<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
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)
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<S> <C>
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)
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Registrant's telephone number, including area code: (713) 522-1111
Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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New York Stock Exchange
Common Stock, Par Value $.50 { Pacific Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value based on published prices as of March 1, 2000 of
American General's Common Stock held by non-affiliates was approximately $13.1
billion. As of March 1, 2000, there were 249,227,351 shares of American
General's Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
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<CAPTION>
PART OF THE FORM 10-K
DOCUMENT INTO WHICH INCORPORATED
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Portions of American General's 1999 Annual Report to
Shareholders Parts I, II, and IV
Portions of American General's definitive Proxy Statement
filed March 21, 2000, for the Annual Meeting of
Shareholders to be held April 27, 2000 Part III
</TABLE>
1999 FORM 10-K
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
American General Corporation (American General) and its subsidiaries
(collectively, the company or we) is a diversified financial services
organization with assets of $115 billion at December 31, 1999. The company is a
leading provider of retirement services, life insurance, consumer loans, and
investments to 12 million customers. American General was incorporated as a
general business corporation in Texas in 1980 and is the successor to American
General Insurance Company, an insurance company incorporated in Texas in 1926.
Much of the information provided in response to Item 1 is incorporated herein
by reference to selected sections of our 1999 Annual Report to Shareholders
(ARS). Portions of our 1999 ARS are provided as Exhibit 13 to this Form 10-K.
CORPORATE DEVELOPMENT. Over the last five years, we acquired eight companies
with assets of $34 billion for total consideration of nearly $6 billion. The
three years of financial data included in this Form 10-K reflect our
acquisitions in those years, as follows:
- During 1999, we acquired North Central Life Insurance Company (North
Central Life), a credit life insurance company, and Standard Pacific
Savings, F.A., which we renamed American General Bank, FSB, for a combined
purchase price of $95 million.
- On February 25, 1998, we acquired the remaining 54% equity interest in
Western National Corporation for $1.2 billion. Prior to 1997, we had
acquired the original 46% for $400 million.
- On June 17, 1997, we acquired USLIFE Corporation (USLIFE) in an all-stock
merger transaction valued at $1.8 billion. We reported this acquisition
using the pooling of interests method of accounting.
- On April 16, 1997, we acquired Home Beneficial Life Insurance Company for
$665 million.
Additional information regarding our acquisitions during the past three years is
incorporated herein by reference to Note 2 of Notes to Financial Statements in
our 1999 ARS.
BUSINESS DIVISIONS. We report the results of our operations in three business
divisions: retirement services, life insurance, and consumer finance. A
description of each business division, including principal products, methods of
distribution, and principal markets, is incorporated herein by reference to Note
19.1 of Notes to Financial Statements in our 1999 ARS. Financial information for
each division is incorporated herein by reference to the sections "Retirement
Services," "Life Insurance," "Consumer Finance," "Asset/Liability Management,"
"Capital Resources," and "Liquidity" of Management's Discussion and Analysis
(MD&A) and Note 19.2 of Notes to Financial Statements in our 1999 ARS, and to
Schedule III of Item 14 of this Form 10-K.
EMPLOYEES. As of December 31, 1999, we had approximately 15,800 full-time
salaried employees.
LIFE INSURANCE AND ANNUITY PRODUCTS
INSURANCE DEPOSITS AND PREMIUMS. The following table lists deposits and
premiums and other considerations of our retirement services and insurance
companies for the past three years:
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In millions 1999 1998 1997
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<S> <C> <C> <C>
Deposits* $10,343 $ 8,210 $ 5,046
- ----------------------------------------------------------------------
Direct premiums and other
considerations
Individual life premiums $ 1,480 $ 1,490 $ 1,530
Insurance charges 967 863 768
Group and credit health
premiums 620 621 608
Group and credit life premiums 382 360 310
Individual health premiums 138 157 174
Other premiums 436 226 152
- ----------------------------------------------------------------------
Total direct premiums and
other considerations 4,023 3,717 3,542
Reinsurance premiums assumed 303 373 119
Reinsurance premiums ceded (554) (485) (299)
- ----------------------------------------------------------------------
Premiums and other
considerations $ 3,772 $ 3,605 $ 3,362
- ----------------------------------------------------------------------
</TABLE>
*Represents premiums received for interest-sensitive life insurance and annuity
products.
AMERICAN GENERAL
1
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LIFE INSURANCE SALES AND IN FORCE. The following table summarizes the face
amounts of life insurance sales and life insurance in force for our insurance
companies for the past three years:
<TABLE>
<CAPTION>
In millions 1999 1998 1997
- -------------------------------------------------------------------
<S> <C> <C> <C>
Individual life insurance
sales:
Permanent (non-participating)
Interest-sensitive $ 10,957 $ 11,590 $ 13,293
Guaranteed-cost 6,020 5,242 4,062
Term 33,590 24,059 23,269
Permanent (participating) 2,330 3,547 5,778
Group life insurance sales 12,298 15,284 8,428
Credit life insurance sales 8,682 7,872 9,098
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Total 73,877 67,594 63,928
Less: reinsurance assumed 46 394 386
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Total direct sales $ 73,831 $ 67,200 $ 63,542
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Individual life insurance in force
(at December 31):
Permanent (non-participating)
Interest-sensitive $108,082 $106,165 $103,069
Guaranteed-cost 38,022 38,135 36,806
Term 118,695 104,465 98,267
Permanent (participating) 28,176 28,813 28,686
Group life insurance in force 61,440 56,555 50,854
Credit life insurance in force 17,302 13,198 13,994
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Total life insurance in
force* $371,717 $347,331 $331,676
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* Before deductions for reinsurance ceded; includes reinsurance assumed.
ANNUITY PRODUCTS. The following table summarizes annuity liabilities by
product type for our retirement services and life insurance divisions at
December 31:
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In millions 1999 1998 1997
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Retirement Services division
Fixed $ 36,607 $ 34,024 $ 21,355
Variable 21,566 14,771 10,545
Payout annuities 3,135 2,791 659
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Total annuity liabilities $ 61,308 $ 51,586 $ 32,559
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Life Insurance division
Fixed $ 4,666 $ 5,012 $ 5,263
Variable 1,767 1,066 721
Payout annuities 2,158 2,114 1,952
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Total annuity liabilities $ 8,591 $ 8,192 $ 7,936
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</TABLE>
Our retirement services division offers both tax-qualified and non-qualified
fixed annuities. In 1999, minimum guaranteed interest crediting rates for these
fixed annuities ranged from 3.0% to 6.0%; actual interest crediting rates ranged
from 4.5% to 11.0%; and the weighted-average crediting rate was 5.3%. Our life
insurance division also offers a variety of fixed annuity products. In 1999,
minimum guaranteed interest crediting rates on these annuities ranged from 2.5%
to 5.5%; actual interest crediting rates ranged from 3.0% to 10.0%; and the
weighted-average crediting rate was 5.9%.
Both our retirement services and life insurance divisions offer annuity
accounts with a variable investment option. A key feature of variable annuities
is that the investment risk lies predominantly with the policyholder, rather
than with the company. When a variable investment option is selected, deposits
are invested in a mutual fund in accordance with the policyholder's instructions
and recorded as separate account assets. To reflect the policyholder's right to
these assets, an equivalent separate account liability is established.
Our payout annuities consist primarily of structured settlements of indemnity
claims. We credit interest to these annuities at fixed rates determined when the
contracts are issued, consistent with the related investment yield at the time.
In 1999, interest crediting rates ranged from 2.0% to 14.0%.
INSURANCE AND ANNUITY RESERVING METHODS. Individual life insurance reserves
are based on assumptions similar to those used to establish premium rates.
Further information regarding reserving methods is incorporated herein by
reference to Note 1.8 of Notes to Financial Statements in our 1999 ARS.
REINSURANCE. Information regarding reinsurance is incorporated herein by
reference to Notes 1.11 and 16 of Notes to Financial Statements in our 1999 ARS,
and to Schedule IV of Item 14 of this Form 10-K.
INVESTMENTS
Information regarding our investments is incorporated herein by reference to
the sections "Investments" and "Asset/Liability Management" of MD&A and Notes
1.2, 1.14, 4, and 10 of Notes to Financial Statements in our 1999 ARS, and to
Schedule I of Item 14 of this Form 10-K.
FACTORS AFFECTING PRICING OF PRODUCTS
INSURANCE AND ANNUITY PRODUCTS. Our premium rates are based on assumptions,
which we believe are realistic, for future mortality, investment yields,
expenses, and lapses. In addition, pricing is influenced by competition and our
objectives for return on capital. Although a profit margin is included in the
price of our products, the actual profitability of the products can be
significantly affected by the difference between actual and assumed experience.
CONSUMER FINANCE PRODUCTS. Pricing of our consumer finance products is
influenced by such factors as cost of borrowed funds, credit risk, competition,
the expense of operations, and our target for return on capital. In addition,
pricing is affected by state regulation of interest rates
1999 FORM 10-K
2
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PART I (Continued)
based on contractual terms and loan amounts, charges for individual loans, and
insurance premium rates.
COMPETITION
Competition in life insurance and financial services markets and continuing
consolidations in the industry may affect, among other matters, our corporate
development activities, business growth, distribution methods, and the pricing
of our products and services.
On November 12, 1999, the Financial Services Modernization Act became federal
law, breaking down regulatory barriers between banks, insurance companies, and
securities firms which had existed for over 60 years. We anticipate that the new
law will hasten the pace of consolidation in the financial services industry, as
well as provide new opportunities and increase competition among diversified
financial services companies. However, we do not expect this law to have a
significant impact on our corporate or capital strategy.
Our retirement services and life insurance businesses operate in a highly
competitive industry that consists of a large number of insurance companies,
banks, mutual fund companies, and other financial institutions. No single
competitor, nor any small group of competitors, dominates any of the markets in
which we operate. Principal competitive factors include price, financial
strength ratings, selection of products, quality of service, and investment
management performance with respect to variable insurance, annuity, and mutual
fund products.
The consumer finance business is highly competitive due to the large number
of companies offering financial products and services, the sophistication of
those products, technological improvements, and more rapid communications. We
compete with other consumer finance companies and other types of financial
institutions that offer similar products and services, including, but not
limited to, industrial banks, industrial loan companies, mortgage banks,
commercial banks, sales finance companies, savings and loan associations,
federal savings banks, and credit unions.
The availability of the Internet as a distribution channel for financial
products and services is making the financial services industry more competitive
by allowing companies to promote or advertise life insurance, annuity,
retirement services, and consumer financial products over the Internet.
REGULATION
INSURANCE. Our insurance companies are subject to state regulation in the
jurisdictions in which they do business. Information concerning regulatory
compliance is incorporated herein by reference to the sections "Capital
Resources - Retirement Services and Life Insurance" and "Regulation and
Other - Regulation" of MD&A in our 1999 ARS. Information regarding statutory
accounting practices is incorporated herein by reference to Note 17 of Notes to
Financial Statements in our 1999 ARS.
Most states also regulate affiliated groups, such as American General and our
subsidiaries, under insurance holding company laws. Additional information
regarding dividend restrictions is incorporated herein by reference to Note 18.1
of Notes to Financial Statements in our 1999 ARS.
All 50 states have laws requiring life insurance companies to pay assessments
to state guaranty associations to protect the interests of policyholders of
insolvent life insurance companies. A portion of these assessments can be
recovered against the payment of future premium taxes; however, changes in state
laws could decrease the amount available for recovery. Our probable costs
related to state guaranty associations are immaterial.
The Insurance Marketplace Standards Association (IMSA) was created in 1997 by
the American Council of Life Insurers, the industry's largest trade association,
to provide a framework by which participating life insurers design, implement,
and monitor sales and marketing practices of high ethical content to benefit and
protect consumers. Certification by IMSA signifies that a company has committed
to maintain the standards set forth in IMSA's principles of ethical market
conduct. Our principal retirement services and life insurance subsidiaries are
certified by IMSA.
REGISTERED PRODUCTS. Certain of our companies are subject to various federal
securities laws and regulations related to investment companies. Separate
accounts, which are maintained to fund variable life and annuity products,
function as investment companies and, therefore, are subject to such laws and
regulations, in particular the Investment Company Act of 1940. Variable life and
annuity products are marketed by licensed insurance agents who are registered
representatives of the company's wholly owned broker-dealer subsidiaries. These
broker-dealers are member firms of the National Association of Securities
Dealers and subject to its rules and regulations.
AMERICAN GENERAL
3
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CONSUMER FINANCE. Our consumer finance companies are subject to various types
of federal regulation including the Federal Consumer Credit Protection Act, the
Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in
Lending Act, certain Federal Trade Commission rules, and state laws that
regulate the consumer loan and retail sales finance businesses. In addition, our
thrift subsidiary, which engages in the consumer finance business and accepts
insured deposits, is subject to regulation by and reporting requirements of the
Federal Deposit Insurance Corporation and is subject to the examination,
regulation, and reporting requirements of the Office of Thrift Supervision.
TAXATION. Tax laws affect not only the way we are taxed but also the design
of many of our products. Changes in tax laws or regulations could adversely
affect operating results.
ENVIRONMENTAL. Our principal exposure to environmental regulation arises from
our ownership of investment real estate. Probable costs related to environmental
cleanup are immaterial.
ITEM 1A. EXECUTIVE OFFICERS OF THE REGISTRANT
Information as of March 10, 2000 regarding the company's executive officers
who currently make disclosure filings pursuant to Section 16 of the Securities
Exchange Act of 1934 is as follows:
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Present Principal Position with the Company and
Name and Age Other Material Positions Held during Last Five Years
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ROBERT M. DEVLIN (59) Chairman (since 1997), President (1995-97 and since 1998),
and Chief Executive Officer (since 1996), Director (since
1993), and Vice Chairman (1993-95), American General
Corporation. Director, Cooper Industries, Inc. and Phillips
Petroleum Company.
FREDERICK W. GEISSINGER (54) Vice Chairman and Group Executive - Consumer Finance (since
1999), American General Corporation. President and Chief
Executive Officer (since 1995), American General Finance,
Inc., a subsidiary; Director and Chairman (1995-99), A.G.
Financial Service Center, Inc. (formerly American General
Financial Center), a subsidiary (see Part I, Item 3,
"Satellite Dish" of this Form 10-K for additional
information); President and Chief Executive Officer
(1994-95), American General Land Development, Inc., a former
subsidiary.
JOHN A. GRAF (40) Vice Chairman and Group Executive - Retirement Services
(since 1999), American General Corporation. President (since
1998) and Chief Executive Officer (since 1999), The Variable
Annuity Life Insurance Company, a subsidiary; Chairman and
CEO (since 1998), American General Annuity Insurance
Company, a subsidiary. Vice Chairman, Chief Marketing
Officer and Chief Administrative Officer (1996-97), and
Executive Vice President and Chief Marketing Officer
(1993-96), Western National Life Insurance Company.
RODNEY O. MARTIN JR. (47) Vice Chairman and Group Executive - Life Insurance (since
1998), American General Corporation. Chairman (since 1998),
and President and Chief Executive Officer (1997-99),
American General Life Companies, a subsidiary; Senior
Chairman (since 1999) and President and Chief Executive
Officer (1996-99), American General Life Insurance Company,
a subsidiary; President and Chief Executive Officer
(1995-96), American General Life Insurance Company of New
York, a subsidiary. President (1993-95), Connecticut Mutual
Insurance Services.
JON P. NEWTON (58) Vice Chairman and Group Executive - Corporate Operations
(since 1999), Director (since 1995), Vice Chairman
(1995-99), Vice Chairman and General Counsel (1995-97), and
Senior Vice President and General Counsel (1993-95),
American General Corporation. Director, Newmark Homes Corp.
RICHARD W. SCOTT (46) Vice Chairman and Group Executive - Investment Management
(since January 2000), Executive Vice President (1998-2000),
and Chief Investment Officer (since 1998), American General
Corporation. President and Chief Executive Officer (since
1998), American General Investment Management, L.P., a
subsidiary. Vice Chairman and Chief Investment Officer
(1996-98), General Counsel (1994-97), and Executive Vice
President and Chief Investment Officer (1994-96), Western
National Corporation.
MARK S. BERG (41) Executive Vice President and General Counsel (since 1998),
Corporate Secretary (since 1999), and Senior Vice President
and General Counsel (1997-98), American General Corporation.
Partner (1990-97), Vinson & Elkins L.L.P.
DAVID W. ENTREKIN (38) Executive Vice President - Strategic Development (since
1999), Senior Vice President - Investor Relations (1998-99),
Vice President - Investor Relations (1997-98), Director,
Investor Relations (1996-97), and Senior Investment Manager,
Investment Research (1994-96), American General Corporation.
NICHOLAS R. RASMUSSEN (53) Executive Vice President, Chief Financial Officer and
Treasurer (since 1999) and Senior Vice President - Corporate
Development (1993-99), American General Corporation.
</TABLE>
1999 FORM 10-K
4
<PAGE> 6
PART I (Continued)
ITEM 2. PROPERTIES
Our corporate headquarters is located in the American General Center, a
complex of office buildings with 2.2 million square feet on a 46-acre tract near
downtown Houston. American General and certain subsidiaries own all of the
buildings and underlying land in the complex. We occupy approximately 50% of the
total office space available in the American General Center.
Our subsidiaries also own various other properties, including properties held
for investment and the home office buildings of: (1) American General Finance,
Inc. in Evansville, Indiana; (2) American General Life and Accident Insurance
Company in Nashville, Tennessee; and (3) The Franklin Life Insurance Company in
Springfield, Illinois.
ITEM 3. LEGAL PROCEEDINGS
SATELLITE DISH. In the mid-1990's, one of our subsidiaries, American General
Financial Center (renamed A.G. Financial Service Center, Inc.) (Financial
Service Center), provided financing for satellite dishes sold by independent
unaffiliated dealers. On May 18, 1999, the Chancery Court of the First Judicial
District of Jones County, Mississippi in a case captioned Clayton D. Smith, et
al. v. Delta TV Corporation, Don Acy, US Electronics, American General Financial
Center, Civil Action No. 96-0254 (the Clayton Smith matter), rendered a judgment
awarding approximately $500,000 in compensatory damages and $167 million in
punitive damages against Financial Service Center. The lawsuit was filed on
November 15, 1996, by 29 individuals who had each purchased a satellite dish.
Financial Service Center, together with certain other American General
companies, currently are named as defendants in other pending cases involving
the financing of satellite dishes.
In August 1999, Financial Service Center filed a voluntary petition to
reorganize under Chapter 11 of the United States Bankruptcy Code with the United
States Bankruptcy Court for the Southern District of Indiana. The decision to
reorganize was necessitated by the judgment rendered against Financial Service
Center by the Mississippi state court. The filing for reorganization under
Chapter 11 is limited to Financial Service Center and was intended to provide a
fair and orderly process for managing the claims against Financial Service
Center. Prior to the bankruptcy filing, Financial Service Center had assets of
approximately $7 million.
In January 2000, settlement agreements were entered into in connection with
the Clayton Smith matter and other pending cases relating to satellite dish
financing. Accordingly, we recorded a charge of $57 million ($36 million
aftertax) in fourth quarter 1999 to cover the proposed settlements and other
litigation. Resolution of the satellite dish litigation is dependent upon a
number of factors, including the bankruptcy court's approval of Financial
Service Center's plan of reorganization. If court approvals are obtained and
appeals are not taken, we expect that the settlements will be final in third
quarter 2000.
WORKERS' COMPENSATION. Prior to our acquisition of USLIFE Corporation, one of
its subsidiaries entered the workers' compensation reinsurance business in 1997.
We discontinued writing new workers' compensation reinsurance business in 1998.
Our largest contract was a quota share reinsurance agreement with Superior
National Insurance Group (Superior National), effective May 1, 1998. On November
29, 1999, we initiated an arbitration proceeding to rescind this contract from
its inception, based in part on misrepresentations and nondisclosures which we
believe were made by Superior National. On March 3, 2000, the California
Department of Insurance ordered seizure of Superior National as a result of its
financial condition. We do not believe that this action will prevent the company
from ultimately arbitrating its claim for recission, and we plan to fully pursue
all remedies through the arbitration process.
Although we believe, based on the advice of counsel, that the company will
succeed in rescinding the contract, risks and uncertainties remain with respect
to the ultimate outcome. However, in the unlikely event the company does not
prevail in the arbitration, we do not expect the additional aftertax losses from
our workers' compensation reinsurance business to exceed $85 million, based on
our current estimates. We believe that our ultimate loss, if any, related to our
workers' compensation reinsurance business will not have a material adverse
effect on our future results of operations and financial position.
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. A number of these lawsuits have resulted in substantial
settlements across the life insurance industry. Certain of our subsidiaries were
defendants in similar class action lawsuits. In 1998, our life insurance
subsidiaries entered into agreements to resolve substantially all of the
material pending market conduct class action lawsuits. We recorded a charge of
$378 million ($246 million aftertax) for policyholder benefits and other
anticipated expenses resulting from the proposed settlements, as well as other
AMERICAN GENERAL
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administrative and legal costs. All of these settlements were finalized in 1999.
OTHER. The company is party to various other lawsuits and proceedings arising
in the ordinary course of business. These lawsuits and proceedings include
certain class action claims, claims filed by individuals who excluded themselves
from market conduct settlements, and claims concerning the sale of industrial
life insurance policies. In addition, many of these claims arise in
jurisdictions, such as Alabama and Mississippi, that permit damage awards
disproportionate to the actual economic damages alleged to have been incurred.
Based upon information presently available, we believe 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 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
some jurisdictions, continues to create the potential for an unpredictable
judgment in any given suit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during fourth quarter
1999.
1999 FORM 10-K
6
<PAGE> 8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The quarterly high and low market prices of American General's common stock
as quoted by the New York Stock Exchange and restrictions on retained earnings
for the payment of dividends are incorporated herein by reference to Notes 21
and 18.1, respectively, of Notes to Financial Statements in our 1999 ARS.
Common stock was owned by 36,129 shareholders of record and approximately
85,000 beneficial owners at March 1, 2000. The quarterly cash dividends paid on
common stock are incorporated herein by reference to Note 21 of Notes to
Financial Statements in our 1999 ARS.
The common stock of American General is traded in the United States on the
New York Stock Exchange and the Pacific Exchange. Our common stock is also
traded on the London Stock Exchange and the Swiss Stock Exchanges of Basel,
Geneva, and Zurich.
On November 12, 1999, we issued 839,290 shares of American General common
stock (valued at $66 million on November 12, 1999) in connection with our
acquisition of North Central Life. These shares were issued to 30 individuals as
consideration for the acquisition in exchange for those individuals' shares of
Financial Life Companies, Inc., the parent company of North Central Life. The
transaction did not involve a public offering of securities, and the shares
issued were not registered under the Securities Act of 1933 (Securities Act)
based on section 4(2) of the Securities Act and Regulation D as they relate to
private offerings.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the consolidated
financial statements of the company. The data should be read in conjunction with
the consolidated financial statements, related notes, and other financial
information included or incorporated by reference herein.
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
In millions, except per share data 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 10,679 $ 10,251 $ 8,927 $ 8,714 $ 8,236
Net income 1,131(a) 764(b) 542(c) 653(d) 650(e)
Net income per common share
Basic 4.52(a) 3.02(b) 2.21(c) 2.67(d) 2.68(e)
Diluted 4.40(a) 2.96(b) 2.19(c) 2.63(d) 2.66(e)
Assets(f) 115,447 105,107 80,620 74,134 69,083
Debt
Corporate 3,120 2,743 1,916 2,102 2,295
Consumer Finance 10,206 8,863 7,266 7,630 7,470
Redeemable equity 1,924 1,728 1,726 1,227 729
Shareholders' equity(f) 6,420 8,871 7,583 6,844 7,109
Cash dividends per common share 1.60 1.50 1.40 1.30 1.24
</TABLE>
- ---------------
(a) Includes $36 million ($.14 per share) aftertax litigation settlements.
(b) Includes $246 million ($.94 per share) aftertax litigation settlements and
$42 million ($.16 per share) aftertax Year 2000 costs.
(c) Includes $247 million ($.99 per share) aftertax merger-related costs, $73
million ($.29 per share) aftertax loss on sale of non-strategic assets, and
$33 million ($.13 per share) aftertax litigation settlement.
(d) Includes $111 million ($.44 per share) aftertax loss on sale of
non-strategic assets and $32 million ($.13 per share) aftertax write-down of
USLIFE group insurance business.
(e) Includes $140 million ($.57 per share) aftertax adjustment to the allowance
for finance receivable losses.
(f) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Investments - Fair Value
of Securities" of MD&A in American General's 1999 ARS.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations is incorporated herein by reference to "Management's Discussion and
Analysis" on pages 21-35 in our 1999 ARS.
ITEM 7A. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
American General's exposure to market risk is primarily related to changes in
interest rates. Quantitative and qualitative disclosures about our market risk
resulting from changes in interest rates are incorporated herein by reference to
"Asset/Liability Management" of MD&A in our 1999 ARS.
ITEM 8. FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
The company's financial statements and supplementary data are incorporated
herein by reference to pages 36-56 in our 1999 ARS.
The ratios of earnings to fixed charges are incorporated herein by reference
to Exhibit 12 of Item 14 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
AMERICAN GENERAL
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information appearing in the sections "Election of Directors -
Information About the Nominees" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in American General's definitive Proxy Statement filed
March 21, 2000 (2000 Proxy Statement) is incorporated herein by reference.
Information regarding the company's executive officers is included in Part I,
Item 1A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the sections "Election of Directors" and
"Executive Compensation" in our 2000 Proxy Statement is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the section "Security Ownership" in our 2000
Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the section "Certain Relationships and
Transactions" in our 2000 Proxy Statement is incorporated herein by reference.
1999 FORM 10-K
8
<PAGE> 10
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report.
<TABLE>
<CAPTION>
Page Reference
----------------------------------
1999
Form 10-K Annual Report
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Financial Statements
Report of Ernst & Young LLP, Independent Auditors - 57
Consolidated Financial Statements
Income Statement - 36
Balance Sheet - 37
Statements of Shareholders' Equity and
Comprehensive Income - 38
Statement of Cash Flows - 39
Notes to Financial Statements - 40-56
2. Financial Statement Schedules
Schedule I - Summary of Investments - Other than
Investments in Affiliates 13 -
Schedule II - Condensed Financial Information of
Registrant 14-16 -
Schedule III - Supplementary Insurance Information 17 -
Schedule IV - Reinsurance 18 -
Schedule V - Valuation and Qualifying Accounts 19 -
</TABLE>
All other financial statement schedules have been omitted
because they are inapplicable.
(continued on next page)
AMERICAN GENERAL
9
<PAGE> 11
3. Exhibits
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
----------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
3.1 Restated Articles of Incorporation of American General 4.1 33-33115
Corporation
3.2 Articles of Amendment to the Restated Articles of Incorporation 4 Form 10-Q for First
of American General Quarter 1998
3.3 Statement of Resolution Establishing Series of Shares of 7% 4(d) 333-00513
Convertible Preferred Stock
3.4 Statement of Resolution Establishing Series of Shares of Series A 4(o) 33-58317
Cumulative Convertible Preferred Stock
3.5 Resolutions Establishing American General's 6% Series A 4(k) 333-00513
Convertible Junior Subordinated Debentures
3.6 Amended and Restated Bylaws of American General Corporation 3.6* NA
4.1 There have not been filed as exhibits to this Form 10-K certain NA NA
long-term debt instruments, none of which relates to authorized
indebtedness that exceeds 10% of the consolidated assets of the
company. The company hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
4.2 Junior Subordinated Indenture, dated as of May 15, 1995, between 4(g) 333-00513
American General and The Chase Manhattan Bank (formerly known as
Chemical Bank), as Trustee, relating to American General's 6%
Series A Convertible Junior Subordinated Debentures
4.3 Terms of the 6% Convertible Monthly Income Preferred Securities, 4(i) 333-00513
Series A, of American General Delaware, L.L.C.
4.4 Guarantee of American General with respect to the 6% Convertible 4(j) 333-00513
Monthly Income Preferred Securities, Series A, of American
General Delaware, L.L.C.
10.1 American General Corporation 1984 Stock and Incentive Plan 10.1 Form 10-Q for
Second Quarter 1998
10.2 Amendment to American General Corporation 1984 Stock and 10.2* NA
Incentive Plan (January 2000)
10.3 American General Corporation 1994 Stock and Incentive Plan 10.2 Form 10-Q for
Second Quarter 1998
10.4 Amendment to American General Corporation 1994 Stock and 10.4* NA
Incentive Plan (January 1999)
10.5 Amendment to American General Corporation 1994 Stock and 10.5* NA
Incentive Plan (January 2000)
10.6 American General Corporation 1997 Stock and Incentive Plan 10.3 Form 10-Q for
Second Quarter 1998
10.7 Amendment to American General Corporation 1997 Stock and 10.7* NA
Incentive Plan (January 1999)
10.8 American General Corporation 1999 Stock and Incentive Plan 10.4 Form 10-K for 1998
10.9 Amendment to American General Corporation 1999 Stock and 10.9* NA
Incentive Plan (January 1999)
10.10 American General Corporation Deferred Compensation Plan 4.4 333-52103
10.11 First Amendment to American General Corporation Deferred 10.11* NA
Compensation Plan
</TABLE>
(continued on next page)
1999 FORM 10-K
10
<PAGE> 12
PART IV (Continued)
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
----------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10.12 Restoration of Retirement Income Plan for Certain Employees 10.3 Form 10-K
Participating in the Restated American General Retirement Plan for 1993
(Restoration of Retirement Income Plan)
10.13 First Amendment to Restoration of Retirement Income Plan 10.4 Form 10-K
for 1993
10.14 Second Amendment to Restoration of Retirement Income Plan 10.5 Form 10-K
for 1993
10.15 Third Amendment to Restoration of Retirement Income Plan 10.7 Form 10-K for 1996
10.16 Fourth Amendment to Restoration of Retirement Income Plan 10.16* NA
10.17 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.18 First Amendment to American General Supplemental Thrift Plan 10.7 Form 10-K
for 1993
10.19 Second Amendment to American General Supplemental Thrift Plan 10.8 Form 10-K
for 1993
10.20 Third Amendment to American General Supplemental Thrift Plan 10.9 Form 10-K
for 1993
10.21 Employment Agreement between American General and Robert M. 10.12 Form 10-K
Devlin for 1997
10.22 First Amendment to Employment Agreement between American General 10.3 Form 10-Q for First
and Robert M. Devlin Quarter 1998
10.23 Employment Agreement between Western National Corporation and 10.23* NA
John A. Graf
10.24 Employment Agreement between American General and Jon P. Newton 10.13 Form 10-K
for 1997
10.25 First Amendment to Employment Agreement between American General 10.4 Form 10-Q for First
and Jon P. Newton Quarter 1998
10.26 Employment Agreement between American General and Richard W. 10.26* NA
Scott
10.27 Supplemental Executive Retirement Agreement between American 10.15 Form 10-K
General and Robert M. Devlin for 1997
10.28 First Amendment to Supplemental Executive Retirement Agreement 10.6 Form 10-Q for First
between American General and Robert M. Devlin Quarter 1998
10.29 Supplemental Executive Retirement Agreement between American 10.16 Form 10-K
General and Jon P. Newton for 1997
10.30 First Amendment to Supplemental Executive Retirement Agreement 10.7 Form 10-Q for First
between American General and Jon P. Newton Quarter 1998
10.31 American General Corporation Supplemental Executive Retirement 10.1 Form 10-Q for Third
Plan Quarter 1998
10.32 Form of Change in Control Severance Agreement for Executive 10.32* NA
Officers
10.33 Forms of Split-Dollar Agreement and Assignment of Life Insurance 10.9 Form 10-Q for First
Policy as Collateral Agreement Quarter 1998
</TABLE>
(continued on next page)
AMERICAN GENERAL
11
<PAGE> 13
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
----------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10.34 American General Corporation Performance-Based Plan for Executive 10.19 Form 10-K
Officers, Amended and Restated Effective January 1, 1995 for 1994
10.35 American General Corporation Retirement Plan for Directors (as 10.18 Form 10-K
amended and restated) for 1997
10.36 Western National Corporation 1993 Stock and Incentive Plan, as 10.18 to WNC NA
amended annual report on
Form 10-K for
1995
11 Computation of Earnings per Share (included in Note 20 of Notes NA NA
to Financial Statements in American General's 1999 Annual Report
to Shareholders)
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of 12* NA
Earnings to Combined Fixed Charges and Preferred Stock Dividends
13 Portions of American General's 1999 Annual Report to Shareholders 13* NA
that are expressly incorporated herein by reference in this Form
10-K. Other sections of the Annual Report furnished for the
information of the Commission are not deemed "filed" as part of
this Form 10-K.
21 Subsidiaries of American General 21* NA
23 Consent of Ernst & Young LLP, Independent Auditors 23* NA
24 Powers of attorney for the directors signing this Form 10-K 24* NA
27 Financial Data Schedule 27* NA
</TABLE>
Any Exhibit not included with this Form 10-K will be
furnished to any shareholder of record on written
request and payment of up to $.25 per page plus postage.
Such requests should be directed to American General
Corporation, Investor Relations, P.O. Box 3247, Houston,
Texas 77253-3247.
(b) Reports on Form 8-K.
None.
1999 FORM 10-K
12
<PAGE> 14
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN AFFILIATES
In millions
<TABLE>
<CAPTION>
At December 31, 1999
-----------------------------------------------------
Amount
Cost Shown in
or Consolidated
Amortized Fair Balance
Type of Investment Cost Value Sheet
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Fixed maturity securities
Bonds and notes
U.S. government obligations $ 661 $ 685 $ 685
States and political subdivisions 809 796 796
Foreign governments 562 569 569
Mortgage-backed securities 13,013 12,893 12,893
Public utilities 3,907 3,880 3,880
All other corporates 43,279 41,655 41,655
Redeemable preferred stocks 144 147 147
- -------------------------------------------------------------------------------------------------------------------
Total fixed maturity securities 62,375 60,625 60,625
- -------------------------------------------------------------------------------------------------------------------
Equity securities
Common stocks 191 231 231
Perpetual preferred stocks 108 108 108
- -------------------------------------------------------------------------------------------------------------------
Total equity securities 299 339 339
- -------------------------------------------------------------------------------------------------------------------
Mortgage loans on real estate* 3,686 3,686
Investment real estate*
Investment properties 153 153
Acquired in satisfaction of debt 69 69
Policy loans 2,375 2,375
Other long-term investments 412 412
Short-term investments 676 676
- -------------------------------------------------------------------------------------------------------------------
Total investments $70,045 $ 68,335
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Net of applicable allowance for losses. See Schedule V of this Form 10-K.
AMERICAN GENERAL
13
<PAGE> 15
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCOME STATEMENT OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
In millions
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Revenues
Dividends - affiliated $ 682 $ 793 $ 827
Interest income - affiliated 217 198 138
Net realized investment gains (losses) (1) 67 16
Other income
Affiliated 53 42 57
Other 8 3 1
- ----------------------------------------------------------------------------------------------------------------------
Total revenues 959 1,103 1,039
- ----------------------------------------------------------------------------------------------------------------------
Expenses
Operating costs and expenses
Affiliated 17 6 20
Other 140 120 118
Interest expense
Affiliated(a) 187 181 165
Other 196 179 140
Other charges
Litigation settlements(b) - 56 -
Merger-related costs - - 102
Loss on sale of non-strategic assets - - 13
- ----------------------------------------------------------------------------------------------------------------------
Total expenses 540 542 558
- ----------------------------------------------------------------------------------------------------------------------
Income before income tax benefit and equity in undistributed
net income of subsidiaries 419 561 481
Income tax benefit 94 81 107
Equity in undistributed net income of subsidiaries (net of
dividends paid to parent) 618 122 (46)
- ----------------------------------------------------------------------------------------------------------------------
Net income $1,131 $ 764 $ 542
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $155 million in 1999, $150 million in 1998, and $141 million in
1997 related to subordinated debentures issued in conjunction with the
issuances of preferred securities of subsidiaries. Additional information is
incorporated herein by reference to Note 14 of Notes to Financial Statements
in American General's 1999 ARS.
(b) Represents a portion of administrative and legal costs related to
settlements of market conduct class action lawsuits involving American
General's life insurance subsidiaries. Additional information is
incorporated herein by reference to Notes 3.1 and 18.2 of Notes to Financial
Statements in American General's 1999 ARS.
1999 FORM 10-K
14
<PAGE> 16
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
BALANCE SHEET OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
In millions
<TABLE>
<CAPTION>
At December 31,
-----------------------------------
1999 1998 1997
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Assets
Investments
Subsidiaries, at equity $ 9,581 $11,507 $10,251
Other - 7 9
Cash 1 - -
Receivables from subsidiaries 31 337 33
Indebtedness from subsidiaries 2,595 2,604 1,585
Other 133 129 195
- -------------------------------------------------------------------------------------------------
Total assets $12,341 $14,584 $12,073
- -------------------------------------------------------------------------------------------------
Liabilities
Short-term debt $ 1,932 $ 1,607 $ 575
Long-term debt(a)
Senior(b) 1,198 1,147 1,351
Subordinated, held by subsidiaries(c) 2,221 2,018 2,021
Indebtedness to subsidiaries 327 426 360
Liability for litigation settlements(d) 130 366 -
Federal income taxes (6) 8 (10)
Other 119 141 193
- -------------------------------------------------------------------------------------------------
Total liabilities 5,921 5,713 4,490
- -------------------------------------------------------------------------------------------------
Shareholders' equity
Convertible preferred stock 85 85 85
Common stock 962 939 326
Retained earnings 7,732 7,007 6,624
Accumulated other comprehensive income (loss)(e) (1,278) 1,599 1,169
Cost of treasury stock(f) (1,081) (759) (621)
- -------------------------------------------------------------------------------------------------
Total shareholders' equity 6,420 8,871 7,583
- -------------------------------------------------------------------------------------------------
Total liabilities and equity $12,341 $14,584 $12,073
- -------------------------------------------------------------------------------------------------
</TABLE>
(a) The five-year schedule of debt maturities is as follows: 2000 - $353
million; 2001 - $3 million; 2002 - $35 million; 2003 - $100 million; and
2004 - $149 million.
(b) The principal amount of American General senior notes held by subsidiaries
was $10 million at December 31, 1999, 1998, and 1997.
(c) Includes $2.18 billion in 1999 and $1.97 billion in 1998 and 1997 of
subordinated debentures issued in conjunction with the issuances of
preferred securities of subsidiaries. Additional information is incorporated
herein by reference to Note 14 of Notes to Financial Statements in American
General's 1999 ARS.
(d) Represents liability for settlements of market conduct class action
lawsuits. This liability includes $130 million and $310 million at December
31, 1999 and 1998, respectively, assumed from American General's life
insurance subsidiaries; the parent company had a related receivable from
subsidiaries in 1998. Additional information is incorporated herein by
reference to Notes 3.1 and 18.2 of Notes to Financial Statements in American
General's 1999 ARS.
(e) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Investments - Fair Value
of Securities" of MD&A in American General's 1999 ARS.
(f) Includes 699,614 shares, at a cost of $8 million in 1999, 1998, and 1997,
which are held by a subsidiary.
AMERICAN GENERAL
15
<PAGE> 17
AMERICAN GENERAL CORPORATION
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS OF AMERICAN GENERAL CORPORATION (PARENT ONLY)
In millions
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
Operating activities
Net income $1,131 $ 764 $ 542
Reconciling adjustments
Equity in undistributed net income of subsidiaries (net
of dividends paid to parent) (618) (122) 46
Other, net 78 93 (64)
- ------------------------------------------------------------------------------------------------
Net cash provided by operating activities 591 735 524
- ------------------------------------------------------------------------------------------------
Investing activities
Net (increase) decrease in indebtedness from subsidiaries 9 (870) (30)
Net increase (decrease) in indebtedness to subsidiaries (99) 66 339
Capital contributions to subsidiaries (257) (152) (667)
Return of capital from subsidiaries 4 10 10
Acquisitions (20) - (283)
Net decrease in other investments 7 75 16
Other, net (2) 9 46
- ------------------------------------------------------------------------------------------------
Net cash used for investing activities (358) (862) (569)
- ------------------------------------------------------------------------------------------------
Financing activities
Net increase in short-term debt 325 1,032 421
Long-term debt issuances 356 - 515
Long-term debt redemptions (103) (357) (133)
Common stock repurchases (425) (195) (467)
Dividends on common and preferred stock (406) (381) (335)
Other, net 21 28 44
- ------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (232) 127 45
- ------------------------------------------------------------------------------------------------
Net increase in cash 1 - -
Cash at beginning of year - - -
- ------------------------------------------------------------------------------------------------
Cash at end of year $ 1 $ - $ -
- ------------------------------------------------------------------------------------------------
</TABLE>
1999 FORM 10-K
16
<PAGE> 18
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
In millions
<TABLE>
<CAPTION>
At December 31, For the Years Ended December 31,
---------------------- ----------------------------------------------------------------
Amorti-
zation
Premiums of
Deferred Insurance and Insurance Deferred
Policy and Other Net and Policy Other
Acquisition Annuity Consider- Investment Annuity Acquisition Operating
Division Costs(a)(b) Liabilities(c) ations Income(d) Benefits Costs(b)(e) Expenses
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
1999
Retirement Services $2,338 $39,714 $ 568 $2,972 $2,377 $126 $ 212
Life Insurance 3,800 26,300 3,022 2,199 2,846 524 921
Consumer Finance 11 465 181 78 86 8 10
Other(f) 1 (78) 1 (17) 4 1 849
- -------------------------------------------------------------------------------------------------------------------------------
Consolidated $6,150 $66,401 $3,772 $5,232 $5,313 $659 $1,992
- -------------------------------------------------------------------------------------------------------------------------------
1998
Retirement Services $1,328 $36,792 $ 320 $2,753 $2,114 $113 $ 169
Life Insurance 2,871 25,680 3,113 2,240 2,959 558 968
Consumer Finance 10 441 172 76 86 8 10
Other(f) - (69) - 26 - 1 871
- -------------------------------------------------------------------------------------------------------------------------------
Consolidated $4,209 $62,844 $3,605 $5,095 $5,159 $680 $2,018
- -------------------------------------------------------------------------------------------------------------------------------
1997
Retirement Services $ 392 $21,995 $ 113 $1,706 $1,286 $ 42 $ 133
Life Insurance 2,995 25,283 3,065 2,099 2,949 494 965
Consumer Finance 10 443 184 69 93 9 10
Other(f) 1 (62) - 146 4 1 814
- -------------------------------------------------------------------------------------------------------------------------------
Consolidated $3,398 $47,659 $3,362 $4,020 $4,332 $546 $1,922
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes fair value adjustment related to securities. Additional information
is incorporated herein by reference to the section "Investments - Fair Value
of Securities" of MD&A in American General's 1999 ARS.
(b) Includes cost of insurance purchased.
(c) Includes unearned premiums, other policy claims and benefits payable, and
other policyholder funds, which are not significant relative to insurance
and annuity liabilities.
(d) Represents earnings and related expenses on those investments considered
necessary to support each division's business operations.
(e) Net of accretion of interest.
(f) Represents Consumer Finance non-insurance operations, Corporate operations,
goodwill amortization, and interdivision eliminations.
AMERICAN GENERAL
17
<PAGE> 19
AMERICAN GENERAL CORPORATION
SCHEDULE IV - REINSURANCE
In millions
<TABLE>
<CAPTION>
Percentage
of
Ceded to Assumed Amount
Gross Other from Other Net Assumed
Description Amount Companies Companies Amount to Net
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Life insurance in force at year end $369,346 $94,450 $ 2,371 $277,267 .9%
Premiums and other considerations
for the year
Life insurance and annuities $ 3,182 $ 250 $ 17 $ 2,949 .5%
Accident and health insurance 758 294 251 715 35.1
Property-liability insurance 83 10 35 108 32.5
- ---------------------------------------------------------------------------------------------------------------
Total premiums and other
considerations $ 4,023 $ 554 $ 303 $ 3,772 8.0%
- ---------------------------------------------------------------------------------------------------------------
1998
Life insurance in force at year end $344,857 $65,643 $ 2,474 $281,688 .9%
Premiums and other considerations
for the year
Life insurance and annuities $ 2,832 $ 205 $ 116 $ 2,743 4.2%
Accident and health insurance 778 277 225 726 31.0
Property-liability insurance 107 3 32 136 23.3
- ---------------------------------------------------------------------------------------------------------------
Total premiums and other
considerations $ 3,717 $ 485 $ 373 $ 3,605 10.3%
- ---------------------------------------------------------------------------------------------------------------
1997
Life insurance in force at year end $310,162 $57,261 $21,514 $274,415 7.8%
Premiums and other considerations
for the year
Life insurance and annuities $ 2,640 $ 178 $ 67 $ 2,529 2.7%
Accident and health insurance 782 113 11 680 1.7
Property-liability insurance 120 8 41 153 26.7
- ---------------------------------------------------------------------------------------------------------------
Total premiums and other
considerations $ 3,542 $ 299 $ 119 $ 3,362 3.5%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
1999 FORM 10-K
18
<PAGE> 20
PART IV (Continued)
AMERICAN GENERAL CORPORATION
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
In millions
<TABLE>
<CAPTION>
Additions
------------------------------------------------
Charged to Charged to
Balance at Provision for Realized Charged to Balance at
Beginning Finance Receivable Investment Other Deduc- End of
Description of Year Losses (Gains)/Losses Accounts tions(a) Year
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
1999
Allowance for losses on:
Finance receivables $382 $207 $ - $ 14(b) $207 $396
Mortgage loans on real
estate 34 - (3) - 5 26
Investment real estate 14 - - - 4 10
Restructuring liability 30 - - - 16(c) 14
Valuation allowance on
deferred tax asset 69 - - 381(d) 2 448
- -----------------------------------------------------------------------------------------------------------------------
Total $529 $207 $ (3) $395 $234 $894
- -----------------------------------------------------------------------------------------------------------------------
1998
Allowance for losses on:
Finance receivables $373 $212 $ - $ 17(b) $220 $382
Mortgage loans on real
estate 54 - (15) - 5 34
Investment real estate 18 - 3 - 7 14
Restructuring liability 62 - - - 32(c) 30
Valuation allowance on
deferred tax asset 68 - - 1(e) - 69
- -----------------------------------------------------------------------------------------------------------------------
Total $575 $212 $(12) $ 18 $264 $529
- -----------------------------------------------------------------------------------------------------------------------
1997
Allowance for losses on:
Finance receivables $395 $248 $ - $ - $270 $373
Mortgage loans on real
estate 84 - (20) - 10 54
Investment real estate 34 - 8 - 24 18
Other long-term investments 1 - - - 1 -
Restructuring liability - - - 71(c) 9(c) 62
Valuation allowance on
deferred tax asset 46 - - 22(e) - 68
- -----------------------------------------------------------------------------------------------------------------------
Total $560 $248 $(12) $ 93 $314 $575
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Resulting from write-offs of uncollectible receivables, mortgage loan
payoffs, sales of real estate, foreclosures of real estate, and utilization
of net loss carryforwards, unless otherwise noted.
(b) Relates to allowance for acquired receivables.
(c) Restructuring costs related to the integration of USLIFE into the company's
operations and the concurrent realignment of the life insurance division.
Additional information is incorporated herein by reference to Note 3.2 of
Notes to Financial Statements in American General's 1999 ARS.
(d) Relates to unrealized losses on fixed maturity securities not expected to be
realized; charged to other comprehensive income within shareholders' equity.
(e) Relates to operating loss carryovers not expected to be utilized; charged to
deferred tax expense.
AMERICAN GENERAL
19
<PAGE> 21
AMERICAN GENERAL CORPORATION
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 March 21, 2000.
AMERICAN GENERAL CORPORATION
By: /s/ Nicholas R. Rasmussen
----------------------------------------
Nicholas R. Rasmussen
(Executive Vice President, Chief
Financial Officer and Treasurer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 21, 2000.
Robert M. Devlin*
- -----------------------------------------------------------------
Robert M. Devlin
(Chairman, President and Chief Executive Officer -
Principal Executive Officer)
/s/ Nicholas R. Rasmussen
- -----------------------------------------------------------------
Nicholas R. Rasmussen
(Executive Vice President, Chief Financial Officer and Treasurer -
Principal Financial Officer and Principal Accounting Officer)
J. Evans Attwell*
- -----------------------------------------------------------------
J. Evans Attwell
(Director)
Brady F. Carruth*
- -----------------------------------------------------------------
Brady F. Carruth
(Director)
W. Lipscomb Davis Jr.*
- -----------------------------------------------------------------
W. Lipscomb Davis Jr.
(Director)
J. Edward Easler II*
- -----------------------------------------------------------------
J. Edward Easler II
(Director)
Larry D. Horner*
- -----------------------------------------------------------------
Larry D. Horner
(Director)
Richard J.V. Johnson*
- -----------------------------------------------------------------
Richard J.V. Johnson
(Director)
Michael E. Murphy*
- -----------------------------------------------------------------
Michael E. Murphy
(Director)
Jon P. Newton*
- -----------------------------------------------------------------
Jon P. Newton
(Director)
Michael J. Poulos*
- -----------------------------------------------------------------
Michael J. Poulos
(Director)
Robert E. Smittcamp*
- -----------------------------------------------------------------
Robert E. Smittcamp
(Director)
Anne M. Tatlock*
- -----------------------------------------------------------------
Anne M. Tatlock
(Director)
*By: /s/ Mark S. Berg
- -----------------------------------------------------------------
Mark S. Berg
(Attorney-in-fact)
1999 FORM 10-K
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
----------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
3.1 Restated Articles of Incorporation of American General 4.1 33-33115
Corporation
3.2 Articles of Amendment to the Restated Articles of Incorporation 4 Form 10-Q for First
of American General Quarter 1998
3.3 Statement of Resolution Establishing Series of Shares of 7% 4(d) 333-00513
Convertible Preferred Stock
3.4 Statement of Resolution Establishing Series of Shares of Series A 4(o) 33-58317
Cumulative Convertible Preferred Stock
3.5 Resolutions Establishing American General's 6% Series A 4(k) 333-00513
Convertible Junior Subordinated Debentures
3.6 Amended and Restated Bylaws of American General Corporation 3.6* NA
4.1 There have not been filed as exhibits to this Form 10-K certain NA NA
long-term debt instruments, none of which relates to authorized
indebtedness that exceeds 10% of the consolidated assets of the
company. The company hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
4.2 Junior Subordinated Indenture, dated as of May 15, 1995, between 4(g) 333-00513
American General and The Chase Manhattan Bank (formerly known as
Chemical Bank), as Trustee, relating to American General's 6%
Series A Convertible Junior Subordinated Debentures
4.3 Terms of the 6% Convertible Monthly Income Preferred Securities, 4(i) 333-00513
Series A, of American General Delaware, L.L.C.
4.4 Guarantee of American General with respect to the 6% Convertible 4(j) 333-00513
Monthly Income Preferred Securities, Series A, of American
General Delaware, L.L.C.
10.1 American General Corporation 1984 Stock and Incentive Plan 10.1 Form 10-Q for
Second Quarter 1998
10.2 Amendment to American General Corporation 1984 Stock and 10.2* NA
Incentive Plan (January 2000)
10.3 American General Corporation 1994 Stock and Incentive Plan 10.2 Form 10-Q for
Second Quarter 1998
10.4 Amendment to American General Corporation 1994 Stock and 10.4* NA
Incentive Plan (January 1999)
10.5 Amendment to American General Corporation 1994 Stock and 10.5* NA
Incentive Plan (January 2000)
10.6 American General Corporation 1997 Stock and Incentive Plan 10.3 Form 10-Q for
Second Quarter 1998
10.7 Amendment to American General Corporation 1997 Stock and 10.7* NA
Incentive Plan (January 1999)
10.8 American General Corporation 1999 Stock and Incentive Plan 10.4 Form 10-K for 1998
10.9 Amendment to American General Corporation 1999 Stock and 10.9* NA
Incentive Plan (January 1999)
10.10 American General Corporation Deferred Compensation Plan 4.4 333-52103
10.11 First Amendment to American General Corporation Deferred 10.11* NA
Compensation Plan
10.12 Restoration of Retirement Income Plan for Certain Employees 10.3 Form 10-K
Participating in the Restated American General Retirement Plan for 1993
(Restoration of Retirement Income Plan)
10.13 First Amendment to Restoration of Retirement Income Plan 10.4 Form 10-K
for 1993
10.14 Second Amendment to Restoration of Retirement Income Plan 10.5 Form 10-K
for 1993
10.15 Third Amendment to Restoration of Retirement Income Plan 10.7 Form 10-K for 1996
10.16 Fourth Amendment to Restoration of Retirement Income Plan 10.16* NA
</TABLE>
<PAGE> 23
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
----------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
10.17 American General Supplemental Thrift Plan 10.6 Form 10-K
for 1993
10.18 First Amendment to American General Supplemental Thrift Plan 10.7 Form 10-K
for 1993
10.19 Second Amendment to American General Supplemental Thrift Plan 10.8 Form 10-K
for 1993
10.20 Third Amendment to American General Supplemental Thrift Plan 10.9 Form 10-K
for 1993
10.21 Employment Agreement between American General and Robert M. 10.12 Form 10-K
Devlin for 1997
10.22 First Amendment to Employment Agreement between American General 10.3 Form 10-Q for
and Robert M. Devlin First Quarter
1998
10.23 Employment Agreement between Western National Corporation and 10.23* NA
John A. Graf
10.24 Employment Agreement between American General and Jon P. Newton 10.13 Form 10-K
for 1997
10.25 First Amendment to Employment Agreement between American General 10.4 Form 10-Q for
and Jon P. Newton First Quarter
1998
10.26 Employment Agreement between American General and Richard W. 10.26* NA
Scott
10.27 Supplemental Executive Retirement Agreement between American 10.15 Form 10-K
General and Robert M. Devlin for 1997
10.28 First Amendment to Supplemental Executive Retirement Agreement 10.6 Form 10-Q for
between American General and Robert M. Devlin First Quarter
1998
10.29 Supplemental Executive Retirement Agreement between American 10.16 Form 10-K
General and Jon P. Newton for 1997
10.30 First Amendment to Supplemental Executive Retirement Agreement 10.7 Form 10-Q for
between American General and Jon P. Newton First Quarter
1998
10.31 American General Corporation Supplemental Executive Retirement 10.1 Form 10-Q for
Plan Third Quarter
1998
10.32 Form of Change in Control Severance Agreement for Executive 10.32* NA
Officers
10.33 Forms of Split-Dollar Agreement and Assignment of Life Insurance 10.9 Form 10-Q for
Policy as Collateral Agreement First Quarter
1998
10.34 American General Corporation Performance-Based Plan for Executive 10.19 Form 10-K
Officers, Amended and Restated Effective January 1, 1995 for 1994
10.35 American General Corporation Retirement Plan for Directors (as 10.18 Form 10-K
amended and restated) for 1997
10.36 Western National Corporation 1993 Stock and Incentive Plan, as 10.18 to WNC NA
amended annual report on
Form 10-K for
1995
11 Computation of Earnings per Share (included in Note 20 of Notes NA NA
to Financial Statements in American General's 1999 Annual Report
to Shareholders)
12 Computation of Ratio of Earnings to Fixed Charges and Ratio of 12* NA
Earnings to Combined Fixed Charges and Preferred Stock Dividends
13 Portions of American General's 1999 Annual Report to Shareholders 13* NA
that are expressly incorporated herein by reference in this Form
10-K. Other sections of the Annual Report furnished for the
information of the Commission are not deemed "filed" as part of
this Form 10-K.
21 Subsidiaries of American General 21* NA
23 Consent of Ernst & Young LLP, Independent Auditors 23* NA
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
Filed Herewith(*), Nonapplicable (NA),
or
Incorporated by Reference to
----------------------------------------
American General
Exhibit Registration No. or
Number Exhibit Report
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
24 Powers of attorney for the directors signing this Form 10-K 24* NA
27 Financial Data Schedule 27* NA
Any Exhibit not included with this Form 10-K will be
furnished to any shareholder of record on written
request and payment of up to $.25 per page plus postage.
Such requests should be directed to American General
Corporation, Investor Relations, P.O. Box 3247, Houston,
Texas 77253-3247.
</TABLE>
<PAGE> 1
Amended and Restated Bylaws
(as of March 2, 2000)
of
American General Corporation
Houston, Texas
[LOGO OF AMERICAN GENERAL APPEARS HERE]
<PAGE> 2
AMENDED AND RESTATED BYLAWS
OF
AMERICAN GENERAL CORPORATION
ARTICLE I.
Capital Stock
SECTION 1. Certificates for Shares. The certificates for shares of the
capital stock of the company shall be in such form as shall be approved by the
board of directors. The certificates shall be signed by the chairman of the
board or president, and also by the secretary, and may be sealed with the seal
of the company or a facsimile thereof. Where any such certificate is
countersigned by a transfer agent, or registered by a registrar, either of
which is other than the company itself or an employee of the company, the
signatures of the chairman of the board or president and of the secretary may
be facsimiles. The certificates shall be consecutively numbered and shall be
entered on the stock records of the company as they are issued, and each shall
exhibit the holder's name and the number of shares.
SECTION 2. Transfer of Shares. The shares of stock of the company shall be
transferable only on the stock records of the company by the registered holders
thereof in person or by their duly authorized attorneys or legal
representatives, upon surrender of certificates representing such shares duly
endorsed or in proper form for transfer, with appropriate evidence of authority
to transfer, and cancellation thereof.
SECTION 3. Fixing of Record Date; Closing of Transfer Books. For the purpose
of determining shareholders entitled to notice of or to vote at any meeting of
shareholders, or any adjournment thereof, or entitled to receive payment of any
dividend, or for any other proper purpose, the board of directors may fix in
advance a date as the record date for any such determination of shareholders,
such date in any case to be not more than fifty (50) days and, in case of a
meeting of shareholders, not less than ten (10) days prior to the date on which
the particular action requiring such determination of shareholders is to be
taken. In lieu of fixing a record date, the board of directors may provide that
the stock transfer books of the company shall be closed for a stated period not
to exceed, in any case, fifty (50) days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
(10) days immediately preceding such meeting. If the stock transfer books are
not closed and no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which the notice of the
meeting is mailed or the date on which the resolution of the board of directors
declaring such dividend is adopted, as the case may be, shall be the record
date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided herein, such determination shall apply
to any adjournment of the meeting except
Page 1 of 20
<PAGE> 3
where the determination has been made through the closing of stock transfer
books and the stated period of closing has expired.
SECTION 4. Registered Shareholders. The company shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof, and accordingly shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person or
entity, whether or not it shall have express or other notice thereof, except as
expressly provided by the laws of the State of Texas.
SECTION 5. Lost, Destroyed, or Stolen Stock Certificates. No certificate
for shares of stock in the company shall be issued in place of any certificate
alleged to have been lost, destroyed, or stolen except on production of
evidence satisfactory to the board of directors, or such person or persons as
it may designate, of such loss, destruction, or theft, and, if the board of
directors so requires, upon the furnishing of an indemnity bond in such amount
(but not to exceed twice the then-market value of the shares represented by the
certificate) and with such terms and such surety or sureties as the board of
directors may, in its discretion, require.
SECTION 6. Regulations. The board of directors shall have the power and
authority to make all such rules and regulations to the extent permitted by
law, the articles of incorporation, and these bylaws, as it may deem expedient
concerning the issue, transfer, registration, or replacement of certificates
for shares of the capital stock of the company.
ARTICLE II.
Shareholders
SECTION 1. Annual Meeting. The annual meeting of the shareholders shall be
held at such hour as shall be designated by the board of directors either (i)
on the last business day of April of each year, or (ii) on such other date, not
more than thirteen (13) months after the last preceding annual meeting, as the
board of directors shall designate, for the purpose of electing directors and
for the transaction of such other business as may properly be brought before
the meeting.
SECTION 2. Special Meetings. A special meeting of shareholders for any
purpose or purposes may be called at any time by the chairman of the board, the
president, or a majority of the board of directors, and shall be called by the
chairman of the board, the president, or the secretary upon the written request
therefor, stating the purpose or purposes of the meeting, delivered to such
officer, signed by the holders of at least ten percent (10%) of the issued and
outstanding shares entitled to vote at such meeting. Only such business as
shall be stated or indicated in the notice of the meeting shall be transacted
at any such special meeting of shareholders.
SECTION 3. Place. The annual meeting of shareholders may be held at any
place as may be designated in the call of the meeting. Meetings of shareholders
shall be held at the principal office of the company unless another place is
designated for a meeting in the manner provided herein.
Page 2 of 20
<PAGE> 4
SECTION 4. Notice. Written or printed notice stating the place, day, and
hour of each meeting of shareholders, and in case of a special meeting the
purpose or purposes for which the meeting is called, shall be delivered not
less than ten (10) nor more than fifty (50) days before the date of the
meeting, either personally or by mail, by or at the direction of the officer
calling the meeting, to each shareholder of record entitled to vote at such
meeting.
SECTION 5. Quorum. Except as may be otherwise provided by law or the
articles of incorporation, no meeting of shareholders shall elect directors, or
transact other business of the company, unless there shall be present, in
person or by proxy, a quorum, which is defined as the holders of a majority of
the issued and outstanding shares of capital stock of the company entitled to
vote at the meeting, and the act of a majority of the shares represented at any
meeting at which a quorum is present shall be the act of the meeting. The
shareholders present at any meeting, though less than a quorum, may adjourn the
meeting, and any business may be transacted at the adjourned meeting that could
have been transacted at the original meeting. No notice of adjournment, other
than the announcement at the meeting, need be given.
SECTION 6. Proxies. At any meeting of shareholders, a shareholder may vote
either in person or by proxy executed in writing by the shareholder or by his
duly authorized attorney-in-fact. Such proxies shall be filed with the
secretary of the company before or at the time of the meeting. No proxy shall
be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. Each proxy shall be revocable unless it is
expressly provided therein that the proxy shall be irrevocable or unless it is
otherwise made irrevocable by law.
SECTION 7. Voting of Shares. Each outstanding share of a class of stock
entitled to vote upon a matter submitted to a vote at a meeting of shareholders
shall be entitled to one vote on such matter. Votes for directors, and upon
demand of any shareholder votes upon any question before a meeting, shall be by
ballot.
SECTION 8. Presiding Officer and Secretary. The chairman of the board, or
in his absence the president, shall preside at each meeting of shareholders,
and in the absence of both such officers, a vice chairman of the board shall
preside. Should none be present, the meeting shall appoint one of the vice
presidents, or in the absence of all vice presidents, one of the shareholders,
to preside at the meeting. The records of each meeting shall be kept by the
secretary, or in his absence an assistant secretary, or in the absence of both,
a person appointed by the chairman of the meeting.
SECTION 9. List of Shareholders. A complete list of shareholders entitled
to vote at each shareholders' meeting, arranged in alphabetical order, with the
address of each and number of shares of each class and series of stock held by
each, shall be prepared by the secretary and filed at the registered office of
the company, and shall be subject to inspection by any shareholder during usual
business hours for a period of ten (10) days prior to such meeting. It shall be
produced at such meeting and shall at all times during such meeting be subject
to inspection by any shareholder.
SECTION 10. Inspectors of Election. The chairman of each meeting of
shareholders shall appoint a committee to act as inspectors of election. Such
committee shall report to the meeting the number of shares of each class and
series of stock, and of all classes, represented by proxy and shall prepare
Page 3 of 20
<PAGE> 5
a list showing the total number of shares of each class and series of
stock, and of all classes, represented either in person or by proxy. The
inspectors of election shall oversee the vote of the shareholders for the
election of directors and for any other matters that are put to a vote of
shareholders at the meeting; receive a ballot evidencing votes cast by the
proxy committee; judge the qualifications of shareholders voting; collect,
count, and report the results of ballots cast by any shareholders voting in
person; and perform such other duties as may be required by the chairman of the
meeting or the shareholders.
SECTION 11. Nature of Business at Meetings of Shareholders. No business
may be transacted at an annual meeting of shareholders, other than business
that is either (a) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the board of directors (or any duly
authorized committee thereof), (b) otherwise properly brought before the annual
meeting by or at the direction of the board of directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by a shareholder of the company (i) who is a shareholder of
record on the date of the giving of the notice provided for in this Section 11
and on the record date for the determination of shareholders entitled to vote
at such annual meeting and (ii) who complies with the notice procedures set
forth in this Section 11.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a shareholder, such shareholder
must have given timely notice thereof in proper written form to the Secretary
of the company.
To be timely, a shareholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the company not
less than one hundred and twenty (120) days nor more than one hundred and fifty
(150) days prior to the anniversary date of the immediately preceding annual
meeting of shareholders; provided, however, that in the event that the annual
meeting is called for a date that is not within thirty (30) days before or
after such anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure of the date of the annual meeting was
made, whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary must
set forth as to each matter such shareholder proposes to bring before the
annual meeting (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (ii) the name and record address of such shareholder, (iii) the
class or series and number of shares of capital stock of the company which are
owned beneficially or of record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such
business by such shareholder and any material interest of such shareholder in
such business and (v) a representation that such shareholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of shareholders except
business brought before the annual meeting in accordance with the procedures
set forth in this Section 11; provided, however, that, once business has been
properly brought before the annual meeting in accordance with
Page 4 of 20
<PAGE> 6
such procedures, nothing in this Section 11 shall be deemed to preclude
discussion by any shareholder of any such business. If the Chairman of an
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the Chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.
ARTICLE III.
Board of Directors
SECTION 1. Number, Term of Office, Nomination, Vacancy and Removal. The
business affairs and property of the company shall be managed and controlled by
the board of directors, and, subject to the restrictions imposed by law, by the
articles of incorporation, or by these bylaws, the board of directors may
exercise all of the powers of the company.
(a) Number. Subject to the rights of holders of any class or series of
stock having a preference over the Common Stock of the company as to
dividends or upon liquidation to elect additional directors under
specified circumstances, the number of the directors of the company
shall be fixed from time to time by the board of directors but shall
not be fewer than three (3) nor more than twenty-five (25). Within
these limits, the number of directors may be increased or decreased
(provided that any decrease does not shorten the term of any
incumbent director) from time to time by resolution of the board of
directors. Directors must be shareholders, but they need not be
residents of the State of Texas.
(b) Election and Terms. Subject to the rights of holders of any class or
series of stock having a preference over the Common Stock of the
company as to dividends or upon liquidation to elect additional
directors under specified circumstances, directors shall be elected
at the annual meeting of the shareholders. Each director shall serve
until the next annual meeting and until his successor shall have been
elected and qualified, or until his earlier death, resignation, or
removal; provided, however, that the term of any director who is also
an officer of the company or of any subsidiary of the company shall
simultaneously terminate when that director ceases, for whatever
reason, to be an officer of the company or of any subsidiary of the
company, unless the board of directors, in its discretion and upon
resolution adopted by a majority of the remaining directors then in
office, waives the applicability hereof.
(c) Nomination of Directors. Only persons who are nominated in accordance
with the following procedures shall be eligible for election as
directors of the company, except as may be otherwise provided in the
Certificate of Incorporation with respect to the right of holders of
preferred stock of the company to nominate and elect a specified
number of directors in certain circumstances. Nominations of persons
for election to the board of directors may be made at any annual
meeting of shareholders, or at any special meeting of shareholders
called for the purpose of electing directors, (a) by or at the
direction of the board of directors (or any duly authorized committee
thereof) or
Page 5 of 20
<PAGE> 7
(b) by any shareholder of the company (i) who is a shareholder of
record on the date of the giving of the notice provided for in this
Section 1(c) and on the record date for the determination of
shareholders entitled to vote at such meeting and (ii) who complies
with the notice procedures set forth in this Section 1(c).
In addition to any other applicable requirements, for a nomination to
be made by a shareholder, such shareholder must have given timely
notice thereof in proper written form to the Secretary of the
company.
To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive
offices of the company (a) in the case of an annual meeting, not less
than one hundred and twenty (120) days nor more than one hundred
fifty (150) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; provided, however, that in
the event that the annual meeting is called for a date that is not
within thirty (30) days before or after such anniversary date, notice
by the shareholder in order to be timely must be so received not
later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special
meeting of shareholders called for the purpose of electing directors,
not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the special meeting
was mailed or public disclosure of the date of the special meeting
was made, whichever first occurs.
To be in proper written form, a shareholder's notice to the Secretary
must set forth (a) as to each person whom the shareholder proposes to
nominate for election as a director (i) the name, age, business
address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class or series and
number of shares of capital stock of the company which are owned
beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be
disclosed in a proxy statement or other filings required to be made
in connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the rules and regulations
promulgated thereunder; and (b) as to the shareholder giving the
notice (i) the name and record address of such shareholder, (ii) the
class or series and number of shares of capital stock of the company
which are owned beneficially or of record by such shareholder, (iii)
a description of all arrangements or understandings between such
shareholder and each proposed nominee and any other person or persons
(including their names) pursuant to which the nomination(s) are to be
made by such shareholder, (iv) a representation that such shareholder
intends to appear in person or by proxy at the meeting to nominate
the persons named in its notice and (v) any other information
relating to such shareholder that would be required to be disclosed
in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors
pursuant to Section 14 of the Exchange Act and the rules and
regulations promulgated thereunder. Such notice must be accompanied
by
Page 6 of 20
<PAGE> 8
a written consent of each proposed nominee to being named as a
nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the company
unless nominated in accordance with the procedures set forth in this
Section 1(c). If the Chairman of the meeting determines that a
nomination was not made in accordance with the foregoing procedures,
the Chairman shall declare to the meeting that the nomination was
defective and such defective nomination shall be disregarded.
(d) Vacancies. Subject to the rights of the holders of any class or
series of stock having a preference over the Common Stock of the
company as to dividends or upon liquidation to elect directors under
specified circumstances, any vacancies on the board of directors
resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled by the affirmative
vote of a majority of the remaining directors then in office, even
though less than a quorum of the board of directors. Any director so
elected by the board of directors to fill a vacancy shall hold office
for the remainder of the full term of the director whose departure
from the board created the vacancy. A directorship to be filled by
reason of an increase in the number of directors by action of the
board of directors (within the limits set forth in paragraph (a) of
Section 1 of this article) may be filled by the board of directors
for a term of office continuing only until the next election at an
annual meeting or at a special meeting of shareholders called for
that purpose; provided, however, that the board of directors shall
not fill more than two such directorships during the period between
two successive annual meetings of shareholders.
(e) Removal. Subject to the rights of any class or series of stock having
a preference over the Common Stock of the company as to dividends or
upon liquidation to elect directors under specified circumstances,
any director may be removed from office, with or without cause, only
by the affirmative vote of the holders of at least seventy-five
percent (75%) of the combined voting power of the then outstanding
shares of all classes of stock of the company entitled to vote
generally in the election of directors, voting together as a single
class.
SECTION 2. Annual Meeting. Each newly elected board of directors shall
hold its first meeting immediately following the annual meeting of shareholders
each year, for the purposes of organization, the election of officers of the
company, and the transaction of such other business as may properly come before
such meeting, and no notice of such meeting shall be necessary.
SECTION 3. Regular Meetings. In addition to the annual meeting of the
board of directors, four (4) regular meetings shall be held in each year at the
time and place designated by the chairman of the board, for the purpose of
transacting any business within the powers of the board. Notice of such regular
meetings shall be given as provided herein.
SECTION 4. Special Meetings. A special meeting of the board of directors
shall be held whenever called by the chief executive officer or by the
secretary on the written request of any five
Page 7 of 20
<PAGE> 9
(5) of the directors, and at such time and place as may be specified in the
notice thereof. Such notice, or any waiver pursuant to Article VII, Section 6
hereof, need not state the purpose or purposes of such meeting.
SECTION 5. Notice. The secretary shall give notice to each director of
each regular and special meeting in person or by mail or by any form of
telecommunication, at least twenty-four (24) hours before the meeting. The
attendance of a director at any meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business on the grounds that the meeting
has not been lawfully called or convened.
SECTION 6. Quorum. A majority of the directors in office shall constitute
a quorum for the transaction of business, but if at any meeting of the board of
directors there is less than a quorum present, a majority of those present or
any director solely present may adjourn the meeting from time to time without
further notice. The act of a majority of the directors present at a meeting at
which a quorum is in attendance shall be the act of the board of directors,
unless the act of a greater number is required by law, the articles of
incorporation, or these bylaws.
SECTION 7. Order of Business and Officers at Meetings. At meetings of the
board of directors, business shall be transacted in such order as the board may
determine from time to time. At all meetings of the board of directors, the
chairman of the board shall preside, and in the absence of the chairman of the
board the president shall preside, and in the absence of both, a vice chairman
shall preside. Should all three be absent, a chairman shall be chosen by the
board of directors from among the directors present. The secretary of the
company shall act as secretary of all meetings of the board of directors, or in
the absence of the secretary an assistant secretary shall so act; or in the
absence of both, the presiding officer shall appoint any person to act as
secretary of the meeting.
SECTION 8. Compensation. Directors shall not receive any stated salary for
their service as directors, but by resolution of the board of directors an
annual retainer may be paid and a fixed sum and expenses of attendance, if any,
may be allowed for attendance at any meeting of the board of directors;
provided that nothing contained herein shall be construed to preclude any
director from serving the company in any other capacity and receiving
compensation therefor.
SECTION 9. Presumption of Assent. A director of the company who is present
at a meeting of the board of directors at which action on any company matter is
taken shall be presumed to have assented to the action unless his dissent shall
be entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the secretary of the company immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
SECTION 10. Retirement. No director of the company shall stand for
reelection as a director following his seventieth birthday with the exception
of any person who shall serve, or has served, as chief executive officer of the
company at any time, who shall not be prevented by this provision from standing
for reelection as a director for five years after retirement from the position
of chief
Page 8 of 20
<PAGE> 10
executive officer, or until the annual meeting following the attainment of age
seventy-five, whichever shall first occur. Any director who is also an officer,
other than the chief executive officer, of the company or an officer of any
subsidiary of the company shall retire as provided in Section 1 of this
article.
ARTICLE IV.
Committees of the Board of Directors
SECTION 1. Executive Committee. The board of directors, acting by
resolution adopted by a majority of the full board of directors, may elect from
among its members an executive committee of not fewer than three (3) nor more
than ten (10) members, which committee shall have and may exercise all of the
authority of the board of directors in the business and affairs of the company
except where action of the full board of directors is specified by law. The
chief executive officer shall be a member of the executive committee and shall
be chairman of such committee. The executive committee shall meet at such times
and places as may be fixed by the committee, or on the call of the chief
executive officer, at such times and places as may be designated in the call of
such meetings. The executive committee shall maintain a record of its
proceedings and shall report to each regular meeting of the board of directors
a summary of the actions taken by such committee since the last regular meeting
of the board of directors.
The executive committee shall function as the company's nominating
committee. In its capacity as nominating committee, it has the power and duty
to recommend candidates for election to the board of directors, to the
committees of the board, and for the chairmanship of each committee except the
executive committee.
SECTION 2. Audit Committee. The following shall be the charter of the
audit committee:
(a) Membership. The board of directors, acting by resolution adopted by a
majority of the full board of directors, may elect from among its
members an audit committee of not fewer than three (3) nor more than
ten (10) members, none of whom shall be an officer of the company or
any of its subsidiaries, or have any relationship to the company or
any of its subsidiaries that, in the opinion of the board of
directors, would interfere with the exercise of independent judgment
as a committee member. The chairman of the committee shall be elected
by a majority of the full board of directors at the time the
committee is elected or at such time as it becomes necessary to elect
a new chairman because of the chairman's death, resignation or
removal. Each member of the committee shall be financially literate,
or shall undertake to become financially literate within a reasonable
period of time after being elected to the committee, and at least one
member shall have accounting or related financial management
expertise, as these qualifications are determined in the opinion of
the board of directors.
(b) Process. The audit committee shall meet at such times and places as
may be fixed by the committee, or on the call of its chairman, at
such times and places as may be designated in the call of such
meetings. The committee shall also meet promptly upon
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the request of the company's principal outside auditors. The
committee shall maintain a record of its proceedings and shall report
to the board of directors a summary of its activities not less
frequently than twice each fiscal year, along with such
recommendations as the committee deems appropriate.
(c) Responsibilities. The audit committee shall have the following
powers and duties:
(1) subject to confirmation by the board of directors, to select,
evaluate and, where appropriate, replace the principal outside
auditors (or to nominate the principal outside auditors to be
proposed for shareholder approval in any proxy statement);
(2) to discuss with the principal outside auditors that the outside
auditors are ultimately accountable to the board of directors
and the audit committee;
(3) to review at regular intervals audit arrangements for the
company and its subsidiaries and the reports to be rendered;
(4) to review in advance the plan and scope of the audit of the
company and its subsidiaries to be performed by the principal
outside auditors and the related estimate of fees, and to
recommend such audit plan, scope, and fee estimate for board
approval;
(5) to review non-audit services and fees of the company's
principal outside auditors, giving appropriate consideration
to the possible effect on the auditors' independence of each
non-audit service provided;
(6) to ensure that the principal outside auditors submit to the
committee at least annually a formal written statement
delineating all relationships between the principal outside
auditors and the company, and to review with the principal
outside auditors any disclosed relationships or services that
may impact the objectivity and independence of the outside
auditors for the purpose of recommending, as necessary, that the
board of directors take appropriate action to satisfy itself of
the outside auditors' independence;
(7) to review periodically with the company's principal outside
auditors the accounting principles and policies of the
company, including any matters required to be discussed by
Statement on Auditing Standards No. 61, as it may be amended
or supplemented;
(8) to review periodically with the company's principal outside
auditors such matters relating to the internal auditing systems
and procedures and the internal accounting controls of the
company and its subsidiaries as the committee or the board of
directors may determine to be necessary or desirable;
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(9) to review periodically the coordination between the company's
principal outside auditors and the company's internal audit
staff, and to review with the company's principal outside
auditors, upon completion of their audit, their findings and
recommendations and the responses of the company's management to
such findings and recommendations;
(10) to review and discuss with management the company's audited
financial statements;
(11) to recommend to the board of directors that the audited
financial statements presented to the audit committee be
included in the company's annual report on Form 10-K;
(12) to periodically review the company's corporate
responsibility program and receive information and assurances
from management as to its effectiveness;
(13) to conduct from time to time, or cause to be conducted, such
investigations or inquiries relating to the committee's
responsibilities, including accounting or audit matters, as the
facts presented to the committee warrant and as the committee
may deem necessary or appropriate in the interest of the company
and its shareholders;
(14) to confer with and direct the officers of the company to the
extent necessary to exercise the committee's powers and to
carry out its duties;
(15) to meet with representatives of any outside auditors of the
company and/or its internal audit staff in the absence of
management, whenever the committee deems such to be appropriate;
and
(16) to perform such additional duties as may be assigned to the
committee by the board of directors.
SECTION 3. Personnel Committee. The board of directors, acting by
resolution adopted by a majority of the full board of directors, may elect from
among its members a personnel committee of not fewer than three (3) nor more
than ten (10) members, none of whom shall be an officer of the company or of
any of its subsidiaries during the time of service on this committee. The
chairman of the committee shall be elected by a majority of the full board of
directors at the time the committee is elected or at such time as it becomes
necessary to elect a new chairman because of the chairman's death or
resignation. The committee shall meet at such times and places as may be fixed
by the committee, or on the call of its chairman, at such times and places as
may be designated in the call of such meetings. The committee shall maintain a
record of its proceedings and shall report to each regular meeting of the board
of directors a summary of the actions taken by the committee since the last
regular meeting of the board of directors.
The personnel committee shall have the following powers and duties:
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(a) to review the relationship of the contribution of key officers and
employees to the company's performance and prospects;
(b) to review and approve and recommend to the board of directors for
approval or ratification the annual salary of any officer of the
company or of a subsidiary of the company whose annual salary is or
will be of an amount which will place him or her among the
twenty-five most highly salaried officers in the group;
(c) to review and approve or ratify the annual salary of any officer or
employee of the company or of a subsidiary of the company whose
annual salary is or will be of an amount which will place him or her
among the second twenty-five most highly salaried officers in the
group;
(d) to review and approve incentive compensation and other employee
benefit programs;
(e) to review key personnel issues; and
(f) to perform such additional duties as may be assigned to the
committee by the board of directors.
SECTION 4. Other Committees. In addition to the executive, audit, and
personnel committees, the board of directors may, by resolution adopted by a
majority of the full board of directors, elect from among its own members such
other committees as it shall deem to be appropriate, each of which shall have
and may exercise that authority of the board of directors which shall have been
delegated to it in the resolution creating such committee, except as may be
prohibited by law.
SECTION 5. Term of Office and Committee Size. The term of office of each
member of any committee shall be the period designated by the board of
directors, but shall not be longer than one year and until his successor shall
be elected, unless such member shall be removed by the board of directors, as
provided in this section, or the committee is dissolved by the board of
directors. A member of any committee may be removed during the period between
annual meetings by action of the majority of the full board of directors at any
regular or special meeting. The membership of any committee elected by the
board of directors may be increased or decreased during the period between
annual meetings, subject to any limitations of this article, by action of the
majority of the full board of directors at any regular or special meeting.
SECTION 6. Quorum. A majority of the members of any committee shall
constitute a quorum for the transaction of business. The act of the majority of
the members present at a meeting at which a quorum is present shall be the act
of the committee.
SECTION 7. Responsibility. The designation of any committee and the
delegation thereto of authority shall not operate to relieve the board of
directors, or any member thereof, of any responsibility imposed upon it or him
by law.
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SECTION 8. Vacancies. The board of directors may fill all vacancies
in any committee.
ARTICLE V.
Officers
SECTION 1. Titles and Term of Office. The board of directors at its annual
meeting shall elect officers of the company as follows: a chairman of the
board, a president and a secretary. The board of directors may also elect one
or more vice chairmen. The board of directors or the executive committee may
elect other officers, including one or more executive vice presidents, senior
vice presidents, vice presidents, a general counsel, a controller, a general
auditor, and other officers and assistant officers as the board of directors or
the executive committee deems necessary. Each officer shall hold office for the
term for which he is elected and until his successor shall have been duly
elected and qualified, or until his death, resignation, or removal in the
manner hereinafter provided. One person may hold more than one office except
that the president shall not also hold the office of secretary. The chairman of
the board, each vice chairman of the board, if any, and the president shall be
directors of the company, but no other officer need be a director.
SECTION 2. Removal. Any officer who may be elected only by the board of
directors may be removed only by the board of directors. Any officer who may be
elected by either the board of directors or the executive committee may be
removed by either the board of directors or the executive committee. Removal of
any officer may occur whenever in the judgment of the board of directors or the
executive committee, as the case may be, the best interests of the company will
be served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Election of an officer shall not of
itself create contract rights.
SECTION 3. Vacancies. A vacancy in the office of any officer may be
filled for the unexpired portion of the term by the board of directors.
SECTION 4. Chief Executive Officer. The board of directors shall designate
either the chairman of the board or the president to be the chief executive
officer of the company. All other officers of the company shall be subordinate
to the chief executive officer and shall report to him as he may direct. The
chief executive officer shall have responsibility for the general management
and direction of the business of the company and for the execution of all
orders and resolutions of the board of directors. In addition to the powers
prescribed in these bylaws, he shall have all of the powers usually vested in
the chief executive officer of a corporation and such other powers as may be
prescribed from time to time by the board of directors. He may delegate any of
his powers and duties to any other officer with such limitations as he may deem
proper.
SECTION 5. Chairman of the Board. The chairman of the board shall preside
at all meetings of the shareholders and of the board of directors; shall have
authority to execute all legal instruments necessary for the transaction of the
company's business; may sign certificates for shares of capital stock of the
company; and may be designated as chief executive officer, as provided in these
bylaws.
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He shall be a member of all standing committees of the board of directors
except those the membership of which is restricted to non-officer directors,
and shall have such other responsibilities and powers as may be prescribed in
these bylaws or from time to time by the board of directors. If he is not
designated as chief executive officer, the chairman of the board shall have
such powers and perform such duties as maybe delegated to him by the chief
executive officer, and shall be vested with all the powers and authorized to
perform all the duties of the chief executive officer in his absence or
inability to act.
SECTION 6. Vice Chairman of the Board. In the absence of the chairman of
the board and the president, a vice chairman of the board shall preside at all
meetings of the shareholders and the board of directors; shall have authority
to execute all legal instruments necessary for the transaction of the company's
business; and shall have such other powers and duties as may be delegated to
him by the board of directors or the chief executive officer.
SECTION 7. President. In the absence of the chairman of the board, the
president shall preside at all meetings of the shareholders and of the board of
directors; shall have authority to execute all legal instruments necessary for
the transaction of the company's business; may sign certificates for shares of
capital stock of the company; and may be designated as chief executive officer,
as provided in these bylaws. He may delegate such of his powers and duties to
other officers with such limitations as he may deem proper. The president shall
have such other powers and duties as may be prescribed in these bylaws or from
time to time by the board of directors. If he is not designated as chief
executive officer, the president shall have such powers and perform such duties
as may be delegated to him by the chief executive officer, and shall be vested
with all the powers and authorized to perform all the duties of the chief
executive officer in his absence or inability to act.
SECTION 8. Vice President. Each vice president shall have such powers and
duties as may be delegated to him by the board of directors or the chief
executive officer, or any authorized officers senior to the vice president, and
may exercise the powers of the president during his absence or inability to
act. Any action taken by a vice president in the performance of the duties of
the president shall be conclusive evidence of the absence or inability to act
of the president at the time such action was taken.
SECTION 9. Secretary. The secretary shall keep the minutes of all meetings
of the board of directors, of the shareholders, and of the executive committee;
shall issue all notices; may sign with the chairman of the board, a vice
chairman of the board, or the president in the name of the company all legal
instruments necessary for the transaction of the company's business and affix
the seal of the company thereto; shall sign with the chairman of the board or
president all certificates for shares of the capital stock of the company; and
shall have such other powers and duties as may be prescribed by the board of
directors or the chief executive officer.
SECTION 10. Treasurer. The treasurer shall have responsibility for the
safekeeping and custody of all the funds and securities of the company; shall
establish and execute programs for the provision of the capital required by the
company, including negotiating the procurement of capital and maintaining the
required financial arrangements; shall establish and maintain adequate sources
for the company's short-term borrowings; shall establish and maintain liaison
with investment bankers and
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financial analysts; shall establish and maintain banking arrangements; and
shall have such other powers and duties as may be prescribed by the board of
directors or the chief executive officer.
SECTION 11. Powers and Duties of Assistant Secretaries. Each assistant
secretary shall have the usual powers and duties pertaining to his office,
together with such other powers and duties as may be assigned to him by the
secretary, and may exercise the powers of the secretary during that officer's
absence or inability to act. Any action taken by an assistant secretary in the
performance of the duties of the secretary shall be conclusive evidence of the
absence or inability to act of the secretary at the time such action was taken.
SECTION 12. Powers and Duties of Assistant Treasurers. Each assistant
treasurer shall have the usual powers and duties pertaining to his office,
together with such other powers and duties as may be assigned to him by the
treasurer, and may exercise the powers of the treasurer during that officer's
absence or inability to act. Any action taken by an assistant treasurer in the
performance of the duties of the treasurer shall be conclusive evidence of the
absence or inability to act of the treasurer at the time such action was taken.
ARTICLE VI.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. Actions. The company shall indemnify any person who was or is a
named defendant or respondent or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative (including any action
by or in the right of the company), or any appeal of such action, suit or
proceeding and any inquiry or investigation that could lead to such an action,
suit or proceeding, by reason of the fact that he is or was a director, officer
or employee of the company, or is or was serving at the request of the company
as a director, officer, partner, venturer, proprietor, trustee, employee, or
similar functionary of another foreign or domestic corporation or non-profit
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other enterprise (any such person acting in any such capacity
being hereinafter referred to as "potential indemnitee"), against judgments,
penalties (including excise and similar taxes), fines, amounts paid in
settlement, and reasonable expenses (including court costs and attorneys' fees)
actually incurred by him in connection with such action, suit or proceeding, if
he acted in good faith and in a manner he reasonably believed, (i) in the case
of conduct in his official capacity as a director of the company, to be in the
best interests of the company and (ii) in all other cases, to be not opposed to
the best interests of the company; and, with respect to any criminal action or
proceeding, if he had no reasonable cause to believe his conduct was unlawful;
provided, however, that in connection with any action, suit or proceeding in
which the person shall have been adjudged to be liable to the company or liable
on the basis that personal benefit was improperly received by him, whether or
not the benefit resulted from an action taken in the person's official capacity
as a director or officer, (i) indemnification shall be limited to reasonable
expenses (including court costs or attorneys' fees) actually incurred in
connection with such proceeding, and (ii) indemnification shall be prohibited,
if the person is found liable for willful or intentional misconduct in the
performance of his duty to the company. The termination of
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any action, suit or proceeding by judgment, order, settlement, or conviction,
or on a plea of nolo contendere or its equivalent shall not, of itself, create
a presumption that the person did not act in good faith and in a manner which
he reasonably believed to be in the best interests of the company; and, with
respect to any criminal action or proceeding, shall not create a presumption
that the person had reasonable cause to believe that his conduct was unlawful.
SECTION 2. Success on Merits or 0therwise. Where a potential indemnitee
has been wholly successful, on the merits or otherwise, in defense of any such
action, suit or proceeding, he shall be indemnified against reasonable expenses
(including court costs and attorneys' fees) actually incurred by him in
connection therewith.
SECTION 3. Determination that Indemnification is Proper. Any
indemnification under Section 1 of this article (unless otherwise ordered by a
court of competent jurisdiction) shall be made by the company only as
authorized in a specific case upon a determination that the applicable standard
of conduct has been met. Such determination shall be made (i) by the board of
directors by a majority vote of a quorum consisting of directors who at the
time of the vote have not been named as defendants or respondents in such
action, suit or proceeding, or (ii) if such a quorum cannot be obtained, by a
majority vote of a committee of the board of directors, designated to act in
the matter by a majority vote of all directors, consisting solely of two or
more directors who at the time of the vote are not named defendants or
respondents in such action, suit or proceeding, or (iii) by special legal
counsel selected by the board of directors (or a committee thereof) by vote in
the manner set forth in subparagraphs (i) and (ii) of this Section 3, or if
such a quorum cannot be obtained and such a committee cannot be established, by
a majority vote of all directors, or (iv) by the shareholders in a vote that
excludes the shares held by any director who is named as a defendant or
respondent in such action, suit or proceeding.
SECTION 4. Expenses Prior to Final Disposition. Reasonable expenses
incurred by a director, officer, or employee of the company or other person
entitled to indemnity hereunder, who was, is or is threatened to be made a
named defendant or respondent in any such action, suit or proceeding described
in Section 1 shall be paid by the company in advance of the final disposition
thereof upon receipt of a written affirmation by the director, officer,
employee or other person of his good faith belief that he has met the standard
of conduct necessary for indemnification under this article and a written
undertaking by or on behalf of the director, officer, employee or other person
to repay such amount if it is ultimately determined that the person has not met
such necessary standard of conduct or that indemnification is prohibited by
Section 1 of this article. Determinations with respect to payments under this
Section 4 shall be made in the manner specified by Section 3 for determining
that indemnification is permissible, except as otherwise provided by law.
SECTION 5. Nonexclusive Rights-Continuance Beyond Tenure. The
indemnification provided by this article shall not be deemed (i) to be
exclusive of any other rights consistent with law to which the person
indemnified may be entitled under the articles of incorporation of the company,
bylaws, any general or specific action of the board of directors, agreement,
authorization of shareholders, or otherwise, or as may be permitted or required
by law, both as to action in his official capacity as a director and as to
action in another capacity while holding such office, or (ii) to be a
limitation upon the power of the company to indemnify and to advance expenses,
consistent with law.
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The indemnification provided by this article shall continue as to a person
who has ceased to be a director, officer, or employee of the company or other
person entitled to indemnity hereunder or to serve in such other capacity in
which he was entitled to indemnification hereunder, and shall inure to the
benefit of his heirs and legal representatives.
SECTION 6. Insurance Authorized. Subject to any restrictions now or
hereafter established by applicable law, the company shall have power to
purchase and maintain insurance on behalf of any person who is or was a
director, officer, or employee of the company or who is or was serving at the
request of the company as a director, officer, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of another foreign or domestic
corporation or non-profit corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, against any
liability asserted against him and incurred by him in such a capacity or
arising out of his status as such a person, whether or not the company would
have the power to indemnify him against that liability under the provisions of
this article or the Texas Business Corporation Act.
SECTION 7. Definitions. For purposes of this article, references to "the
company" include any domestic or foreign predecessor entity of the company in a
merger, consolidation, or other transaction in which the liabilities of the
predecessor are transferred to the company by operation of law and in any other
transaction in which the company assumes the liabilities of the predecessor but
does not specifically exclude liabilities that are the subject matter of this
article. For purposes of this article, references to "serving at the request of
the company" shall include any service as a director, officer or employee of
the company which imposes duties on, or involves services by, such director,
officer or employee with respect to an employee benefit plan, its participants
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the company" as referred to in this article.
SECTION 8. Expenses as Witness. Notwithstanding any other provision of
this article, the company may pay or reimburse expenses incurred by any
director, officer, or employee of the company or any other potential indemnitee
hereunder in connection with his appearance as a witness or other participation
in any action, suit or a proceeding described in Section 1 at a time when he is
not a named defendant or respondent in such action, suit or proceeding.
SECTION 9. Notice to Shareholders. Any indemnification of or advance of
expenses to a director in accordance with this article shall be reported in
writing to the shareholders of the company with or before the notice or waiver
of notice of the next shareholders' meeting or with or before the next
submission to shareholders of a consent to action without a meeting and, in any
case, within the twelve-month period immediately following the date of the
indemnification or advance.
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ARTICLE VII.
Miscellaneous Provisions
SECTION 1. Registered Office. Unless the board of directors otherwise
determines, the registered office of the company, required by the Texas
Business Corporation Act to be maintained in the State of Texas, shall be the
principal place of business of the company, but such registered office may be
changed from time to time by the board of directors in the manner provided by
law and need not be identical to the principal place of business of the
company.
SECTION 2. Books and Records. Correct and complete books and records of
account of the company and the minutes of the proceedings of its shareholders,
board of directors, and each committee of its board of directors shall be kept
at the registered office of the company. Records of the original issuance of
shares issued by the company and of each transfer of those shares that have
been presented for registration of transfer shall be kept at the registered
office of the company or at the office of its principal transfer agent or
registrar. A record of the past and present shareholders of the company, giving
the names and addresses of all such shareholders and the number of shares of
each class and series of stock held by each, shall also be kept at the
registered office of the company or at the office of its principal transfer
agent or registrar. Any books, records, and minutes may be in written form or
in any other form capable of being converted into written form within a
reasonable time. Any person who shall have been a holder of record of shares
for at least six (6) months immediately preceding his demand, or who shall be
the holder of record of at least five percent (5%) of all the outstanding
shares of the company, upon written demand stating the purpose thereof, or any
director of the company shall have the right to examine, in person or by agent,
accountant, or attorney, at any reasonable time or times, for any proper
purpose, its relevant books and records of account, minutes, and share transfer
records, and to make extracts therefrom.
SECTION 3. Action Without Meeting and Telephone Meetings. Any action
permitted, or required by law, these bylaws, or the articles of incorporation
of the company, to be taken at a meeting of the board of directors or of any
committee thereof may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the members of the board of
directors or of such committee, as the case may be. Such consent shall have the
same force and effect as a unanimous vote at a meeting.
Subject to the notice requirements of these bylaws, members of the board
of directors or of any committee created by the board of directors may
participate in and hold a meeting of such board or committee by means of
conference telephone or similar communications equipment, including
teleconferencing via a satellite communications system, provided all persons
participating in the meeting can hear each other.
SECTION 4. Fiscal Year. The fiscal year of the company shall be the
calendar year.
SECTION 5. Seal. The seal of the company shall be such as from time to
time may be approved by the board of directors.
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SECTION 6. Notice and Waiver of Notice. Whenever any notice is required to
be given under the provisions of these bylaws, said notice shall be deemed to
be sufficient if given by depositing the same in a post office box in a sealed
postpaid wrapper addressed to the person entitled thereto at his post office
address, as it appears on the records of the company, and such notice shall be
deemed to have been given on the day of such mailing. A waiver of notice,
signed by the person or persons entitled to said notice, whether before or
after the date and time stated therein, shall be deemed equivalent thereto.
SECTION 7. Resignations. Any director or officer may resign at any time.
Such resignation shall be made in writing and shall take effect at the time
specified therein, or if no time be specified, at the time of its receipt by
the chairman of the board, the president, or the secretary. The acceptance of a
resignation shall not be necessary to make it effective, unless expressly so
provided in the resignation.
SECTION 8. Securities of Other Corporations. The board of directors shall
by resolution designate the officers of the company who shall have power and
authority to transfer, endorse for transfer, vote, or consent to or take any
other action with respect to any securities of another issuer which may be held
or owned by the company and to make, execute, and deliver any waiver, proxy, or
consent with respect to any such securities.
SECTION 9. Investments and Loans. Investments and loans of the company
shall be made pursuant and subject to the provisions of the law.
SECTION 10. Execution of Contracts and Other Instruments. All contractual
or obligatory undertakings, including but not limited to deeds, conveyances,
transfers, and releases, shall be signed by, (a) the chairman of the board, a
vice chairman of the board, the president, or a vice president, or (b) any
attorney-in-fact or agent of the company who has been, or at any time in the
future may be, appointed by the chairman of the board, a vice chairman of the
board, the president, or a vice president, and by the company secretary or an
assistant secretary. When necessary, such instruments may have the corporate
seal affixed and may be attested by the secretary or an assistant secretary.
Checks may be signed by the chairman of the board, a vice chairman of the
board, the president, a vice president, the secretary, the treasurer, or any
other person who may be authorized by the board of directors or the chief
executive officer.
SECTION 11. Rules and Regulations. Rules and regulations for the conduct
of the company's business not in conflict with these bylaws may be adopted by
the executive committee by resolution duly recorded in the minutes of the
committee; provided, however, that such action may be modified or abrogated by
the board of directors.
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ARTICLE VIII.
Amendments
Unless otherwise provided in the Articles of Incorporation, the power to
alter, amend, or repeal these bylaws or adopt new bylaws shall be vested in the
full board of directors subject, however, to repeal or change by action of the
affirmative vote of the holders of at least seventy-five percent (75%) of the
then outstanding shares of all classes of stock of the company entitled to vote
generally in election of directors, voting together as a single class.
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<PAGE> 1
AMENDMENT TO
AMERICAN GENERAL CORPORATION
1984 STOCK AND INCENTIVE PLAN
WHEREAS, AMERICAN GENERAL CORPORATION and its shareholders have heretofore
adopted the AMERICAN GENERAL CORPORATION 1984 STOCK AND INCENTIVE PLAN (the
"Plan") for the benefit of certain eligible individuals; and
WHEREAS, Section 12 of the Plan allows AMERICAN GENERAL CORPORATION to
amend the Plan (subject to the limitations expressed therein);
NOW, THEREFORE, the Plan shall be amended effective as of January 20, 2000,
as follows:
1. The following shall be added as subparagraph (q) to Section 2:
"(q) Immediate Family" means, with respect to a Holder, the
Holder's spouse, children or grandchildren (including adopted
children, step children and grandchildren)."
2. Subparagraph (f) to Section 7 shall be modified to read in its
entirety, as follows:
"(e) An Incentive Stock Option shall not be transferable or
assignable otherwise than by will or the laws of descent and
distribution."
3. The following shall be added as subparagph (d) to Section 13 :
"(d) Restrictions on Transfer. An Award (other than an
Incentive Stock Option, which shall be subject to the transfer
restrictions set forth in Section 7(f)) 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 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."
4. As amended hereby, the Plan is specifically ratified and
reaffirmed.
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<PAGE> 2
EXECUTED by the undersigned officer as of January 20, 2000.
AMERICAN GENERAL CORPORATION
By: /S/ JON P. NEWTON
Jon P. Newton
Vice Chairman
-2-
<PAGE> 1
AMERICAN GENERAL CORPORATION
1984 STOCK AND INCENTIVE PLAN,
RESTATED AS OF FEBRUARY 8, 1994,
AS FURTHER AMENDED AND RESTATED
AS OF FEBRUARY 1, 1998
WHEREAS, AMERICAN GENERAL CORPORATION and its shareholders have heretofore
adopted the above-captioned stock and incentive plan (the "1994 Plan") for the
benefit of certain eligible individuals; and
WHEREAS, Section 12 of the 1994 Plan allows AMERICAN GENERAL CORPORATION
to amend the 1994 Plan (subject to the limitations expressed therein);
NOW, THEREFORE, the Plan shall be amended effective as of January 20,
1999, as follows:
1. The following subparagraph (i) shall be added to Section 7 of the
1994 Plan:
"(i) Reload Options. The Committee (concurrently with the grant of an
Option or subsequent to such grant) may, in its sole discretion, provide
in an Option Grant Document respecting an Option that, if the Holder
pays the costs associated with exercising such Option in shares of
Common Stock, upon the date of such payment a new option shall be
granted under this Plan or under another available plan. The number of
shares of Common Stock subject to such new option shall be equal to the
number of shares of Common Stock tendered in payment. The new option
shall not be exercisable after the original term of the exercised
Option."
2. As amended hereby, the 1994 Plan is specifically ratified and
reaffirmed.
EXECUTED by the undersigned officer as of January 20, 1999.
AMERICAN GENERAL CORPORATION
By: /S/ JON P. NEWTON
Jon P. Newton
Vice Chairman
<PAGE> 1
AMERICAN GENERAL CORPORATION
1984 STOCK AND INCENTIVE PLAN,
RESTATED AS OF FEBRUARY 8, 1994,
AS FURTHER AMENDED AND RESTATED
AS OF FEBRUARY 1, 1998
WHEREAS, AMERICAN GENERAL CORPORATION and its shareholders have heretofore
adopted the above-captioned stock and incentive plan (the"1994 Plan") for the
benefit of certain eligible individuals; and
WHEREAS, Section 12 of the 1994 Plan allows AMERICAN GENERAL CORPORATION
to amend the 1994 Plan (subject to the limitations expressed therein);
NOW, THEREFORE, the 1994 Plan shall be amended effective as of January 20,
2000, as follows:
1. The following shall be added as subparagraph (q) to Section 2:
"(q) Immediate Family" means, with respect to a Holder, the
Holder's spouse, children or grandchildren (including adopted
children, step children and grandchildren)."
2. Subparagraph (e) to Section 7 shall be modified to read in its
entirety, as follows:
"(e) An Incentive Stock Option shall not be transferable or
assignable otherwise than by will or the laws of descent and
distribution."
3. The following shall be added as subparagph (d) to Section 13 :
"(d) Restrictions on Transfer. An Award (other than an
Incentive Stock Option, which shall be subject to the transfer
restrictions set forth in Section 7(e)) 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 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."
4. As amended hereby, the 1994 Plan is specifically ratified and
reaffirmed.
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<PAGE> 2
EXECUTED by the undersigned officer as of January 20, 2000.
AMERICAN GENERAL CORPORATION
By: /S/ JON P. NEWTON
Jon P. Newton
Vice Chairman
-2-
<PAGE> 1
AMENDMENT TO
AMERICAN GENERAL CORPORATION
1997 STOCK AND INCENTIVE PLAN
WHEREAS, AMERICAN GENERAL CORPORATION and its shareholders have
heretofore adopted the AMERICAN GENERAL CORPORATION 1997 STOCK AND INCENTIVE
PLAN (the "Plan") for the benefit of certain eligible individuals; and
WHEREAS, Section 12 of the Plan allows AMERICAN GENERAL CORPORATION to
amend the Plan (subject to the limitations expressed therein);
NOW, THEREFORE, the Plan shall be amended effective as of January 20,
1999, as follows:
1. The following subparagraph (h) shall be added to Section 7 of the
Plan:
"(h) Reload Options. The Committee (concurrently with the grant of an
Option or subsequent to such grant) may, in its sole discretion, provide
in an Option Grant Document respecting an Option that, if the Holder
pays the costs associated with exercising such Option in shares of
Common Stock, upon the date of such payment a new option shall be
granted under this Plan or under another available plan. The number of
shares of Common Stock subject to such new option shall be equal to the
number of shares of Common Stock tendered in payment. The new option
shall not be exercisable after the original term of the exercised
Option. "
2. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED by the undersigned officer as of January 20, 1999.
AMERICAN GENERAL CORPORATION
By: /S/ JON P. NEWTON
Jon P. Newton
Vice Chairman
<PAGE> 1
FIRST AMENDMENT TO
AMERICAN GENERAL CORPORATION
1999 STOCK INCENTIVE PLAN
WHEREAS, AMERICAN GENERAL CORPORATION and certain of its affiliates have
heretofore adopted the AMERICAN GENERAL 1999 STOCK AND INCENTIVE PLAN (the
"Plan") for the benefit of certain eligible individuals; and
WHEREAS, AMERICAN GENERAL CORPORATION may amend the Plan on behalf of
itself and its Affiliates;
NOW, THEREFORE, the Plan shall be amended as of its effective date,
January 21, 1999, as follows:
1. Section 12 is deleted in its entirety and replaced with the following:
"12. AMENDMENT AND TERMINATION OF THE PLAN
The Board may amend the Plan at any time and the Committee may
amend an 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 (a) the Board may not, without
approval of the shareholders, amend the Plan (i) to increase the maximum
aggregate number of shares which may be issued under the Plan or (ii) to
change the class of individuals eligible to receive Awards under the Plan
and (b) the Committee may not, without approval of the shareholders,
amend any outstanding Stock Options to lower the Option Price (or cancel
and replace any outstanding Stock Options with new Stock Options having a
lower Option Price). Subject to the last sentence of Section 3 hereof,
the Board, in its discretion, may terminate the Plan at any time."
2. Section 11 is deleted in its entirety and replaced with the following:
"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,
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<PAGE> 2
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 the Committee deems such adjustments to be desirable,
except that the Committee may not, without approval of the shareholders,
amend any outstanding Stock Options to lower the Option Price (or cancel
and replace any outstanding Stock Options with new Stock Options having a
lower Option Price). 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."
3. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED by the undersigned officer of American General Corporation to be
effective as of the 21st day of January, 1999.
AMERICAN GENERAL CORPORATION
By: /S/ JON P. NEWTON
Jon P. Newton
Vice Chairman
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<PAGE> 1
FIRST AMENDMENT TO
AMERICAN GENERAL CORPORATION
DEFERRED COMPENSATION PLAN
WHEREAS, AMERICAN GENERAL CORPORATION and certain of its affiliates have
heretofore adopted the AMERICAN GENERAL CORPORATION DEFERRED COMPENSATION PLAN
(the "Plan") for the benefit of certain eligible individuals;
WHEREAS, in accordance with Section 12.5 of the Plan, the Board of
Directors of American General Corporation (the "Board") approved on January 21,
1999, an amendment to the Plan to include participation by non- employee
directors;
WHEREAS, the Plan Administrator is the administrative Committee appointed
by the Board for the general administration of the Plan; and
WHEREAS, in accordance with Section 8.5 of the Plan, the Plan
Administrator is authorized to supply any omission that may appear in the Plan,
in such manner and to such extent as it shall deem expedient to carry the Plan
into effect for the greatest benefit of all interested parties, and to
determine all questions relating to eligibility; and
WHEREAS, the Plan Administrator has approved certain matters in accordance
with such authority, which are reflected in this Plan amendment;
NOW, THEREFORE, the Plan shall be amended as follows, effective as of
January 21, 1999, to include participation by non-employee directors of
American General Corporation and its affiliates:
1. The following new definition shall be added to Section 1.1 of the Plan:
"(h)(h) Outside Director: A non-employee member of the Board or a
non-employee member of the board of directors of an Affiliate."
2. Section 1.1(k) of the Plan shall be deleted and the following shall be
substituted therefor:
"(k) Eligible Individual: Any individual (i) who is employed by the Company
as the Chairman or as an Executive designated by the Chairman, or
(ii) who is an Outside Director. For all purposes herein, the
'service' of an individual as an Outside Director shall be deemed to
be equivalent to 'employment' with the Company."
3. Section 1.1(s) of the Plan shall be deleted and the following shall be
substituted therefor:
<PAGE> 2
"(s) Retirement: As to a Member who is an Outside Director, cessation of
board service in accordance with the board's mandatory retirement
policy or, in the absence of such a policy, cessation of board
service after age 70; as to a Member who is not an Outside Director,
termination of employment with the Company and its Affiliates on or
after 'normal retirement date' as defined in (i) the American General
Supplemental Executive Retirement Plan, if such Member is
participating therein, (ii) a Supplemental Executive Retirement
Agreement with the Company, if such Member is a party thereto, or
(iii) the American General Retirement Plan (or any successor plan
thereto), if such Member is not so participating and is not such a
party."
4. The last sentence of Section 2.2(a) of the Plan shall be deleted
and the following shall be substituted therefor:
"Notwithstanding any provision herein to the contrary, an Eligible
Individual who first becomes an Eligible Individual on other than the
first day of a Plan Year may become a Member (i) on the first day of the
first pay period coinciding with or next following the date he first
becomes an Eligible Individual, as to a Member who is not an Outside
Director, or (ii) on the first day of the calendar month coinciding with
or next following the date he first becomes an Eligible Individual, as to
a Member who is an Outside Director for the remainder of such Plan Year,
with respect to Deferrals pursuant to Section 3.1(a) by effecting, prior
to or within 30 days after the date he first becomes an Eligible
Individual and within the time period prescribed by the Plan
Administrator, the Deferral election prescribed by the Plan
Administrator."
5. Section 3.1(a)(1) of the Plan shall be deleted and the following
shall be substituted therefor:
"(1) Elect to defer from his Pay a fixed amount of his annual base
salary (or of his annual retainers and/or attendance fees in the case of
an Outside Director) for a Plan Year; and/or"
6. The third sentence of Section 3.1(b) of the Plan shall be deleted
and the following shall be substituted therefor:
"The reduction in a Member's Pay pursuant to Section 3.1(a)(1) shall be
effected by (i) equal Pay reductions each pay period, as to a Member who
is not an Outside Director, and (ii) by equal Pay reductions at the time
annual retainer and/or attendance fees are paid, as to a Member who is an
Outside Director, during the applicable portion of the Plan Year as
determined by the Plan Administrator following the effective date of such
election."
7. Section (iv) of the second sentence of the first paragraph of
Article V of the Plan shall be deleted and the following shall be
substituted therefor:
<PAGE> 3
"(iv) his termination by the Company without 'cause' or by the Member for
'good reason,' as defined in the Member's employment agreement with
American General Corporation, only if the Member is employed by American
General Corporation as the Chairman or a Vice Chairman,"
8. The provision in the third sentence of the first paragraph of
Article V of the Plan shall be deleted and the following shall be
substituted therefor:
", provided that with respect to a Member who is not an Outside Director
the Deferral Awards (and net accretions attributable thereto) for the year
of the year preceding Retirement shall be vested only to the extent such
Deferral Awards (excluding net accretions attributable thereto) do not
exceed the Deferral Awards (excluding net accretions attributable thereto)
for the second and third Plan Years preceding the Plan Year in which
Retirement occurs."
9. The word "Retirement" shall be substituted for the phrase "normal
retirement" in the last sentence of Section 7.2 of the Plan.
10. The second sentence of the first paragraph of Article X of the Plan
shall be deleted and the following shall be substituted therefor:
"The Plan is intended to constitute an unfunded, unsecured plan of
deferred compensation for a select group of management or highly
compensated employees of the Company and for Outside Directors."
11. As amended hereby, the Plan is specifically ratified and
reaffirmed.
EXECUTED this 5th day of January, 2000, by the undersigned member of the
administrative Committee appointed by the Board for the general administration
of the Plan.
By: /S/ JON P. NEWTON
Jon P. Newton
<PAGE> 1
FOURTH AMENDMENT TO THE
RESTORATION OF RETIREMENT INCOME PLAN
FOR CERTAIN EMPLOYEES PARTICIPATING IN THE
RESTATED AMERICAN GENERAL RETIREMENT PLAN
WHEREAS, AMERICAN GENERAL CORPORATION (the "Company") and certain of its
subsidiary companies (the other "Employers") have heretofore adopted the
RESTORATION OF RETIREMENT INCOME PLAN FOR CERTAIN EMPLOYEES PARTICIPATING IN
THE RESTATED AMERICAN GENERAL RETIREMENT PLAN (the "Plan") for the benefit of
their eligible employees; and
WHEREAS, pursuant to the rights granted to the Company in the Plan, the
Company desires to amend the Plan in certain respects on behalf of itself and
on behalf of the other Employers;
NOW, THEREFORE, the Plan is hereby amended as follows:
I. Effective as of July 4, 1998:
1. Section 3 of the Plan shall be deleted and the following shall be
substituted therefor:
"3. Eligibility.
Employees, excluding Career Agents, who are Highly Compensated
Participants who are participating in the Basic Plan, and either (1)
whose pension or pension-related benefits under the Basic Plan are
limited pursuant to section 401(a)(17) or section 415 of the Code or
(2) who are eligible to participate in the American General
Corporation Deferred Compensation Plan, shall be eligible for
benefits under this Restoration Plan. In no event shall an employee
who is not eligible for benefits under the Basic Plan be eligible for
a benefit under this Restoration Plan."
II. As amended hereby, the Plan is specifically ratified and reaffirmed.
EXECUTED this 31st day of December, 1998.
AMERICAN GENERAL CORPORATION
By: /s/ ELIZABETH DOBBS
Name: Elizabeth Dobbs
Title: Vice president - Benefits & Payroll
<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between Western
National Corporation, a Delaware corporation ("Company"), and John A. Graf
("Executive") to be effective as of the Effective Time as hereinafter defined.
WHEREAS, Company and Executive entered into an Employment Agreement dated
February 8, 1994, an Amendment to Employment Agreement dated December 2, 1994,
and a further Amendment to Employment Agreement dated May 14, 1997 (the
"February 8, 1994 Employment Agreement").
WHEREAS, contemporaneously herewith, American General Corporation, which
presently owns certain of the stock of Company, and a subsidiary of American
General Corporation, have entered into an Agreement and Plan of Merger ("Merger
Agreement") with Company pursuant to which American General Corporation shall
acquire all or substantially all of the stock of Company through merger (the
"Merger").
WHEREAS, it is an important element of American General Corporation's
decision to acquire the stock of Company through such merger that Executive
remain employed with Company and provide his personal services to Company in
connection with the operation of Company's business, the creation and
development of Company's products and services, and the marketing of Company's
products and services for at least three years from the date of such
acquisition.
WHEREAS, during the three year Term of this Agreement, Company or AGC (as
such term is herein defined) shall disclose to Executive, or place Executive in
a position to have access to or develop, trade secrets or confidential
information of Company or AGC or their customers or clients; and/or shall
entrust Executive with business opportunities of Company or AGC; and/or shall
place Executive in a position to develop business good will on behalf of
Company or AGC, and there is a need and desire on the part of Company and AGC
and Executive to specify the parties' rights and obligations with respect to
the ownership and protection of such information, opportunities and goodwill.
WHEREAS, Company is desirous of employing Executive pursuant to the terms
and conditions and for the consideration set forth in this Agreement, and
Executive is desirous of continuing in the employ of Company pursuant to such
terms and conditions and for such consideration, subject to the condition
subsequent that the contemplated Merger shall be consummated.
WHEREAS, contemporaneously herewith, Executive and American General
Corporation shall also enter into a Severance Agreement ("Severance
Agreement"). The terms and conditions of such Severance Agreement are
incorporated herein by reference.
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<PAGE> 2
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Company and Executive agree as
follows:
1. Employment and Duties:
1.1. Because of the important nature of Executive's personal services with
respect to the operation of Company's business, the creation and development of
Company's products and services, and the marketing of Company's products and
services, Company agrees to employ Executive, and Executive agrees to be
employed by Company, beginning as of forty-eight hours after the Effective Time
as defined below and continuing thereafter for a Term of three (3) years (the
"Term"), subject to the terms and conditions of this Agreement.
1.2. Commencing as of forty-eight hours after the Effective Time, Company
shall employ Executive in a senior executive or officer capacity with Company
or one of its significant subsidiaries with duties consonant with senior
executive status, but Company may assign Executive to different executive
positions and modify Executive's duties and responsibilities. Company or AGC
may also assign Executive to a position in which he performs services for other
of American General Corporation's subsidiaries or affiliates. Moreover, Company
may assign this Agreement to American General Corporation or any affiliates of
American General Corporation (American General Corporation and any of its
affiliates to which this Agreement is assigned or for whom Executive may
provide services are cumulatively referred to herein as "AGC").
1.3. Executive agrees to serve in the assigned position and to perform
diligently and to the best of Executive's abilities the duties and services
appertaining to such position as determined by Company, as well as such
additional or different duties and services appropriate to such position which
Executive from time to time may be reasonably directed to perform by Company.
Executive shall at all times comply with and be subject to such policies and
procedures as Company or AGC may establish from time to time. Executive shall,
during the period of Executive's employment by Company, devote Executive's full
business time, attention, energy, and best efforts to the business and affairs
of Company. For purposes of this Agreement, full business time shall mean the
normal work week for individuals in comparable executive positions with
Company. Executive may not engage, directly or indirectly, in any other
business, investment, or activity that interferes with Executive's performance
of Executive's duties hereunder, is contrary to the interests of Company or
AGC, or requires any significant portion of Executive's business time.
1.4. Executive acknowledges and agrees that at all times during the
employment relationship Executive owes fiduciary duties to Company and AGC,
including but not limited to the fiduciary duties of the highest loyalty,
fidelity and allegiance to act at all times in the best interests of Company
and AGC, to make full disclosure to Company of all information that pertains to
Company's or AGC's business and interests, to do no act which would injure
Company's or AGC's business, its interests, or its reputation, and to refrain
from using for Executive's own benefit or for the benefit of others any
information or opportunities pertaining to Company's or AGC's business or
interests that are entrusted to Executive or that he learned while employed by
Company or AGC. Executive acknowledges and agrees that upon termination of the
employment relationship, Executive
- Page 2 -
<PAGE> 3
shall continue to refrain from using for his own benefit or the benefit of
others any information or opportunities pertaining to Company's or AGC's
business or interests that were entrusted to Executive during the employment
relationship or that he learned while employed by Company or AGC. Executive
agrees that while employed by Company or AGC and thereafter he shall not
knowingly take any action which interferes with the external relationships
between Company or AGC and third parties.
1.5. It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Company or AGC, or
any of their affiliates, involves a possible conflict of interest. In keeping
with Executive's fiduciary duties to Company and AGC, Executive agrees that
during the employment relationship Executive shall not knowingly become
involved in a conflict of interest with Company or AGC or their affiliates, or
upon discovery thereof, allow such a conflict to continue. Moreover, Executive
agrees that Executive shall disclose to Company's or AGC's President any facts
which might involve such a conflict of interest that has not been approved by
Company's or AGC's President. Company and Executive recognize that it is
impossible to provide an exhaustive list of actions or interests which
constitute a "conflict of interest." Moreover, Company and Executive recognize
there are many borderline situations. In some instances, full disclosure of
facts by Executive to Company's or AGC's President may be all that is necessary
to enable Company or AGC or their affiliates to protect its interests. In
others, if no improper motivation appears to exist and the interests of Company
or AGC or their affiliates have not suffered, prompt elimination of the
outside interest will suffice. In still others, it may be necessary for Company
to terminate the employment relationship. Company and Executive agree that
Company's determination as to whether a conflict of interest exists shall be
conclusive. Company reserves the right to take such action as, in its judgment,
will end the conflict.
2. Compensation and Benefits:
2.1. As compensation for services rendered under this Agreement, Executive
shall receive a base salary of Three Hundred Thousand ($300,000) per year
("Base Annual Salary"), payable in semi-monthly installments in accordance with
Company's or AGC's standard payroll practice for its salaried employees.
Executive's Base Annual Salary may be increased from time to time based upon
his performance. The amounts of any such salary increases shall be approved by
the Personnel Committee of the Board of Directors of American General
Corporation.
2.2. The parties recognize that Company will pay Executive his performance
bonus for the calendar year 1997 prior to the consummation of the Merger. In
addition to Base Annual Salary, Executive shall receive for the calendar years
1998, 1999 and 2000, an annual performance bonus in such amount as may be
determined by the Personnel Committee of the Board of Directors of American
General Corporation in its sole discretion for each year during the Term of
this Agreement. Such annual bonus shall be paid in the March/April time frame
of the following year with the first such payment in the March/April time frame
of 1999 for the calendar year 1998. It is understood and agreed that the amount
of any such bonus shall be determined based upon a consideration of both (i)
the progress and success of the Company as a whole, and (ii) the personal
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<PAGE> 4
performance and contributions made to the success of the Company by Executive.
Finally, it is understood and agreed that there may be years in which the
Personnel Committee determines that no bonus shall be paid.
2.3. In the event that, in connection with the Merger, the acceleration of
the vesting of Executive's stock options or restricted stock in Company, or any
payment, award or distribution under the February 8, 1994 Employment Agreement,
or any payment, award or distribution under this Agreement to or for the
benefit of Executive (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest or
penalties, are hereinafter collectively referred to as the "Excise Tax"),
Company shall pay to Executive an additional payment (a "Gross-up Payment") in
an amount such that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed on any Gross-up Payment, Executive retains an amount of the
Gross-up Payment equal to the Excise Tax imposed upon the Payments. Company and
Executive shall make an initial determination as to whether a Gross-up Payment
is required and the amount of any such Gross-up Payment. Executive shall notify
Company immediately in writing of any claim by the Internal Revenue Service
which, if successful, would require Company to make a Gross-up Payment (or a
Gross-up Payment in excess of that, if any, initially determined by Company and
Executive) within ten days of the receipt of such claim. Company shall notify
Executive in writing at least ten days prior to the due date of any response
required with respect to such claim if it plans to contest the claim. If
Company decides to contest such claim, Executive shall cooperate fully with
Company in such action; provided, however, Company shall bear and pay directly
or indirectly all costs and expenses (including additional interest and
penalties) incurred in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
Company's action. If, as a result of Company's action with respect to a claim,
Executive receives a refund of any amount paid by Company with respect to such
claim, Executive shall promptly pay such refund to Company. If Company fails to
timely notify Executive whether it will contest such claim or Company
determines not to contest such claim, then Company shall immediately pay to
Executive the portion of such claim, if any, which it has not previously paid
to Executive.
2.4. While employed by Company, Executive shall be allowed to participate,
on the same basis generally as other executives of Company, in all general
executive benefit plans and programs, including improvements or modifications
of the same, which on the effective date or thereafter are made available by
Company to other of Company's comparable executives. Such benefits plans, and
programs may include, without limitation, medical, health, and dental care,
life insurance, disability protection, and pension plans. Nothing in this
Agreement is to be construed or interpreted to provide greater rights,
participation, coverage, or benefits under such benefit plans or programs than
provided to similarly situated executives pursuant to the terms and conditions
of such benefit plans and programs.
- Page 4 -
<PAGE> 5
2.5. Company shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
of its medical, health, dental, insurance, disability or other benefit plans or
programs, so long as such actions are similarly applicable to covered employees
generally. Unless specifically provided for in a written plan document adopted
by the Board of Directors of either Company or AGC, none of the benefits or
arrangements described in this Article 2 shall be secured or funded in any
way, and each shall instead constitute an unfunded and unsecured promise to
pay money in the future exclusively from the general assets of Company or AGC.
2.6. Company may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
3. Termination of employment prior to expiration of Term and effects of such
termination:
3.1. [A] Notwithstanding any other provisions of this Agreement, Company
or AGC shall have the right to terminate Executive's employment under this
Agreement at any time prior to the expiration of the Term for cause upon the
determination by Company's Board of Directors or American General Corporation's
Executive Termination Review Committee that cause exists for the termination of
the employment relationship. As used in this Section 3.1, the term cause shall
mean [1] misuse, misappropriation or embezzlement by Executive of funds or
property belonging to Company or AGC, or his use of alcohol or drugs which
interferes with the performance of his duties hereunder or which compromises
the integrity and reputation of Company or AGC, their employees, or their
products or services; [2] Executive's conviction by a court of law, or
admission that he is guilty, of a felony or other crime involving moral
turpitude; [3] Executive's absence from his employment other than as a result
of a disability as defined in Section 3.3 hereof, for whatever cause, for a
period of more than one (1) month, without prior written consent from Company;
[4] Executive becomes incompetent or is reasonably unable to undertake and
discharge the duties and responsibilities of his position, other than as a
result of a disability as defined in Section 3.3 hereof; or [5] Executive's
breach of any provisions of this Agreement, or his gross negligence, willful
malfeasance or fraud or dishonesty in performance of his services on behalf of
Company or AGC pursuant to this Agreement. It is expressly acknowledged and
agreed that the decision as to whether cause exists for termination of the
employment relationship by Company or AGC is delegated to Company's Board of
Directors or American General Corporation's Executive Termination Review
Committee for determination, which decision shall be made in good faith.
[B] Upon a termination of the employment relationship for cause by Company
or AGC prior to expiration of the Term pursuant to this Section, Executive
shall be entitled to receive as a full and final settlement of all obligations
of Company and AGC hereunder his pro rata Base Annual Salary through the date
of such termination, but any and all other compensation to which Executive is
entitled under this Agreement and any and all future benefits for which
Executive is eligible under this Agreement shall cease and terminate, including
but not limited to, Executive shall not be entitled to any bonuses or other
incentive compensation, if any, not yet paid to Executive at the date of such
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termination. Executive shall not be entitled to any severance payment.
Executive's rights under this Section are Executive's sole and exclusive rights
against Company and AGC, and Company's or AGC's sole and exclusive liability to
Executive under this Agreement, in contract, tort, or otherwise, for any
termination for cause of the employment relationship by Company or AGC.
Executive covenants not to lodge any claim, demand, or cause of action against
Company or AGC based on termination for cause of the employment relationship
for any monies allegedly due under this Agreement other than those specified in
this Section. If Executive breaches this covenant, Company or AGC shall be
entitled to recover from Executive all sums expended by Company or AGC
(including costs and attorneys fees) in connection with such suit, claim,
demand, or cause of action.
3.2. The employment relationship under this Agreement shall terminate
automatically upon Executive's death. Upon a termination of the employment
relationship prior to expiration of the Term because of Executive's death,
Executive's administrators, heirs or legatees shall be entitled to receive
Executive's then-current Base Annual Salary as if Executive's employment (which
shall cease on the date of such death) had continued for the full Term of this
Agreement. Company may, at its option, pay such Base Annual Salary in semi-
monthly installments or in a lump sum discounted to present value at the
discount rate then available to Company through its lenders. Executive's
administrators, heirs or legatees shall also be entitled to any individual
bonuses or any individual incentive compensation awarded but not yet paid to
Executive at the date of such termination but Executive's administrators, heirs
or legatees shall not be entitled to any future individual bonuses or any
individual incentive compensation payments not yet awarded (whether or not
allegedly accrued) as of the date of such termination.
3.3. The employment relationship under this Agreement shall terminate
automatically upon Executive becoming permanently and totally unable to perform
Executive's duties for Company or AGC as a result of any medically determinable
physical or mental impairment as supported by a written medical opinion to the
foregoing effect by a physician selected by Company or AGC. Upon such
termination of the employment relationship, Executive shall be paid his pro
rata Base Annual Salary through the date of such termination and Executive
shall thereafter be paid sixty (60%) of his then-current Base Annual Salary on
a semi-monthly basis through the Term of this Agreement as if the employment
relationship had not terminated, reduced by any disability benefits he may
receive under Company's or AGC's disability benefit plans. Executive shall also
be entitled to any individual bonuses or any individual incentive compensation
awarded but not yet paid to Executive at the date of such termination but
Executive shall not be entitled to any future individual bonuses or any
individual incentive compensation payments not yet awarded (whether or not
allegedly accrued) as of the date of such termination. For purposes of this
Section, disability shall not include disabilities arising from (a) chronic use
of intoxicants, drugs or narcotics, (b) intentionally self-inflicted injury or
intentionally self-induced sickness, or (c) a proven unlawful act or enterprise
on the part of Executive.
3.4. [A] Notwithstanding any other provisions of this Agreement, Company
or AGC shall have the right to terminate Executive's employment under this
Agreement at any time prior to the expiration of the Term for any other reason
whatsoever, including termination without cause, in the sole discretion of
Company's Board of Directors or American General Corporation's Executive
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Termination Review Committee. Any termination of the employment relationship by
Company or AGC prior to the expiration of the Term other than a termination
under Section 3.1 for cause shall be deemed to be a termination without cause
pursuant to this Section 3.4.
[B] If Company terminates the employment relationship without cause
pursuant to this Section 3.4, Executive's post-employment non-competition
obligation specified in Section 6.1(i) shall extend only to the date upon which
the Term of this Agreement would have otherwise expired.
[C] Upon termination of the employment relationship by Company or AGC
prior to expiration of the Term pursuant to this Section 3.4, Executive shall
be entitled, in consideration of Executive's continuing obligations hereunder
after such termination (including, without limitation, Executive's
non-competition obligations), to receive his then-current Base Annual Salary as
if Executive's employment (which shall cease on the date of such termination)
had continued for the full Term of this Agreement. Company may, at its option,
pay such Base Annual Salary in semi-monthly installments or in a lump sum
discounted to present value at the discount rate then available to Company
through its lenders. Provided that Executive complies with his continuing
obligations hereunder after such termination, Executive shall also be entitled
to performance bonuses for each of the calendar years 1998, 1999 and 2000 as
follows: As to the bonus for calendar year 1998, if such termination of
employment occurs before the Personnel Committee awards a bonus for calendar
year 1998, the bonus for calendar year 1998 shall be equal to the bonus paid by
Company to Executive for the calendar year 1997. As to the bonus for calendar
year 1999, if such termination of employment occurs before the Personnel
Committee awards a bonus for calendar year 1999, the bonus for calendar year
1999 shall be equal to the average of the bonuses paid by Company to Executive
for calendar years 1997 and 1998. As to the bonus for calendar year 2000, if
such termination of the employment relationship occurs at any time prior to the
end of the Term, the bonus for calendar year 2000 shall be equal to the average
of the bonuses paid by Company to Executive for the calendar years 1997, 1998
and 1999.
[D] Executive shall not be under any duty or obligation to seek or accept
other employment following such termination of the employment relationship and,
subject to Executive complying with his continuing obligations (including
non-competition obligations), the amounts due Executive hereunder shall not be
reduced or suspended if Executive accepts subsequent employment. Executive's
rights under this Section 3.4 are Executive's sole and exclusive rights against
Company or AGC, and Company's and AGC's sole and exclusive liability to
Executive under this Agreement, in contract, tort, or otherwise, for such
termination of the employment relationship by Company or AGC. Executive
covenants not to lodge any claim, demand, or cause of action against Company or
AGC based on such termination of the employment relationship by Company or AGC
for any monies allegedly due under this Agreement other than those specified in
this Section 3.4. If Executive breaches this covenant, Company or AGC shall be
entitled to recover from Executive all sums expended by Company or AGC
(including costs and attorneys fees) in connection with such suit, claim,
demand, or cause of action.
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<PAGE> 8
3.5. [A] Executive shall have the right to terminate the employment
relationship during its Term only for cause, which shall consist only of a
material breach by Company (or AGC if this Agreement is assigned to AGC) of any
material provision of this Agreement which remains uncorrected for thirty (30)
days following written notice of such breach by Executive to Company (or AGC if
this Agreement is assigned to AGC).
[B] If Executive terminates the employment relationship for cause pursuant
to this Section 3.5, Executive's post-employment non-competition obligation
specified in Article 6.1(i) shall extend only to date upon which the Term of
this Agreement would have otherwise expired.
[C] Upon termination of the employment relationship by Executive for
cause prior to expiration of the Term pursuant to this Section 3.5, Executive
shall be entitled, in consideration of Executive's continuing obligations
hereunder after such termination (including, without limitation, Executive's
non-competition obligations) to receive his Base Annual Salary as if
Executive's employment (which shall cease on the date of such termination) had
continued for the full Term of this Agreement. Company may, at its option, pay
such Base Annual Salary in semi-monthly installments or in a lump sum
discounted to present value at the discount rate then available to Company
through its lenders. Executive shall be entitled to bonuses or other incentive
compensation, if any, awarded but not yet paid as of the date of such
termination. Provided that Executive complies with his continuing obligations
hereunder after such termination, Executive shall also be entitled to
performance bonuses for each of the calendar years 1998, 1999 and 2000, even if
no such bonus had been awarded as of the date of such termination, as follows:
As to the bonus for calendar year 1998, if such termination of employment
occurs before the Personnel Committee awards a bonus for calendar year 1998,
the bonus for calendar year 1998 shall be equal to the bonus paid by Company to
Executive for the calendar year 1997. As to the bonus for calendar year 1999,
if such termination of employment occurs before the Personnel Committee awards
a bonus for calendar year 1999, the bonus for calendar year 1999 shall be equal
to the average of the bonuses paid by Company to Executive for calendar years
1997 and 1998. As to the bonus for calendar year 2000, if such termination of
the employment relationship occurs at any time prior to the end of the Term,
the bonus for calendar year 2000 shall be equal to the average of the bonuses
paid by Company to Executive for the calendar years 1997, 1998 and 1999.
[D] Executive shall not be under any duty or obligation to seek or accept
other employment following such termination of the employment relationship and,
subject to Executive complying with his continuing obligations (including
non-competition obligations), the amounts due Executive hereunder shall not be
reduced or suspended if Executive accepts subsequent employment. Executive's
rights under this Section 3.5 are Executive's sole and exclusive rights against
Company or AGC, and Company's and AGC's sole and exclusive liability to
Executive under this Agreement, in contract, tort, or otherwise, for any
actions or inactions giving rise to such termination of the employment
relationship for cause by Executive. Executive covenants not to lodge any
claim, demand, or cause of action against Company or AGC based on such
termination of the employment relationship for cause by Executive for any
monies allegedly due under this Agreement other than those specified in this
Section 3.5. If Executive breaches this covenant, Company or AGC shall be
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<PAGE> 9
entitled to recover from Executive all sums expended by Company or AGC
(including costs and attorneys fees) in connection with such suit, claim,
demand, or cause of action.
3.6. Termination of the employment relationship shall not terminate those
obligations imposed by this Agreement which are continuing in nature,
including, without limitation, Executive's continuing obligations of
confidence, Executive's continuing obligations with respect to business
opportunities that had been entrusted to Executive by Company or AGC during the
employment relationship, and Executive's obligations under Articles 5 and 6.
4. Continuation of Employment beyond Term; Termination and Effects of
Termination:
4.1. Should Executive remain employed by Company or AGC beyond the
expiration of the Term, such employment shall automatically convert to an
at-will relationship terminable at any time by either Company or AGC or
Executive for any reason whatsoever, with or without cause. Upon such
termination of the employment relationship by either Company or AGC or
Executive for any reason whatsoever, all future compensation to which Executive
is entitled and all future benefits for which Executive is eligible shall cease
and terminate. Executive shall be entitled to pro rata salary through the date
of such termination. Executive shall also be entitled to bonuses or other
incentive compensation, if any, awarded but not yet paid as of the date of such
termination, but Executive shall not be entitled to any future individual
bonuses or any individual incentive compensation payments not yet awarded
(whether or not allegedly accrued) as of the date of such termination.
5. Ownership and Protection of Information; Copyrights:
5.1. All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, and all expressions of ideas, which are
created, conceived, made, developed or acquired by Executive, individually or
in conjunction with others, during Executive's employment by Company or AGC
(whether during business hours or otherwise and whether on Company's or AGC's
premises or otherwise), whether tangible or intangible, which relate to
Company's or AGC's business, products or services (including, without
limitation, all such information relating to corporate opportunities, insurance
or annuity products, research, financial and sales data, pricing and trading
terms, evaluations, opinions, interpretations, acquisition prospects, the
identity of customers or their requirements, the identity of key contacts
within the customer's organizations or within the organization of acquisition
prospects, or marketing and merchandising techniques, prospective names, and
marks) shall be disclosed to Company or AGC. Executive acknowledges that he has
heretofore disclosed all such information, ideas, concepts, improvements,
discoveries, and inventions, as well as all expressions of ideas, to Company.
5.2. All such information, ideas, concepts, improvements, discoveries, and
inventions identified in Section 5.1 are and shall be the sole and exclusive
property of Company or AGC if this Agreement has been assigned to AGC.
Moreover, if, during Executive's employment by Company or AGC, Executive
creates any work of authorship fixed in any tangible medium of expression which
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<PAGE> 10
is the subject matter of copyright (such as videotapes, written presentations,
or acquisitions, computer programs, E-mail, voicemail, electronic databases,
drawings, maps, architectural renditions, models, manuals, brochures, or the
like) relating to Company's or AGC's business, products, or services, whether
such work is created solely by Executive or jointly with others (whether
during business hours or otherwise and whether on Company's or AGC's premises
or otherwise), Company or AGC, if this Agreement has been assigned to AGC,
shall be deemed the author of such work if the work is prepared by Executive
in the scope of Executive's employment; or, if the work is not prepared by
Executive within the scope of Executive's employment but is specially ordered
by Company or AGC as a contribution to a collective work, as a part of a
motion picture or other audiovisual work, as a translation, as a supplementary
work, as a compilation, or as an instructional text, then the work shall be
considered to be work made for hire and Company or AGC, as the case may be,
shall be the author of the work. If such work relating to Company's or AGC's
business, products, or services is neither prepared by Executive within the
scope of Executive's employment nor a work specially ordered that is deemed to
be a work made for hire, then Executive hereby agrees to assign, and by these
presents does assign, to Company or AGC, as the case may be, all of
Executive's worldwide right, title, and interest in and to such work and all
rights of copyright therein. Additionally, all documents drawings, memoranda,
notes, records, files, correspondence, manuals, models, specifications,
computer programs, E-mail, voice mail, electronic databases, maps and all
other writings or materials of any type embodying any of such information,
ideas, concepts, improvements, discoveries, inventions and/or copyrightable
expressions are and shall be the sole and exclusive property of Company or AGC.
Executive acknowledges that Company is the owner of all such information,
ideas, concepts, improvements, discoveries, inventions and/or copyrightable
expressions that he heretofore created, conceived, made, developed or acquired
while employed by Company.
5.3. Executive will not, at any time during or after Executive's
employment by Company or AGC, make any unauthorized disclosure of any
confidential business information or trade secrets of Company or AGC, or make
any use thereof, except in the carrying out of Executive's employment
responsibilities hereunder. As a result of Executive's employment by Company or
AGC, Executive shall also from time to time have access to, or knowledge of,
confidential business information or trade secrets of third parties, such as
customers, suppliers, partners, joint venturers, and the like, of Company or
AGC. Executive also agrees to preserve and protect the confidentiality of such
third party confidential information and trade secrets to the same extent, and
on the same basis, as Company's confidential business information and trade
secrets. Upon termination of the employment relationship for any reason,
Executive promptly shall deliver to Company or AGC all documents and things
containing Company or AGC's trade secrets or confidential information.
Executive may disclose those aspects of Company's or AGC's confidential
information as Executive has received the written advice of counsel that such
disclosure thereof is necessary under applicable federal, state, local, or
foreign law or other regulations applicable to Executive (including, without
limitation, any confidential information that Executive is legally compelled to
disclose as a result of depositions, interrogatories, request for documents,
subpoenas, civil investigative demands, or similar processes), provided,
however, that Executive has first provided Company or AGC with prompt prior
written notice of such requirement so that Company or AGC may seek a protective
order or other appropriate remedy and/or waive compliance with the terms of
this Agreement. In the
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<PAGE> 11
event that such protective order or other remedy is not obtained, or that
Company or AGC does not waive compliance with the provisions hereof, Executive
agrees to furnish only that portion of Company's or AGC's confidential
information which Executive is advised in writing by his counsel is legally
required to be disclosed and to exercise all reasonable efforts to obtain
assurance that confidential treatment will be accorded such confidential
information.
5.4. Both during the period of Executive's employment by Company or AGC
and thereafter, Executive shall assist Company or AGC and their nominees, at
any time, in the protection of Company's and AGC's worldwide right, title, and
interest in and to information, ideas, concepts, improvements, discoveries, and
inventions, and its copyrighted works, including without limitation, the
execution of all formal assignment documents requested by Company or AGC or
their nominees and the execution of all lawful oaths and applications for
applications for patents and registration of copyright in the United States and
foreign countries.
5.5. Executive acknowledges that money damages would not be sufficient
remedy for any breach of this Article 5 by Executive, and Company or AGC shall
be entitled to enforce the provisions of this Article 5 by terminating any
payments then owing to Executive under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any threatened
breach. Such remedies shall not be deemed the exclusive remedies for a breach
of this Article 5, but shall be in addition to all remedies available at law or
in equity to Company or AGC, including the recovery of damages from Executive
and his agents involved in such breach.
6. Non-Competition and Non-Solicitation Obligations:
6.1. As part of the consideration for the compensation and benefits to be
paid to Executive hereunder; to protect the trade secrets and confidential
information of Company or AGC or their subsidiaries or affiliates that have
been and will in the future be disclosed or entrusted to Executive, the
business good will of Company or AGC or their subsidiaries or affiliates that
has been and will in the future be developed in Executive, or the business
opportunities that have been and will in the future be disclosed or entrusted
to Executive by Company or AGC or their subsidiaries or affiliates; and as an
additional incentive for Company and AGC to enter into this Agreement,
Executive agrees to the non-competition obligations hereunder: Executive shall
not, anywhere in the United States or any other country in which Company (or
the AGC company for whom Executive may be working at the time of the
termination of the employment relationship) is offering financial services as
of the date of the termination of the employment relationship, directly or
indirectly for himself or for others, (i) in any manner compete with Company or
any subsidiary or affiliate of AGC by whom Executive was employed at any time
during the twelve months preceding the termination of the employment
relationship, (ii) solicit or attempt to convert to other financial service
companies providing the same or similar products or services provided by
Company or AGC, any customers or policyholders of Company or AGC; or (iii)
solicit for employment or employ any employee of Company or AGC. Except as
provided in Article 8, these obligations owed by Executive to Company and AGC
shall extend throughout the Term of this Agreement and, except as otherwise
provided in Sections 3.4 or 3.5, for a period of two (2) years following
termination of the employment relationship for whatever reason.
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6.2. Executive understands that the foregoing restrictions may limit
Executive's ability to engage in certain businesses in the areas specified
above during the period provided for above, but acknowledges that Executive
will receive sufficiently high remuneration and other benefits under this
Agreement to justify such restriction. Executive acknowledges that money
damages would not be sufficient remedy for any breach of this Article 6 by
Executive, and Company or AGC shall be entitled to enforce the provisions of
this Article 6 by terminating any payments then owing to Executive under this
Agreement and/or to specific performance and injunctive relief as remedies for
such breach or any threatened breach. Such remedies shall not be deemed the
exclusive remedies for a breach of this Article 6, but shall be in addition to
all remedies available at law or in equity to Company or AGC, including,
without limitation, the recovery of damages from Executive and Executive's
agents involved in such breach.
6.3. It is expressly understood and agreed that Company and Executive
consider the restrictions contained in this Article 6 to be reasonable and
necessary to protect the trade secrets and confidential information of Company
or AGC or their subsidiaries or affiliates, the business good will of Company
or AGC or their subsidiaries or affiliates developed in Executive, and/or the
business opportunities disclosed or entrusted to Executive by Company or AGC or
their subsidiaries or affiliates. Nevertheless, if any of the aforesaid
restrictions are found to be unreasonable, or overly broad as to geographic
area or time, or otherwise unenforceable, the parties intend for the
restrictions therein set forth to be modified so as to be reasonable and
enforceable and, as so modified, to be fully enforced.
6.4. These duties and obligations of Executive specified in this Article 6
are not exclusive. Executive owes Company and AGC the duties and obligations
agreed to elsewhere in this Agreement and as are imposed by the law, e.g., the
duty to refrain from tortiously interfering with Company's and AGC's
contractual and business relationships with others.
7. Condition Subsequent, Effective Time, and Termination of February 8, 1994
Employment Agreement with Company:
7.1. Notwithstanding any provision in this Agreement to the contrary, it
is a condition subsequent to the execution and delivery of this Agreement that
the Merger, as such term is defined in the Merger Agreement, must be
consummated. If the Merger Agreement is terminated without consummation of the
Merger, then this Agreement shall be of no further force and effect and shall
be void ab initio.
7.2. This Agreement shall be effective as of forty-eight (48) hours after
the Effective Time of the Merger, which term shall have the same meaning as
assigned to such term in the Merger Agreement.
7.3. Executive waives any claim he may have against Company under the
February 8, 1994 Employment Agreement, including but not limited to claims for
future salary, control termination payments, severance allowance, or bonuses.
As of forty-eight hours after the Effective Time, any and all prior or existing
employment agreements between Executive and Company shall
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be canceled and terminated, including the February 8, 1994 Employment
Agreement, and are replaced and superseded by this Agreement and the
accompanying Severance Agreement.
8. Conversion of employment relationship to at-will and release of certain
duties and obligations upon a Change of Control as specified in Severance
Agreement:
8.1. Upon the occurrence of a Change of Control as specified in the
Severance Agreement, the employment relationship under this Agreement shall
immediately automatically convert to an at-will relationship terminable by
either Company or AGC or Executive at any time for any reason whatsoever, with
or without cause, and Executive is released from his post-employment
obligations specified in Article 6. The economic effect of any subsequent
termination of the employment relationship by Company or AGC without cause
shall be governed by Section 4.1. The economic effect of a subsequent
termination of the employment relationship by virtue of Executive's death or
disability shall continue to be governed by Sections 3.2 or 3.3, respectively,
through the remainder of what was the Term of the Agreement. The economic
effect of a subsequent termination of the employment relationship for cause by
Company or AGC shall continue to be governed by Section 3.1. The economic
effect of any subsequent termination of the employment relationship by
Executive for any reason shall be governed by Section 4.1. In all cases,
Executive shall also be entitled to the benefits of the Severance Agreement, if
applicable; however, in no event is it intended that a termination of the
employment relationship following a Change of Control will result in Executive
receiving both post-employment payments under this Agreement and under the
severance Agreement. If at the time of a Change of Control of American General
Corporation it owns none of the stock of Company and this Agreement has not
been assigned to American General Corporation, this Section 8.1 shall have no
application.
9. Miscellaneous:
9.1. For purposes of this Agreement the terms "affiliates" or "affiliated"
means an entity who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with AGC or Company.
9.2. American General Corporation shall be a third party beneficiary of
Executive's obligations under this Agreement and is delegated certain authority
under this Agreement. Prior to this Agreement taking effect as specified in
Section 7.2, Company and Executive shall not amend this Agreement without the
express, prior written consent of American General Corporation.
9.3. For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
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If to Company, to: Western National Corporation
5555 San Felipe, Suite 900
Houston, Texas 77098
Attention: Chief Executive Officer
With a copy to: American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
If to Executive, to John A. Graf
6340 Brompton
Houston, Texas 77005
Either Company or AGC or Executive may furnish a change of address to the other
in writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
9.4. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
9.5. (a) Except for equitable relief as specified in Section 9.6, all
claims, demands, causes of action, disputes, controversies, and other matters
in question arising out of or relating to this Agreement, any provision
hereof, the alleged breach thereof, or in any way relating to the subject
matter of this Agreement involving Executive, Company, AGC and/or their
respective representatives, even though some or all of such claims allegedly
are extra-contractual in nature, whether such claims sound in contract, tort,
or otherwise, at law or in equity, under state or federal law, whether provided
by statute or the common law, for damages or any other relief, shall be
resolved by binding arbitration pursuant to the Federal Arbitration Act in
accordance with the Employment Dispute Resolution Rules then in effect with the
American Arbitration Association. The arbitration proceeding shall be conducted
in Houston, Texas. This agreement to arbitrate shall be enforceable in either
federal or state court.
(b) The enforcement of this agreement to arbitrate and all procedural
aspects of this agreement to arbitrate, including but not limited to, the
construction and interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e., arbitrability), the scope of the arbitrable
issues, allegations of waiver, delay or defenses to arbitrability, and the
rules governing the conduct of the arbitration, shall be governed by and
construed pursuant to the Federal Arbitration Act and shall be decided by the
arbitrators. In deciding the substance of any such claims, the arbitrators
shall apply the substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might call for the application of some other
state's law); provided, however, it is expressly agreed that the arbitrators
shall have no authority to award treble, exemplary, or punitive damages under
any circumstances regardless of whether such damages may be available under
Texas law, the parties
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hereby waiving their right, if any, to recover treble, exemplary, or punitive
damages in connection with any such claims. If any party to this Agreement
institutes arbitration to enforce the terms of this Agreement, the party who
prevails in such arbitration, whether plaintiff or defendant, in addition to
the remedy or relief obtained in such arbitration proceeding shall be entitled
to recover its, his, or her expenses incurred in connection with such
arbitration proceeding, including, without limitation, arbitrators and
attorneys fees, and the arbitrators are authorized to so award such costs and
fees.
(c) The arbitration may be initiated by any party by providing to the
other parties a written notice of arbitration specifying the claims. Within 30
days of the notice of initiation of the arbitration procedure, (1) Executive
shall denominate one arbitrator and (2) Company (together with AGC, if
appropriate) shall denominate one arbitrator. The two arbitrators shall select
a third arbitrator failing agreement on which within 60 days of the original
notice, either Executive or Company (or AGC, or both Company and AGC, as
applicable) shall apply to the Senior Active United States District Judge for
the Southern District of Texas, who shall appoint a third arbitrator. While the
third arbitrator shall be neutral, the two party-appointed arbitrators are not
required to be neutral and it shall not be grounds for removal of either of the
two party-appointed arbitrators or for vacating the arbitrators' award that
either of such arbitrators has past or present minimal relationships with the
party that appointed such arbitrator. Evident partiality on the part of an
arbitrator exists only where the circumstances are such that a reasonable
person would have to conclude there in fact existed actual bias and a mere
appearance or impression of bias will not constitute evident partiality or
otherwise disqualify an arbitrator.
(d) The three arbitrators shall by majority vote resolve all disputes
between the parties. There shall be no transcript of the hearing before the
arbitrators. The arbitrators' decision shall be in writing, but shall be as
brief as possible. The arbitrators shall not assign the reasons for their
decision. The arbitrators shall certify in their award that they have
faithfully applied the terms and conditions of this Agreement and that no part
of their award includes any amount for exemplary or punitive damages. All
proceedings conducted hereunder and the decision of the arbitrators shall be
kept confidential by the parties, e.g., the arbitrators' award shall not be
released to the press or published in any of the various arbitration reporters.
Judgment upon any award rendered in any such arbitration proceeding may be
entered by any federal or state court having jurisdiction.
9.6. In the event of a breach or threatened breach by Executive of any of
the covenants set forth in Sections 5 and 6 hereof, Company or AGC shall be
entitled to seek equitable relief, including an injunction, in any court of
proper jurisdiction to maintain the status quo pending the resolution of the
dispute by binding arbitration as provided above. With respect to any such
action, Executive hereby irrevocably submits to the non-exclusive jurisdiction
of any Federal or State court sitting in the City of Houston, Texas, and agrees
that process in any such action shall be valid and effective for all purposes
if served upon in accordance with the notice provisions of Section 9.3 hereof.
9.7. This Agreement shall be binding upon and inure to the benefit of
Company and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Company by any means whether direct or indirect, by purchase, merger,
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<PAGE> 16
consolidation, or otherwise. Executive's rights and obligations under this
Agreement are personal and such rights, benefits, and obligations of Executive
shall not be voluntarily or involuntarily assigned, alienated, or transferred,
whether by operation of law or otherwise, without the prior written consent of
Company.
9.8. It is a desire and intent of the parties that the terms, provisions,
covenants and remedies contained in this Agreement shall be enforceable to the
fullest extent permitted by law. If any such term, provision, covenant, or
remedy of this Agreement or the application thereof to any person, association,
or entity or circumstances shall, to any extent, be construed to be invalid or
unenforceable in whole or in part, then such term, provision, covenant, or
remedy shall be construed in a manner so as to permit its enforceability under
the applicable law to the fullest extent permitted by law. In any case, the
remaining provisions of this Agreement or the application thereof to any
person, association, or entity or circumstances other than those to which they
have been held invalid or unenforceable, shall remain in full force and effect.
9.9. Each party to this Agreement acknowledges that no representation,
inducement, promise, or agreement, oral or written, has been made by either
party with respect to such subject matters, which is not embodied herein, and
that no agreement, statement, or promise relating to the employment of
Executive by Company or AGC that is not contained in this Agreement shall be
valid or binding. Except as provided in written company policies promulgated by
Company or AGC dealing with issues such as securities trading, business ethics,
governmental affairs and political contributions, consulting fees, commissions
or other payments, compliance with law, investments and outside business
interests as officers and executives, reporting responsibilities, and
administrative compliance, and the written benefits, plans, and programs, if
any, applicable to Executive, this Agreement and the accompanying Severance
Agreement constitute the entire agreement of the parties with regard to such
subject matters, and contains all of the covenants, promises, representations,
warranties, and agreements between the parties with respect to Executive's
employment relationship with Company or AGC and the term and termination of
such relationship, and replaces and merges previous agreements and discussions
pertaining to the employment relationship between Company or AGC and Executive.
Any modification of this Agreement will be effective only if it is in writing
and signed by each party whose rights hereunder are affected thereby.
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IN WITNESS WHEREOF, Company and Executive have duly executed this
Agreement in multiple originals to be effective as provided herein.
WESTERN NATIONAL CORPORATION
By: /S/ RICHARD W. SCOTT
Name: Richard W. Scott
Title: Vice Chairman
This 11th day of September, 1997
/S/ JOHN A . GRAF
JOHN A. GRAF
This 11th day of September, 1997
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<PAGE> 1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between American
General Corporation, a Delaware corporation ("Company") and Richard W. Scott
("Executive"), to be effective as of the Effective Time as hereinafter defined.
WHEREAS, Western National Corporation ("Western") and Executive have
entered into an Employment Agreement dated February 8, 1994, an Amendment to
Employment Agreement dated December 2, 1994, and a further Amendment to
Employment Agreement dated May 14, 1997 (the "February 8, 1994 Employment
Agreement").
WHEREAS, contemporaneously herewith, Company, which presently owns certain
of the stock of Western, and a subsidiary of Company, have entered into an
Agreement and Plan of Merger ("Merger Agreement") with Western pursuant to
which Company shall acquire all or substantially all of the stock of Western
through merger (the "Merger").
WHEREAS, it is an important element of Company's decision to acquire the
stock of Western through such Merger that Executive become employed by Company
and remain employed by Company and provide his personal services to Company in
connection with the operation of Company's and Western's business, the creation
and development of Company's and Western's products and services, and the
marketing of Company's and Western's products and services for at least three
years from the date of such acquisition.
WHEREAS, during the three year Term of this Agreement, Company shall
disclose to Executive, or place Executive in a position to have access to or
develop, trade secrets or confidential information of Company or Western or
other of Company's subsidiaries or affiliates or their customers or clients;
and/or shall entrust Executive with business opportunities of Company or
Western or other of Company's subsidiaries or affiliates; and/or shall place
Executive in a position to develop business good will on behalf of Company or
Western or other of Company's subsidiaries or affiliates, and there is a need
and desire on the part of Company and Executive to specify the parties' rights
and obligations with respect to the ownership and protection of such
information, opportunities and goodwill.
WHEREAS, Company is desirous of employing Executive pursuant to the terms
and conditions and for the consideration set forth in this Agreement, and
Executive is desirous of continuing in the employ of Company pursuant to such
terms and conditions and for such consideration, subject to the condition
subsequent that the contemplated Merger shall be consummated.
WHEREAS, contemporaneously herewith, Company and Executive shall also
enter into a Severance Agreement ("Severance Agreement"). The terms and
conditions of such Severance Agreement are incorporated herein by reference.
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<PAGE> 2
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants, and obligations contained herein, Company and Executive agree as
follows:
1. Employment and Duties:
1.1. Because of the important nature of Executive's personal services with
respect to the operation of Company's business, the creation and development of
Company's products and services, and the marketing of Company's products and
services, Company agrees to employ Executive, and Executive agrees to be
employed by Company, beginning as of forty eight hours after the Effective Time
as defined below and continuing thereafter for a Term of three (3) years (the
"Term"), subject to the terms and conditions of this Agreement.
1.2. Commencing as of forty-eight hours after the Effective Time, Company
shall employ Executive in a senior executive or officer capacity with Company
or one of its significant subsidiaries with duties consonant with senior
executive status, but Company may assign Executive to different executive
positions and modify Executive's duties and responsibilities. Company may also
assign Executive to a position in which he performs services for other of
Company's subsidiaries or affiliates.
1.3. Executive agrees to serve in the assigned position and to perform
diligently and to the best of Executive's abilities the duties and services
appertaining to such position as determined by Company, as well as such
additional or different duties and services appropriate to such position which
Executive from time to time may be reasonably directed to perform by Company.
Executive shall at all times comply with and be subject to such policies and
procedures as Company may establish from time to time. Executive shall, during
the period of Executive's employment by Company, devote Executive's full
business time, attention, energy, and best efforts to the business and affairs
of Company. For purposes of this Agreement, full business time shall mean the
normal work week for individuals in comparable executive positions with
Company. Executive may not engage, directly or indirectly, in any other
business, investment, or activity that interferes with Executive's performance
of Executive's duties hereunder, is contrary to the interests of Company, or
requires any significant portion of Executive's business time.
1.4. Executive acknowledges and agrees that at all times during the
employment relationship Executive owes fiduciary duties to Company, including
but not limited to the fiduciary duties of the highest loyalty, fidelity and
allegiance to act at all times in the best interests of Company, to make full
disclosure to Company of all information that pertains to Company's business
and interests, to do no act which would injure Company's business, its
interests, or its reputation, and to refrain from using for Executive's own
benefit or for the benefit of others any information or opportunities
pertaining to Company's business or interests that are entrusted to Executive
or that he learned while employed by Company. Executive acknowledges and agrees
that upon termination of the employment relationship, Executive shall continue
to refrain from using for his own benefit or the benefit of others any
information or opportunities pertaining to Company's business or interests that
were entrusted to Executive during the employment relationship or that he
learned while employed by Company. Executive agrees that while employed by
Company and thereafter he
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<PAGE> 3
shall not knowingly take any action which interferes with the external
relationships between Company and third parties.
1.5. It is agreed that any direct or indirect interest in, connection
with, or benefit from any outside activities, particularly commercial
activities, which interest might in any way adversely affect Company, or any of
its affiliates, involves a possible conflict of interest. In keeping with
Executive's fiduciary duties to Company, Executive agrees that during the
employment relationship Executive shall not knowingly become involved in a
conflict of interest with Company or its affiliates, or upon discovery thereof,
allow such a conflict to continue. Moreover, Executive agrees that Executive
shall disclose to Company's President any facts which might involve such a
conflict of interest that has not been approved by Company's President. Company
and Executive recognize that it is impossible to provide an exhaustive list of
actions or interests which constitute a "conflict of interest." Moreover,
Company and Executive recognize there are many borderline situations. In some
instances, full disclosure of facts by Executive to Company's President may be
all that is necessary to enable Company or its affiliates to protect their
interests. In others, if no improper motivation appears to exist and the
interests of Company or their affiliates have not suffered, prompt elimination
of the outside interest will suffice. In still others, it may be necessary for
Company to terminate the employment relationship. Company and Executive agree
that Company's determination as to whether a conflict of interest exists shall
be conclusive. Company reserves the right to take such action as, in its
judgment, will end the conflict.
2. Compensation and Benefits:
2.1. As compensation for services rendered under this Agreement, Executive
shall receive a base salary of Three Hundred Thousand ($300,000) per year
("Base Annual Salary"), payable in semi-monthly installments in accordance with
Company's standard payroll practice for its salaried employees. Executive's
Base Annual Salary may be increased from time to time based upon his
performance. The amounts of any such salary increases shall be approved by the
Personnel Committee of Company's Board of Directors.
2.2. The parties recognize that Western will pay Executive his performance
bonus for the calendar year 1997 prior to the consummation of the Merger. In
addition to Base Annual Salary, Executive shall receive for the calendar years
1998, 1999 and 2000, an annual performance bonus in such amount as may be
determined by the Personnel Committee of Company's Board of Directors in its
sole discretion for each year during the Term of this Agreement. Such annual
bonus shall be paid in the March/April time frame of the following year, with
the first such payment in the March/April time frame of 1999 for the calendar
year 1998. It is understood and agreed that the amount of any such bonus shall
be determined based upon a consideration of both (i) the progress and success
of the Company as a whole, and (ii) the personal performance and contributions
made to the success of the Company by Executive. Finally, it is understood and
agreed that there may be years in which the Personnel Committee determines that
no bonus shall be paid.
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<PAGE> 4
2.3. In the event that, in connection with the Merger, the acceleration of
the vesting of Executive's stock options or restricted stock in Western, or any
payment, award or distribution under the February 8, 1994 Employment Agreement,
or any payment, award or distribution under this Agreement to or for the
benefit of Executive (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any such interest or
penalties, are hereinafter collectively referred to as the "Excise Tax"),
Company shall pay to Executive an additional payment (a "Gross-up Payment") in
an amount such that after payment by Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed on any Gross-up Payment, Executive retains an amount of the
Gross-up Payment equal to the Excise Tax imposed upon the Payments. Company and
Executive shall make an initial determination as to whether a Gross-up Payment
is required and the amount of any such Gross-up Payment. Executive shall notify
Company immediately in writing of any claim by the Internal Revenue Service
which, if successful, would require Company to make a Gross-up Payment (or a
Gross-up Payment in excess of that, if any, initially determined by Company and
Executive) within ten days of the receipt of such claim. Company shall notify
Executive in writing at least ten days prior to the due date of any response
required with respect to such claim if it plans to contest the claim. If
Company decides to contest such claim, Executive shall cooperate fully with
Company in such action; provided, however, Company shall bear and pay directly
or indirectly all costs and expenses (including additional interest and
penalties) incurred in connection with such action and shall indemnify and hold
Executive harmless, on an after-tax basis, for any Excise Tax or income tax,
including interest and penalties with respect thereto, imposed as a result of
Company's action. If, as a result of the Company's action with respect to a
claim, Executive receives a refund of any amount paid by Company with respect
to such claim, Executive shall promptly pay such refund to Company. If Company
fails to timely notify Executive whether it will contest such claim or Company
determines not to contest such claim, then Company shall immediately pay to
Executive the portion of such claim, if any, which it has not previously paid
to Executive.
2.4. While employed by Company, Executive shall be allowed to participate,
on the same basis generally as other executives of Company, in all general
executive benefit plans and programs, including improvements or modifications
of the same, which as of the Effective Time or thereafter are made available by
Company to other of Company's comparable executives. Such benefits plans, and
programs may include, without limitation, medical, health, and dental care,
life insurance, disability protection, and pension plans. Nothing in this
Agreement is to be construed or interpreted to provide greater rights,
participation, coverage, or benefits under such benefit plans or programs than
provided to similarly situated executives pursuant to the terms and conditions
of such benefit plans and programs.
2.5. Company shall not by reason of this Article 2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
of its medical, health, dental, insurance, disability or other benefit plans or
programs, so long as such actions are similarly applicable to covered employees
generally. Unless specifically provided for in a written plan document adopted
by the Board of Directors of Company, none of the benefits or arrangements
described in this Article
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<PAGE> 5
2 shall be secured or funded in any way, and each shall instead constitute an
unfunded and unsecured promise to pay money in the future exclusively from the
general assets of Company.
2.6. Company may withhold from any compensation, benefits, or amounts
payable under this Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
3. Termination of employment prior to expiration of Term and effects of
such termination:
3.1. [A] Notwithstanding any other provisions of this Agreement, Company
shall have the right to terminate Executive's employment under this Agreement
at any time prior to the expiration of the Term for cause upon the
determination by Company's Board of Directors or Company's Executive
Termination Review Committee that cause exists for the termination of the
employment relationship. As used in this Section 3.1, the term cause shall mean
[1] misuse, misappropriation or embezzlement by Executive of funds or property
belonging to Company, or his use of alcohol or drugs which interferes with the
performance of his duties hereunder or which compromises the integrity and
reputation of Company, its employees, or its products or services; [2]
Executive's conviction by a court of law, or admission that he is guilty, of a
felony or other crime involving moral turpitude; [3] Executive's absence from
his employment other than as a result of a disability as defined in Section 3.3
hereof, for whatever cause, for a period of more than one (1) month, without
prior written consent from Company; [4] Executive becomes incompetent or is
reasonably unable to undertake and discharge the duties and responsibilities of
his position, other than as a result of a disability as defined in Section 3.3
hereof; or [5] Executive's breach of any provisions of this Agreement, or his
gross negligence, willful malfeasance or fraud or dishonesty in performance of
his services on behalf of Company pursuant to this Agreement. It is expressly
acknowledged and agreed that the decision as to whether cause exists for
termination of the employment relationship by Company is delegated to Company's
Board of Directors or Company's Executive Termination Review Committee for
determination, which decision shall be made in good faith.
[B] Upon a termination of the employment relationship for cause by Company
prior to expiration of the Term pursuant to this Section, Executive shall be
entitled to receive as a full and final settlement of all obligations of
Company hereunder his pro rata Base Annual Salary through the date of such
termination, but any and all other compensation to which Executive is entitled
under this Agreement and any and all future benefits for which Executive is
eligible under this Agreement shall cease and terminate, including but not
limited to, Executive shall not be entitled to any bonuses or other incentive
compensation, if any, not yet paid to Executive at the date of such
termination. Executive shall not be entitled to any severance payment.
Executive's rights under this Section are Executive's sole and exclusive rights
against Company or its affiliates, and Company's sole and exclusive liability
to Executive under this Agreement, in contract, tort, or otherwise, for any
termination for cause of the employment relationship by Company. Executive
covenants not to lodge any claim, demand, or cause of action against Company
based on termination for cause of the employment relationship for any monies
allegedly due under this Agreement other than those specified in this Section.
If Executive breaches this covenant, Company shall be entitled to recover
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<PAGE> 6
from Executive all sums expended by Company (including costs and attorneys
fees) in connection with such suit, claim, demand, or cause of action.
3.2. The employment relationship under this Agreement shall terminate
automatically upon Executive's death. Upon a termination of the employment
relationship prior to expiration of the Term because of Executive's death,
Executive's administrators, heirs or legatees shall be entitled to receive
Executive's then-current Base Annual Salary as if Executive's employment (which
shall cease on the date of such death) had continued for the full Term of this
Agreement. Company may, at its option, pay such Base Annual Salary in semi-
monthly installments or in a lump sum discounted to present value at the
discount rate then available to Company through its lenders. Executive's
administrators, heirs or legatees shall also be entitled to any individual
bonuses or any individual incentive compensation awarded but not yet paid to
Executive at the date of such termination but Executive's administrators, heirs
or legatees shall not be entitled to any future individual bonuses or any
individual incentive compensation payments not yet awarded (whether or not
allegedly accrued) as of the date of such termination.
3.3. The employment relationship under this Agreement shall terminate
automatically upon Executive becoming permanently and totally unable to perform
Executive's duties for Company as a result of any medically determinable
physical or mental impairment as supported by a written medical opinion to the
foregoing effect by a physician selected by Company. Upon such termination of
the employment relationship, Executive shall be paid his pro rata Base Annual
Salary through the date of such termination and Executive shall thereafter be
paid sixty (60%) of his then-current Base Annual Salary on a semi-monthly
basis through the Term of this Agreement as if the employment relationship had
not terminated, reduced by any benefits he may receive under Company's
disability benefit plans. Executive shall also be entitled to any individual
bonuses or any individual incentive compensation awarded but not yet paid to
Executive at the date of such termination but Executive shall not be entitled
to any future individual bonuses or any individual incentive compensation
payments not yet awarded (whether or not allegedly accrued) as of the date of
such termination. For purposes of this Section, disability shall not include
disabilities arising from (a) chronic use of intoxicants, drugs or narcotics,
(b) intentionally self-inflicted injury or intentionally self-induced
sickness, or (c) a proven unlawful act or enterprise on the part of Executive.
3.4. [A] Notwithstanding any other provisions of this Agreement, Company
shall have the right to terminate Executive's employment under this Agreement
at any time prior to the expiration of the Term for any other reason
whatsoever, including termination without cause, in the sole discretion of
Company's Board of Directors or Company's Executive Termination Review
Committee. Any termination of the employment relationship by Company prior to
the expiration of the Term other than a termination under Section 3.1 for cause
shall be deemed to be a termination without cause pursuant to this Section 3.4.
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[B] If Company terminates the employment relationship without cause
pursuant to this Section 3.4, Executive's post-employment non-competition
obligation specified in Section 6.1(i) shall extend only to the date upon which
the Term of this Agreement would have otherwise expired.
[C] Upon termination of the employment relationship by Company prior to
expiration of the Term pursuant to this Section 3.4, Executive shall be
entitled, in consideration of Executive's continuing obligations hereunder
after such termination (including, without limitation, Executive's
non-competition obligations), to receive his then-current Base Annual Salary as
if Executive's employment (which shall cease on the date of such termination)
had continued for the full Term of this Agreement. Company may, at its option,
pay such Base Annual Salary in semi-monthly installments or in a lump sum
discounted to present value at the discount rate then available to Company
through its lenders. Provided that Executive complies with his continuing
obligations hereunder after such termination, Executive shall also be entitled
to performance bonuses for each of the calendar years 1998, 1999 and 2000 as
follows: As to the bonus for calendar year 1998, if such termination of
employment occurs before Company's Personnel Committee awards a bonus for
calendar year 1998, the bonus for calendar year 1998 shall be equal to the
bonus paid by Company (or Western) to Executive for the calendar year 1997. As
to the bonus for calendar year 1999, if such termination of employment occurs
before Company's Personnel Committee awards a bonus for calendar year 1999, the
bonus for calendar year 1999 shall be equal to the average of the bonuses paid
by Company (or Western) to Executive for calendar years 1997 and 1998. As to
the bonus for calendar year 2000, if such termination of the employment
relationship occurs at any time prior to the end of the Term, the bonus for
calendar year 2000 shall be equal to the average of the bonuses paid by Company
(or Western) to Executive for the calendar years 1997, 1998 and 1999.
[D] Executive shall not be under any duty or obligation to seek or accept
other employment following such termination of the employment relationship and,
subject to Executive complying with his continuing obligations (including
non-competition obligations), the amounts due Executive hereunder shall not be
reduced or suspended if Executive accepts subsequent employment. Executive's
rights under this Section 3.4 are Executive's sole and exclusive rights against
Company, and Company's sole and exclusive liability to Executive under this
Agreement, in contract, tort, or otherwise, for such termination of the
employment relationship by Company. Executive covenants not to lodge any claim,
demand, or cause of action against Company based on such termination of the
employment relationship by Company for any monies allegedly due under this
Agreement other than those specified in this Section 3.4. If Executive breaches
this covenant, Company shall be entitled to recover from Executive all sums
expended by Company (including costs and attorneys fees) in connection with
such suit, claim, demand, or cause of action.
3.5. [A] Executive shall have the right to terminate the employment
relationship during its Term only for cause, which shall consist only of a
material breach by Company of any material provision of this Agreement which
remains uncorrected for thirty (30) days following written notice of such
breach by Executive to Company.
[B] If Executive terminates the employment relationship for cause pursuant
to this Section 3.5, Executive's post-employment non-competition obligation
specified in Section 6.1(i) shall extend only to the date upon which the Term
of this Agreement would have otherwise expired.
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[C] Upon termination of the employment relationship by Executive for cause
prior to expiration of the Term pursuant to this Section 3.5, Executive shall
be entitled, in consideration of Executive's continuing obligations hereunder
after such termination (including, without limitation, Executive's
non-competition obligations), to receive his Base Annual Salary as if
Executive's employment (which shall cease on the date of such termination) had
continued for the full Term of this Agreement. Company may, at its option, pay
such Base Annual Salary in semi-monthly installments or in a lump sum
discounted to present value at the discount rate then available to Company
through its lenders. Executive shall be entitled to bonuses or other incentive
compensation, if any, awarded but not yet paid as of the date of such
termination. Provided that Executive complies with his continuing obligations
hereunder after such termination, Executive shall also be entitled to
performance bonuses for each of the calendar years 1998, 1999 and 2000, even if
no such bonus had been awarded as of the date of such termination, as follows:
As to the bonus for calendar year 1998, if such termination of employment
occurs before Company's Personnel Committee awards a bonus for calendar year
1998, the bonus for calendar year 1998 shall be equal to the bonus paid by
Company (or Western) to Executive for the calendar year 1997. As to the bonus
for calendar year 1999, if such termination of employment occurs before
Company's Personnel Committee awards a bonus for calendar year 1999, the bonus
for calendar year 1999 shall be equal to the average of the bonuses paid by
Company (or Western) to Executive for calendar years 1997 and 1998. As to the
bonus for calendar year 2000, if such termination of the employment
relationship occurs at any time prior to the end of the Term, the bonus for
calendar year 2000 shall be equal to the average of the bonuses paid by Company
(or Western) to Executive for the calendar years 1997, 1998 and 1999.
[D] Executive shall not be under any duty or obligation to seek or accept
other employment following such termination of the employment relationship and,
subject to Executive complying with his continuing obligations (including
non-competition obligations), the amounts due Executive hereunder shall not be
reduced or suspended if Executive accepts subsequent employment. Executive's
rights under this Section 3.5 are Executive's sole and exclusive rights against
Company, and Company's sole and exclusive liability to Executive under this
Agreement, in contract, tort, or otherwise, for any actions or inactions giving
rise to such termination of the employment relationship for cause by Executive.
Executive covenants not to lodge any claim, demand, or cause of action against
Company based on such termination of the employment relationship for cause by
Executive for any monies allegedly due under this Agreement other than those
specified in this Section 3.5. If Executive breaches this covenant, Company
shall be entitled to recover from Executive all sums expended by Company
(including costs and attorneys fees) in connection with such suit, claim,
demand, or cause of action.
3.6. Termination of the employment relationship shall not terminate those
obligations imposed by this Agreement which are continuing in nature,
including, without limitation, Executive's continuing obligations of
confidence, Executive's continuing obligations with respect to business
opportunities that had been entrusted to Executive by Company during the
employment relationship, and Executive's obligations under Articles 5 and 6.
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4. Continuation of Employment beyond Term; Termination and Effects of
Termination:
4.1. Should Executive remain employed by Company beyond the expiration of
the Term, such employment shall automatically convert to an at-will
relationship terminable at any time by either Company or Executive for any
reason whatsoever, with or without cause. Upon such termination of the
employment relationship by either Company or Executive for any reason
whatsoever, all future compensation to which Executive is entitled and all
future benefits for which Executive is eligible shall cease and terminate.
Executive shall be entitled to pro rata salary through the date of such
termination. Executive shall also be entitled to bonuses or other incentive
compensation, if any, awarded but not yet paid as of the date of such
termination, but Executive shall not be entitled to any future individual
bonuses or any individual incentive compensation payments not yet awarded
(whether or not allegedly accrued) as of the date of such termination.
5. Ownership and Protection of Information; Copyrights:
5.1. All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, and all expressions of ideas, which are
created, conceived, made, developed or acquired by Executive, individually or
in conjunction with others, during Executive's employment by Company (whether
during business hours or otherwise and whether on Company's premises or
otherwise), whether tangible or intangible, which relate to Company's business,
products or services (including, without limitation, all such information
relating to corporate opportunities, insurance or annuity products, research,
financial and sales data, pricing and trading terms, evaluations, opinions,
interpretations, acquisition prospects, the identity of customers or their
requirements, the identity of key contacts within the customer's organizations
or within the organization of acquisition prospects, or marketing and
merchandising techniques, prospective names, and marks) shall be disclosed to
Company. Executive acknowledges that he has heretofore disclosed all such
information, ideas, concepts, improvements, discoveries, and inventions, as
well as all expressions of ideas, to Company.
5.2. All such information, ideas, concepts, improvements, discoveries, and
inventions identified in Section 5.1 are and shall be the sole and exclusive
property of Company. Moreover, if, during Executive's employment by Company,
Executive creates any work of authorship fixed in any tangible medium of
expression which is the subject matter of copyright (such as videotapes,
written presentations, or acquisitions, computer programs, E-mail, voicemail,
electronic databases, drawings, maps, architectural renditions, models,
manuals, brochures, or the like) relating to Company's business, products, or
services, whether such work is created solely by Executive or jointly with
others (whether during business hours or otherwise and whether on Company's
premises or otherwise), Company, shall be deemed the author of such work if the
work is prepared by Executive in the scope of Executive's employment; or, if
the work is not prepared by Executive within the scope of Executive's
employment but is specially ordered by Company as a contribution to a
collective work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation, or as an instructional
text, then the work shall be considered to be work made for hire and Company,
shall be the author of the work. If such work relating to Company's business,
products, or services is neither prepared by Executive within the scope of
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Executive's employment nor a work specially ordered that is deemed to be a work
made for hire, then Executive hereby agrees to assign, and by these
presents does assign, to Company all of Executive's worldwide right, title, and
interest in and to such work and all rights of copyright therein. Additionally,
all documents drawings, memoranda, notes, records, files, correspondence,
manuals, models, specifications, computer programs, E-mail, voice mail,
electronic databases, maps and all other writings or materials of any type
embodying any of such information, ideas, concepts, improvements, discoveries,
inventions and/or copyrightable expressions are and shall be the sole and
exclusive property of Company. Executive acknowledges that Company is the owner
of all such information, ideas, concepts, improvements, discoveries, inventions
and/or copyrightable expressions that he heretofore created, conceived, made,
developed or acquired while employed by Company.
5.3. Executive will not, at any time during or after Executive's
employment by Company, make any unauthorized disclosure of any confidential
business information or trade secrets of Company, or make any use thereof,
except in the carrying out of Executive's employment responsibilities
hereunder. As a result of Executive's employment by Company, Executive shall
also from time to time have access to, or knowledge of, confidential business
information or trade secrets of third parties, such as customers, suppliers,
partners, joint venturers, and the like, of Company, Executive also agrees to
preserve and protect the confidentiality of such third party confidential
information and trade secrets to the same extent, and on the same basis, as
Company's confidential business information and trade secrets. Upon termination
of the employment relationship for any reason, Executive promptly shall deliver
to Company all documents and things containing Company trade secrets or
confidential information. Executive may disclose those aspects of Company's
confidential information as Executive has received the written advice of
counsel that such disclosure thereof is necessary under applicable federal,
state, local, or foreign law or other regulations applicable to Executive
(including, without limitation, any confidential information that Executive is
legally compelled to disclose as a result of depositions, interrogatories,
request for documents, subpoenas, civil investigative demands, or similar
processes), provided, however, that Executive has first provided Company with
prompt prior written notice of such requirement so that Company may seek a
protective order or other appropriate remedy and/or waive compliance with the
terms of this Agreement. In the event that such protective order or other
remedy is not obtained, or that Company does not waive compliance with the
provisions hereof, Executive agrees to furnish only that portion of Company's
confidential information which Executive is advised in writing by his counsel
is legally required to be disclosed and to exercise all reasonable efforts to
obtain assurance that confidential treatment will be accorded such confidential
information.
5.4. Both during the period of Executive's employment by Company and
thereafter, Executive shall assist Company or its nominees, at any time, in the
protection of Company's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and
its copyrighted works, including without limitation, the execution of all
formal assignment documents requested by Company or its nominees and the
execution of all lawful oaths and applications for applications for patents and
registration of copyright in the United States and foreign countries.
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<PAGE> 11
5.5. Executive acknowledges that money damages would not be sufficient
remedy for any breach of this Article 5 by Executive, and Company shall be
entitled to enforce the provisions of this Article 5 by terminating any
payments then owing to Executive under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any threatened
breach. Such remedies shall not be deemed the exclusive remedies for a breach
of this Article 5, but shall be in addition to all remedies available at law or
in equity to Company, including the recovery of damages from Executive and his
agents involved in such breach.
6. Non-Competition and Non-Solicitation Obligations:
6.1. As part of the consideration for the compensation and benefits to be
paid to Executive hereunder; to protect the trade secrets and confidential
information of Company or its subsidiaries or affiliates or their customers or
clients that have been and will in the future be disclosed or entrusted to
Executive, the business good will of Company or its subsidiaries or affiliates
that has been and will in the future be developed in Executive, or the business
opportunities that have been and will in the future be disclosed or entrusted
to Executive by Company or its subsidiaries or affiliates; and as an additional
incentive for Company to enter into this Agreement, Executive agrees to the
non-competition obligations hereunder: Executive shall not, anywhere in the
United States or any other country in which Company is offering financial
services as of the date of the termination of the employment relationship,
directly or indirectly for himself or for others, (i) in any manner compete
with Company or any subsidiary or affiliate of Company by whom Executive was
employed at any time during the twelve months preceding the termination of the
employment relationship, (ii) solicit or attempt to convert to other financial
service companies providing the same or similar products or services provided
by Company, any customers or policyholders of Company or its subsidiaries or
affiliates; or (iii) solicit for employment or employ any employee of Company.
Except as provided in Article 8, these obligations owed by Executive to Company
shall extend throughout the Term of this Agreement and, except as otherwise
provided in Sections 3.4 or 3.5, for a period of two (2) years following
termination of the employment relationship for whatever reason.
6.2. Executive understands that the foregoing restrictions may limit
Executive's ability to engage in certain businesses in the areas specified
above during the period provided for above, but acknowledges that Executive
will receive sufficiently high remuneration and other benefits under this
Agreement to justify such restriction. Executive acknowledges that money
damages would not be sufficient remedy for any breach of this Article 6 by
Executive, and Company shall be entitled to enforce the provisions of this
Article 6 by terminating any payments then owing to Executive under this
Agreement and/or to specific performance and injunctive relief as remedies for
such breach or any threatened breach. Such remedies shall not be deemed the
exclusive remedies for a breach of this Article 6, but shall be in addition to
all remedies available at law or in equity to Company, including, without
limitation, the recovery of damages from Executive and Executive's agents
involved in such breach.
6.3. It is expressly understood and agreed that Company and Executive
consider the restrictions contained in this Article 6 to be reasonable and
necessary to protect the trade secrets and confidential information of Company
or its subsidiaries or affiliates, the business good will of
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<PAGE> 12
Company or its subsidiaries or affiliates developed in Executive, and/or the
business opportunities disclosed or entrusted to Executive by Company or its
subsidiaries or affiliates. Nevertheless, if any of the aforesaid restrictions
are found to be unreasonable, or overly broad as to geographic area or time, or
otherwise unenforceable, the parties intend for the restrictions therein set
forth to be modified so as to be reasonable and enforceable and, as so modified
to be fully enforced.
6.4. These duties and obligations of Executive specified in this Article 6
are not exclusive. Executive owes Company the duties and obligations agreed to
elsewhere in this Agreement and as are imposed by the law, e.g., the duty to
refrain from tortiously interfering with Company's contractual and business
relationships with others.
7. Condition Subsequent, Effective Time, and Termination of February 8, 1994
Employment Agreement with Western:
7.1. Notwithstanding any provision in this Agreement to the contrary, it
is a condition subsequent to the execution and delivery of this Agreement that
the Merger, as such term is defined in the Merger Agreement, must be
consummated. If the Merger Agreement is terminated without consummation of the
Merger, then this Agreement shall be of no further force and effect and shall
be void ab initio.
7.2. This Agreement shall be effective as of forty-eight (48) hours after
the Effective Time of the Merger, which term shall have the same meaning as
assigned to such term in the Merger Agreement.
7.3. Executive waives any claim he may have against Western under the
February 8, 1994 Employment Agreement, including but not limited to claims for
future salary, control termination payments, severance allowance, or bonuses.
As of forty eight hours after the Effective Time, any and all prior or existing
employment agreements between Executive and Western shall be canceled and
terminated, including the February 8, 1994 Employment Agreement, and are
replaced and superseded by this Agreement and the accompanying Severance
Agreement.
8. Conversion of employment relationship to at-will and release of certain
duties and obligations upon a Change of Control as specified in Severance
Agreement:
8.1. Upon the occurrence of a Change of Control as specified in the
Severance Agreement, the employment relationship under this Agreement shall
immediately automatically convert to an at-will relationship terminable by
either Company or Executive at any time for any reason whatsoever, with or
without cause, and Executive is released from his post- employment obligations
specified in Article 6. The economic effect of any subsequent termination of
the employment relationship by Company without cause shall be governed by
Section 4.1. The economic effect of a subsequent termination of the employment
relationship by virtue of Executive's death or disability shall continue to be
governed by Sections 3.2 or 3.3, respectively, through the remainder of what
was the Term of the Agreement. The economic effect of a subsequent termination
of the employment relationship for cause by Company shall continue to be
governed by Section 3.1. The economic effect of any subsequent termination of
the employment relationship by Executive for any reason
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<PAGE> 13
shall be governed by Section 4.1. In all cases, Executive shall also be
entitled to the benefits of the Severance Agreement, if applicable; however, in
no event is it intended that a termination of the employment relationship
following a Change of Control will result in Executive receiving both
post-employment payments under this Agreement and under the severance
Agreement.
9. Miscellaneous:
9.1. For purposes of this Agreement the terms "affiliates" or "affiliated"
means an entity who directly, or indirectly through one or more intermediaries,
controls, is controlled by, or is under common control with Company.
9.2. Western is a third party beneficiary of this Agreement with respect
to certain agreements specified herein that affect the February 8, 1994
Employment Agreement.
9.3. For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to Company: American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attention: Corporate Secretary
If to Executive, to Richard W. Scott
122 Paul Revere
Houston, Texas 77024
Either Company or Executive may furnish a change of address to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
9.4. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Agreement shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
9.5. (a) Except for equitable relief as specified in Section 9.6, all
claims, demands, causes of action, disputes, controversies, and other matters
in question arising out of or relating to this Agreement, any provision
hereof, the alleged breach thereof, or in any way relating to the subject
matter of this Agreement involving Executive, Company, and/or their respective
representatives, even though some or all of such claims allegedly are extra-
contractual in nature, whether such claims sound in contract, tort, or
otherwise, at law or in equity, under state or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be resolved
by binding arbitration pursuant to the Federal Arbitration Act in accordance
with the Employment Dispute Resolution Rules then in effect with the American
Arbitration Association. The arbitration
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<PAGE> 14
proceeding shall be conducted in Houston, Texas. This agreement to arbitrate
shall be enforceable in either federal or state court.
(b) The enforcement of this agreement to arbitrate and all procedural
aspects of this agreement to arbitrate, including but not limited to, the
construction and interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e., arbitrability), the scope of the arbitrable
issues, allegations of waiver, delay or defenses to arbitrability, and the
rules governing the conduct of the arbitration, shall be governed by and
construed pursuant to the Federal Arbitration Act and shall be decided by the
arbitrators. In deciding the substance of any such claims, the arbitrators
shall apply the substantive laws of the State of Texas (excluding Texas
choice-of-law principles that might call for the application of some other
state's law); provided, however, it is expressly agreed that the arbitrators
shall have no authority to award treble, exemplary, or punitive damages under
any circumstances regardless of whether such damages may be available under
Texas law, the parties hereby waiving their right, if any, to recover treble,
exemplary, or punitive damages in connection with any such claims. If any party
to this Agreement institutes arbitration to enforce the terms of this
Agreement, the party who prevails in such arbitration, whether plaintiff or
defendant, in addition to the remedy or relief obtained in such arbitration
proceeding shall be entitled to recover its, his, or her expenses incurred in
connection with such arbitration proceeding, including, without limitation,
arbitrators and attorneys fees, and the arbitrators are authorized to so award
such costs and fees.
(c) The arbitration may be initiated by any party by providing to the
other parties a written notice of arbitration specifying the claims. Within 30
days of the notice of initiation of the arbitration procedure, (1) Executive
shall denominate one arbitrator and (2) Company shall denominate one
arbitrator. The two arbitrators shall select a third arbitrator failing
agreement on which within 60 days of the original notice, either Executive or
Company shall apply to the Senior Active United States District Judge for the
Southern District of Texas, who shall appoint a third arbitrator. While the
third arbitrator shall be neutral, the two party-appointed arbitrators are not
required to be neutral and it shall not be grounds for removal of either of the
two party-appointed arbitrators or for vacating the arbitrators' award that
either of such arbitrators has past or present minimal relationships with the
party that appointed such arbitrator. Evident partiality on the part of an
arbitrator exists only where the circumstances are such that a reasonable
person would have to conclude there in fact existed actual bias and a mere
appearance or impression of bias will not constitute evident partiality or
otherwise disqualify an arbitrator.
(d) The three arbitrators shall by majority vote resolve all disputes
between the parties. There shall be no transcript of the hearing before the
arbitrators. The arbitrators' decision shall be in writing, but shall be as
brief as possible. The arbitrators shall not assign the reasons for their
decision. The arbitrators shall certify in their award that they have
faithfully applied the terms and conditions of this Agreement and that no part
of their award includes any amount for exemplary or punitive damages. All
proceedings conducted hereunder and the decision of the arbitrators shall be
kept confidential by the parties, e.g., the arbitrators' award shall not be
released to the press or published in any of the various arbitration reporters.
Judgment upon any award rendered in any such arbitration proceeding may be
entered by any federal or state court having jurisdiction.
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<PAGE> 15
9.6. In the event of a breach or threatened breach by Executive of any of
the covenants set forth in Sections 5 and 6 hereof, Company shall be entitled
to seek equitable relief, including an injunction, in any court of proper
jurisdiction to maintain the status quo pending the resolution of the dispute
by binding arbitration as provided above. With respect to any such action,
Executive hereby irrevocably submits to the non-exclusive jurisdiction of any
Federal or State court sitting in the City of Houston, Texas, and agrees that
process in any such action shall be valid and effective for all purposes if
served upon in accordance with the notice provisions of Section 9.3 hereof.
9.7. This Agreement shall be binding upon and inure to the benefit of
Company and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of
Company by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. Executive's rights and obligations under this
Agreement are personal and such rights, benefits, and obligations of Executive
shall not be voluntarily or involuntarily assigned, alienated, or transferred,
whether by operation of law or otherwise, without the prior written consent of
Company.
9.8. It is a desire and intent of the parties that the terms, provisions,
covenants and remedies contained in this Agreement shall be enforceable to the
fullest extent permitted by law. If any such term, provision, covenant, or
remedy of this Agreement or the application thereof to any person, association,
or entity or circumstances shall, to any extent, be construed to be invalid or
unenforceable in whole or in part, then such term, provision, covenant, or
remedy shall be construed in a manner so as to permit its enforceability under
the applicable law to the fullest extent permitted by law. In any case, the
remaining provisions of this Agreement or the application thereof to any
person, association, or entity or circumstances other than those to which they
have been held invalid or unenforceable, shall remain in full force and effect.
9.9. Each party to this Agreement acknowledges that no representation,
inducement, promise, or agreement, oral or written, has been made by either
party with respect to such subject matters, which is not embodied herein, and
that no agreement, statement, or promise relating to the employment of
Executive by Company that is not contained in this Agreement shall be valid or
binding. Except as provided in written company policies promulgated by Company
dealing with issues such as securities trading, business ethics, governmental
affairs and political contributions, consulting fees, commissions or other
payments, compliance with law, investments and outside business interests as
officers and executives, reporting responsibilities, and administrative
compliance, and the written benefits, plans, and programs, if any, applicable
to Executive, this Agreement and the accompanying Severance Agreement
constitute the entire agreement of the parties with regard to such subject
matters, and contains all of the covenants, promises, representations,
warranties, and agreements between the parties with respect to Executive's
employment relationship with Company and the term and termination of such
relationship, and replaces and merges previous agreements and discussions
pertaining to the employment relationship between Company and Executive. Any
modification of this Agreement will be effective only if it is in writing and
signed by each party whose rights hereunder are affected thereby.
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<PAGE> 16
IN WITNESS WHEREOF, Company and Executive have duly executed this
Agreement in multiple originals to be effective as provided herein.
AMERICAN GENERAL CORPORATION
By: /S/ ROBERT M. DEVLIN
Name: Robert M. Devlin
Title: Chairman and Chief Executive Officer
This 11th day of September, 1997
/S/ RICHARD W. SCOTT
RICHARD W. SCOTT
This 11th day of September, 1997
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<PAGE> 1
(Form with Gross-Up)
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS Change in Control Severance Agreement ("Agreement") is made effective
as of the 1st day of April, 2000 (the "Effective Date"), between American
General Corporation, a Texas corporation having its principal place of business
in Houston, Texas (the "Company" as hereinafter defined) and _________________
("the Executive").
WHEREAS, the Company considers it essential to the best interests of its
shareholders to foster the continued employment of key management personnel
that are employed by the Company and/or its Affiliates; and
WHEREAS, the Company's Board of Directors recognize that, as is the case
of many publicly held corporations, the possibility of a change in control
exists and that such possibility, and the uncertainty that it may engender
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its Affiliates and the Company's
shareholders; and
WHEREAS, the Company's Board of Directors has determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's and its Affiliates' management,
including the Executive, to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the possibility of a
change in control.
NOW, THEREFORE, for and in consideration of the premises and the
respective covenants and obligations specified herein, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and the Executive agree as follows:
1. Defined terms:
1.1. "Additional Payment" shall have the meaning set forth in
Section 4.7.
1.2. "Affiliate" shall have the meaning set forth in Rule 12b-2
promulgated under Section 12 of the Securities Exchange Act of 1934, as amended
from time to time.
<PAGE> 2
1.3. "Beneficial Owner" shall have the meaning set forth in Rule 13d-3
under the Securities Exchange Act of 1934, as amended from time to time.
1.4. "Board" means the Company's Board of Directors.
1.5. "Cause" for purposes of this Agreement means only the following
actions or inactions: [i] a willful material misrepresentation by the Executive
pertaining to the business or property of the Company or its Affiliates, [ii]
misappropriation by the Executive of a material aspect of the business or
property of the Company or its Affiliates, [iii] the Executive willfully causes
material damage to the property or business of the Company or its Affiliates,
[iv] willful gross neglect by the Executive to substantially perform the
Executive's duties with the Company or its Affiliates (other than any such
failure resulting from the Executive's incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance of a Notice
of Termination for Good Reason by the Executive pursuant to Section 5.1), [v]
the engaging by the Executive in willful gross misconduct resulting in
demonstrable and material economic harm to the Company or its Affiliates, or
[vi] the Executive's conviction of a felony that either involves moral turpitude
or involves some aspect of the business or property of the Company or its
Affiliates.
1.6. "Change in Control" shall be deemed to have occurred if the event set
forth in any one of the following paragraphs shall have occurred:
[A] Any Person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in the securities beneficially
owned by such Person any securities acquired directly from the Company or
its Affiliates) representing thirty percent (30%) or more of the combined
voting power of the Company's then outstanding securities, excluding any
Person who becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of Paragraph C below; or
[B] The following individuals cease for any reason to constitute a majority
of the number of directors then serving on the Board: individuals who, on
the date hereof, constitute the Board and any new director (other than a
director whose initial assumption of office is in connection with an
actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company), whose appointment or election by the Board or nomination for
election by the Company's shareholders was approved or recommended by a
vote of at least two-thirds (2/3)
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<PAGE> 3
of the directors then still in office who either were directors on the
date hereof or whose appointment, election or nomination for election was
previously so approved or recommended; or
[C] There is consummated a merger or consolidation of the Company or any
direct or indirect subsidiary of the Company with any other corporation
[or 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 (or any successor provision thereto) of the Texas
Business Corporation Act] other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity or any parent thereof), in combination
with the ownership of any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any subsidiary of the
Company, at least fifty-one percent (51%) of the combined voting power of
the securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no Person is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing thirty percent (30%) or more of the combined voting power of
the Company's then outstanding securities; or
[D] The shareholders of the Company approve a plan of complete liquidation
or dissolution of the Company or there is consummated an agreement for the
sale or disposition of all or substantially all of the Company's assets,
other than a sale or disposition by the Company of all or substantially
all of the Company's assets to an entity, at least fifty-one percent (51%)
of the combined voting power of the voting securities of which are owned
by shareholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have
occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.
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<PAGE> 4
1.7. "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
1.8. "Committee" shall mean the Personnel Committee of the Board until six
months prior to the occurrence of a Change in Control and thereafter shall mean
(i) the individuals (not fewer than three in number) who, on the date six
months before a Change in Control, constitute the Personnel Committee of the
Board, plus (ii) in the event that fewer than three individuals are available
from the group specified in clause (i) above for any reason, such individuals
as may be appointed by the individual or individuals so available [including
for this purpose any individual or individuals previously so appointed under
this clause (ii)]; provided, however, that the maximum number of individuals
constituting the Committee shall not exceed five.
1.9. "Company" means American General Corporation, a Texas corporation,
and, except in determining under Section 1.6 hereof whether any Change in
Control has occurred, shall include any successor to American General
Corporation's business and/or assets which assumes and agrees to perform this
Agreement by operation of law or otherwise.
1.10. "Date of Termination" shall have the meaning specified in
Section 5.1.
1.11. "Disability" shall be deemed the reason for the termination by the
Company of the Executive's employment, if: (i) as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from the full-time performance of the Executive's duties with the
Company for a period of six (6) consecutive months, (ii) a physician agreed
upon by the Executive (or the Executive's legal representative) and the Company
(or, if the parties hereto are unable to agree upon a single physician, a third
physician agreed upon by the two physicians, each of whom has been selected by
either the Executive [or the Executive's legal representative] or the Company)
shall have determined that the Executive will be incapable, due to physical or
mental illness, of substantially performing the Executive's duties and
responsibilities to the Company or its Affiliates, (iii) the Company shall have
given the Executive a Notice of Termination based on Disability, and (iv)
within thirty (30) days after such Notice of Termination is given, the
Executive shall not have returned to the full-time performance of the
Executive's duties.
1.12. "Good Reason" for termination of the Executive's employment by the
Executive means the occurrence of any one or more of the following, without the
Executive's express written consent, on or after any Change in Control, or
during an
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<PAGE> 5
applicable Period of Anticipated Change in Control, but, in either case, only
as specified below in Section 4.4:
1.12.1. A material reduction in the nature or scope of the Executive's
authorities or duties from the Executive's authorities and duties either
[i] immediately prior to the date on which a Change in Control occurs or
[ii] immediately prior to a Period of Anticipated Change in Control during
which a material reduction in the nature or scope of the Executive's
authorities or duties occurs at the request of the Person causing the
Company to be in such Period of Anticipated Change in Control, as the case
may be.
1.12.2. A reduction in the Executive's annual base salary as in effect
either [i] immediately prior to the date on which a Change in Control
occurs or [ii] immediately prior to a Period of Anticipated Change in
Control during which the Executive's annual base salary is reduced at the
request of the Person causing the Company to be in such Period of
Anticipated Change in Control, as the case may be.
1.12.3. A diminution in the Executive's eligibility to participate or
level of participation in bonus, stock option, incentive award and other
compensation plans which provide opportunities to receive compensation,
from the greater of: (a) the opportunities provided by the Company
(including its Affiliates) for other executives with the Company
(including its Affiliates) with comparable duties or (b) the opportunities
under any such plans under which the Executive was participating either
[i] immediately prior to the date on which a Change in Control occurs or
[ii] immediately prior to a Period of Anticipated Change in Control during
which the Executive's eligibility or level of participation is diminished
at the request of the Person causing the Company to be in such Period of
Anticipated Change in Control, as the case may be.
1.12.4. A diminution in the Executive's benefits (including but not
limited to pension, thrift, medical, dental, life insurance, long-term
disability plans) and perquisites applicable to Executive, from the
greater of: (a) the employee benefits and perquisites provided by the
Company (including its Affiliates) to other executives with comparable
duties with the Company (including its Affiliates) or (b) the employee
benefits and perquisites to which the Executive was entitled either [i]
immediately prior to the date on which a Change in Control occurs or [ii]
immediately prior to a Period of Anticipated Change in Control during
which the Executive's benefits are reduced at the request of
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<PAGE> 6
the Person causing the Company to be in such Period of Anticipated Change
in Control, as the case may be.
1.12.5. A change in the location of the Executive's principal place of
employment by the Company (or its Affiliates) by more than fifty (50)
miles from the location where the Executive was principally employed
either [i] immediately prior to the date on which a Change in Control
occurs or [ii] immediately prior to a Period of Anticipated Change in
Control during which there occurs the Executive's change of location at
the request of the Person causing the Company to be in such Period of
Anticipated Change in Control, as the case may be.
1.12.6. A determination by the Board that as a result of a Change in
Control or the occurrence of an event that commences a Period of
Anticipated Change in Control and a change in circumstances thereafter
significantly affecting the Executive's position, the Executive is or
shall be unable to exercise the authorities or duties attached to the
Executive's position as in effect immediately prior to the date on which
the Change in Control occurs or will occur.
1.13. "Notice of Termination" has the meaning specified in Section 5.1.
1.14. "Period of Anticipated Change in Control" shall have the following
meaning for the purposes of this Agreement: the Company shall be deemed to be
in a Period of Anticipated Change in Control during the time which commences
when either [a] a Person has submitted a written offer to the Company which, if
accepted by the Company, would result in an agreement the consummation of which
would constitute a Change in Control and/or [b] the Company has entered into a
written signed agreement with a Person the consummation of which would
constitute a Change in Control. The Period of Anticipated Change in Control
ends when the Company either rejects such written offer or terminates, cancels
or consummates such agreement. There may be more than one period of time in
which the Company is in a Period of Anticipated Change in Control.
1.15. "Person" has the meaning specified in Section 3(a)(9) of the
Securities Exchange Act of 1934 (as amended from time to time) and used in
Sections 13(d) and 14(d) thereof, except that such term shall not include [i]
the Company or any of its subsidiaries, [ii] a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or any of its
Affiliates, [iii] an underwriter temporarily holding securities pursuant to an
offering of such securities, or [iv] a corporation
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owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of stock of the Company.
2. This Agreement is not a contract of employment and does not modify the
at-will nature of the Executive's employment relationship:
2.1. This Agreement is not an employment agreement. This Agreement shall
not be construed as creating an express or implied contract of employment and
does not modify the nature of the Executive's employment relationship with the
Company or its Affiliates, as the case may be. Except as otherwise agreed in
writing between the Executive and the Company or an Affiliate, the employment
relationship between the Executive and the Company or its Affiliates is
at-will, i.e., the employment relationship may be terminated at any time at the
will of either the Company or the Executive for any reason or no reason at all.
2.2. Notwithstanding any provision herein to the contrary, except as
provided in Section 4.7, no payments shall be due or payable pursuant to this
Agreement unless [i] the Executive has remained in the employ of the Company or
one of its Affiliates until there occurs, during the Term of this Agreement, a
Change in Control, or there occurs an event that commences a Period of
Anticipated Change in Control, and then [ii] the Executive's employment by the
Company or one of its Affiliates is terminated during the Term of this
Agreement either by the Company or the Executive as specified in Section 4.4.
2.3. If the Executive is employed not by the Company itself but by one of
the Company's Affiliates, then if, during the Term of this Agreement but prior
to a Change in Control and prior to a Period of Anticipated Change in Control
during which the Person seeking to acquire the Company requests that such
Affiliate be sold or disposed of, the Company sells or otherwise disposes of
such Affiliate whereby the Company no longer owns or controls, directly or
indirectly, at least a majority of the stock having the right to vote for
directors or of the equity interest of such Affiliate, this Agreement shall
automatically terminate thirty days thereafter if the Executive does not within
such thirty day period of time following the sale or other disposition become
an employee of the Company or one of its remaining majority-owned Affiliates.
3. Term and termination of this Agreement:
3.1. The Term of this Agreement shall commence on the date hereof and end
on December 31, 2002, unless further extended as hereinafter provided.
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Commencing on January 1, 2002 and each January 1 thereafter, the Term shall
automatically be extended for one additional year unless, not later than
September 30 of the preceding year, the Company or the Executive shall have
given notice not to extend the Term; provided, however, that if a Change in
Control shall have occurred during the Term, the Term shall expire no earlier
than thirty-six (36) months beyond the month in which such Change in Control
occurred. Moreover, if no Change in Control shall have occurred during the
Term, but the final day of the Term (as it may have been extended pursuant to
the immediately preceding sentence) falls within a Period of Anticipated Change
in Control, the Term of this Agreement shall be automatically extended until
either [i] the Period of Anticipated Change in Control ceases without resulting
in a Change in Control or [ii] if such Period of Anticipated Change in Control
results in a Change in Control, for thirty- six (36) complete calendar months
commencing with the month immediately following the month in which such Change
in Control occurs. Upon expiration of the Term of this Agreement, this
Agreement shall automatically terminate. The termination of this Agreement
under this Section 3.1 shall not under any circumstances constitute an event
which obligates the Company to make payments or to extend benefits to the
Executive pursuant to this Agreement.
3.2. This Agreement cannot be terminated by the Company prior to the
expiration of its Term except as provided in Section 3.1 or upon either [a] the
death of the Executive or [b] the Company terminating the Executive's
employment based on Disability in accordance with Section 1.11. Upon either
event, this Agreement shall automatically terminate. The termination of this
Agreement because of the death or Disability of the Executive shall not under
any circumstances constitute an event which obligates the Company to make
payments or to extend benefits to the Executive pursuant to this Agreement.
However, in the event that the Executive dies or incurs a Disability after the
Company has become obligated to make payments or extend benefits to the
Executive under Section 4.4 hereof, the death or Disability of the Executive
shall not affect the Executive's right, or the rights of the Executive's heirs,
legatees, executors or administrators, to receive such payments or benefits (if
such benefits are applicable after death or Disability).
4. Company's obligations to Executive upon Change in Control or during a
Period of Anticipated Change in Control:
4.1. After a Change in Control or during a Period of Anticipated Change in
Control, which, in either case, occurs during the Term of this Agreement, if
there occurs any period during which the Executive fails to perform the
Executive's full-time duties with the Company or its Affiliates, as the
case may be, as a result of
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incapacity due to physical or mental illness, the Company shall pay, or if the
Executive is employed by an Affiliate, cause the Affiliate to pay, the
Executive's full base salary to the Executive at the rate in effect at the
commencement of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or benefit plan,
program or arrangement maintained by the Company during such period, until the
Executive's employment is terminated by the Company or its Affiliate for
Disability or death; provided, however, that such salary payments shall be
reduced by the sum of the amounts, if any, payable to the Executive at or prior
to the time of any such salary payment under disability benefit plans of the
Company or its Affiliates or under the Social Security disability insurance
program, which amounts were not previously applied to reduce any such salary
payment.
4.2. During the Term of this Agreement, if the Executive's employment
shall be terminated for any reason other than Disability or death following a
Change in Control, or if the Executive's employment shall be terminated during
a Period of Anticipated Change in Control at the request of the Person seeking
to acquire the Company, the Company shall pay, or if the Executive is employed
by an Affiliate, cause the Affiliate to pay, the Executive's full base salary
to the Executive through the Date of Termination at the rate in effect
immediately prior to the Date of Termination or, if higher, the rate in effect
immediately prior to the first occurrence of an event or circumstance
constituting Good Reason, together with all compensation and benefits payable
to the Executive through the Date of Termination under the terms of the
Company's compensation and benefit plans, programs or arrangements as in effect
immediately prior to the Date of Termination or, if more favorable to the
Executive, as in effect immediately prior to the first occurrence of an event
or circumstance constituting Good Reason.
4.3. In addition, but not in duplication of the benefits provided in
Sections 4.5 and 4.6, the Company shall pay, or cause to be paid, to the
Executive the Executive's post-termination compensation and benefits as such
payments become due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the Company's compensation and
benefit plans as in effect immediately prior to the Date of Termination or, in
the case of a termination of the Executive's employment by the Executive for
Good Reason and if more favorable to the Executive, as in effect immediately
prior to the occurrence of the first event or circumstance constituting Good
Reason that is specified in the Executive's Notice of Termination; provided,
however, that the Company shall have the right at any time, even after a Change
in Control, to effect amendments, changes, or modifications to
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any and all compensation and benefit plans, programs or arrangements that are
not substantial and material.
4.4. [A] If, during the Term of this Agreement, the Executive's employment
is terminated on or after a Change in Control other than: (a) by the Company or
an Affiliate for Cause, (b) by reason of the Executive's Disability or death,
or (c) by the Executive without Good Reason; then, in addition to the Company's
obligations specified above in Sections 4.1 through 4.3, the Company shall pay,
or if the Executive is employed by an Affiliate, cause the Affiliate to pay,
the Executive the amounts and provide the Executive the benefits described in
Sections 4.5 through 4.11.
[B] During the Term of this Agreement and notwithstanding any provisions
of Subsection [A] above to the contrary, the Executive's employment shall be
considered to have been terminated under Subparagraph [A] under circumstances
that obligate the Company to pay the Executive the amounts and provide the
Executive the benefits described in Sections 4.5 through 4.11 if the
Executive's employment is terminated by the Company or its Affiliate during a
Period of Anticipated Change in Control (whether or not a Change in Control
ever occurs) and such termination was at the request of a Person who either [i]
had entered into the written signed agreement with the Company the consummation
of which would constitute a Change in Control or [ii] had submitted a written
offer to the Company which, if accepted by the Company, would result in an
agreement the consummation of which would constitute a Change in Control.
[C] During the Term of this Agreement and notwithstanding any provisions
of Subsection [A] above to the contrary, the Executive's employment shall be
considered to have been terminated under Subparagraph [A] under circumstances
that obligate the Company to pay the Executive the amounts and provide the
Executive the benefits described in Sections 4.5 through 4.11, if: (i) an event
that constitutes Good Reason occurs during a Period of Anticipated Change in
Control; (ii) such event occurs at the request of a Person who either [a] had
entered into the written signed agreement with the Company the consummation of
which would constitute a Change in Control or [b] had submitted a written offer
to the Company which, if accepted by the Company, would result in an agreement
the consummation of which would constitute a Change in Control; (iii) the
Executive notifies the Company in writing as promptly as possible, and no later
than three (3) months after the first event which constitutes Good Reason, of
the Executive's position that an event which constitutes Good Reason occurred
at the request of such Person; (iv) the Period of Anticipated Change in Control
in fact culminates in a Change in Control; and (v) the Executive refrains from
providing a Notice of Termination and continues
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to perform the Executive's duties and responsibilities until at least sixty
(60) days after a Change in Control occurs as a result of the Person having
entered into the written signed agreement with the Company or having submitted
the written offer to the Company.
[D] The right of the Executive to terminate employment for Good Reason
under Section [C] hereof is based solely on an event or events constituting
Good Reason that occur during a Period of Anticipated Change in Control. The
right of the Executive to terminate employment for Good Reason under Section
[A] hereof is in addition to the Executive's right to terminate employment for
Good Reason under Section [C] but is based solely on an event or events
constituting Good Reason that occur on or after a Change in Control. The
Executive may give a Notice of Termination under Section [A] immediately the
occurrence of the event or events constituting Good Reason [i.e., there is no
requirement under Section [A] that the Executive refrain from providing a
Notice of Termination and continue to perform the Executive's duties and
responsibilities until at least sixty (60) days after the Change in Control
occurs].
4.5. If a termination of the Executive's employment described in Section
4.4 hereof shall have occurred, in lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination and in lieu of any
severance benefits otherwise payable to the Executive, the Company shall pay,
or if the Executive is employed by an Affiliate, cause the Affiliate to pay, to
the Executive a lump sum severance payment, in cash, equal to three (3) times
the sum of [i] the Executive's annual base salary as in effect immediately
prior to the Date of Termination or, in the case of a termination of the
Executive's employment by the Executive for Good Reason and if more favorable
to the Executive, as in effect immediately prior to the occurrence of the first
event or circumstance constituting Good Reason that is specified in the
Executive's Notice of Termination, and [ii] the average annual bonus earned by
the Executive pursuant to any annual bonus or annual incentive plan maintained
by the Company or an Affiliate in which the Executive participated in respect
of the three fiscal years ending immediately prior to the fiscal year in which
occurs the Date of Termination or, in the case of a termination of the
Executive's employment by the Executive for Good Reason and if more favorable
to the Executive, the three fiscal years ending immediately prior to the fiscal
year in which occurs the first event or circumstance constituting Good Reason
that is specified in the Executive's Notice of Termination; provided, however,
that if there are fewer than three such bonuses earned by the Executive in the
applicable three-year period, the average annual bonus shall be calculated by
dividing the total amount of the annual bonuses paid by the number of annual
bonuses paid; and provided further that if the
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Executive has been so recently hired by the Company or an Affiliate that he has
not earned any annual bonus which can be used to calculate an average bonus
pursuant to this provision, he shall be deemed to have earned an average annual
bonus determined by multiplying his applicable base salary by a fraction, the
numerator of which is the total of the average annual bonuses of all employees
of the Company and its Affiliates who have change in control severance
agreements with the Company immediately prior to the Executive's Date of
Termination and the denominator of which is the total of the applicable base
salaries of such employees (as such terms are defined in their respective
change in control severance agreements and determined as if such employees had
been terminated without Cause as of the Executive's Date of Termination).
4.6. If a termination of the Executive's employment described in Section
4.4 hereof shall have occurred, for the thirty-six (36) month period
immediately following the Date of Termination, the Company shall arrange to
provide the Executive and the Executive's dependents with life, accident,
medical, and dental insurance benefits substantially similar to those provided
to the Executive and to the Executive's dependents immediately prior to the
Date of Termination or, in the case of a termination of the Executive's
employment by the Executive for Good Reason and if more favorable to the
Executive, as in effect immediately prior to the occurrence of the first event
or circumstance constituting Good Reason, at no greater cost to the Executive
than the cost to the Executive immediately prior to such date or occurrence
that is specified in the Executive's Notice of Termination; provided, however,
that the Company shall have the right to effect amendments, changes, or
modifications to any and all benefit plans, programs or arrangements that are
not substantial and material and such amendments, changes or modifications
shall apply to the Executive's benefits. Benefits otherwise receivable by the
Executive pursuant to this Section 4.6 may be reduced to the extent benefits of
the same type are received by or made available to the Executive by a successor
employer during the thirty-six (36) month period following the Executive's
termination of employment (and any such benefits received by or made available
to the Executive shall be reported to the Company by the Executive); provided,
however, that the Company shall reimburse the Executive for the excess, if any,
of the reasonable and necessary cost of such benefits to the Executive over
such cost immediately prior to the Date of Termination or, in the case of a
termination of the Executive's employment by the Executive for Good Reason and
if more favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good Reason that is
specified in the Executive's Notice of Termination. As provided in Section 6.2,
the Company may withhold from any payments made or benefits provided pursuant
to
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this Agreement all federal, State, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
4.7. [A] Regardless whether or not a termination of the Executive's
employment described in Section 4.4 shall have occurred, to the extent that any
of the payments or benefits (excluding payments to be made pursuant to this
Section 4.7) received or to be received by the Executive (the "Total Payments")
in connection with a Change in Control or the Executive's termination of
employment (whether or not such payments or benefits are provided pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with
the Company, with any Persons whose actions result in a Change in Control, or
with any Person affiliated with the Company or such Person) will be subject to
the excise tax imposed by Section 4999 of the Code, or any successor provision
of the Code (any such excise tax is referred to in this Section as the "Excise
Tax"), then the benefit or payment shall be increased by an amount (referred to
in this Section as the "Additional Payment") such that the net amount received
by the Executive, after paying any applicable Excise Tax and any federal, State
or local income or FICA taxes on such Additional Payment, shall be equal to the
amount that the Executive would have received if such Excise Tax were not
applicable to the Total Payments.
[B] For purposes of determining whether any of the Total Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (i) all of the
Total Payments shall be treated as "parachute payments" [within the meaning of
Section 280G(b)(2) of the Code] unless, in the opinion of tax counsel ("Tax
Counsel") reasonably acceptable to the Executive and selected by the accounting
firm which was, immediately prior to the Change in Control, the Company's
independent auditor (the "Auditor"), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code; (ii) all "excess parachute payments" within the
meaning of Section 280G(b)(l) of the Code shall be treated as subject to the
Excise Tax unless, in the opinion of Tax Counsel, such excess parachute
payments (in whole or in part) represent reasonable compensation for services
actually rendered [within the meaning of Section 280G(b)(4)(B) of the Code] in
excess of the base amount [as the term "base amount" is defined in Section
280G(b)(3) of the Code] allocable to such reasonable compensation, or are
otherwise not subject to the Excise Tax; and (iii) the value of any noncash
benefits or any deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Additional Payment, the Executive
shall be deemed to pay federal income tax at the highest marginal rate of
federal income taxation in the calendar year in which the Additional Payment is
to be
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made and State and local income taxes at the highest marginal rate of taxation
in the State and locality of the Executive's residence on the Date of
Termination (or if there is no Date of Termination, then on the date on which
the Additional Payment is calculated for purposes of this Section 4.7), net of
the maximum reduction in federal income taxes which could be obtained from
deduction of such State and local taxes.
[C] In the event that the Excise Tax is finally determined to be less than
the amount taken into account hereunder in calculating the Additional Payment,
the Executive shall repay to the Company, within ten business days immediately
following the date that the amount of such reduction in the Excise Tax is
finally determined, the portion of the Additional Payment attributable to the
amount of such reduction (including the Excise Tax component and the federal,
State and local income and employment tax components of the Additional Payment)
to the extent that such repayment results in a reduction in the Excise Tax and
a dollar-for-dollar reduction in the Executive's taxable income and wages for
purposes of federal, State and local income and employment taxes, plus interest
on the amount of such repayment at 120% of the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to
exceed the amount taken into account hereunder in calculating the Additional
Payment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Additional Payment), the Company shall
make another Additional Payment in respect of such excess (plus any interest,
penalties or additions payable by the Executive with respect to such excess)
within the ten (10) business days immediately following the date that the
amount of such excess is finally determined. The Executive and the Company
shall each reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence or amount of
liability for Excise Tax with respect to the Total Payments.
4.8 If a termination of the Executive's employment described in Section
4.4 hereof shall have occurred, the Company shall promptly reimburse to the
Executive all reasonable attorneys fees and expenses necessarily incurred by
the Executive in disputing in good faith any issue with the Company or its
Affiliates pursuant to this Agreement or lodging in good faith any claim,
demand or cause of action against the Company or its Affiliates pursuant to
this Agreement; provided, however, that the Company shall have no obligation to
reimburse the Executive for such attorneys fees and expenses unless the
Executive is the prevailing party as to such dispute, claim, demand or cause of
action.
4.9 If a termination of the Executive's employment described in Section
4.4 hereof shall have occurred, the Company shall provide the Executive with
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outplacement services suitable to the Executive's position for a period of nine
months after the Date of Termination or, if earlier, until the first acceptance
by the Executive of an offer of employment.
4.10 If (i) the Executive is or has been granted stock options, restricted
stock, or other similar equity-based awards, whether before or after the
Effective Date, pursuant to plans, programs or arrangements which provide that
the Executive shall become fully vested upon a Change in Control and (ii) the
definition of change in control in such plans, programs or arrangements does
not provide for vesting upon the occurrence of an event creating a Period of
Anticipated Change in Control, then the following shall apply: The requisite
change in control for purposes of vesting under such plans, programs or
arrangements shall be deemed to have occurred immediately prior to a
termination described in subparagraphs (1) or (2) of this Section 4.10 if
either --
(1) The Executive's employment is terminated by the Company or an
Affiliate without Cause (and not for Disability or death) during a Period
of Anticipated Change in Control (whether or not a Change in Control ever
occurs) and such termination was at the request of a Person who either [i]
had entered into the written signed agreement with the Company the
consummation of which would constitute a Change in Control or [ii] had
submitted a written offer to the Company which, if accepted by the
Company, would result in an agreement the consummation of which would
constitute a Change in Control; or
(2) During the Term of this Agreement, the Executive's employment is
terminated as follows: (i) an event that constitutes Good Reason occurs
during a Period of Anticipated Change in Control; (ii) such event occurs
at the request of a Person who either [a] had entered into the written
signed agreement with the Company the consummation of which would
constitute a Change in Control or [b] had submitted a written offer to the
Company which, if accepted by the Company, would result in an agreement
the consummation of which would constitute a Change in Control; (iii) the
Executive notifies the Company in writing as promptly as possible, and no
later than three (3) months after the first event which constitutes Good
Reason, of the Executive's position that an event which constitutes Good
Reason occurred at the request of such Person; (iv) the Period of
Anticipated Change in Control in fact culminates in a Change in Control;
and (v) the Executive shall refrain from providing a Notice of Termination
and shall
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continue to perform the Executive's duties and responsibilities until at
least sixty (60) days after a Change in Control occurs as a result of the
Person having entered into the written signed agreement with the Company
or having submitted the written offer to the Company.
4.11 The payments provided to the Executive or for the Executive's benefit
in Sections 4.5 and 4.7[A] shall be made not later than the tenth (10) business
day following the Date of Termination; provided, however, that if the amounts
of such payments cannot be finally determined on or before such date, the
Company shall pay to the Executive on such day an estimate of the payments
under Section 4.5, as determined in good faith by the Executive and the
Company, and an estimate of the payments under Section 4.7[A], as determined in
accordance with Section 4.7[A] hereof the estimate in each case to be of the
minimum amount of such payments to which the Executive is clearly entitled, and
shall pay the remainder of such payments [together with interest on the unpaid
remainder (or on all such payments to the extent the Company fails to make such
payments when due) at 120% of the rate provided in Section 1274(b)(2)(B) of the
Code] as soon as the amount thereof can be determined but in no event later
than sixty (60) days after the Date of Termination. In the event that the
amount of the estimated payment exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to the
Executive, payable on the tenth (10) business day after demand by the Company.
At the time the payments are made under this Agreement, the Company shall
provide the Executive with a written statement setting forth the manner in
which such payments were calculated and the basis for such calculations,
including, without limitation, any opinions or other advice the Company has
received from Tax Counsel, the Auditor, or other advisors or consultants and
any such opinions or advice which are in writing shall be attached to the
statement.
5. Termination procedures; resolution of disputes; arbitration; and no duty to
mitigate:
5.1 After a Change in Control or during a Period of Anticipated Change in
Control, and in either case, during the Term of this Agreement, any purported
termination of the Executive's employment (other than the death of the
Executive) shall be communicated by a written notice of termination from one
party to the other in accordance with Section 6.6 (the "Notice of
Termination"). The Notice of Termination shall specify the termination
provision in this Agreement relied upon and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive's employment pursuant to this Agreement. The date of
termination ("Date of Termination") of the Executive's employment
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pursuant to this Agreement shall be [i] if the Executive's employment is
terminated for Disability, thirty (30) days after the Notice of Termination is
given, and [ii] if the Executive's employment is terminated pursuant to this
Agreement for any other reason, the date specified in the Notice of Termination
[which, in the case of termination by the Company or an Affiliate shall not be
less than thirty (30) days, except in the case of termination for Cause, which
may be immediate, and, in the case of a termination by the Executive, shall not
be less than fifteen (15) days nor more than sixty (60) days, from the date
such Notice of Termination is given].
5.2 All claims by the Executive for payments or benefits under this
Agreement shall be in writing, shall set forth the specific reasons for the
basis of the Executive's claim and the specific provisions of this Agreement
relied upon, shall be submitted to the Committee, and shall be decided by the
Committee. Any denial by the Committee of a claim for payments or benefits
under this Agreement shall be delivered to the Executive in writing and shall
set forth the specific reasons for the denial and the specific provisions of
this Agreement relied upon. The Committee shall afford a reasonable opportunity
to the Executive for a review of the decision denying a claim and shall further
allow the Executive to file with the Committee, within sixty (60) days after
notification by the Committee that the Executive's claim has been denied, a
request that the Committee re-consider its decision. Upon receipt of such a
request, the Committee shall reconsider its decision and notify the Executive
of the Committee's decision on reconsideration.
5.3 [A] Any further dispute or controversy arising under or in connection
with this Agreement and all claims, demands, causes of action, disputes,
controversies, and other matters in question arising out of or relating to this
Agreement, any provision hereof, the alleged breach thereof, or in any way
relating to the subject matter of this Agreement involving the Executive, the
Company, its Affiliates, and/or their respective representatives, even though
some or all of such claims allegedly are extra-contractual in nature, whether
such claims sound in contract, tort, or otherwise, at law or in equity, under
state or federal law, whether provided by statute or the common law, for
damages or any other relief, shall be resolved by binding arbitration pursuant
to the Federal Arbitration Act in accordance with the Employment Dispute
Resolution Rules then in effect with the American Arbitration Association. The
arbitration proceeding shall be conducted in Houston, Texas. This agreement to
arbitrate shall be enforceable in either federal or state court.
[B] The enforcement of this agreement to arbitrate and all procedural
aspects of this agreement to arbitrate, including but not limited to, the
construction and interpretation of this agreement to arbitrate, the issues
subject to arbitration (i.e.,
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arbitrability), the scope of the arbitrable issues, allegations of waiver,
delay or defenses to arbitrability, and the rules governing the conduct of the
arbitration, shall be governed by and construed pursuant to the Federal
Arbitration Act and shall be decided by the arbitrators. In deciding the
substance of any such claims, the arbitrators shall apply the substantive laws
of the State of Texas (excluding Texas choice-of-law principles that might
call for the application of some other state's law); provided, however, it is
expressly agreed that the arbitrators shall have no authority to award treble,
exemplary, or punitive damages under any circumstances regardless of whether
such damages may be available under Texas law, the parties hereby waiving their
right, if any, to recover treble, exemplary, or punitive damages in connection
with any such claims. The arbitrators are authorized to award attorneys and
fees and expenses as authorized in this Agreement.
[C] The arbitration may be initiated by any party by providing to the
other party a written notice of arbitration specifying the claims. Within 30
days of the notice of initiation of the arbitration procedure, the Executive
shall denominate one arbitrator and the Company shall denominate one
arbitrator. The two arbitrators shall select a third arbitrator failing
agreement on which within 60 days of the original notice, either the Executive
or the Company shall apply to the Senior Active United States District Judge
for the Southern District of Texas, who shall appoint a third arbitrator. While
the third arbitrator shall be neutral, the two party-appointed arbitrators are
not required to be neutral and it shall not be grounds for removal of either of
the two party-appointed arbitrators or for vacating the arbitrators' award that
either of such arbitrators has past or present minimal relationships with the
party that appointed such arbitrator. Evident partiality on the part of an
arbitrator exists only where the circumstances are such that a reasonable
person would have to conclude there in fact existed actual bias and a mere
appearance or impression of bias will not constitute evident partiality or
otherwise disqualify an arbitrator.
[D] The three arbitrators shall by majority vote resolve all disputes
between the parties. There shall be no transcript of the hearing before the
arbitrators. The arbitrators' decision shall be in writing, but shall be as
brief as possible. The arbitrators shall not assign the reasons for their
decision. The arbitrators shall certify in their award that they have
faithfully applied the terms and conditions of this Agreement and that no part
of their award includes any amount for exemplary or punitive damages. All
proceedings conducted hereunder and the decision of the arbitrators shall be
kept confidential by the parties, e.g., the arbitrators' award shall not be
released to the press or published in any of the various arbitration reporters.
Judgment upon any award rendered in any such arbitration proceeding may be
entered by any federal or state court having jurisdiction.
18
<PAGE> 19
5.4 If during the Term of this Agreement the Executive's employment
terminates under conditions that require the Company to make payments or extend
benefits pursuant to Section 4.4, the Executive is not required to seek other
employment or to attempt in any way to reduce the amounts payable to the
Executive under Section 4.4 (other than an obligation to incur no more than
reasonable and necessary attorneys fees). Further, the amount of any payment or
benefit required pursuant to this Agreement (other than pursuant to Section
4.6) shall not be reduced or offset by any compensation or benefit that may be
earned by the Executive as a result of employment by another employer after
termination of the Executive's employment hereunder by the Company or its
Affiliates, by retirement benefits, or against any amount claimed to be owed by
the Executive to the Company unless such amount is evidenced by a promissory
note or contract signed by the Executive.
6. Miscellaneous:
6.1 The applicable law and the forum for resolution of any disputes
arising out of this Agreement are specified in the agreement to arbitrate
contained in Section 5.3.
6.2 The Company may withhold from any payments made or benefits provided
pursuant to this Agreement all federal, State, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
6.3 Except as provided in Sections 4.4[C] and 4.10(2) no failure by either
party hereto at any time to give notice of any breach by the other party of, or
to require compliance with, any condition or provision of this Agreement shall
be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time.
6.4 This Agreement shall be binding upon and inure to the benefit of the
Company and any other person, association, or entity which may hereafter
acquire or succeed to all or substantially all of the business or assets of the
Company by any means whether direct or indirect, by purchase, merger,
consolidation, or otherwise. In addition to the obligations imposed by law upon
any successor to the Company, the Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain
19
<PAGE> 20
such assumption and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle the Executive to
compensation from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder if the Executive were to terminate the
Executive's employment for Good Reason after a Change in Control, except that,
for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination.
6.5 The Executive's rights and obligations pursuant to this Agreement are
personal to the Executive and such rights, benefits, and obligations of the
Executive shall not be voluntarily or involuntarily assigned, alienated, or
transferred, whether by operation of law or otherwise, without the prior
written consent of the Company, except through a transfer by testament or by
the laws of descent or distribution upon the death of the Executive. In the
event of any attempted assignment or transfer contrary to this Section 6.5, the
Company shall have no liability to pay any amount so attempted to be assigned
or transferred. This Agreement shall be enforceable against the Executive and
the Executive's personal and legal representatives, heirs, legatees, executors
and administrators.
6.6 For purposes of this Agreement, notices and all other communications
provided for herein shall be in writing and shall be deemed to have been duly
given when personally delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Company: American General Corporation
2929 Allen Parkway
Houston, Texas 77019
Attention: General Counsel
If to the Executive, to the Executive's last known address on the records
of the Company.
Either the Company or the Executive may furnish a change of address to the
other in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
6.7 It is a desire and intent of the parties that the terms, provisions,
covenants and remedies contained in this Agreement shall be enforceable to the
fullest extent permitted by law. If any such term, provision, covenant, or
remedy of this Agreement or the application thereof to any person, association,
or entity or
20
<PAGE> 21
circumstances shall, to any extent, be construed to be invalid or unenforceable
in whole or in part, then such term, provision, covenant, or remedy shall be
construed in a manner so as to permit its enforceability under the applicable
law to the fullest extent permitted by law. In any case, the remaining
provisions of this Agreement or the application thereof to any person,
association, or entity or circumstances other than those to which they have
been held invalid or unenforceable, shall remain in full force and effect.
6.8 Each of the Company and the Executive acknowledges that no represen-
tation, inducement, promise, or agreement, oral or written, express or implied,
has been made by the other with respect to the subject matters of this Agreement
which are not expressed in this Agreement. Except for benefit and compensation
plans and grant documents thereunder that contain express change in control
provisions, this Agreement constitutes the entire agreement of the parties with
regard to the Company's Change in Control obligations to the Executive;
terminates any prior severance agreements, including the existing Severance
Agreement between the Company and the Executive; and replaces and merges
previous agreements and discussions pertaining to the Company's Change in
Control obligations to Executive. No modification or amendment of this Agreement
will be effective unless such modification or amendment is in writing and signed
by the party whose rights are affected thereby.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
to be effective as of the Effective Date stated above.
AMERICAN GENERAL
CORPORATION
By:
---------------------------
EXECUTIVE
By:
---------------------------
21
<PAGE> 1
PART IV (Continued)
AMERICAN GENERAL CORPORATION
EXHIBIT 12 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
In millions, except ratios
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1999 1998 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
Consolidated operations:
Income before income tax expense, net dividends on
preferred securities of subsidiaries, and minority interest $1,887 $1,323 $1,073
Undistributed income of equity investee - - (49)
Fixed charges deducted from income
Interest expense 771 693 643
Implicit interest in rents 24 19 20
- ---------------------------------------------------------------------------------------------------------
Total fixed charges deducted from income 795 712 663
- ---------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $2,682 $2,035 $1,687
- ---------------------------------------------------------------------------------------------------------
Fixed charges per above $ 795 $ 712 $ 663
Capitalized interest related to real estate operations - - 5
- ---------------------------------------------------------------------------------------------------------
Total fixed charges 795 712 668
Dividends on preferred stock and securities 151 146 138
- ---------------------------------------------------------------------------------------------------------
Combined fixed charges and preferred stock
dividends $ 946 $ 858 $ 806
- ---------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 3.37 2.86 2.52
- ---------------------------------------------------------------------------------------------------------
Ratio of earnings to combined fixed charges and
preferred stock dividends 2.83 2.37 2.09
- ---------------------------------------------------------------------------------------------------------
Consolidated operations, corporate fixed charges and
preferred stock dividends only:
Income before income tax expense, net dividends on
preferred securities of subsidiaries, and minority
interest $1,887 $1,323 $1,073
Undistributed income of equity investee - - (49)
Corporate fixed charges deducted from income - corporate
interest expense 228 211 183
- ---------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $2,115 $1,534 $1,207
- ---------------------------------------------------------------------------------------------------------
Corporate fixed charges per above $ 228 $ 211 $ 183
Capitalized interest related to real estate operations - - 5
- ---------------------------------------------------------------------------------------------------------
Total corporate fixed charges 228 211 188
Dividends on preferred stock and securities 151 146 138
- ---------------------------------------------------------------------------------------------------------
Combined corporate fixed charges and preferred
stock dividends $ 379 $ 357 $ 326
- ---------------------------------------------------------------------------------------------------------
Ratio of earnings to corporate fixed charges 9.27 7.28 6.41
- ---------------------------------------------------------------------------------------------------------
Ratio of earnings to combined corporate fixed
charges and preferred stock dividends 5.57 4.30 3.70
- ---------------------------------------------------------------------------------------------------------
American General Finance, Inc.:
Income before income tax expense $ 283 $ 296 $ 204
Fixed charges deducted from income
Interest expense 574 512 484
Implicit interest in rents 15 12 11
- ---------------------------------------------------------------------------------------------------------
Total fixed charges deducted from income 589 524 495
- ---------------------------------------------------------------------------------------------------------
Earnings available for fixed charges $ 872 $ 820 $ 699
- ---------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 1.48 1.57 1.41
- ---------------------------------------------------------------------------------------------------------
</TABLE>
AMERICAN GENERAL
21
<PAGE> 1
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three years ended December 31, 1999
In millions
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements and related Notes beginning on page 36.
Operations in Profile
SUMMARY INCOME STATEMENT
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Retirement Services $ 564 $ 466 $ 246
Life Insurance 721 674 589
Consumer Finance 226 201 165
------- ------ -------
Business division earnings 1,511 1,341 1,000
Corporate capital costs (228) (216) (191)
Corporate income (expense) (56) (32) 83
Goodwill amortization (48) (45) (24)
------- ------ -------
OPERATING EARNINGS 1,179 1,048 868
Realized investment gains (12) 4 27
Non-recurring items* (36) (288) (353)
------- ------ -------
Net income $ 1,131 $ 764 $ 542
======= ====== =======
</TABLE>
* Includes litigation settlements, merger-related costs, loss on sale of
non-strategic assets, and certain Y2K costs.
[Bar Graph]
OPERATING EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year $ per share
---- -----------
<S> <C>
1997 3.49
1998 4.05
1999 4.59
</TABLE>
[Bar Graph]
ASSETS*
<TABLE>
<CAPTION>
Year $ in billions
---- -------------
<S> <C>
1997 78.8
1998 102.7
1999 116.9
</TABLE>
* Excludes fair value adjustment.
[Pie Chart]
BUSINESS DIVISION EARNINGS
<TABLE>
<S> <C>
Retirement Services 37%
Consumer Finance 15%
Life Insurance 48%
</TABLE>
[Pie Chart]
BUSINESS DIVISION ASSETS
<TABLE>
<S> <C>
Retirement Services 57%
Consumer Finance 11%
Life Insurance 32%
</TABLE>
Overview. American General Corporation (American General) and its
subsidiaries (collectively, the company or we) is a diversified financial
services organization with assets in excess of $115 billion and market
capitalization of $19.6 billion at December 31, 1999. We are a leading provider
of retirement services, life insurance, consumer loans, and investments to 12
million customers.
We have grown through both internal expansion and acquisitions. During the
last five years, we acquired eight companies with assets of $34 billion for
total consideration of nearly $6 billion. Our financial highlights for the three
years ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues and deposits $ 21,022 $ 18,461 $13,973
Earnings
Operating earnings 1,179 1,048 868
Net income 1,131 764 542
Earnings per share
Operating earnings 4.59 4.05 3.49
Net income 4.40 2.96 2.19
Assets* 116,873 102,671 78,838
Shareholders' equity*
Total 7,724 7,296 6,429
Per share 30.86 28.71 26.30
Operating return on equity* 16.0% 15.4% 13.6%
</TABLE>
*Excludes fair value adjustment under SFAS 115.
Reporting Structure. We manage our business operations through three
divisions - retirement services, life insurance, and consumer finance - based on
products and services offered. Results of each business division include
earnings from its business operations and earnings on the amount of equity we
consider necessary to support its business.
Corporate operations include corporate capital costs and other income or
expenses not allocated to the business divisions. Corporate capital costs
consist of aftertax interest on corporate debt and dividends on preferred
securities. Corporate income (expense) includes corporate management costs,
advertising costs for our national branding program started in late 1998, and
earnings on assets not allocated to the business divisions. Goodwill
amortization, net realized investment gains, and non-recurring items are also
excluded from division results, consistent with the manner in which we review
and evaluate the divisions.
21
<PAGE> 2
Management's Discussion and Analysis
In millions
RETIREMENT SERVICES
Retirement Services Highlights
SUMMARY INCOME STATEMENT
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -----
<S> <C> <C> <C>
Fixed margin $ 993 $ 812 $ 420
Variable margin 221 161 113
------- ------ -----
Total margin 1,214 973 533
Operating expenses 332 247 160
Other, net* 27 27 (2)
------- ------ -----
Pretax earnings 855 699 375
Income taxes 291 233 129
------- ------ -----
Division earnings $ 564 $ 466 $ 246
------- ------ -----
</TABLE>
* Primarily commissions and change in DPAC/CIP.
[Bar Graph]
EARNINGS
<TABLE>
<CAPTION>
Year $ in millions
---- -------------
<S> <C>
1997 246
1998 466
1999 564
</TABLE>
[Bar Graph]
ASSETS*
<TABLE>
<CAPTION>
$ in billions
General Separate
Year account account
---- ------- -------
<S> <C> <C>
1997 23.9 10.6
1998 40.9 14.8
1999 44.1 21.6
</TABLE>
* Excludes fair value adjustment.
[Bar Graph]
TOTAL MARGIN
<TABLE>
<CAPTION>
$ in millions
Year Fixed Variable
---- ----- --------
<S> <C> <C>
1997 420 113
1998 812 161
1999 993 221
</TABLE>
[Bar Graph]
DEPOSITS
<TABLE>
<CAPTION>
$ in billions
Year Fixed Variable
---- ----- --------
<S> <C> <C>
1997 1.6 1.8
1998 3.9 2.5
1999 5.0 3.0
</TABLE>
Our retirement services division is a leading provider of retirement
products and services, and ranks as the nation's third-largest writer of
annuities. We market our products through two major distribution systems. Our
1,560 financial advisors sell tax-qualified annuities and mutual funds to
employees of educational, health care, and government entities, and other
not-for-profit organizations. We also market non-qualified annuities through
30,000 representatives at 250 banks and other financial institutions.
We classify our annuity receipts as fixed or variable depending on the
investment option selected by the customer. When a fixed option is selected, the
deposits we receive are invested in our general account investment portfolio and
a liability representing our commitment to the policyholder is established. We
earn investment income on these invested assets and credit interest to the
policyholder liability accounts. The difference between the income earned and
the interest credited is our fixed margin.
A key feature of variable annuities is that the investment risk lies
predominantly with the policyholder, rather than with the company. When a
variable investment option is selected, deposits are invested in a related
mutual fund in accordance with the policyholder's instructions and recorded as
separate account assets. To reflect the policyholder's right to these assets, an
equivalent separate account liability is established. Separate account amounts
fluctuate as a result of policyholder deposits, surrenders and withdrawals, and
changes in the market value of the underlying investments. Our earnings from
separate accounts, resulting from mortality and expense charges and asset
management fees, is our variable margin.
Acquisitions. In 1998, we completed the acquisition of Western National
(subsequently renamed American General Annuity) and acquired a block of
individual annuity business. These acquisitions increased invested assets by $14
billion.
Earnings. Retirement services earnings are a function of the level of our
managed assets, fixed and variable margin, and operating expenses. Division
earnings increased 21% to $564 million in 1999. The increase resulted from
growth in managed assets and higher margins, which more than offset higher
operating expenses. The 1998 earnings increase of 90% reflects both internal
growth and the acquisition of American General Annuity.
Assets and Deposits. Investments and separate account assets, excluding the
1998 acquisitions, grew 19% in 1999 and 17% in 1998, contributing to an increase
in our fixed and variable margins. Assets and deposits were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Assets
Investments* $ 40,930 $ 37,887 $22,563
Separate accounts 21,594 14,794 10,564
Deposits
Fixed 5,024 3,909 1,592
Variable 2,969 2,451 1,795
Surrender ratios
Fixed 7.85% 7.15% 7.62%
Variable 4.55 4.20 3.68
</TABLE>
* Excludes fair value adjustment under SFAS 115.
Customer deposits reached $8.0 billion in 1999, compared to $6.4 billion in
1998 and $3.4 billion in 1997. The 29% growth in fixed deposits in 1999 resulted
from exceptionally strong sales of fixed annuities through banks. This growth
reflects new and strengthened relationships with banks and our unique
proprietary annuity strategy, through which we customize our annuity products to
meet the specific needs of each bank. The 21% growth of variable deposits in
1999 and the 37% growth in 1998 was due to the popularity of variable investment
options resulting from strong stock market performance.
Changes in the surrender ratios reflect increased competition and lower
interest crediting rates during the last two years.
Fixed Margin. Fixed margin, the difference between net investment income on
general account investments and interest credited to policyholders' fixed
accounts, increased 22% in 1999. Fixed investment spread measures this
difference in terms of interest rates. Net investment income and the components
of fixed investment spread were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net investment income $ 2,972 $ 2,753 $ 1,706
--------- --------- ---------
Investment yield 7.72% 7.96% 7.91%
Average crediting rate 5.35 5.87 6.16
--------- --------- ---------
Fixed investment spread 2.37% 2.09% 1.75%
--------- --------- ---------
</TABLE>
The $181 million increase in 1999 fixed margin was the result of the $219
million increase in net investment income, which more than offset higher
interest credited
22
<PAGE> 3
to policyholders. Net investment income increased 8% due to the 11% growth in
average invested assets, partially offset by the decrease in investment yield.
The significant increase in 1998 net investment income and fixed margin resulted
from growth in invested assets and the American General Annuity acquisition. The
24 basis point decrease in 1999 investment yield was due to new investments
yielding less than the average portfolio rate and lower income on investments
called or tendered before their maturity.
Although the 1999 yield declined, the fixed investment spread increased by
28 basis points. We have been able to more than offset declines in the
investment yield by reducing crediting rates on policyholder liabilities.
Variable Margin. Our variable margin increased 37% in 1999 and 42% in 1998
due to the growth of our separate account assets. Market appreciation, variable
deposit growth, and transfers from fixed to variable investment options
contributed to the increase in separate account assets of 46% in 1999 and 40% in
1998. Despite competitive pressures, our average variable fee rate of 1.21% in
1999 has remained relatively stable and is beginning to benefit from increases
in fees from our mutual fund partners.
Operating Expenses. Our investments in new marketing, customer service, and
technology initiatives, designed to position ourselves for future growth and to
strengthen our competitive advantage, increased our operating expenses in 1999.
The operating expense ratio increased to .55% of average assets in 1999 from
.47% in 1998 and .49% in 1997 as a result of these expenditures. The 1998
operating expenses increased primarily due to the acquisition of American
General Annuity.
Outlook. Although recent increases in interest rates may put pressure on
the fixed investment spread, we expect accelerating growth in variable annuities
and mutual fund deposits to contribute to continued earnings growth.
As demographics change and more Americans approach retirement, we
anticipate a growing demand for our integrated retirement solutions. We are
leveraging our strong individual customer and group relationships to offer more
comprehensive financial planning services and products in the tax-qualified
market. In addition, we are positioning ourselves to be the chosen provider in
the government market as individuals shift from defined benefit to defined
contribution plans. We are also expanding our proprietary annuity strategy to
offer variable annuities and life insurance customized to meet the needs of our
bank partners and their customers.
23
<PAGE> 4
Management's Discussion and Analysis
In millions
LIFE INSURANCE
Life Insurance Highlights
SUMMARY INCOME STATEMENT
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Premiums and other
considerations $3,022 $3,113 $3,066
Net investment income 2,199 2,240 2,099
Other income 173 153 149
------ ------ ------
Total revenues 5,394 5,506 5,314
------ ------ ------
Insurance and annuity benefits 2,846 2,959 2,949
Operating expenses 705 720 730
Other expenses* 740 806 729
------ ------ ------
Total expenses 4,291 4,485 4,408
------ ------ ------
Pretax earnings 1,103 1,021 906
Income taxes 382 347 317
------ ------ ------
Division earnings $ 721 $ 674 $ 589
------ ------ ------
</TABLE>
* Primarily commissions and change in DPAC/CIP.
[Bar Graph]
EARNINGS
<TABLE>
<CAPTION>
Year $ in millions
---- -------------
<S> <C>
1997 589
1998 674
1999 721
</TABLE>
[Bar Graph]
ASSETS*
<TABLE>
<CAPTION>
$ in billions
Year Life Annuity
---- ---- -------
<S> <C> <C>
1997 24.2 9.1
1998 24.9 9.4
1999 26.4 10.0
</TABLE>
* Excludes fair value adjustment.
[Bar Graph]
SALES
<TABLE>
<CAPTION>
$ in billions
Year Life Annuity
---- ---- -------
<S> <C> <C>
1997 .5 .4
1998 .6 .5
1999 .9 .7
</TABLE>
[Bar Graph]
PREMIUMS AND DEPOSITS
<TABLE>
<CAPTION>
$ in billions
Year Life Annuity
---- ---- -------
<S> <C> <C>
1997 3.1 .6
1998 3.2 .6
1999 3.6 .7
</TABLE>
Our life insurance division provides traditional, interest-sensitive, and
variable life insurance and annuities to 8 million customers through multiple
distribution channels. We reach our customers through over 34,000 independent
and career agents, as well as banks, broker dealers, and financial planners.
Life insurance in force totaled $364 billion at December 31, 1999.
The division's primary focus is the sale of life insurance and annuity
products to individuals. When interest-sensitive life insurance and annuities
are sold, the premiums and deposits we receive are invested in our general
account investment portfolio and a liability representing our commitment to the
policyholder is established. We manage investment spread by seeking to maximize
the return on these invested assets, consistent with our asset/liability
management and credit quality needs. When appropriate, we periodically reset the
interest rates credited to policyholder liabilities.
Deposits received on variable products, principally variable universal life
insurance and variable annuities, are held in separate accounts. Revenues from
these policies consist of mortality and expense charges and asset management
fees.
Earnings. The division's profitability is driven by asset growth,
investment spread, mortality, and operating expenses. Division earnings
increased 7% to $721 million in 1999, compared to a 14% increase in 1998. The
1999 increase was due to growth in the business, while the 1998 increase related
to higher investment income and the acquisition of Home Beneficial Life.
Operating efficiencies also contributed to increased earnings in each year.
Sales, Deposits, and Premiums. Sales represent annualized premium for new
products issued, while deposits represent funds we receive for
interest-sensitive insurance and annuities. Sales and deposits of individual
life insurance and annuities were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Individual life insurance
Sales $ 919 $ 612 $ 521
Deposits 1,661 1,268 1,154
Annuities
Sales 659 523 429
Deposits 689 582 505
</TABLE>
Individual life sales increased 50% and deposits increased 31% in 1999. We
launched 12 new products, which contributed to strong variable life sales,
particularly in the corporate executive insurance market. In 1998, individual
life insurance sales and deposits increased 17% and 10%, respectively. These
increases reflected our introduction of new products and our entry into
corporate executive insurance markets.
Annuity sales increased 26% in 1999 and 22% in 1998, while deposits
increased 18% and 15%, respectively. The increases in both years were due to our
strong sales of variable annuities. We significantly increased sales of variable
annuities through financial institutions in 1999.
Premiums declined slightly in 1999, as expected, due to our planned
de-emphasis of certain non-strategic lines of business and our shift in emphasis
to variable products.
Investment Spread. Investment results and interest crediting rates were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Investment yield 8.21% 8.50% 8.14%
Average crediting rate 5.90 5.96 6.05
---- ---- ----
Investment spread 2.31% 2.54% 2.09%
---- ---- ----
</TABLE>
Overall, the investment spread decreased in 1999 and increased in 1998,
primarily due to changes in the investment yield. Net investment income and the
investment yield decreased in 1999 due to lower income from securities called
before their maturity dates and lower market rates on new and reinvested funds.
The 1998 increases in investment income and investment yield were due to higher
income on investments called or tendered before their maturity dates.
We decreased the rates credited to policyholders in 1999 and 1998 in
response to changes in market conditions. We had the ability, subject to certain
minimum rate guarantees, to adjust interest crediting rates on approximately 58%
of our insurance and annuity liabilities at December 31, 1999. Our insurance and
annuity liabilities, classified by our ability to adjust interest credited, were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Adjustable crediting rates
Interest-sensitive life $ 7,329 $ 6,787 $ 6,250
Participating life 3,485 3,515 3,541
Annuities 4,325 4,453 5,047
-------- ------- --------
Total adjustable 15,139 14,755 14,838
-------- ------- --------
Fixed crediting rates
Traditional life 6,737 6,575 6,571
Other 4,424 4,350 3,874
-------- ------- --------
Total fixed 11,161 10,925 10,445
-------- ------- --------
Total insurance and
annuity liabilities $ 26,300 $25,680 $ 25,283
-------- ------- --------
</TABLE>
24
<PAGE> 5
Mortality and Persistency. Death claims and premium termination rates were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Death claims $ 998 $ 991 $ 912
Death claims per $1,000
in force 3.66 3.60 3.36
Premium termination rate 12.71% 12.58% 13.55%
</TABLE>
Overall, mortality and persistency experience reflected normal fluctuations
and remained within our pricing assumptions. Death claims increased due to aging
and growth of the in force business and our 1997 acquisition of Home Beneficial
Life. In 1998, we discontinued sales of ancillary products with higher
termination rates, resulting in an improved premium termination rate for that
year.
Operating Expenses. Although our life insurance business continues to grow,
we reduced operating expenses in each of the last two years. We benefited from
efficiency gains derived from centralization of the division's administrative
functions and lower pension and employee benefit-related expenses, offset by
higher technology costs, costs associated with terminating certain reinsurance
arrangements, and costs of new initiatives to market variable and corporate
executive insurance products. The ratio of operating expenses to direct premiums
and deposits was 14.3%, 16.1%, and 17.0% in 1999, 1998, and 1997, respectively.
Outlook. Although higher interest rates may put pressure on investment
spread, we expect steady earnings growth to result from our increasing in force
base.
In 2000, we expect to continue to increase sales and deposits through our
multiple distribution channels while continuing to build and emphasize the
American General brand name. We are well positioned to take advantage of shifts
in consumer demand between fixed and variable products.
In addition, we expect to continue to capitalize on the operating
efficiencies created by the centralization and standardization of our
administrative functions and on our strong presence in the marketplace. This
foundation will allow us to successfully develop our products and distribution
channels to their full potential.
25
<PAGE> 6
Management's Discussion and Analysis
In millions
CONSUMER FINANCE
Consumer Finance Highlights
SUMMARY INCOME STATEMENT
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Finance margin $ 881 $ 842 $ 804
Other income, net* 160 147 151
------- ------ ------
Net revenues 1,041 989 955
Operating expenses 483 465 452
Provision for loan losses 207 212 248
------- ------ ------
Pretax earnings 351 312 255
Income taxes 125 111 90
------- ------ ------
Division earnings $ 226 $ 201 $ 165
------- ------ ------
</TABLE>
* Primarily income from earnings on credit-related insurance products.
[Bar Graph]
EARNINGS
<TABLE>
<CAPTION>
Year $ in millions
---- -------------
<S> <C>
1997 165
1998 201
1999 226
</TABLE>
[Bar Graph]
FINANCE RECEIVABLES
<TABLE>
<CAPTION>
$ in billions
Year Real Estate Other
---- ----------- -----
<S> <C> <C>
1997 4.2 3.9
1998 5.8 3.9
1999 7.1 3.9
</TABLE>
[Bar Graph]
FINANCE RECEIVABLES VOLUME
<TABLE>
<CAPTION>
$ in billions
Year Originated Purchased
---- ---------- ---------
<S> <C> <C>
1997 5.5 0.6
1998 5.8 1.9
1999 6.2 1.7
</TABLE>
[Bar Graph]
CHARGE-OFF RATIO
<TABLE>
<CAPTION>
% of finance
Year receivables
---- ------------
<S> <C>
1997 3.6
1998 2.6
1999 2.1
</TABLE>
In our consumer finance division, we provide a wide variety of consumer
finance products, including mortgages, consumer loans, retail sales financing,
and credit-related insurance. We market these products through a nationwide
network of 1,350 branch offices. In addition to originating loans through our
branch offices, we acquire real estate loans through bulk purchases. We fund
finance receivables primarily by issuing fixed-rate debt and floating-rate
commercial paper.
Different types of loans have different degrees of risk, which are
reflected in the finance charges we earn. For example, loans secured by real
estate are considered to have less risk and generally carry lower interest
rates. Over the past five years, we have actively increased the percentage of
real estate loans in our portfolio and improved our credit risk management
systems as part of our strategy to improve our credit quality.
Earnings. Division earnings are a function of the amount and mix of finance
receivables, interest spread, credit quality, and operating expenses. Earnings
increased 12% to $226 million in 1999 and 22% in 1998 due to growth in our
receivables portfolio, improved credit quality, lower borrowing costs, and
operating efficiencies. The lower percentage increase in 1999 was due to lower
yields on finance receivables, reflecting the higher percentage of real estate
loans.
Finance Receivables. The mix of finance receivables at December 31 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ ------
<S> <C> <C> <C>
Real estate loans $ 7,104 $5,757 $4,155
Non-real estate loans 2,576 2,560 2,556
Retail sales finance 1,350 1,340 1,301
-------- ------ ------
Total finance receivables 11,030 9,657 8,012
Allowance for losses (396) (382) (373)
-------- ------ ------
Finance receivables, net $ 10,634 $9,275 $7,639
-------- ------ ------
Average finance receivables $ 10,009 $8,519 $7,523
-------- ------ ------
</TABLE>
We increased our finance receivables portfolio by $1.4 billion in 1999 and
by $1.6 billion in 1998. Average finance receivables increased 17% in 1999. We
generated $6.2 billion of loans in our branch offices and purchased $1.7 billion
of real estate loans, while $6.5 billion of loans were repaid. We increased the
percentage of real estate loans in the portfolio to 64% at December 31, 1999,
compared to 60% in 1998 and 52% in 1997.
Finance Margin. Finance margin is the difference between the finance
charges we charge our customers and interest expense on the debt required to
fund finance receivables. Interest spread measures this difference in terms of
interest rates. Finance margin and the components of interest spread were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Finance charges $ 1,455 $1,354 $1,265
Interest expense 574 512 461
------- ------ ------
Finance margin $ 881 $ 842 $ 804
------- ------ ------
Yield on finance receivables 14.54% 15.90% 16.81%
Borrowing cost 6.23 6.55 6.80
------- ------ ------
Interest spread 8.31% 9.35% 10.01%
------- ------ ------
</TABLE>
In both 1999 and 1998, finance charges increased 7% due to the increases in
our average finance receivables, offset by declines in yield. Interest expense
increased due to increases in average debt, offset by declines in borrowing cost
in 1999 and 1998. We refinanced debt at lower rates than the debt being replaced
and issued new debt at rates lower than the average rates on existing debt.
Interest spread decreased in 1999 and 1998 because finance receivable
yields declined more than our borrowing cost. The declines in yield reflected
the increased proportion of real estate loans in our portfolio.
Credit Quality. The credit quality of our portfolio has significantly
improved during the past three years due to our strategy to increase the
percentage of lower-risk real estate loans and to improve credit risk management
systems. In 1996, we initiated a fundamental change in our credit risk
management focus, shifting to a more proactive process. We developed
statistically-based risk scoring and prediction tools, implemented more
extensive and ongoing analysis of performance data, and instituted early warning
systems. As a result, we have improved our underwriting skills and our ability
to identify problem loans and take effective corrective action.
Credit quality information was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Charge offs $ 207 $ 220 $ 270
Delinquencies 399 384 310
Allowance for losses 396 382 373
------- ------ ------
Ratios
Charge-off 2.08% 2.60% 3.60%
Delinquency 3.46 3.75 3.60
Allowance 3.59 3.96 4.65
Charge-off coverage 1.91x 1.74x 1.38x
------- ------ ------
Risk-adjusted yield 12.46% 13.30% 13.21%
------- ------ ------
</TABLE>
26
<PAGE> 7
Charge offs decreased in both 1999 and 1998, while average finance
receivables increased. The charge-off ratio as a percentage of average
receivables also decreased. While delinquencies increased due to growth in
finance receivables and as a natural function of the aging of our acquired
portfolios, the 1999 delinquency ratio decreased. These improvements were the
result of our improved credit quality.
The allowance for finance receivable losses is maintained at an amount we
believe is adequate to absorb anticipated credit losses in our existing
portfolio. The allowance as a percentage of finance receivables declined to
reflect the improved credit quality and portfolio mix. In first quarter 2000, we
expect to sell approximately $25 million of fully-reserved receivables. Our
allowance ratio would have been 3.37% had this sale occurred at year-end 1999.
The charge-off coverage ratio, which compares the allowance for finance
receivable losses to charge offs, improved in both 1999 and 1998.
Risk-adjusted yield represents the yield on finance receivables less the
charge-off ratio. Although risk-adjusted yield declined, the decrease is less
than the decline in yield on finance receivables due to the improvement in the
charge-off ratio.
Operating Expenses. While our average finance receivables grew 17% in 1999
and 13% in 1998, we limited operating expense increases to 4% and 3% in these
years. Operating expenses as a percentage of average finance receivables
improved to 4.8% in 1999 from 5.5% in 1998 and 6.0% in 1997 due to the increase
in average receivables and branch productivity improvements in the past two
years. Net receivables per employee improved 17% to $1.4 million in 1999 from
$1.2 million in 1998.
Outlook. In 2000, we anticipate that our receivables portfolio will grow
internally from increased marketing initiatives, supplemented by portfolio
acquisitions. In addition, we will continue our focus on credit quality.
The recent increases in market interest rates may put pressure on our
interest spread; however, new loan originations and bulk purchases should
reflect the higher rates. In addition, real estate repayments should decrease
due to fewer refinancings. We expect continued growth in our receivables base,
combined with our risk management systems and our ongoing expense management
activities, to generate continued earnings growth.
27
<PAGE> 8
Management's Discussion and Analysis
In millions
INVESTMENTS
Investments Highlights
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Average invested assets* $ 68,738 $64,848 $50,708
Net investment income 5,232 5,095 4,020
Investment yield* 7.85% 8.16% 8.16%
</TABLE>
* Excludes fair value adjustment under SFAS 115.
[Bar Graph]
INVESTED ASSETS*
<TABLE>
<CAPTION>
Year $in billions
---- ------------
<S> <C>
1997 51.2
1998 66.3
1999 70.1
</TABLE>
* Excludes fair value adjustment.
[Bar Graph]
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
Net Investment
Year Income $in billions
---- -------------------
<S> <C>
1997 4.0
1998 5.1
1999 5.2
</TABLE>
[Pie Chart]
1999 INVESTED ASSETS
<TABLE>
<S> <C>
Mortgage-backed securities 19%
Private investment grade bonds 16%
Below investment grade bonds 5%
Public investment grade bonds 49%
Mortgage loans 5%
Other 6%
</TABLE>
[Pie Chart]
1999 FIXED MATURITY SECURITIES BY RATING
<TABLE>
<S> <C>
Deposits
- --------
A 33%
BBB 26%
AA 10%
AAA 25%
Below Investment Grade 6%
</TABLE>
Investment activities, managed by American General Investment Management,
are an integral part of our retirement services and life insurance operations.
Our strategy is twofold: (1) maintain a predominantly investment-grade
fixed-income portfolio that provides adequate liquidity and cash flow to meet
liability requirements and (2) optimize investment return through active
investment management. We had $68.3 billion of investments supporting insurance
and annuity liabilities at year-end 1999. Fixed maturity securities accounted
for approximately 90% of these investments.
Interest rates increased in 1999 after a decline in 1998. The ten-year
treasury bond yield rose by nearly 180 basis points to 6.44% at year-end 1999,
compared to a 100 basis point decline in 1998. As measured by the Salomon
Brothers Broad Investment Grade Bond Index, the 1999 increase in yield resulted
in average bond prices declining approximately 7% during the year, in contrast
to a 2% increase in 1998.
Fair Value of Securities
We report our fixed maturity and equity securities at fair value in
accordance with Statement of Financial Accounting Standards 115. Accounting
rules do not permit us to report the insurance and annuity liabilities supported
by these securities at fair value. As a result, changes in interest rates create
volatility in shareholders' equity since only unrealized gains (losses) on fixed
maturity and equity securities are reported on the balance sheet. The components
of the fair value adjustment at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Fair value adjustment to
fixed maturity securities $(1,750) $ 3,519 $ 2,786
Related increase (decrease)
in DPAC/CIP 347 (1,073) (1,052)
Related decrease (increase)
in deferred income taxes 495 (863) (610)
Valuation allowance on
deferred tax asset (381) -- --
------- ------- -------
Net unrealized gains (losses)
Fixed maturity securities (1,289) 1,583 1,124
Other, net 11 16 45
------- ------- -------
Net unrealized gains
(losses) on securities $(1,278) $ 1,599 $ 1,169
------- ------- -------
</TABLE>
The increase in interest rates and resulting decreases in bond values in
1999 caused a $5.3 billion decrease in the fair value adjustment to fixed
maturity securities and a related $2.9 billion decrease in shareholders'
equity. Decreases in interest rates during 1998 resulted in a $733 million
increase in the fair value adjustment to fixed maturity securities and a $459
million increase in shareholders' equity.
We established a valuation allowance on the deferred tax asset related to
the unrealized losses on fixed maturity securities at December 31, 1999 because
a portion of the deferred tax asset may not be realized. This valuation
allowance had no impact on earnings.
Investment Results
Net investment income increased 3% and 27% in 1999 and 1998, while average
invested assets increased by 6% and 28% for the same periods. Lower yields on
new investment purchases in 1999 and 1998 caused investment yield to decrease by
31 basis points in 1999. The 1998 investment yield was flat due to higher income
on investments called or tendered before their maturity dates, which more than
offset declining yields on new investments.
Fixed Maturity Securities
At year-end 1999, fixed maturity securities included $45.6 billion of
corporate bonds and $12.9 billion of mortgage-backed securities. The average
credit rating of our fixed maturity securities was A+ at the end of each of the
last three years. Average ratings by category at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Average
1999 Rating
---- ------
<S> <C> <C> <C>
Investment grade $ 44,412 73% A
Mortgage-backed 12,893 21 AAA
Below investment grade 3,320 6 BB-
-------- --- ------
Total fixed maturity
securities $ 60,625 100% A+
</TABLE>
We have a well diversified portfolio, with no investment exceeding 0.7% of
total invested assets. The mix of our fixed maturity securities portfolio at
December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Corporates
Industrial 41% 40% 43%
Financial services 22 21 19
Utilities 13 13 13
---- ---- ----
Total corporates 76 74 75
Mortgage-backed 21 21 20
Governments 3 5 5
---- ---- ----
Total portfolio 100% 100% 100%
---- ---- ----
</TABLE>
28
<PAGE> 9
Mortgage-Backed Securities. We invest in mortgage-backed securities (MBSs)
to diversify our portfolio risk characteristics from primarily corporate credit
risk to a mix of credit and cash flow risk. The majority of our MBSs have
relatively low cash flow variability. In addition, virtually all of our MBSs
have minimal credit risk because the underlying collateral is guaranteed by
Federal agencies. These MBSs are highly liquid and offer higher yields than
corporate debt securities of similar credit quality and expected average lives.
Our MBSs at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Collateralized mortgage
obligations (CMOs)
Planned amortization class $ 3,765 $ 4,622 $ 4,520
Sequential 2,851 3,948 2,685
Other 1,087 828 1,149
-------- ------- --------
Total CMOs 7,703 9,398 8,354
Pass-through securities 3,955 3,013 673
Commercial MBSs 1,235 608 401
-------- ------- --------
Total MBSs $ 12,893 $13,019 $ 9,428
-------- ------- --------
</TABLE>
The principal risks inherent in holding MBSs are prepayment and extension
risks arising from changes in market interest rates. In rising interest rate
environments, underlying mortgages are prepaid at a slower rate, causing MBS
principal payments to be extended. In declining interest rate environments, the
mortgages underlying MBSs are prepaid more rapidly, causing early repayment of
MBSs. Although early MBS repayments may result in acceleration of income from
recognition of any unamortized discount, we typically have to reinvest the
proceeds at lower current yields, resulting in a net reduction of future
investment income.
We manage these prepayment and extension risks by investing primarily in
collateralized mortgage obligation (CMO) tranches that provide for greater
stability of cash flows. The planned amortization class tranche is structured to
give the investor more certain cash flows; therefore, this tranche is subject to
less prepayment and extension risk than other CMO tranches. Sequentials allocate
all principal payments to tranches based on maturity, retiring the shortest
maturity tranches first.
Beginning in 1998, we increased our holdings of pass-through securities to
facilitate dollar roll agreements. We had no dollar roll agreements outstanding
at December 31, 1999 or 1998.
Below Investment Grade Securities. We invest in below investment grade
securities to enhance the overall yield of our portfolio. Below investment grade
securities have credit ratings below BBB- and represented 5% or less of invested
assets at each year end. We minimize the
29
<PAGE> 10
Management's Discussion and Analysis
In millions
risks associated with below investment grade securities by limiting our exposure
to any one issuer and by closely monitoring the creditworthiness of such
issuers.
Below investment grade bond issuers are generally more sensitive to changes
in their competitive positions and to general economic conditions than more
highly-rated issuers and, therefore, are more likely to experience defaults.
While market default rates increased significantly in 1999, such defaults had no
significant impact on the company in the past three years.
Investment income from below investment grade securities was $371 million
(10.4% yield) in 1999, $287 million (9.8% yield) in 1998, and $178 million
(10.4% yield) in 1997. Realized investment gains (losses) on below investment
grade securities were immaterial.
Non-performing bonds were less than 0.1% of total fixed maturity securities
at each year end. We classify bonds as non-performing when the payment of
interest is sufficiently uncertain as to preclude the accrual of interest.
MORTGAGE LOANS
Mortgage loans on real estate, consisting primarily of loans on office and
retail properties, represented 5% of our invested assets at year-end 1999.
Mortgage loan statistics at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Mortgage loans $ 3,712 $ 3,402 $3,326
Allowance for losses (26) (34) (54)
------- ------- ------
Mortgage loans, net $ 3,686 $ 3,368 $3,272
------- ------- ------
Yield on total mortgage loans 8.3% 8.6% 8.8%
Yield on restructured loans 7.8 7.9 8.6
Percentage of mortgage loans
Restructured 1.7 2.1 3.5
Delinquent (60+ days) .6 .6 .6
Watch list loans .9 2.4 3.8
Allowance for losses .7 1.0 1.6
------- ------- ------
</TABLE>
ASSET/LIABILITY MANAGEMENT
We manage our exposure to fluctuations in interest rates through an
asset/liability management program which is designed to achieve our liquidity
and profitability objectives by maintaining a reasonable balance in the
durations of assets and liabilities. We perform asset/liability management on an
ongoing basis for corporate operations and each operating company, as well as on
an aggregate basis.
CORPORATE OPERATIONS
The primary assets of our parent company are long-term investments in its
subsidiaries. These assets are supported by our corporate capital structure
consisting of corporate debt, redeemable equity, and shareholders' equity, which
by its nature is very long term. The average lives of our long-term corporate
debt and redeemable equity are 10 and 35 years, respectively.
To reduce the earnings impact of a change in interest rates, we limit
floating-rate debt to 10% to 12% of our target capital. Floating-rate debt was
12% of total capital at December 31, 1999 and 10% at December 31, 1998. These
percentages included the effect of interest rate swap agreements that converted
floating-rate debt to a fixed rate.
RETIREMENT SERVICES AND LIFE INSURANCE
The earnings of our retirement services and life insurance divisions are
largely driven by the spread between the yields on our investments and the rates
credited to policyholders. We respond to fluctuations in interest rates through
pricing of new products and periodic adjustment of interest crediting rates on
existing products, where possible. We have been able to manage the investment
spread to maintain overall margins on interest-sensitive products while market
interest rates increased in 1999 and decreased in 1998 and 1997.
Our ability to manage interest crediting rates and durations is largely due
to the nature of our insurance and annuity products. We had the ability, subject
to certain minimum rate guarantees, to adjust interest crediting rates on
approximately 83% of our insurance and annuity liabilities at December 31, 1999.
Additionally, we use swaptions (options to enter into swap agreements) to limit
our exposure to reduced spreads between interest crediting rates and investment
yields during prolonged periods of significant increases or decreases in market
interest rates.
We manage our investment portfolio by purchasing investments that are
aligned with our specific portfolio
30
<PAGE> 11
objectives and, to a lesser extent, by restructuring the portfolio. We also use
derivative financial instruments on a very limited and selective basis. We
establish investment portfolio objectives that maximize investment returns
consistent with the duration and cash flow characteristics of the insurance and
annuity liabilities being supported. The most recent estimated duration of the
company's insurance and annuity liabilities was in the range of 5.1 to 6.1
years, while the estimated duration of the assets supporting these liabilities
was 5.5 years.
We perform simulations of the cash flows generated by our businesses under
various interest rate scenarios to manage the gap between our interest
rate-sensitive assets and liabilities. Our cash flow testing performed as of
December 31, 1999 indicated that our insurance companies would have sufficient
cash flows to meet their insurance obligations under the broad range of selected
scenarios.
CONSUMER FINANCE
The primary products offered by our consumer finance division are real
estate loans, which typically have expected lives of 3 years (although this can
increase as interest rates increase); consumer loans, which typically have terms
of 1.5 years; and retail sales financing contracts, which typically have terms
of 9 months. We fund these receivables with equity (typically 12%) and a
combination of fixed-rate and floating-rate debt. We use interest-rate swap
agreements to convert a portion of floating-rate debt to a fixed rate. The
weighted-average years to maturity for our fixed-rate debt was 2.8 years at
December 31, 1999.
We determine the mix of fixed-rate and floating-rate debt based in part on
the nature of the receivables being supported. Generally, floating-rate assets
are funded with floating-rate debt, while fixed-rate assets are funded with 20%
to 30% floating-rate debt and the remainder is funded with fixed-rate debt.
SENSITIVITY ANALYSIS
The fair values of certain of our assets and liabilities are sensitive to
changes in market interest rates. The impact of changes in interest rates would
be reduced by the fact that increases (decreases) in fair values of assets would
be partially offset by corresponding changes in fair values of liabilities. In
aggregate, the estimated impact of an immediate and sustained 100 basis point
increase or decrease in interest rates on the fair values of our interest
rate-sensitive financial instruments would not be material to our financial
position. The estimated increases (decreases) in fair values of interest
rate-sensitive financial instruments at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
1999
+100 bp -100 bp
-------- --------
<S> <C> <C>
Assets
Fixed maturity securities $ (3,224) $ 3,450
Mortgage loans (165) 166
Policy loans (101) 117
Finance receivables (331) 362
Liabilities
Insurance investment contracts (1,619) 1,801
Long-term debt
Corporate (72) 80
Consumer finance (157) 165
Redeemable equity (161) 198
</TABLE>
These estimated changes in fair values are not materially different from
those we estimated at December 31, 1998. At each year end, we derived the
changes in fair values by modeling estimated cash flows of certain of the
company's assets and liabilities. The assumptions we used adjusted cash flows to
reflect changes in prepayments, calls, surrenders, and interest crediting rates
in response to the changes in interest rates, as well as the effects of
derivative financial instruments used as hedges. These cash flows did not
consider new investment purchases, loan originations, product sales, or debt
issuances.
Readers should exercise care in drawing conclusions based on the above
analysis. While these changes in fair values provide a measure of interest rate
sensitivity, they do not represent our expectations about the impact of interest
rate changes. A meaningful assessment of our net interest rate exposure cannot
be made without a revaluation of our other insurance and annuity liabilities,
which are not considered to be interest rate-sensitive financial instruments
under current accounting standards.
This analysis was also based on our exposure at a particular point in time
and incorporated numerous assumptions and estimates. It also assumed an
immediate change in interest rates, without regard to the impact of certain
business decisions or initiatives that we would likely undertake to mitigate or
eliminate some or all of the adverse effects of the modeled scenarios.
Additionally, this analysis did not reflect the impact of fair value
fluctuations on deferred income taxes, deferred policy acquisition costs, or
cost of insurance purchased. Adjustments to these accounts would partially
offset the changes to the fair values of interest rate-sensitive financial
instruments.
31
<PAGE> 12
Management's Discussion and Analysis
In millions
CAPITAL RESOURCES
CORPORATE CAPITAL
The level of our corporate capital is determined primarily by the required
equity of our business divisions. The mix of corporate capital between debt and
equity is influenced by our overall corporate strategy and structure.
Our target capital structure consists of 25% corporate debt, 15% redeemable
equity, and 60% shareholders' equity. The amount and mix of our corporate
capital at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Corporate capital* $ 12,768 $11,767 $ 10,071
-------- ------- --------
Corporate debt 24% 23% 19%
Redeemable equity 15 15 17
Shareholders' equity 61 62 64
-------- ------- --------
</TABLE>
* Excludes fair value adjustment under SFAS 115.
Capital Costs. Corporate capital costs consist of interest on corporate
debt and dividends on preferred securities. Corporate capital costs were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- --------
<S> <C> <C> <C>
Interest on corporate debt $ 210 $ 196 $ 169
Dividends on preferred
securities 142 137 129
Tax benefit (124) (117) (107)
-------- ------- --------
Corporate capital costs $ 228 $ 216 $ 191
-------- ------- --------
</TABLE>
The increases in corporate capital costs reflect the growth in corporate
capital, partially offset by lower market rates on new issuances of debt and
preferred securities.
Corporate Debt. Our corporate debt ratings at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Commercial Paper Long-term Debt
------------------- -------------------
Rating Description Rating Description
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Standard & Poor's A-1+ Highest AA- Very Strong
Duff & Phelps D-1+ Highest AA- High
Moody's P-1 Highest A2 Favorable
</TABLE>
The weighted-average interest rates on corporate debt, including the effect
of interest rate swap agreements, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Floating-rate debt 6.03% 5.54% 6.12%
Fixed-rate debt 7.62 7.77 7.92
Total corporate debt 6.63 6.46 7.38
</TABLE>
Redeemable Equity. During the last three years, we issued preferred
securities of subsidiaries totaling $700 million. These securities are recorded
on our balance sheet as redeemable equity. We used the proceeds primarily to
reduce short-term debt related to acquisitions or share repurchases. The
weighted-average dividend rate on our redeemable equity was 7.9% in each of the
last three years. At December 31, 1999, our redeemable equity was rated
mid-single A by the three major rating agencies.
During 2000, we expect to exercise our option to terminate the conversion
rights associated with $250 million of convertible preferred securities. This
will likely cause the holders to convert the preferred securities to common
stock before the conversion rights are terminated. The preferred securities are
each convertible into 1.2288 shares of our common stock, which is equivalent to
a conversion price of $40.69 per share of common stock. Following conversion, we
plan to issue additional preferred securities to maintain our target capital
structure.
Shareholders' Equity. During the last three years, we issued $1.0 billion
of common stock in connection with our acquisitions. On January 26, 2000, we
announced the redemption of all outstanding shares of our mandatorily
convertible preferred stock, with a stated value of $85 million. As a result, on
March 1, 2000, holders will receive .8264 share of our common stock for each
share of preferred stock redeemed, for a total of 1.9 million common shares.
Since 1987, American General has repurchased 122.6 million common shares
for an aggregate cost of $3.2 billion. Our share repurchases for the past three
years were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Shares repurchased 5.9 3.0 9.9
Cost of shares repurchased $425 $195 $ 466
</TABLE>
We use share repurchases as a means of maintaining our target capital
structure. Our future repurchase activity will be based on the company's
corporate development activities, capital management strategy, and fluctuations
in our common stock price.
RETIREMENT SERVICES AND LIFE INSURANCE
Risk-Based Capital. The amount of statutory equity required to support the
business of our retirement services and life insurance companies is principally
a
32
<PAGE> 13
function of four factors: (1) the quality of assets invested to support
insurance and annuity reserves, (2) mortality and other insurance-related risks,
(3) interest-rate risk resulting from potential mismatching of asset and
liability durations, and (4) general business risks. Each of these items is a
key factor in the National Association of Insurance Commissioners' risk-based
capital (RBC) formula, used to evaluate the adequacy of a life insurance
company's statutory equity.
We manage the statutory equity of our principal retirement services and
life insurance companies to a target of 2.5 times the Company Action Level RBC
(or 5.0 times the Authorized Control Level RBC). We adjust dividends from, or
contributions to, these companies to maintain this target. At December 31, 1999,
our principal retirement services and life insurance companies had statutory
equity in a range of 2.00 to 3.30 times the Company Action Level RBC, with a
weighted-average of 2.68 times.
Financial Strength Ratings. Rating agencies use the RBC approach as a
factor in assigning an insurance company its financial strength rating. This
rating serves as an indicator of the insurance company's ability to meet its
future obligations to policyholders. At December 31, 1999, our principal
retirement services and life insurance companies were rated as follows:
<TABLE>
<CAPTION>
Rating Description
------ -----------
<S> <C> <C>
Standard & Poor's AA+ Very strong
Duff & Phelps AA+ Very high
Moody's Aa2/Aa3 Excellent
A.M. Best A+ Superior
</TABLE>
CONSUMER FINANCE
The capital of our consumer finance division varies directly with the level
of its finance receivables. This capital, totaling $11.5 billion at year-end
1999, consisted of $1.3 billion of equity and $10.2 billion of consumer finance
debt, which was not guaranteed by American General.
The capital mix of consumer finance debt and equity is based upon
maintaining leverage at a level that supports cost-effective funding. 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
currently 7.5 to 1. At year-end 1999, the ratio was 7.6 to 1; the ratio was 7.5
to 1 at year-end 1998 and 1997.
Consumer finance debt ratings at December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Commercial Paper Long-term Debt
------------------- -------------------
Rating Description Rating Description
------ ----------- ------ -----------
<S> <C> <C> <C> <C>
Standard & Poor's A-1 Strong A+ Strong
Duff & Phelps D-1+ Highest A+ Average
Moody's P-1 Highest A2 Favorable
</TABLE>
LIQUIDITY
Our overall liquidity is based on cash flows from the business divisions
and our ability to borrow in both the long-term and short-term markets at
competitive rates. We believe that our overall sources of liquidity will
continue to be sufficient to satisfy our foreseeable financial obligations.
CORPORATE OPERATIONS
The primary sources of cash for corporate operations include net dividends
from our business divisions and the proceeds from issuances of debt and
redeemable equity.
Our internal subsidiary capitalization targets are a major factor in our
operating companies' ability to pay dividends. Additionally, state insurance
regulations for insurance and annuity companies and long-term debt covenants for
our consumer finance operations restrict the amount of dividends our business
divisions may pay. These restrictions are not expected to affect American
General's ability to meet its cash obligations in 2000.
Corporate operations use cash to pay dividends to shareholders, to pay
aftertax interest on corporate debt and dividends on preferred securities, to
repurchase common stock, and to pay other corporate expenses. We expect to fund
future acquisitions and maturities of debt and preferred securities through
external sources, while maintaining our capital structure.
33
<PAGE> 14
Management's Discussion and Analysis
In millions
Net dividends received from our business divisions were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Dividends received
Retirement Services $ 124 $ 182 $ 129
Life Insurance 599 599 457
Consumer Finance 110 - 80
------ ------ ------
Total received 833 781 666
------ ------ ------
Contributions paid
Retirement Services 119 281 -
Life Insurance 230 - -
Consumer Finance - 47 -
------ ------ ------
Total paid 349 328 -
------ ------ ------
Net dividends received $ 484 $ 453 $ 666
------ ------ ------
</TABLE>
The 1998 decrease in net dividends received resulted from contributions
made in 1998 to support growth in the retirement services and consumer finance
divisions. The 1999 net dividends included contributions million to fund the
payment of market conduct litigation costs.
RETIREMENT SERVICES
Principal sources of cash for our retirement services division were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Cash from operating activities $1,570 $1,625 $1,058
Fixed policyholder account
deposits, net of withdrawals 1,532 626 6
Variable account deposits, net
of withdrawals 2,465 2,294 1,991
</TABLE>
The 1999 increase in net fixed policyholder account deposits was due to
growth in fixed annuities sold through financial institutions. The 1998 increase
related to the acquisition of American General Annuity. The increases in net
variable account deposits arose from policyholders continuing to seek higher
returns in equity-based investments, including the company's separate accounts.
Because the investment risk on variable accounts lies predominantly with the
policyholder, deposits and withdrawals related to separate accounts are not
included in the company's cash flow statement.
The division's major use of cash was the net purchase of investments
necessary to support increases in insurance and annuity liabilities.
LIFE INSURANCE
Principal sources of cash for our life insurance division were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash from operating activities $155 $361 $453
Fixed policyholder account
deposits, net of withdrawals 394 57 89
Variable account deposits, net
of withdrawals 643 356 103
</TABLE>
Net cash provided by operating activities decreased in 1999 due to payment
of $237 million of previously-accrued market conduct litigation costs. The
increase in net fixed policyholder account deposits reflected the growth in lump
sum fixed deposits that will be transferred to variable accounts over a one-year
period, as well as higher withdrawals in 1998 for annuities that had reached the
end of their surrender charge period. The increases in net variable account
deposits were the result of growth in the corporate executive insurance business
and policyholders seeking higher returns from equity-based investments.
The division's 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.
CONSUMER FINANCE
Principal sources of cash for our consumer finance division were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash from operating activities $ 494 $ 439 $ 516
Increase (decrease) in debt 1,295 1,593 (366)
Sale of non-strategic assets - - 733
</TABLE>
Net cash provided by operating activities increased in 1999 due to an
increase in finance charges from higher average net receivables. Cash generated
by borrowings declined in 1999 due to lower growth in finance receivables. Cash
provided by the sale of non-strategic assets resulted in a decrease in
borrowings in 1997.
The division's major use of cash was to fund finance receivables growth.
Net cash used to fund finance receivables was $1.6 billion in 1999, down from
$1.8 billion in 1998, and up from $793 million in 1997.
34
<PAGE> 15
REGULATION AND OTHER
REGULATION
On November 12, 1999, the Financial Services Modernization Act became
federal law, breaking down regulatory barriers between banks, insurance
companies, and securities firms which had existed for over 60 years. We
anticipate that the new law will hasten the pace of consolidation in the
financial services industry, as well as provide new opportunities and increase
competition among diversified financial services companies. However, we do not
expect this law to have a significant impact on our corporate or capital
strategy.
Insurance regulators monitor capital adequacy and market conduct to protect
policyholders. Market conduct includes sales and advertising practices, agent
licensing and compensation, policyholder service, complaint handling,
underwriting, and claims practices. As a result of increased regulatory
scrutiny, market conduct compliance costs for our insurance subsidiaries have
increased in recent years. Market conduct issues are also a concern for our
consumer finance business.
Tax laws affect not only the way the company is taxed but also the design
of many of its products. Changes in tax laws or regulations could adversely
affect operating results.
YEAR 2000
As of March 10, 2000, all of our major technology systems, programs, and
applications, including those which rely on third parties, are operating
smoothly following our transition into 2000. We have experienced no
interruptions to normal business operations, including the processing of
customer account data and transactions. We will continue to monitor our
technology systems, including critical third party dependencies, as necessary to
maintain our Year 2000 readiness. We do not expect any future disruptions, if
they occur, to have a material effect on the company's results of operations,
liquidity, or financial condition.
Through December 31, 1999, we incurred and expensed pretax costs of $98
million related to Year 2000 readiness, including $18 million in 1999 and $65
million in 1998. In 1999, Year 2000 readiness expenses were included in division
earnings. The 1998 expenses were excluded from division earnings, consistent
with the manner in which we reviewed division results. In addition, we
accelerated the planned replacement of certain systems as part of our Year 2000
plans. The cost of these replacement systems was immaterial. We do not
anticipate incurring any significant costs in the future to maintain Year 2000
readiness.
MERGER-RELATED COSTS
In 1997, we recorded an aftertax non-recurring charge of $247 million for
costs related to the USLIFE acquisition. Included in this charge was $71 million
($46 million aftertax) of restructuring costs related to our plan to integrate
USLIFE into our operations and the concurrent realignment of our life insurance
division.
To implement this plan, we eliminated positions in both USLIFE's corporate
operations and our operating companies' administrative functions. We also closed
redundant facilities and wrote off fixed assets and computer software that would
no longer be used. During the realignment, we adjusted the plan in response to
personnel voluntarily leaving the company before their anticipated termination
date, our determination that certain data processing facilities would not be
consolidated, and our discovery of additional software that was no longer being
used at the centralized locations. These adjustments did not change the total
liability we initially recorded.
We have substantially completed the restructuring activities. The remaining
liability of $14 million relates to personnel costs, most of which we expect to
pay in 2000, and lease payments under long-term obligations, most of which will
be paid by 2001. An analysis of the restructuring liability is included in Note
3.2 to our financial statements.
LITIGATION
We recorded litigation settlements in each of the last three years. These
settlements, which were non-recurring and unrelated to each other, are discussed
in Notes 3.1 and 18.2 to our financial statements.
We are currently in arbitration to rescind a quota share reinsurance
agreement covering workers' compensation claims, as discussed in Note 18.2 to
our financial statements. We believe that our ultimate loss, if any, related to
our workers' compensation business will not have a material adverse effect on
our future results of operations and financial position.
Forward-Looking Statements
All statements, trend analyses, and other information contained herein
relative to markets for our products and trends in our 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. We have made these forward-looking statements
based upon our current expectations and beliefs concerning future developments
and their potential effects on the company. There can be no assurance that
future developments affecting the company will be those we anticipated. 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 products and distribution channels; (3) competitive,
regulatory, or tax changes that affect the cost of, or demand for, our products;
(4) our ability to secure necessary regulatory approvals; and (5) adverse
litigation results or resolution of litigation and arbitration. Investors are
also directed to other risks and uncertainties discussed in documents we filed
with the Securities and Exchange Commission. We undertake no obligation to
update or revise any forward-looking information, whether as a result of new
information, future developments, or otherwise.
35
<PAGE> 16
CONSOLIDATED INCOME STATEMENT
AMERICAN GENERAL CORPORATION
<TABLE>
<CAPTION>
For the years ended December 31
In millions, except per share data 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES Premiums and other considerations $ 3,772 $ 3,605 $ 3,362
Net investment income 5,232 5,095 4,020
Finance charges 1,455 1,354 1,265
Realized investment gains (losses) (19) 6 40
Other 239 191 240
-------- -------- --------
Total revenues 10,679 10,251 8,927
-------- -------- --------
BENEFITS AND Insurance and annuity benefits 5,313 5,159 4,332
EXPENSES Operating costs and expenses 1,643 1,591 1,423
Commissions 1,230 1,063 873
Change in deferred policy acquisition costs and
cost of insurance purchased (477) (213) (100)
Provision for finance receivable losses 207 212 248
Goodwill amortization 48 45 24
Interest expense
Corporate 197 181 158
Consumer Finance 574 512 461
Other charges
Litigation settlements 57 378 50
Merger-related costs - - 272
Loss on sale of non-strategic assets - - 113
-------- -------- --------
Total benefits and expenses 8,792 8,928 7,854
-------- -------- --------
EARNINGS Income before income tax expense 1,887 1,323 1,073
Income tax expense 664 459 447
-------- -------- --------
Income before net dividends on preferred
securities of subsidiaries and minority interest 1,223 864 626
Net dividends on preferred securities of subsidiaries 92 89 84
Minority interest - 11 -
-------- -------- --------
Net income $ 1,131 $ 764 $ 542
-------- -------- --------
SHARE DATA Net income per share
Basic $ 4.52 $ 3.02 $ 2.21
Diluted 4.40 2.96 2.19
-------- -------- --------
See Notes to Financial Statements.
</TABLE>
36
<PAGE> 17
CONSOLIDATED BALANCE SHEET
AMERICAN GENERAL CORPORATION
<TABLE>
<CAPTION>
At December 31
In millions 1999 1998 1997
---------- --------- --------
<S> <C> <C> <C>
ASSETS Investments
Fixed maturity securities (amortized cost:
$62,375; $59,212; $44,961) $ 60,625 $ 62,731 $ 47,747
Mortgage loans on real estate 3,686 3,368 3,272
Equity securities (cost: $299; $288; $93) 339 325 116
Policy loans 2,375 2,329 2,156
Investment real estate 222 226 233
Other long-term investments 412 230 176
Short-term investments 676 654 306
---------- --------- --------
Total investments 68,335 69,863 54,006
---------- --------- --------
Cash 294 341 263
Assets held in separate accounts 24,097 16,158 11,482
Finance receivables, net 10,634 9,275 7,639
Deferred policy acquisition costs 4,980 3,253 2,718
Cost of insurance purchased 1,170 956 680
Goodwill 1,501 1,590 677
Other assets 4,436 3,671 3,155
---------- --------- --------
Total assets $ 115,447 $ 105,107 $ 80,620
---------- --------- --------
LIABILITIES Insurance and annuity liabilities $ 66,401 $ 62,844 $ 47,659
Liabilities related to separate accounts 24,097 16,158 11,482
Debt (short-term)
Corporate ($1,932; $1,607; $575) 3,120 2,743 1,916
Consumer Finance ($4,489; $3,686; $3,255) 10,206 8,863 7,266
Income tax liabilities 833 1,543 1,380
Other liabilities 2,446 2,357 1,608
---------- --------- --------
Total liabilities 107,103 94,508 71,311
---------- --------- --------
REDEEMABLE Company-obligated mandatorily redeemable
EQUITY preferred securities of subsidiaries holding
solely company subordinated notes
Non-convertible 1,675 1,480 1,479
Convertible 249 248 247
---------- --------- --------
Total redeemable equity 1,924 1,728 1,726
---------- --------- --------
SHAREHOLDERS' Convertible preferred stock
EQUITY Shares issued and outstanding: 2.3 85 85 85
Common stock
Shares issued: 269.3; 269.3; 259.1
Shares outstanding: 248.1; 251.8; 243.2 962 939 326
Retained earnings 7,732 7,007 6,624
Accumulated other comprehensive income (loss) (1,278) 1,599 1,169
Cost of treasury stock (1,081) (759) (621)
---------- --------- --------
Total shareholders' equity 6,420 8,871 7,583
---------- --------- --------
Total liabilities and equity $ 115,447 $ 105,107 $ 80,620
---------- --------- --------
</TABLE>
See Notes to Financial Statements.
37
<PAGE> 18
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
AMERICAN GENERAL CORPORATION
<TABLE>
<CAPTION>
For the years ended December 31
In millions, except per share data 1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
CONVERTIBLE
PREFERRED STOCK Balance at beginning and end of year $ 85 $ 85 $ 85
-------- ------- -------
COMMON Balance at beginning of year 939 326 572
STOCK Issuance of common shares for acquisition - 580 -
Stock options issued for acquisition - 37 -
Retirement of USLIFE treasury shares - - (346)
Issuance of treasury shares for acquisitions and other 23 (4) 100
-------- ------- -------
Balance at end of year 962 939 326
-------- ------- -------
RETAINED Balance at beginning of year 7,007 6,624 6,420
EARNINGS Net income 1,131 764 542
Cash dividends (per share)
Preferred ($2.57; $2.57; $2.57) (6) (6) (6)
Common ($1.60; $1.50; $1.40) (400) (375) (329)
Other - - (3)
-------- ------- -------
Balance at end of year 7,732 7,007 6,624
-------- ------- -------
ACCUMULATED Balance at beginning of year 1,599 1,169 627
OTHER Change in net unrealized gains (losses) on securities (2,877) 430 542
COMPREHENSIVE -------- ------- -------
INCOME (LOSS) Balance at end of year (1,278) 1,599 1,169
-------- ------- -------
COST OF Balance at beginning of year (759) (621) (860)
TREASURY Share repurchases (425) (195) (466)
STOCK Issuance for acquisitions 43 - 304
Retirement of USLIFE treasury shares - - 346
Issuance under employee benefit plans and other 60 57 55
-------- ------- -------
Balance at end of year (1,081) (759) (621)
-------- ------- -------
SHAREHOLDERS'
EQUITY Balance at end of year $ 6,420 $ 8,871 $ 7,583
-------- ------- -------
</TABLE>
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
NET INCOME Net income $ 1,131 $ 764 $ 542
-------- ------- -------
OTHER Change in net unrealized gains (losses) on securities
COMPREHENSIVE Fair value of fixed maturity securities (5,269) 733 1,298
INCOME Deferred policy acquisition costs and
cost of insurance purchased 1,420 (21) (461)
Deferred income taxes 977 (253) (290)
-------- ------- -------
Change in fixed maturity securities (2,872) 459 547
Change in equity securities and other (5) (29) (5)
-------- ------- -------
Total (2,877) 430 542
-------- ------- -------
COMPREHENSIVE
INCOME (LOSS) Comprehensive income (loss) $ (1,746) $ 1,194 $ 1,084
-------- ------- -------
</TABLE>
See Notes to Financial Statements.
38
<PAGE> 19
CONSOLIDATED STATEMENT OF CASH FLOWS
AMERICAN GENERAL CORPORATION
<TABLE>
<CAPTION>
For the years ended December 31
In millions 1999 1998 1997
--------- -------- --------
<S> <C> <C> <C>
OPERATING Net income $ 1,131 $ 764 $ 542
ACTIVITIES Reconciling adjustments
Insurance and annuity liabilities 1,206 1,619 1,082
Deferred policy acquisition costs and
cost of insurance purchased (477) (213) (100)
Deferred income taxes 267 (30) (10)
Provision for finance receivable losses 207 212 248
Loss on sale of non-strategic assets - - 113
Realized investment losses (gains) 19 (6) (40)
Other, net (324) (135) (190)
--------- -------- --------
Net cash provided by operating activities 2,029 2,211 1,645
--------- -------- --------
INVESTING Investment purchases (22,804) (14,504) (11,010)
ACTIVITIES Investment dispositions and repayments 19,062 12,155 10,290
Finance receivable originations and purchases (6,654) (6,589) (5,136)
Finance receivable principal payments received 5,102 4,775 4,343
Net (increase) decrease in short-term investments (14) 444 7
Acquisitions (29) (591) (283)
Sale of non-strategic assets - - 1,047
Other, net (167) (252) (99)
--------- -------- --------
Net cash used for investing activities (5,504) (4,562) (841)
--------- -------- --------
FINANCING Retirement Services and Life Insurance
ACTIVITIES Policyholder account deposits 6,648 4,981 3,068
Policyholder account withdrawals (4,722) (4,298) (2,973)
--------- -------- --------
Total Retirement Services and Life Insurance 1,926 683 95
--------- -------- --------
Consumer Finance
Net increase in short-term debt 758 431 124
Long-term debt issuances 1,108 2,028 731
Long-term debt redemptions (571) (866) (1,221)
--------- -------- --------
Total Consumer Finance 1,295 1,593 (366)
--------- -------- --------
Corporate
Net increase (decrease) in short-term debt 325 937 (56)
Long-term debt issuance 150 - -
Long-term debt redemptions (100) (354) (133)
Issuances of preferred securities of subsidiaries 194 - 498
Common stock repurchases (425) (195) (467)
Dividends on common and preferred stock (406) (381) (335)
Non-recourse obligation collateralized by bonds 483 - -
Other, net (14) 146 47
--------- -------- --------
Total Corporate 207 153 (446)
--------- -------- --------
Net cash provided by (used for)
financing activities 3,428 2,429 (717)
--------- -------- --------
NET CHANGE Net increase (decrease) in cash (47) 78 87
IN CASH Cash at beginning of year 341 263 176
--------- -------- --------
Cash at end of year $ 294 $ 341 $ 263
--------- -------- --------
</TABLE>
See Notes to Financial Statements.
39
<PAGE> 20
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles (GAAP) and include the accounts of
American General Corporation (American General) and its subsidiaries
(collectively, the company or we). All material intercompany transactions have
been eliminated in consolidation.
Management must make estimates and assumptions that affect amounts reported
in the financial statements and in disclosures of contingent assets and
liabilities. Ultimate results could differ from our estimates.
1.2 INVESTMENTS
Fixed Maturity and Equity Securities. All fixed maturity and equity
securities held at December 31, 1999, 1998, and 1997 were classified as
available-for-sale and reported at fair value. We adjust related balance sheet
accounts as if the unrealized gains (losses) had been realized, and record the
net adjustment in accumulated other comprehensive income (loss) in shareholders'
equity. If the fair value of a security classified as available-for-sale
declines below its cost and we consider the decline to be other than temporary,
we reduce the security's amortized cost to its fair value and recognize a
realized loss.
Beginning in 1998, we held trading securities at various times and reported
them at fair value. We held no trading securities at December 31, 1999 or 1998.
Realized gains (losses) related to trading securities are included in net
investment income; however, trading securities did not have a material effect on
net investment income in 1999 or 1998.
Mortgage Loans. Mortgage loans are reported at amortized cost, net of an
allowance for losses. The allowance covers estimated losses based on our
assessment of risk factors such as potential non-payment or non-monetary
default. The allowance is primarily based on a loan-specific review.
We consider loans to be impaired when collection of all amounts due under
the contractual terms is not probable. The company generally looks to the
underlying collateral for repayment of these loans. Therefore, impaired loans
are reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated cost to sell.
Policy Loans. Policy loans are reported at unpaid principal balance.
Investment Real Estate. We classify investment real estate as held for
investment or available for sale, based on management's intent. Real estate held
for investment is carried at cost, less accumulated depreciation and impairment
write-downs. Real estate available for sale is carried at the lower of cost
(less accumulated depreciation, if applicable) or fair value less cost to sell.
Dollar Roll Agreements. Dollar rolls are agreements to sell mortgage-backed
securities and to repurchase substantially the same securities at a specified
price and date in the future. We account for dollar rolls as short-term
collateralized financings and include the repurchase obligation in other
liabilities. There were no dollar rolls outstanding at December 31, 1999, 1998,
or 1997.
Investment Income. Interest on fixed maturity securities and performing
mortgage loans is recorded as income when earned and is adjusted for any
amortization of premium or discount. Interest on delinquent mortgage loans is
recorded as income when received. Dividends are recorded as income on
ex-dividend dates.
We recognize income on mortgage-backed securities using a constant
effective yield based on estimated prepayments of the underlying mortgages. If
actual prepayments differ from estimated prepayments, we calculate a new
effective yield and adjust the net investment in the security accordingly. The
adjustment is recognized in net investment income.
Realized Investment Gains (Losses). Realized investment gains (losses) are
recognized using the specific identification method.
1.3 SEPARATE ACCOUNTS
Separate accounts are assets and liabilities associated with certain
contracts, principally annuities, for which the investment risk lies
predominantly with the contract holder. The liability for these accounts equals
the value of the account assets. Investment income, realized investment gains
(losses), and policyholder account deposits and withdrawals related to separate
accounts are excluded from the statements of income and cash flows. Assets held
in separate accounts are primarily shares in mutual funds, which are carried at
fair value, based on the quoted net asset value per share.
1.4 FINANCE RECEIVABLES
Finance Charges. Finances charges are recognized as revenue using the
interest method. We stop accruing revenue when contractual payments are not
received for four consecutive months for loans, retail sales contracts, and
revolving retail accounts, and for six months for private label receivables.
Extension fees, late charges, and prepayment penalties are recognized as revenue
when received.
Direct costs of originating loans, net of non-refundable points and fees,
are deferred and included in the carrying amount of the related loans. The
amount deferred is
40
<PAGE> 21
recognized as an adjustment to finance charge revenues, using the interest
method over the lesser of the contractual term or the expected life based on
prepayment experience. If loans are prepaid, any remaining deferral is charged
or credited to revenue.
Losses on Finance Receivables.We charge off finance receivables, except
real estate loans, when minimal or no collections have been made for six months.
For real estate loans, we initiate foreclosure proceedings when four monthly
installments are past due. The carrying amount of a loan in excess of the fair
value of the underlying real estate is charged off at foreclosure.
The allowance for finance receivable losses is maintained at a level that
we consider adequate to absorb anticipated losses in the existing portfolio. We
periodically evaluate the portfolio on a pooled basis and consider factors such
as economic conditions, portfolio composition, and loss and delinquency
experience in our evaluation of the allowance.
1.5 DEFERRED POLICY ACQUISITION COSTS (DPAC)
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
DPAC associated with interest-sensitive life insurance contracts, insurance
investment contracts, and participating life insurance contracts is charged to
expense in relation to the estimated gross profits of those contracts. We adjust
the DPAC balance and related expense when our estimate of future gross profits
changes significantly. DPAC associated with all other insurance contracts is
charged to expense over the premium-paying period or as the premiums are earned
over the life of the contract.
DPAC is adjusted for the impact on estimated future gross profits as if net
unrealized gains (losses) on securities had been realized at the balance sheet
date. The impact of this adjustment is included in accumulated other
comprehensive income (loss) in shareholders' equity.
We review the carrying amount of DPAC on at least an annual basis. We
consider estimated future gross profits or future premiums, expected mortality,
interest earned and credited rates, persistency, and expenses to determine
whether the carrying amount is recoverable. Any amounts deemed unrecoverable are
charged to expense.
1.6 COST OF INSURANCE PURCHASED (CIP)
The cost assigned to certain acquired subsidiaries' insurance contracts in
force at the acquisition date is reported as CIP. Interest is accreted on the
unamortized balance of CIP at rates of 4.0% to 8.3%. CIP is charged to expense
and adjusted for the impact of net unrealized gains (losses) on securities in
the same manner as DPAC. We review the carrying amount of CIP on at least an
annual basis using the same methods used to evaluate DPAC.
1.7 GOODWILL
Goodwill is charged to expense in equal amounts, generally over 40 years.
We regularly review goodwill for indicators of impairment in value which we
believe are other than temporary, including unexpected or adverse changes in the
following: (1) the economic or competitive environments in which the company
operates, (2) profitability analyses, (3) cash flow analyses, and (4) the fair
value of the relevant subsidiary. If facts and circumstances suggest that a
subsidiary's goodwill is impaired, we assess the fair value of the underlying
business based on an independent appraisal and reduce goodwill to an amount that
results in the book value of the subsidiary approximating fair value.
1.8 INSURANCE AND ANNUITY LIABILITIES
Substantially all of the company's insurance and annuity liabilities relate
to long-duration contracts. The company normally cannot change or cancel these
contracts.
For interest-sensitive life and insurance investment contracts, reserves
equal the sum of the policy account balance and deferred revenue charges.
Reserves for other contracts are based on our estimates of the cost of
future policy benefits, using the net level premium method. Interest assumptions
used to compute reserves ranged from 2.0% to 13.5% at December 31, 1999.
1.9 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance policies
are classified as deposits instead of revenues. Revenues for these contracts
consist of mortality, expense, and surrender charges. Policy charges that
compensate the company for future services are deferred and recognized over the
period earned, using the same assumptions used to amortize DPAC.
For limited-payment contracts, net premiums are recorded as revenue, and
the difference between the gross premium received and the net premium is
deferred and recognized in a constant relationship to insurance in force. For
all other contracts, premiums are recognized when due.
1.10 PARTICIPATING LIFE INSURANCE
Participating life insurance accounted for approximately 10% of life
insurance in force and premiums and other considerations in 1999, 1998, and
1997. The portion of earnings allocated to participating policyholders is
excluded from net income and shareholders' equity.
We determine annual dividends to be paid on participating life insurance
contracts based on estimates of the contracts' earnings. Policyholder dividends
were $84 million, $90 million, and $95 million in 1999, 1998, and 1997,
respectively.
41
<PAGE> 22
Notes to Financial Statements
In millions
1.11 REINSURANCE
The company limits its exposure to loss on any individual life to $2.5
million by ceding additional risks through reinsurance contracts with other
insurers. We diversify our risk of reinsurance loss by ceding to a number of
reinsurers that have strong financial strength ratings. If a reinsurer is not
able to meet its obligations, the company remains liable. We consider the
likelihood of a material reinsurance liability not being met by a reinsurer to
be remote.
The company records a receivable for the portion of benefits paid and
insurance liabilities that have been reinsured. The cost of reinsurance is
recognized over the life of the reinsured policies using assumptions consistent
with those used to account for the underlying policies.
1.12 STOCK-BASED COMPENSATION
The company's long-term incentive plans provide for the award of stock
options, restricted stock awards, and performance awards to key employees and
directors. Stock options constitute the majority of awards. We recognize no
expense for stock options since the market price equals the exercise price at
the grant date.
For restricted stock and performance awards, the grant date market value is
amortized to expense over the vesting period. We adjust the expense to reflect
changes in market value of our stock and anticipated performance levels for
those awards with performance criteria.
1.13 INCOME TAXES
Deferred tax assets and liabilities are established for temporary
differences between the financial reporting basis and the tax basis of assets
and liabilities, using the enacted tax rates expected to be in effect when the
temporary differences reverse. State income taxes are included in income tax
expense.
We provide a valuation allowance for deferred tax assets if it is more
likely than not that some portion of the deferred tax asset will not be
realized. We include in income any increase or decrease in a valuation allowance
that results from a change in circumstances that causes a change in judgment
about the realizability of the related deferred tax asset. We include in
accumulated other comprehensive income (loss) in shareholders' equity any
changes in a valuation allowance related to fluctuations in fair value of
available-for-sale securities.
1.14 DERIVATIVE FINANCIAL INSTRUMENTS
Use of Derivatives. The company's use of derivative financial instruments
is generally limited to reducing our exposure to interest rate and currency
exchange risk. We use interest rate and currency swap agreements, treasury rate
lock agreements, and options to enter into interest rate swap agreements. We
account for these derivative financial instruments as hedges. Hedge accounting
requires a high correlation between changes in fair values or cash flows of the
derivative financial instrument and the specific item being hedged, both at
inception and throughout the life of the hedge.
Interest Rate and Currency Swap Agreements. Interest rate swap agreements
convert specific investment securities from a floating-rate to a fixed-rate
basis, or vice versa, and hedge against the risk of declining interest rates on
anticipated security purchases. Interest rate swap agreements also convert a
portion of floating-rate borrowings to a fixed rate and hedge against the risk
of rising interest rates on anticipated debt issuances.
Currency swap agreements convert cash flows from specific investment
securities denominated in foreign currencies into U.S. dollars at specified
exchange rates and hedge against currency rate fluctuations on anticipated
security purchases.
We record the difference between amounts paid and received on swap
agreements as an adjustment to net investment income or interest expense, as
appropriate, on an accrual basis over the periods covered by the agreements. The
related amounts payable to, or receivable from, counterparties are included in
other liabilities or other assets.
The fair values of swap agreements are recognized in the balance sheet if
they hedge investments carried at fair value or if they hedge anticipated
purchases of such investments. Changes in the fair value of these swap
agreements are reported in accumulated other comprehensive income (loss) in
shareholders' equity, consistent with the treatment of the related investment
security. The fair values of swap agreements hedging debt are not recognized in
the balance sheet.
For swap agreements hedging anticipated investment purchases or debt
issuances, we defer the net swap settlement amount or unrealized gain or loss
and include it in the recorded amount of the anticipated transaction when it
occurs.
Swap agreements generally have terms of two to ten years. Gains or losses
from early termination of a swap agreement are deferred and amortized into
income over the remaining term of the related investment or debt. If the
underlying investment or debt is extinguished or sold, any related gain or loss
on swap agreements is recognized in income.
Treasury Rate Lock Agreements. Treasury rate lock agreements hedge against
the risk of rising interest rates on anticipated debt issuances. These
agreements provide for future cash settlements that are a function of specified
U.S. Treasury rates. We account for treasury rate lock agreements in the same
manner as interest rate swap agreements that hedge anticipated debt issuances.
42
<PAGE> 23
Swaptions. Options to enter into interest rate swap agreements limit the
company's exposure to reduced spreads between investment yields and interest
rates credited to policyholders should interest rates decrease or increase
significantly over prolonged periods.
During prolonged periods of decreasing interest rates, the spread between
investment yields and interest crediting rates may be reduced as a result of
minimum rate guarantees on certain insurance and annuity contracts, which limit
our ability to reduce interest crediting rates. Call swaptions, which allow the
company to enter into interest rate swap agreements to receive fixed rates and
pay lower floating rates, effectively maintain the spread between investment
yields and interest crediting rates during such periods.
During prolonged periods of increasing interest rates, the spread between
investment yields and interest crediting rates may be reduced if the company
decides to increase interest crediting rates to limit surrenders. Put swaptions,
which allow the company to enter into interest rate swap agreements to pay fixed
rates and receive higher floating rates, effectively maintain the spread between
investment yields and interest crediting rates during such periods.
Premiums paid to purchase swaptions are included in investments and are
amortized to net investment income over the exercise period of the swaptions. If
a swaption is terminated, any gain is deferred and amortized to insurance and
annuity benefits over the expected life of the related contracts and any
unamortized premium is charged to income. If a swaption ceases to be an
effective hedge, we recognize any related gain or loss in income.
1.15 EARNINGS PER SHARE
Basic earnings per share is computed by dividing earnings available to
common shareholders by average common shares outstanding. Diluted earnings per
share is computed assuming the conversion of dilutive convertible preferred
securities and the exercise of dilutive stock options.
1.16 FUTURE ACCOUNTING CHANGE
In 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 133, "Accounting for Derivative
Instruments and Hedging Activities," which requires all derivative instruments
to be recognized at fair value in the balance sheet. Changes in the fair value
of a derivative instrument will be reported as earnings or other comprehensive
income, depending upon the intended use of the derivative instrument. We will
adopt SFAS 133 on January 1, 2001. We do not expect adoption to have a material
impact on the company's results of operations and financial position.
2. ACQUISITIONS
2.1 ACCOUNTING FOR ACQUISITIONS
With the exception of USLIFE Corporation (USLIFE), the company's
acquisitions have been accounted for using the purchase method. Under this
method, the results of operations for each acquisition are included in our
income statement from the acquisition date. We allocate the purchase price of
each acquisition to specific assets and liabilities based on our best estimate
of their fair values at the acquisition date. The difference between the
aggregate purchase price and the net assets acquired is recorded as goodwill.
The acquisition of USLIFE was accounted for using the pooling of interests
method. Accordingly, our financial statements include the results of operations,
financial position, and cash flows of USLIFE for all periods presented.
2.2 1999 ACQUISITIONS
On November 12, 1999, we acquired North Central Life Insurance Company, a
credit life insurance company. On May 31, 1999, we acquired Standard Pacific
Savings, F.A., which we renamed American General Bank, FSB. The combined
purchase price of these acquisitions was $95 million.
2.3 1998 ACQUISITIONS
Western National. Prior to 1997, the company acquired a 46% investment in
Western National Corporation (Western National), the holding company of Western
National Life Insurance Company, for $400 million cash. This investment was
recorded on an equity basis.
On February 25, 1998, we acquired the remaining 54% equity interest for
$1.2 billion. The purchase price consisted of $580 million cash and 10.2 million
shares of our common stock. In addition, the company issued options to acquire
1.4 million shares of our common stock to replace outstanding options to acquire
Western National common stock. The fair value of these options was $37 million,
excluding options surrendered for $10 million cash.
We consolidated Western National's assets, liabilities, and results of
operations in our financial statements effective January 1, 1998. Earnings
attributable to minority interests through February 25, 1998 were reflected as a
charge against 1998 income. Effective May 1, 1998, we changed Western National
Life Insurance Company's name to American General Annuity Insurance Company.
Coinsurance Transaction. On May 21, 1998, we acquired a block of individual
annuity business in a coinsurance transaction with Provident Companies, Inc.
This transaction increased invested assets and annuity liabilities of our
retirement services division by $2.4 billion.
43
<PAGE> 24
Notes to Financial Statements
In millions
2.4 1997 ACQUISITIONS
USLIFE. On June 17, 1997, the company completed the acquisition of USLIFE
in an all-stock merger transaction. We issued 39.0 million shares of common
stock, with a market value of approximately $1.8 billion, in exchange for all
USLIFE common shares.
Home Beneficial Life. On April 16, 1997, we acquired Home Beneficial Life
Insurance Company for $665 million. The purchase price consisted of $283 million
cash and 9.5 million shares of our common stock.
2.5 NON-CASH ACTIVITIES
Non-cash activities related to the above acquisitions that are not
reflected in the cash flow statements were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------- -------
<S> <C> <C> <C>
Fair value of assets acquired $ 396* $ 9,732 $ 1,446
Liabilities assumed (301) (8,524) (781)
Issuance of common stock (66) (580) (382)
Issuance of stock options - (37) -
----- ------- -------
Net cash paid $ 29 $ 591 $ 283
----- ------- -------
</TABLE>
* Includes $55 million of cash equivalents.
3. OTHER CHARGES
3.1 LITIGATION SETTLEMENTS
In fourth quarter 1999, we recorded a charge of $57 million ($36 million
aftertax) for the proposed settlement of litigation associated with the
financing of satellite dishes in the mid-1990s and other litigation. See Note
18.2 for further discussion of this litigation.
In 1998, certain of our life insurance subsidiaries entered into agreements
to resolve substantially all material pending market conduct class action
lawsuits. Concurrently, we recorded a charge of $378 million ($246 million
aftertax). The charge covered the cost of additional policyholder benefits and
other anticipated expenses resulting from the proposed settlements, as well as
other administrative and legal costs.
In 1997, two of our real estate subsidiaries settled a lawsuit related to
certain loans and joint venture contracts, resulting in a charge of $50 million
($33 million aftertax).
3.2 MERGER-RELATED COSTS
The company recorded the following expenses in 1997 related to the merger
with USLIFE:
<TABLE>
<CAPTION>
Pretax Aftertax
------ --------
<S> <C> <C>
Change in control costs $ 179 $ 155
Transaction costs 22 22
Restructuring costs 71 46
Deferred tax asset valuation allowance - 24
----- -----
Total $ 272 $ 247
----- -----
</TABLE>
Change in Control Costs. Change in control costs covered primarily
severance and supplemental retirement plan payments to USLIFE executives,
payable under various USLIFE plans in effect prior to the merger. Substantially
all change in control costs were paid as of December 31, 1998.
Restructuring Costs. Restructuring costs related to the integration of
USLIFE into the company's operations and the concurrent realignment of our life
insurance division. Activity in the restructuring liability through 1999 was as
follows:
<TABLE>
<CAPTION>
Personnel Facilities Asset
Costs Costs Write-off Total
----- ----- --------- -----
<S> <C> <C> <C> <C>
Original liability $34 $ 27 $ 10 $ 71
Charges (7) (2) - (9)
--- ---- ---- ----
Balance at
December 31, 1997 27 25 10 62
Adjustments (3) (9) 12 -
Charges (9) (4) (19) (32)
--- ---- ---- ----
Balance at
December 31, 1998 15 12 3 30
Charges (10) (3) (3) (16)
--- ---- ---- ----
Balance at
December 31, 1999 $ 5 $ 9 $ - $ 14
--- ---- ---- ----
</TABLE>
As of December 31, 1999, we had eliminated 687 positions and paid $26
million of personnel costs. The majority of the remaining liability for
personnel costs is expected to be paid in 2000. The remaining liability for
facilities costs consists of payments under long-term lease obligations,
substantially all of which will be paid by 2001.
Valuation Allowance. We recorded a valuation allowance for the deferred
tax asset related to a portion of USLIFE's net operating loss carryforward
since, as a result of the acquisition, it was more likely than not that some
portion of the deferred tax asset would not be realized.
3.3 SALE OF NON-STRATEGIC ASSETS
Losses recorded in 1997 related to the sale of non-strategic assets were as
follows:
<TABLE>
<CAPTION>
Pretax Aftertax
------ --------
<S> <C> <C>
Finance receivables $ 42 $ 27
Other non-strategic assets 71 46
----- -----
Total $ 113 $ 73
----- -----
</TABLE>
Other non-strategic assets included the company's land development
operations and a Canadian life insurance subsidiary.
44
<PAGE> 25
4. INVESTMENTS
4.1 FIXED MATURITY AND EQUITY SECURITIES
Valuation. Amortized cost and fair value of fixed maturity and equity
securities at December 31 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Cost Unrealized Gains Unrealized Losses Fair Value
------------------------- ------------------------- --------------------------- -------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed maturity
securities
Corporate bonds
Investment grade $43,644 $41,019 $31,926 $ 353 $ 2,809 $ 2,021 $(1,756) $ (137) $ (23) $42,241 $43,691 $33,924
Below investment grade 3,542 3,286 1,892 33 93 73 (281) (106) (7) 3,294 3,273 1,958
Mortgage-backed 13,013 12,422 8,919 117 605 514 (237) (8) (5) 12,893 13,019 9,428
States/political
subdivisions 809 627 546 10 44 33 (23) -- -- 796 671 579
U.S. government 661 899 740 32 121 91 (8) (1) -- 685 1,019 831
Foreign governments 562 843 834 14 99 90 (7) (2) (4) 569 940 920
Redeemable preferred
stocks 144 116 104 7 2 3 (4) -- -- 147 118 107
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total fixed maturity
securities $62,375 $59,212 $44,961 $ 566 $ 3,773 $ 2,825 $(2,316) $ (254) $ (39) $60,625 $62,731 $47,747
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Equity securities $ 299 $ 288 $ 93 $ 47 $ 38 $ 24 $ (7) $ (1) $ (1) $ 339 $ 325 $ 116
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Net Unrealized Gains (Losses).Net unrealized gains (losses) on fixed
maturity and equity securities included in accumulated other comprehensive
income (loss) at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Gross unrealized gains $ 613 $ 3,811 $2,849
Gross unrealized losses (2,323) (255) (40)
DPAC and CIP fair value
adjustments 347 (1,073) (1,052)
Deferred income taxes 107 (874) (636)
Other, net (22) (10) 48
------- ------- ------
Net unrealized gains
(losses) on securities $(1,278) $ 1,599 $1,169
------- ------- ------
</TABLE>
Maturities.The contractual maturities of fixed maturity securities at
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- -----
<S> <C> <C>
Fixed maturity securities, excluding
mortgage-backed securities, due
In one year or less $ 1,386 $ 1,391
In years two through five 9,684 9,689
In years six through ten 18,591 17,900
After ten years 19,701 18,752
Mortgage-backed securities 13,013 12,893
-------- --------
Total fixed maturity securities $ 62,375 $ 60,625
-------- --------
</TABLE>
Actual maturities may differ from contractual maturities since borrowers
may have the right to call or prepay obligations. The company may sell
investments before maturity to achieve corporate requirements and investment
strategies.
4.2 MORTGAGE LOANS ON REAL ESTATE
Diversification.Diversification of the geographic location and type of
property collateralizing mortgage loans reduces the concentration of credit
risk. For new loans, the company generally requires loan-to-value ratios of 75%
or less, based on our credit assessment of the borrower. At December 31, the
mortgage loan portfolio was distributed as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Geographic distribution
Atlantic 46% 51% 48%
Central 31 27 27
Pacific and Mountain 23 22 25
--- --- ---
Total mortgage loans 100% 100% 100%
--- --- ---
Property type
Retail 39% 39% 33%
Office 34 32 34
Industrial 14 15 18
Apartments 8 9 11
Other 5 5 4
--- --- ---
Total mortgage loans 100% 100% 100%
--- --- ---
</TABLE>
Allowance.Activity in the allowance for mortgage loan losses was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Balance at January 1 $ 34 $ 54 $ 84
Provision for mortgage
loan losses (3) (15) (20)
Deductions (5) (5) (10)
----- ---- ----
Balance at December 31 $ 26 $ 34 $ 54
----- ---- ----
</TABLE>
45
<PAGE> 26
Notes to Financial Statements
In millions
Impaired Loans.Impaired mortgage loans were $24 million, $28 million, and
$65 million at December 31, 1999, 1998, and 1997, respectively. Interest income
related to impaired loans was $1 million in 1999, $3 million in 1998, and $4
million in 1997.
4.3 INVESTMENT INCOME
Investment income was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Fixed maturity securities $ 4,676 $4,513 $3,523
Mortgage loans on real estate 293 326 319
Other 331 307 265
------- ------ ------
Gross investment income 5,300 5,146 4,107
------- ------ ------
Investment expense
Real estate 32 31 58
Other 36 20 29
------- ------ ------
Investment expense 68 51 87
------- ------ ------
Net investment income $ 5,232 $5,095 $4,020
------- ------ ------
</TABLE>
The carrying amount of investments that produced no investment income
during 1999 was less than 1% of total invested assets. The ultimate disposition
of these investments is not expected to have a material effect on our results of
operations and financial position.
Derivative financial instruments related to investment securities did not
have a material effect on net investment income in 1999, 1998, or 1997.
4.4 REALIZED INVESTMENT GAINS (LOSSES)
Realized investment gains (losses) were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Fixed maturity securities
Gross gains $ 251 $ 64 $ 57
Gross losses (267) (137) (70)
------- ------ ------
Total fixed maturity
securities (16) (73) (13)
------- ------ ------
Equity securities
Gross gains 7 8 5
Gross losses (1) - (1)
------- ------ ------
Total equity securities 6 8 4
------- ------ ------
Mortgage loans on real estate 4 16 26
Investment real estate 1 10 14
Other long-term investments 3 73 19
DPAC/CIP amortization
and investment expense (17) (28) (10)
------- ------ ------
Realized investment
gains (losses) $ (19) $ 6 $ 40
------- ------ ------
</TABLE>
4.5 CASH FLOWS FROM INVESTING ACTIVITIES
Uses of cash for investment purchases were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Fixed maturity securities $21,894 $ 13,809 $10,489
Other 910 695 521
------- -------- -------
Total $22,804 $ 14,504 $11,010
------- -------- -------
Sources of cash from investment dispositions and repayments were as
follows:
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Fixed maturity securities
Sales $14,042 $ 7,535 $ 6,324
Maturities 1,875 613 1,038
Calls and tenders 1,335 1,808 1,290
Repayments of mortgage-
backed securities 1,277 1,248 496
Mortgage loans 345 667 795
Equity securities 59 41 87
Other 129 243 260
------- -------- -------
Total $19,062 $ 12,155 $10,290
------- -------- -------
</TABLE>
5. FINANCE RECEIVABLES
5.1 DETAIL OF FINANCE RECEIVABLES
Finance receivables, which we report net of unearned finance charges, were
as follows at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Real estate loans $ 7,104 $ 5,757 $ 4,155
Non-real estate loans 2,576 2,560 2,556
Retail sales finance 1,350 1,340 1,301
------- -------- -------
Total finance receivables 11,030 9,657 8,012
Allowance for losses (396) (382) (373)
------- -------- -------
Finance receivables, net $10,634 $ 9,275 $ 7,639
------- -------- -------
</TABLE>
5.2 ALLOWANCE FOR FINANCE RECEIVABLE LOSSES
Activity in the allowance for finance receivable losses was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
<S> <C> <C> <C>
Balance at January 1 $ 382 $ 373 $ 395
Provision for finance
receivable losses 207 212 248
Charge offs, net of recoveries (207) (220) (270)
Allowance related to
acquired receivables 14 17 -
------- -------- -------
Balance at December 31 $ 396 $ 382 $ 373
------- -------- -------
</TABLE>
46
<PAGE> 27
5.3 CONTRACTUAL MATURITIES
Contractual maturities of finance receivables at December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
After
2000 2001 2002 2003 2004 2004
------- ------ ------- ----- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Maturities $ 1,172 $1,409 $ 1,038 $ 619 $386 $ 6,406
------- ------ ------- ----- ---- -------
</TABLE>
Contractual maturities are not a forecast of future cash collections. A
substantial portion of finance receivables may be renewed, converted, or repaid
prior to maturity.
5.4 CASH COLLECTIONS
Cash collections of principal were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Real estate loans
Cash collections $ 1,886 $1,553 $1,322
% of average balances 30% 33% 36%
Non-real estate loans
Cash collections $ 1,519 $1,569 $1,537
% of average balances 61% 62% 60%
Retail sales finance
Cash collections $ 1,697 $1,653 $1,484
% of average balances 133% 127% 117%
</TABLE>
5.5 GEOGRAPHIC CONCENTRATION
The geographic concentration of finance receivables at December 31 was as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
California 14% 15% 11%
North Carolina 7 8 9
Florida 6 6 6
Illinois 6 6 5
Ohio 6 6 6
Indiana 5 5 5
Other 56 54 58
--- --- ---
Total finance receivables 100% 100% 100%
--- --- ---
</TABLE>
6. DEBT
6.1 SHORT-TERM DEBT AND CREDIT FACILITIES
Short-term debt consists primarily of commercial paper. The
weighted-average interest rates on short-term borrowings at December 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Corporate 6.0% 5.3% 6.1%
Consumer Finance 6.0 5.4 5.9
</TABLE>
The company uses unsecured bank credit facilities to support commercial
paper borrowings. At December 31, 1999, we maintained unsecured committed credit
facilities of $5.6 billion with a total of 49 domestic and foreign banks. There
were no borrowings under these facilities at December 31, 1999. Interest rates
are based on a money market index, and annual commitment fees range from five to
seven basis points.
6.2 LONG-TERM DEBT
Long-term debt at December 31 was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Corporate
6.3% - 9.6%, through 2029 $ 1,188 $1,136 $1,341
Consumer Finance
5.4% - 9.0%, through 2009 $ 5,717 $5,177 $4,011
------- ------ ------
</TABLE>
6.3 LONG-TERM DEBT MATURITIES
Scheduled maturities of long-term debt for each of the next five years at
December 31, 1999 were as follows:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
------ ------ ----- ------- -------
<S> <C> <C> <C> <C> <C>
Corporate $ 350 $ - $ - $ 100 $ 149
Consumer Finance 1,289 1,264 1,079 1,039 276
</TABLE>
6.4 INTEREST
Interest paid was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Corporate $ 193 $ 186 $ 150
Consumer Finance 553 493 485
</TABLE>
Derivative financial instruments related to debt securities did not have a
material effect on reported interest expense or the weighted-average borrowing
rate in 1999, 1998, or 1997.
7. INCOME TAXES
7.1 TAX EXPENSE
Components of income tax expense were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Current
Federal $ 379 $ 458 $ 393
State 9 14 16
------- ------ ------
Total current 388 472 409
Deferred 276 (13) 38
------- ------ ------
Income tax expense* $ 664 $ 459 $ 447
------- ------ ------
</TABLE>
* Excludes tax benefit of $50 million, $54 million, and $45 million,
respectively, primarily related to preferred securities of subsidiaries.
47
<PAGE> 28
Notes to Financial Statements
In millions
A reconciliation between the Federal income tax rate and the effective tax
rate was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income tax rate 35% 35% 35%
Tax-exempt investment
income (1) (2) (2)
Goodwill 1 1 1
State taxes, net - 1 1
Merger-related costs - - 7
-- -- --
Effective tax rate 35% 35% 42%
-- -- --
</TABLE>
7.2 DEFERRED TAX LIABILITIES
Components of deferred tax liabilities and assets, included in income tax
liabilities on the balance sheet, at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Deferred tax liabilities,
applicable to
Basis differential of
investments $ - $ 1,303 $ 987
DPAC and CIP 1,701 1,025 795
Prepaid pension expense 112 96 87
Other 484 455 543
------- ------- -------
Total deferred tax
liabilities 2,297 2,879 2,412
------- ------- -------
Deferred tax assets,
applicable to
Basis differential of
investments (493) - -
Policy reserves (943) (810) (612)
Litigation settlements (66) (129) -
Other (424) (418) (520)
------- ------- -------
Gross deferred tax assets (1,926) (1,357) (1,132)
Valuation allowance 448 69 68
------- ------- -------
Total deferred tax
assets, net (1,478) (1,288) (1,064)
------- ------- -------
Net deferred tax
liabilities $ 819 $ 1,591 $ 1,348
------- ------- -------
</TABLE>
The 1999 deferred tax asset applicable to basis differential of investments
was due to unrealized losses on securities. Since a portion of this deferred tax
asset may not be realized, a valuation allowance of $381 million was provided at
December 31, 1999. This valuation allowance had no income statement impact.
The remaining deferred tax asset valuation allowances at year-end 1999,
1998, and 1997 were related to Federal and state income tax operating loss
carryovers that we do not expect to utilize. At December 31, 1999, the company
had operating loss carryovers for Federal income tax purposes of $65 million,
which are available to offset future taxable income through 2012. The operating
loss carryovers are predominantly associated with recently acquired companies;
therefore, they are subject to certain limitations.
A portion of life insurance income earned prior to 1984 is not taxable
unless it exceeds certain statutory limitations or is distributed as dividends.
Such income, accumulated in policyholders' surplus accounts, totaled $912
million at December 31, 1999. At current corporate income tax rates, the
associated tax is $319 million. We have not recorded these deferred income taxes
because we do not expect to make any distributions.
7.3 TAXES PAID
Income taxes paid were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal $ 245 $361 $419
State 8 17 9
</TABLE>
7.4 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 our tax returns through 1988. During 1999, the company and the
IRS reached a settlement of all contested issues through 1988, which resulted in
a change in the tax basis of assets acquired in a 1988 taxable purchase business
combination. To reflect the new tax basis, we reduced deferred tax liabilities
by $70 million and reduced goodwill by the same amount.
The IRS is currently examining our tax returns for 1989 through 1996.
Although the final outcome of any issues raised is uncertain, we believe that
the ultimate liability, including interest, will not exceed amounts recorded in
the financial statements.
8. BENEFIT PLANS
8.1 PENSION PLANS
The company has non-contributory defined benefit pension plans covering
most employees. Pension benefits are based on the participant's compensation and
length of credited service.
At December 31, 1999, the plans' assets were invested as follows: (1) 71%
in equity mutual funds managed outside the company; (2) 26% in fixed income
mutual funds managed by one of our subsidiaries; (3) 1% in our common stock; and
(4) 1% in deposit administration insurance contracts issued by our subsidiaries.
The benefit plans have purchased annuity contracts from our subsidiaries to
provide approximately $59 million of future annual benefits to certain retirees.
48
<PAGE> 29
The company's funding policy is to contribute annually no more than the
maximum amount deductible for Federal income tax purposes. The funded status of
the plans and the prepaid pension expense included in other assets at December
31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Projected benefit
obligation (PBO) $ 740 $ 750 $ 667
Plan assets at fair value 1,447 1,280 1,175
------- ------ ------
Plan assets at fair value in
excess of PBO 707 530 508
Other unrecognized
items, net (372) (269) (274)
------- ------ ------
Prepaid pension expense $ 335 $ 261 $ 234
------- ------ ------
</TABLE>
The components of pension expense and underlying assumptions were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Service cost (benefits earned) $ 22 $ 20 $ 18
Interest cost 55 50 46
Expected return on
plan assets (117) (95) (85)
Amortization (1) - 2
------- ------ ------
Pension expense (income) $ (41) $ (25) $ (19)
------- ------ ------
Discount rate on benefit
obligation 7.75% 7.00% 7.25%
Rate of increase in
compensation levels 4.25% 4.25% 4.00%
Expected long-term rate
of return on plan assets 10.35% 10.25% 10.00%
------- ------ ------
</TABLE>
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
We provide life, medical, supplemental major medical, and dental benefits
for certain retired employees and agents. Most plans are contributory, with
retiree contributions adjusted annually to limit employer contributions to
predetermined amounts. The company reserves the right to change or eliminate
these benefits at any time.
The life plans are insured through December 31, 2000. The majority of the
retiree medical and dental plans are unfunded and self-insured. The accrued
liability for postretirement benefits was $163 million, $175 million, and $169
million at year-end 1999, 1998, and 1997, respectively. These liabilities were
discounted at the same rates used for the pension plans. Postretirement benefit
expense was $8 million in 1999, $7 million in 1998, and $8 million in 1997.
9. STOCK AND INCENTIVE PLANS
9.1 STOCK OPTIONS
Stock option activity was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
Average Average Average
Exercise Exercise Exercise
Shares in thousands Shares Price Shares Price Shares Price
----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 5,761 $44.82 3,637 $34.48 4,498 $26.14
Granted 5,159 68.29 2,519 59.81 1,496 43.68
Granted for
acquisition - - 1,384 24.78 - -
Exercised (582) 38.43 (1,494) 25.63 (2,170) 23.13
Forfeited/expired (489) 61.78 (285) 48.70 (187) 39.05
----- ------ ----- ------ ----- ------
Balance at
December 31 9,849 $56.65 5,761 $44.82 3,637 $34.48
----- ------ ----- ------ ----- ------
Exercisable at
December 31 3,369 $39.73 2,517 $31.36 2,028 $29.13
----- ------ ----- ------ ----- ------
</TABLE>
Options may not be exercised within at least six months of, nor after 10
years from, grant date. During 1999, we added a reload feature to certain stock
options. One reload option is granted for each previously-owned share of common
stock tendered to exercise options. Reload options are exercisable for the
remaining term of the original options. Information about options outstanding at
December 31, 1999 was as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------- ---------------
Average Average Average
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices (000's) Life Price (000's) Price
- --------------- ------- ---- ----- ------- -----
<S> <C> <C> <C> <C> <C>
$18.72-$29.99 964 4 $23.44 958 $ 23.39
30.00- 39.99 867 6 34.06 863 34.05
40.00- 49.99 952 7 43.47 684 43.33
50.00- 59.99 2,015 8 59.29 723 59.24
60.00- 69.99 4,850 9 68.04 141 68.00
70.00- 79.99 201 10 74.45 - -
----- -- ------ ----- -------
Total 9,849 8 $56.65 3,369 $ 39.73
----- -- ------ ----- -------
</TABLE>
9.2 SHARES AVAILABLE
Shares available for issuance under our stock and incentive plans totaled
13.1 million, 6.2 million, and 8.8 million, at December 31, 1999, 1998, and
1997, respectively.
9.3 PRO FORMA DISCLOSURES
Under an alternative accounting method, compensation expense arising from
stock options would be measured at the estimated fair value of the options at
the grant date and recognized over the options' vesting period.
49
<PAGE> 30
Notes to Financial Statements
In millions
Had we determined compensation expense using this method, net income and net
income per share would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ----- -----
<S> <C> <C> <C>
Net income
As reported $ 1,131 $ 764 $ 542
Pro forma 1,102 753 536
------- ----- -----
Net income per share
Basic
As reported $ 4.52 $3.02 $2.21
Pro forma 4.40 2.97 2.19
Diluted
As reported 4.40 2.96 2.19
Pro forma 4.29 2.92 2.17
------- ----- -----
</TABLE>
The average fair values of the options granted were $16.89 in 1999, $15.27
in 1998, and $10.41 in 1997. We estimated the fair value of each option at the
grant date using a Black-Scholes option pricing model and the following
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Dividend yield 2.5% 2.5% 3.0%
Expected volatility 24.4% 23.0% 22.0%
Risk-free interest rate 4.9% 5.7% 6.4%
Expected life 6 years 6 years 6 years
</TABLE>
10. DERIVATIVE FINANCIAL STATEMENTS
10.1 INTEREST RATE AND CURRENCY SWAP AGREEMENTS
Interest rate and currency swap agreements related to investment securities
at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Interest rate swap agreements
to receive fixed rate
Notional amount $ 185 $ 474 $ 169
Average receive rate 6.81% 6.24% 6.95%
Average pay rate 6.59 5.48 6.39
Interest rate swap agreements
to pay fixed rate
Notional amount $ 55 $ 55 $ 15
Average receive rate 7.64% 6.73% 6.74%
Average pay rate 6.88 6.88 6.48
----- ----- -----
Currency swap agreements
Receive U.S. $/
pay Canadian $
Notional amount $ 124 $ 124 $ 139
Average exchange rate 1.50 1.50 1.50
Receive U.S. $/
pay Australian $
Notional amount $ 23 $ - $ -
Average exchange rate 1.85 - -
----- ----- -----
</TABLE>
Interest rate swap agreements related to debt at December 31 were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Interest rate swap agreements
to pay fixed rate
Corporate
Notional amount $ 400 $ 400 $ 400
Average receive rate 5.13% 4.90% 5.72%
Average pay rate 6.15 6.15 6.15
Consumer Finance
Notional amount $ 1,295 $ 935 $ 940
Average receive rate 5.40% 4.57% 5.69%
Average pay rate 6.70 6.94 7.39
</TABLE>
Deferred settlement costs related to the termination of interest rate swaps
in conjunction with anticipated debt issuances were $8 million, $9 million, and
$10 million at December 31, 1999, 1998, and 1997, respectively.
10.2 TREASURY RATE LOCK AGREEMENTS
In conjunction with anticipated debt issuances, we entered into treasury
rate lock agreements with notional amounts of $123 million in 1998 and $390
million in 1997. We settled these agreements in the following years. Deferred
settlement costs were $16 million at December 31, 1999 and $17 million at
December 31, 1998. There were no treasury rate lock agreements outstanding at
December 31, 1999.
10.3 SWAPTIONS
Swaptions at December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------ -----
<S> <C> <C> <C>
Call swaptions
Notional amount $ 10,150 $3,875 $3,000
Average strike rate 4.64% 4.07% 4.79%
Put swaptions
Notional amount $ 6,600 $4,200 $ -
Average strike rate 8.61% 8.33% -%
</TABLE>
The swaptions outstanding at December 31, 1999 expire in 2000. Should the
strike rates remain below market rates (for call swaptions) and above market
rates (for put swaptions), the swaptions will expire and the company's exposure
would be limited to the premiums paid. These premiums were immaterial.
10.4 CREDIT AND MARKET RISK
Derivative financial instruments expose the company to credit risk in the
event of nonperformance by counterparties. We limit this exposure by entering
into agreements with counterparties having high credit ratings and by regularly
monitoring the ratings. We do not expect any counterparty to fail to meet its
obligation; however, nonperformance would not have a material impact on the
company's results of operations and financial position.
The company's exposure to market risk is mitigated
50
<PAGE> 31
by the offsetting effects of changes in the value of the agreements and the
related items being hedged.
11. DEFERRED POLICY ACQUISITIONS COSTS (DPAC)
Activity in DPAC was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Balance at January 1 $ 3,253 $2,718 $ 2,954
Deferrals 1,125 880 631
Accretion of interest 264 242 215
Consolidation of
Western National - 157 -
Amortization (771) (761) (659)
Effect of net unrealized gains
(losses) on securities 1,119 41 (406)
Other (10) (24) (17)
------- ------ -------
Balance at December 31 $ 4,980 $3,253 $ 2,718
------- ------ -------
</TABLE>
12. COST OF INSURANCE PURCHASED (CIP)
Activity in CIP was as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ -------
<S> <C> <C> <C>
Balance at January 1 $ 956 $ 680 $ 755
Additions from acquisitions 49 359 66
Accretion of interest 81 88 74
Consolidation of
Western National - 125 -
Amortization (233) (249) (176)
Effect of net unrealized gains
(losses) on securities 301 (62) (55)
Other 16 15 16
------- ------ -------
Balance at December 31 $ 1,170 $ 956 $ 680
------- ------ -------
</TABLE>
CIP amortization, net of accretion, expected to be recorded in each of the
next five years is $138 million, $119 million, $105 million, $93 million, and
$84 million.
13. CAPITAL STOCK
13.1 CLASSES OF CAPITAL STOCK
American General has two classes of capital stock: preferred stock ($1.50
par value, 60 million shares authorized) that may be issued in series with
rights to be determined by the board of directors and common stock ($.50 par
value, 800 million shares authorized). The only series of preferred stock
outstanding is the 7% Convertible Preferred Stock. At December 31, 1999,
approximately 18.3 million shares of common stock were reserved for issuance
related to the conversion of convertible preferred securities and preferred
stock and the issuance of stock under employee stock and incentive plans.
Preferred share purchase rights attached to each share of common stock
expired in 1999. These rights would have become exercisable only upon a change
in control of the company.
13.2 CONVERTIBLE PREFERRED STOCK
American General has 2.3 million shares of 7% Convertible Preferred Stock
outstanding. On January 26, 2000, we announced the redemption of all outstanding
shares on March 1, 2000. Holders will receive .8264 share of common stock for
each share of preferred stock redeemed, for a total of 1.9 million common
shares.
13.3 COMMON STOCK ACTIVITY
Common stock activity was as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Shares issued
Balance at beginning of year 269,298 259,135 283,739
Issuance for acquisition - 10,163 -
Retirement of USLIFE
treasury shares - - (24,650)
Conversion of convertible
preferred stock - - 46
------- ------- -------
Balance at end of year 269,298 269,298 259,135
------- ------- -------
Treasury shares
Balance at beginning of year (17,494) (15,929) (42,568)
Share repurchases (5,885) (2,971) (9,946)
Issuance for acquisitions 839 - 9,462
Retirement of USLIFE
treasury shares - - 24,650
Issuance under employee
benefit plans and other 1,302 1,406 2,473
------- ------- -------
Balance at end of year (21,238) (17,494) (15,929)
------- ------- -------
Outstanding at end of year 248,060 251,804 243,206
------- ------- -------
</TABLE>
14. REDEEMABLE EQUITY
Two of the company's wholly owned subsidiaries and three subsidiary trusts
(collectively, subsidiaries) have issued preferred securities. The sole assets
of these subsidiaries are Junior Subordinated Debentures (Subordinated
Debentures) issued by American General and U.S. Treasury bonds. These
subsidiaries have no independent operations. The Subordinated Debentures are
eliminated in the company's consolidated financial statements.
The interest terms and payment dates of the Subordinated Debentures held by
the subsidiaries correspond to those of the subsidiaries' preferred securities.
American General's obligations under the Subordinated Debentures and related
agreements, when taken together, constitute a full and unconditional guarantee
of payments due on the preferred securities. The Subordinated Debentures are
redeemable, under certain conditions, at the option of the company on a
proportionate basis.
51
<PAGE> 32
Notes to Financial Statements
Information about the preferred securities and the assets held by the
issuing subsidiaries at December 31, 1999 was as follows:
<TABLE>
<CAPTION>
American American American American American
American General General General General General
General Institutional Institutional Capital, Capital, Delaware,
Capital I Capital B Capital A L.L.C. L.L.C. L.L.C.
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Preferred securities
Securities issued and outstanding 8.0 0.5 0.5 8.6 11.5 5.0
Par value $200 $500 $500 $215 $287 $250
Dividends paid $5 $41 $38 $17 $24 $15
Date issued 9/8/99 3/14/97 12/4/96 8/29/95 6/5/95 6/1/95
Earliest/mandatory redemption dates 2004/2048 2046/2046 2045/2045 2000/2025* 2000/2025* 2003/2025
---------- ---------- ---------- ---------- ---------- ----------
Assets of issuing subsidiary
Subordinated Debentures
Principal $206 $516 $516 $269 $360 $313
Interest rate 7.875% 8.125% 7.57% 8.125% 8.45% 6%
Mandatory redemption date 2048 2046 2045 2025 2025 2025
U.S. Treasury bonds - - - $ 3 $ 4 $ 4
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
* Subject to possible extension to 2044.
The preferred securities issued by American General Delaware, L.L.C. are
each convertible into 1.2288 shares of our common stock at any time at the
option of the holders. This conversion ratio is equivalent to a conversion price
of $40.69 per share of common stock. Beginning May 31, 2000, we have the option
to terminate this conversion right.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all of the company's assets and
liabilities, including the values of underlying customer relationships and
distribution systems, and (2) the reporting of investments at fair value without
a corresponding revaluation of related policyholder liabilities can be
misinterpreted.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- --------------------- ---------------------
Fair Carrying Fair Carrying Fair Carrying
Value Amount Value Amount Value Amount
-------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets
Fixed maturity and equity securities $ 60,964 $ 60,964 $ 63,056 $63,056 $47,863 $47,863
Mortgage loans on real estate 3,565 3,686 3,501 3,368 3,399 3,272
Policy loans 2,283 2,375 2,448 2,329 2,196 2,156
Short-term investments 676 676 654 654 306 306
Assets held in separate accounts 24,097 24,097 16,158 16,158 11,482 11,482
Finance receivables, net 10,634 10,634 9,275 9,275 7,639 7,639
Liabilities
Insurance investment contracts 41,011 42,820 39,959 40,670 27,623 28,139
Liabilities related to separate accounts 24,097 24,097 16,158 16,158 11,482 11,482
Short-term debt 6,421 6,421 5,293 5,293 3,830 3,830
Long-term debt
Corporate 1,168 1,188 1,222 1,136 1,407 1,341
Consumer Finance 5,641 5,717 5,342 5,177 4,117 4,011
</TABLE>
52
<PAGE> 33
We used the following methods and assumptions to estimate the fair value of
our financial instruments.
Fixed Maturity and Equity Securities. Fair values of fixed maturity and
equity securities were based on quoted market prices, where available. For
investments not actively traded, we estimated the fair values using values
obtained from independent pricing services or, in the case of some private
placements, by discounting expected future cash flows using a current market
rate applicable to yield, credit quality, and average life of the investments.
Mortgage Loans on Real Estate. We estimated the fair value of mortgage
loans primarily using discounted cash flows, based on contractual maturities and
risk-adjusted discount rates.
Policy Loans. We valued policy loans using discounted cash flows and
actuarially determined assumptions, incorporating market rates.
Assets and Liabilities Related to Separate Accounts. We valued separate
account assets and liabilities based on quoted net asset value per share of the
underlying mutual funds.
Finance Receivables, Net. Fair value of finance receivables, which
approximated carrying amount, was estimated using projected cash flows,
discounted at the weighted-average rates currently being offered for similar
finance receivables.
Insurance Investment Contracts. We estimated the fair value of insurance
investment contracts using cash flows discounted at market interest rates.
Debt. The fair value of short-term debt approximated its carrying amount.
We estimated the fair value of long-term debt using cash flows discounted at
current borrowing rates.
Off-Balance Sheet Derivative Financial Instruments. Had we elected to
terminate our interest rate swap and treasury rate lock agreements related to
debt, we would have received $46 million at December 31, 1999, and we would have
paid $61 million and $30 million at December 31, 1998 and 1997, respectively.
These fair values were estimated using cash flows discounted at current market
rates.
16. REINSURANCE
Reinsurance premiums included in premiums and other considerations were as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Direct premiums and other
considerations $ 4,023 $3,717 $3,542
Reinsurance assumed 303 373 119
Reinsurance ceded (554) (485) (299)
------- ------ ------
Premiums and other
considerations $ 3,772 $3,605 $3,362
------- ------ ------
</TABLE>
Reinsurance recoveries on ceded reinsurance contracts were $348 million in
1999, $251 million in 1998, and $131 million in 1997.
17. STATUTORY ACCOUNTING
State insurance laws and regulations prescribe accounting practices for
calculating statutory net income and equity of insurance companies. In addition,
state regulators may permit statutory accounting practices that differ from
prescribed practices. The use of such permitted practices by our insurance
subsidiaries did not have a material effect on their statutory equity at
December 31, 1999.
Statutory accounting practices differ from GAAP. Significant differences
for our insurance subsidiaries were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- ------
<S> <C> <C> <C>
Statutory net income $ 996 $ 760 $ 791
Change in DPAC and CIP 476 213 112
Investment valuation
differences (1) 87 23
Policy reserve adjustments (105) (33) (21)
Deferred income taxes (274) (43) 7
Litigation settlements - (191) -
Other, net 115 12 1
------- ------- ------
GAAP net income $ 1,207 $ 805 $ 913
------- ------- ------
Statutory equity $ 4,082 $ 3,857 $3,240
Asset valuation reserve 758 664 452
Investment valuation
differences* (1,537) 3,450 2,640
DPAC and CIP 6,139 4,198 3,388
Goodwill 1,266 1,275 376
Non-admitted assets 242 197 140
Policy reserve adjustments 136 180 574
Deferred income taxes (906) (1,582) (1,372)
Other, net 34 (125) (26)
------- ------- ------
GAAP equity $10,214 $12,114 $9,412
------- ------- ------
</TABLE>
* Primarily GAAP unrealized gains (losses) on securities.
18. RESTRICTIONS AND CONTINGENCIES
18.1 SUBSIDIARY DIVIDEND RESTRICTIONS
Our insurance subsidiaries are restricted by state insurance laws as to the
amounts they may pay as shareholder dividends without prior approval from their
respective state insurance departments. Certain non-insurance subsidiaries are
similarly restricted in the payment of dividends by long-term debt agreements.
The amount of dividends available from subsidiaries during 2000 not limited by
such restrictions is approximately $1.2 billion.
53
<PAGE> 34
Notes to Financial Statements
In millions
18.2 LEGAL PROCEEDINGS
Satellite Dish. In the mid-1990's, one of our subsidiaries, A.G. Financial
Service Center, Inc. (formerly named American General Financial Center),
provided financing for satellite dishes sold by independent unaffiliated
dealers. On May 18, 1999, a Mississippi state court rendered a judgment against
A.G. Financial Service Center for approximately $500,000 in compensatory damages
and $167 million in punitive damages, in a lawsuit brought by 29 individuals who
had each purchased a satellite dish. In August 1999, A.G. Financial Service
Center voluntarily filed for bankruptcy.
As part of the resolution process, certain settlement agreements were
executed in January 2000. Accordingly, we recorded a charge of $57 million ($36
million aftertax) in fourth quarter 1999 to cover the proposed settlements of
this and other litigation. Resolution of the satellite dish litigation is
dependent upon a number of factors, including the bankruptcy court's approval of
A.G. Financial Service Center's plan of reorganization. If court approvals are
obtained and appeals are not taken, we expect that the settlements will be final
in third quarter 2000.
Workers' Compensation. Prior to our acquisition of USLIFE, one of its
subsidiaries entered the workers' compensation reinsurance business in 1997. We
discontinued writing new workers' compensation reinsurance business in 1998. Our
largest contract was a quota share reinsurance agreement with Superior National
Insurance Group (Superior National), effective May 1, 1998. On November 29,
1999, we initiated an arbitration proceeding to rescind this contract from its
inception, based in part on misrepresentations and nondisclosures which we
believe were made by Superior National. We plan to fully pursue all remedies
through the arbitration process.
Although we believe, on the advice of counsel, that the company will
succeed in rescinding the contract, risks and uncertainties remain with respect
to the ultimate outcome. However, in the unlikely event the company does not
prevail in the arbitration, we do not expect the additional aftertax losses from
our workers' compensation business to exceed $85 million, based on our current
estimates. We believe that our ultimate loss, if any, related to our workers'
compensation business will not have a material adverse effect on our future
results of operations and financial position.
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. A number of these lawsuits have resulted in substantial
settlements across the life insurance industry. Certain of our subsidiaries were
defendants in similar class action lawsuits. In 1998, our life insurance
subsidiaries entered into agreements to resolve substantially all of the
material pending market conduct class action lawsuits. We recorded a charge of
$378 million ($246 million aftertax) for additional policyholder benefits and
other anticipated expenses resulting from the proposed settlements, as well as
other administrative and legal costs. All of these settlements were finalized in
1999.
Other. The company is party to various other lawsuits and proceedings,
arising in the ordinary course of business. These lawsuits and proceedings
include certain class action claims, claims filed by individuals who excluded
themselves from market conduct settlements, and claims concerning the sale of
industrial life insurance policies. In addition, many of these claims arise in
jurisdictions, such as Alabama and Mississippi, that permit damage awards
disproportionate to the actual economic damages alleged to have been incurred.
Based upon information presently available, we believe 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 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
some jurisdictions continues to create the potential for an unpredictable
judgment in any given suit.
19. DIVISION OPERATION
19.1 NATURE OF OPERATIONS
We manage our business operations through three divisions, which are based
on products and services offered.
Retirement Services. Our retirement services division markets retirement
products and services through two major distribution systems. Our financial
advisors sell tax-qualified annuities and mutual funds to employees of
educational, health care, and government entities, and other not-for-profit
organizations. We also market non-qualified annuities through financial
institution representatives at banks and other financial institutions.
Life Insurance. Our life insurance division provides traditional,
interest-sensitive, and variable life insurance and annuities through multiple
distribution channels. The division's primary focus is the sale of life
insurance and annuity products to individuals. We reach our customers through
independent and career agents, as well as banks, broker dealers, and financial
planners.
Consumer Finance. Our consumer finance division provides a wide variety of
consumer finance products, including mortgages, consumer loans, retail sales
financing, and credit-related insurance. We market these products through a
nationwide network of branch offices.
54
<PAGE> 35
19.2 DIVISION RESULTS
Results of each division include earnings from its business operations and
earnings on that amount of equity considered necessary to support its business,
and exclude goodwill amortization, net realized investment gains (losses), and
non-recurring items. This methodology is consistent with the manner in which
management reviews division results. Corporate operations include parent company
expenses, the cost of corporate borrowings, and earnings on corporate assets.
Division earnings information was as follows:
<TABLE>
<CAPTION>
Revenues Income before Taxes Net Income
------------------------------- ---------------------------- -----------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- ------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retirement Services $ 3,570 $ 3,095 $ 1,836 $ 855 $ 699 $ 375 $ 564 $ 466 $ 246
Life Insurance 5,394 5,506 5,314 1,103 1,021 906 721 674 589
Consumer Finance 1,729 1,609 1,523 351 312 255 226 201 165
-------- -------- ------- ------- ------- ------- ------- ------ ------
Total divisions 10,693 10,210 8,673 2,309 2,032 1,536 1,511 1,341 1,000
-------- -------- ------- ------- ------- ------- ------- ------ ------
Corporate operations 5 35 214 (298) (227) (44) (192) (148) (24)
Goodwill amortization (48) (45) (24) (48) (45) (24)
Net dividends on preferred
securities of subsidiaries (92) (89) (84)
Minority interest - (11) -
------- ------ ------
Operating earnings 1,179 1,048 868
Realized investment gains (19) 6 40 (19) 6 40 (12) 4 27
Non-recurring items* - - - (57) (443) (435) (36) (288) (353)
-------- -------- ------- ------- ------- ------- ------- ------ ------
Total $ 10,679 $ 10,251 $ 8,927 $ 1,887 $ 1,323 $ 1,073 $ 1,131 $ 764 $ 542
-------- -------- ------- ------- ------- ------- ------- ------ ------
</TABLE>
* Includes litigation settlements, merger-related costs, and loss on sale of
non-strategic assets described in Note 3. Also includes Y2K costs in 1998.
Division balance sheet information was as follows:
<TABLE>
<CAPTION>
Assets Liabilities
-------------------------------------------- ------------------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Retirement Services* $ 65,744 $ 55,659 $34,509 $ 62,081 $ 52,395 $ 32,964
Life Insurance* 36,401 34,354 33,265 30,326 28,710 27,692
Consumer Finance* 12,311 10,807 8,924 10,975 9,619 7,957
--------- --------- ------- --------- -------- --------
Total divisions 114,456 100,820 76,698 103,382 90,724 68,613
--------- --------- ------- --------- -------- --------
SFAS 115 adjustment (1,385) 2,473 1,805 (107) 874 636
Corporate and other* 2,376 1,814 2,117 3,828 2,910 2,062
--------- --------- ------- --------- -------- --------
Total $ 115,447 $ 105,107 $80,620 $ 107,103 $ 94,508 $ 71,311
--------- --------- ------- --------- -------- --------
</TABLE>
* Excludes fair value adjustment under accounting standard SFAS 115.
55
<PAGE> 36
Notes to Financial Statements
In millions
20. EARNINGS PER SHARE
We calculate basic and diluted earnings per share as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Net income $ 1,131 $ 764 $ 542
Net dividends on convertible preferred stock (6) (6) (6)
-------- -------- -------
Basic earnings 1,125 758 536
Net dividends on dilutive securities
Convertible preferred securities of subsidiary 11 11 11
Convertible preferred stock 6 6 -
-------- -------- -------
Diluted earnings $ 1,142 $ 775 $ 547
-------- -------- -------
Average basic shares outstanding 249.1 251.3 242.1
Dilutive securities
Convertible preferred securities of subsidiary 6.1 6.1 6.1
Convertible preferred stock 2.3 2.3 -
Stock options 1.3 1.6 1.0
Restricted stock .4 .2 -
-------- -------- -------
Average diluted shares outstanding 259.2 261.5 249.2
-------- -------- -------
Net income per share
Basic $ 4.52 $ 3.02 $ 2.21
Diluted 4.40 2.96 2.19
-------- -------- -------
</TABLE>
21. QUARTERLY DATA (UNAUDITED)
Selected quarterly financial data was as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------- -----------------------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
------ ------ ------ ------ ------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Premiums and other
considerations $ 906 $ 952 $ 990 $ 924 $ 920 $ 916 $ 891 $ 878
Net investment income 1,335 1,300 1,312 1,285 1,305 1,284 1,280 1,226
Total revenues 2,670 2,676 2,713 2,620 2,627 2,589 2,556 2,479
Insurance and annuity
benefits 1,293 1,329 1,378 1,313 1,312 1,337 1,286 1,224
Operating costs and
expenses 428 407 416 392 442 382 385 382
Total benefits and expenses 2,232(a) 2,188 2,229 2,143 2,600(b) 2,173 2,104 2,051
Net income (loss) 257(a) 294 293 287 1(b) 255 264 244
------ ------ ------ ------ ------- ------ -------- ------
Per common share
Net income (loss)
Basic $ 1.03 $ 1.18 $ 1.17 $ 1.14 $ .00 $ 1.00 $ 1.03 $ .98
Diluted 1.01(a) 1.15 1.14 1.11 .00(b) .98 1.01 .96
Dividends paid .40 .40 .40 .40 .375 .375 .375 .375
Market price
High 82 3/16 81 3/8 77 7/16 78 13/16 79 75 11/16 71 5/8 64 15/16
Low 61 7/8 63 69 3/8 64 13/16 52 9/16 59 7/8 63 1/16 52 5/16
Close 75 7/8 63 1/4 75 3/8 70 1/2 78 63 7/8 71 3/16 64 11/16
------ ------ ------ ------ ------- ------ -------- ------
<CAPTION>
1997
-------------------------------------------------
4th 3rd 2nd 1st
------ ------ ----- ------
<S> <C> <C> <C> <C>
Premiums and other
considerations $ 890 $ 839 $ 832 $ 801
Net investment income 1,037 1,010 1,002 971
Total revenues 2,324 2,235 2,226 2,142
Insurance and annuity
benefits 1,135 1,074 1,083 1,040
Operating costs and
expenses 383 353 344 343
Total benefits and expenses 1,940 1,851 2,272(c) 1,791
Net income (loss) 230 226 (124)(c) 210
------ ------ ----- ------
Per common share
Net income (loss)
Basic $ .94 $ .92 $ (.52) $ .87
Diluted .92 .91 (.52)(c) .85
Dividends paid .35 .35 .35 .35
Market price
High 56 1/4 54 3/4 49 5/8 44 5/8
Low 46 9/16 46 13/16 36 1/2 39 3/8
Close 54 1/16 51 7/8 47 3/4 40 3/4
------ ------ ---- ------
</TABLE>
(a) Includes litigation settlements of $57 million pretax ($36 million aftertax
or $.14 per share).
(b) Includes litigation settlements of $378 million pretax ($246 million
aftertax or $.98 per share).
(c) Includes litigation settlement, merger-related costs, and loss on sale of
non-strategic assets totaling $435 million pretax ($353 million aftertax or
$1.46 per share).
56
<PAGE> 37
REPORT OF INDEPENDENT AUDITORS
To The Board of Directors and Shareholders American General Corporation
We have audited the accompanying consolidated balance sheet of American
General Corporation and subsidiaries as of December 31, 1999, 1998, and 1997,
and the related consolidated statements of income, shareholders' equity,
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 1999. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
General Corporation and subsidiaries as of December 31, 1999, 1998, and 1997,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Houston, Texas
February 18, 2000
57
<PAGE> 1
AMERICAN GENERAL CORPORATION
EXHIBIT 21 - SUBSIDIARIES OF AMERICAN GENERAL CORPORATION
The following list includes certain, but not all, of American General
Corporation's subsidiaries at March 1, 2000. Subsidiaries of subsidiaries are
indicated by indentations.
<TABLE>
<CAPTION>
Jurisdiction
Name of Incorporation
- -----------------------------------------------------------------------------------------
<S> <C> <C>
AGC Life Insurance Company.................................. Missouri
American General Life and Accident Insurance Company... Tennessee
American General Life Insurance Company................ Texas
American General Annuity Service Corporation...... Texas
American General Life Companies................... Delaware
American General Life Insurance Company of New
York............................................ New York
The Variable Annuity Life Insurance Company....... Texas
The Variable Annuity Marketing Company....... Texas
VALIC Retirement Services Company............ Texas
VALIC Trust Company.......................... Texas
American General Property Insurance Company............ Tennessee
American General Property Insurance Company of
Florida......................................... Florida
The Franklin Life Insurance Company.................... Illinois
The American Franklin Life Insurance Company...... Illinois
Franklin Financial Services Corporation........... Delaware
Western National Corporation........................... Delaware
WNL Holding Corp.................................. Delaware
American General Annuity Insurance Company... Texas
WNL Insurance Services, Inc. ..................... Delaware
American General Capital, L.L.C. ........................... Delaware
American General Delaware, L.L.C. .......................... Delaware
American General Delaware Management Corporation............ Delaware
American General Enterprise Services, Inc. ................. Delaware
American General Finance, Inc. ............................. Indiana
AGF Investment Corp. .................................. Indiana
American General Auto Finance, Inc. ................... Delaware
American General Bank, FSB.............................
American General Finance Corporation................... Indiana
American General Finance Group, Inc. ............. Delaware
American General Financial Services, Inc..... Delaware
The National Life and Accident Insurance
Company............................... Texas
CommoLoCo, Inc. ................... Puerto Rico
Merit Life Insurance Co. ......................... Indiana
Yosemite Insurance Company........................ Indiana
American General Finance, Inc. ........................ Alabama
HSA Residential Mortgage Services of Texas, Inc. ...... Delaware
American General Investment Holding Corporation............. Delaware
American General Investment Management Corporation.......... Delaware
American General Realty Advisors, Inc. ..................... Delaware
American General Realty Investment Corporation ............. Texas
Knickerbocker Corporation................................... Texas
USLIFE Corporation.......................................... Delaware
All American Life Insurance Company.................... Illinois
American General Assurance Company..................... Illinois
American General Life Insurance Company of
Pennsylvania.......................................... Pennsylvania
North Central Life Insurance Company................... Minnesota
The Old Line Life Insurance Company of America......... Wisconsin
The United States Life Insurance Company in the City of
New York.............................................. New York
</TABLE>
1999 FORM 10-K
22
<PAGE> 1
EXHIBIT 23 -- CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form
10-K) of American General Corporation of our report dated February 18, 2000,
included in the 1999 Annual Report to Shareholders of American General
Corporation.
Our audits also included the financial statement schedules of American
General Corporation listed in Item 14(a). These schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits. In our opinion, the financial statement schedules referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth herein.
We also consent to the incorporation by reference in:
<TABLE>
<CAPTION>
REGISTRATION
STATEMENT
NUMBER ON FORM
- ----------------------------------------------------------------------
<S> <C>
333-13407................................................... S-8
333-13401................................................... S-8
33-39201.................................................... S-8
333-13395................................................... S-8
33-51973.................................................... S-8
2-98021..................................................... S-8
333-23275................................................... S-8
333-29383................................................... S-8
333-29393................................................... S-8
333-46895................................................... S-8
333-52015................................................... S-8
333-52103................................................... S-8
333-70923................................................... S-8
333-37851................................................... S-3
333-37877................................................... S-3
33-58317.................................................... S-3
33-58317-01................................................. S-3
33-58317-02................................................. S-3
33-51045.................................................... S-3
333-40583................................................... S-3
333-40583-01................................................ S-3
333-40583-02................................................ S-3
333-40583-03................................................ S-3
333-40583-04................................................ S-3
333-67513................................................... S-3
333-67531................................................... S-3
</TABLE>
of our report dated February 18, 2000, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedules
included in this Annual Report (Form 10-K) of American General Corporation.
/s/ ERNST & YOUNG LLP
--------------------------------
ERNST & YOUNG LLP
Houston, Texas
March 17, 2000
<PAGE> 1
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ J. EVANS ATTWELL
<PAGE> 2
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ BRADY F. CARRUTH
<PAGE> 3
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ W. LIPSCOMB DAVIS, JR.
<PAGE> 4
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ ROBERT M. DEVLIN
<PAGE> 5
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ J. EDWARD EASLER II
<PAGE> 6
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ LARRY D. HORNER
<PAGE> 7
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ RICHARD J.V. JOHNSON
<PAGE> 8
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ MICHAEL E. MURPHY
<PAGE> 9
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ JON P. NEWTON
<PAGE> 10
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ MICHAEL J. POULOS
<PAGE> 11
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ ROBERT E. SMITTCAMP
<PAGE> 12
American General Corporation: Board of Directors
Date: January 20, 2000
Subject: Form 10-K; Limited Power of Attorney for
Purpose. The purpose of this limited power of attorney is to authorize certain
officers of the company to execute, on behalf of the undersigned
person, the company's 1999 annual report on Form 10-K, with such
amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other related documents, and to file the
Form 10-K with the SEC.
LIMITED POWER OF ATTORNEY
WHEREAS, AMERICAN GENERAL CORPORATION, a Texas corporation (company),
will file with the Securities and Exchange Commission (Commission) under
Section 13 of the Securities Exchange Act of 1934, as amended (Act), its annual
report on Form 10-K for the fiscal year ended December 31, 1999 (Form 10-K),
with such amendments thereto as may be necessary or appropriate, together with
any and all exhibits and other documents related thereto;
NOW, THEREFORE, the undersigned in his/her capacity as a director or
officer or both, as the case may be, of the company does hereby appoint JON P.
NEWTON, NICHOLAS R. RASMUSSEN, and MARK S. BERG, and each of them, severally,
his/her true and lawful attorney or attorneys-in-fact with or without the
others and with full power of substitution and resubstitution, to execute in
his/her name, place, and stead, in his/her capacity as a director or officer or
both, as the case may be, of the company, the Form 10-K and any and all
amendments thereto as said attorneys-in-fact or any of them shall deem
necessary or appropriate, together with all instruments necessary or incidental
in connection therewith, and to file the same or cause the same to be filed
with the Commission. Each of said attorneys-in-fact shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities, every act whatsoever necessary or desirable in
connection with the Form 10-K, as fully and for all intents and purposes as
the undersigned might or could do in person, the undersigned hereby ratifying
and approving the acts of said attorneys-in-fact and each of them.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 20th
day of January, 2000.
/S/ ANNE M. TATLOCK
<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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 60,625<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 339
<MORTGAGE> 3,686
<REAL-ESTATE> 222
<TOTAL-INVEST> 68,335
<CASH> 294
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 6,150<F2>
<TOTAL-ASSETS> 115,447
<POLICY-LOSSES> 63,147<F3>
<UNEARNED-PREMIUMS> 338<F3>
<POLICY-OTHER> 422<F3>
<POLICY-HOLDER-FUNDS> 2,494<F3>
<NOTES-PAYABLE> 13,326
1,924<F4>
85<F5>
<COMMON> 962
<OTHER-SE> 5,373<F6>
<TOTAL-LIABILITY-AND-EQUITY> 115,447
3,772<F7>
<INVESTMENT-INCOME> 5,232
<INVESTMENT-GAINS> (19)
<OTHER-INCOME> 1,694<F8>
<BENEFITS> 5,313
<UNDERWRITING-AMORTIZATION> 659<F9>
<UNDERWRITING-OTHER> (1,136)<F10>
<INCOME-PRETAX> 1,887<F11>
<INCOME-TAX> 664<F12>
<INCOME-CONTINUING> 1,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,131
<EPS-BASIC> 4.52
<EPS-DILUTED> 4.40
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1>ALL 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: COST OF TREASURY STOCK; RETAINED EARNINGS;
AND ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS).
<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 $142 MILLION OF DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARIES,
SHOWN SEPARATELY, NET OF TAX, IN THE CONSOLIDATED INCOME STATEMENT.
<F12>EXCLUDES $50 MILLION TAX BENEFIT FOR TAX DEDUCTIBLE DIVIDENDS RELATED TO
PREFERRED SECURITIES OF SUBSIDIARIES.
</FN>
</TABLE>
