP.
<F11>EXCLUDES $17 MILLION OF MINORITY INTEREST AND $69 MILLION OF DIVIDENDS ON
PREFERRED SECURITIES OF SUBSIDIARIES, SHOWN SEPARATELY, NET OF TAX, IN THE
CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $6 MILLION TAX BENEFIT FOR MINORITY INTEREST AND $24 MILLION
TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO PREFERRED SECURITIES
OF SUBSIDIARIES.
</FN>
</TABLE>