<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
American Indemnity Financial Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
AMERICAN INDEMNITY FINANCIAL CORPORATION
P. O. BOX 8985
WILMINGTON, DELAWARE 19899-8985
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 27, 1998
Notice is hereby given that the Annual Meeting of Stockholders of American
Indemnity Financial Corporation (the "Company") will be held in the Board of
Directors Room of the United States National Bank of Galveston, 2201 Market
Street, Galveston, Texas, at 10:00 a.m. on Monday, April 27, 1998, for the
following purposes:
1. To elect three Class I directors of the Company to hold office for
the ensuing three years.
2. To transact such other business as may properly be brought before
the meeting or any adjournment thereof.
Only holders of Common Stock of the Company of record at the close of
business on March 16, 1998 will be entitled to notice of and to vote at the
meeting.
Stockholders who do not expect to attend the annual meeting are requested
to sign and return the enclosed proxy, for which a return envelope is enclosed.
By Order of the Board of Directors,
/s/ HELEN K. LOHEC
------------------
HELEN K. LOHEC
Secretary
March 27, 1998
<PAGE> 3
AMERICAN INDEMNITY FINANCIAL CORPORATION
P. O. BOX 8985
WILMINGTON, DELAWARE 19899-8985
---------------------
PROXY STATEMENT
---------------------
This Proxy Statement and the enclosed form of proxy are being mailed on or
about March 27, 1998, to the record holders of the Common Stock, $3.33 1/3 par
value ("Common Stock"), of American Indemnity Financial Corporation (the
"Company") on March 16, 1998. The enclosed form of proxy is solicited by the
Board of Directors of the Company to be used at the Annual Meeting of
Stockholders to be held on April 27, 1998. Any stockholder giving such a proxy
may revoke it any time before it is voted by delivering written revocation to
either person named as proxy, by voting in person at the annual meeting or by
giving a later proxy. Otherwise, if received in time, it will be voted at the
meeting.
Holders of record of Common Stock at the close of business on March 16,
1998, will be entitled to notice of and to vote at the annual meeting. Each
outstanding share of Common Stock will be entitled to one vote. On the record
date there were outstanding 1,962,410 shares of Common Stock. There are no other
voting securities of the Company outstanding.
The Annual Report to Stockholders for the fiscal year ended December 31,
1997, including financial statements, accompanies this Proxy Statement. The
annual report does not constitute a part of the proxy soliciting material.
The Annual Meeting of Stockholders will be held at 10:00 a.m. on Monday,
April 27, 1998, in the Board of Directors Room of the United States National
Bank of Galveston, 2201 Market Street, Galveston, Texas.
<PAGE> 4
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 16, 1998, (i) the ownership of
Common Stock by each person known by management of the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, and
(ii) the number of shares of Common Stock owned by all executive officers and
directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
------------------- ------------------ ----------
<S> <C> <C>
J. F. Seinsheimer, Jr.(1)................................. 576,880 29.4%
4809 Woodrow
Galveston, Texas 77551
Irma K. Seinsheimer Trust(2)(3)........................... 471,770 24.0%
2201 Market Street
Galveston, Texas 77550
American Finance Company of Galveston(2)(3)............... 464,095 23.6%
United States Securities Corporation
One American Indemnity Plaza
Galveston, Texas 77550
J. Fellman Seinsheimer, III(3)............................ 578,205 29.5%
One American Indemnity Plaza
Galveston, Texas 77550
Dimensional Fund Advisors Inc.(4)......................... 118,700 6.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Franklin Resources, Inc.(5)............................... 160,000 8.2%
777 Mariners Island Blvd.
San Mateo, California 94404
Tweedy, Browne Company LLC(6)............................. 199,320 10.2%
52 Vanderbilt Avenue
New York, New York 10017
Executive officers and directors as a group (10
persons)(7)............................................. 677,150 34.5%
</TABLE>
- ---------------
(1) J. F. Seinsheimer, Jr. resigned as a member of the Board of Directors on
April 24, 1995 and was named Chairman Emeritus. As of March 16, 1998, Mr.
Seinsheimer, Jr. shared voting and dispositive power over 38,095 shares
(1.9%) of the Company's Common Stock with his son, J. Fellman Seinsheimer,
III, and United States National Bank of Galveston as co-trustees of the
Jessie Lee Seinsheimer Trust (the "Seinsheimer Trust"). Mr. Seinsheimer, Jr.
is the sole beneficiary under the Seinsheimer Trust until his death, at
which time the remainder will be divided among his children. Additionally,
pursuant to powers of attorney granted by Mr. Seinsheimer, Jr. to his son,
J. Fellman Seinsheimer, III, Messrs. Seinsheimer will share voting and
dispositive power over the 67,015 shares (3.4%) of the Company's Common
Stock owned of record by Mr. Seinsheimer, Jr. Mr. Seinsheimer, Jr., as
co-trustee of the Irma K. Seinsheimer Trust, as described further in Note 2
below, may be deemed to be the beneficial owner of an additional 471,770
shares of Common Stock beneficially owned by such trust.
(2) The Irma K. Seinsheimer Trust (the "Family Trust") is the beneficial owner
of 471,770 shares of Common Stock. Of the 471,770 shares (24.0%) of Common
Stock beneficially owned, 7,675 shares (0.4%) are owned of record and
464,095 shares (23.6%) are owned by two corporations controlled by the
Family Trust, namely American Finance Company of Galveston and United States
Securities Corporation, that owned of record 289,764 shares (14.8%) and
174,331 shares (8.9%) of the Company's Common Stock, respectively. Mr.
Seinsheimer, Jr. and William C. Levin, M.D. (a director of the Company) are
co-trustees of the Family Trust and as such have shared voting and
dispositive power with respect to the shares controlled by the Family Trust.
However, Mr. Seinsheimer, Jr. exercises sole voting
2
<PAGE> 5
and dispositive power over the 7,675 shares owned of record by the Family
Trust. Dr. Levin exercises no voting or dispositive power over, has no
pecuniary interest in and disclaims any beneficial ownership or interest in
the shares of Common Stock beneficially owned by the Family Trust.
(3) As of March 16, 1998, J. Fellman Seinsheimer, III owned of record 9,000
shares (0.5%) of the Company's Common Stock, which does not include 270
shares owned of record by his sons, as to which he disclaims any beneficial
ownership or interest. Pursuant to the Powers of Attorney granted by J. F.
Seinsheimer, Jr. to his son, J. Fellman Seinsheimer, III, the Messrs.
Seinsheimer share voting and dispositive power over 67,015 shares (3.4%) of
the Company's Common Stock owned of record by J. F. Seinsheimer, Jr.
Additionally, J. Fellman Seinsheimer, III, J. F. Seinsheimer, Jr. and United
States National Bank of Galveston, as co-trustee of the Seinsheimer Trust,
share voting and dispositive power over 38,095 shares (1.9%) of the
Company's Common Stock owned by such trust. Additionally, as President of
American Finance Company of Galveston and United States Securities
Corporation, which corporations owned of record 289,764 shares (14.8%) and
174,331 shares (8.9%) of Common Stock, respectively, J. Fellman Seinsheimer,
III has shared voting and dispositive power over an aggregate of 464,095
shares owned by such corporations.
(4) Based upon information contained in a Schedule 13G filed with the Securities
and Exchange Commission and other information provided by Dimensional Fund
Advisors Inc., a registered investment advisor ("Dimensional"). According to
such information, as of December 31, 1997, all of such shares are held in
portfolios of DFA Investment Dimensions Group Inc., a registered open-end
investment company (the "Fund"), or in series of The DFA Investment Trust
Company, a Delaware business trust (the "Trust"), or the DFA Group Trust and
the DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, for all of which Dimensional serves as investment
manager. Dimensional exercises sole dispositive power with respect to all
such shares and sole voting power with respect to 87,000 of such shares.
Persons who are officers of Dimensional also serve as officers of the Fund
and the Trust, and in the capacity as officers of the Fund and the Trust
exercise sole voting power with respect to 16,700 of such shares owned by
the Fund and 15,000 of such shares owned by the Trust. The Company has been
advised by Dimensional that Dimensional disclaims beneficial ownership of
all such shares.
(5) Based upon information contained in a Schedule 13G filed with the Securities
and Exchange Commission by Franklin Resources, Inc. ("FRI"), the parent
holding company of certain direct and indirect investment advisory
subsidiaries (the "Advisory Subsidiaries"). The Advisory Subsidiaries advise
one or more open or closed-end investment companies or other managed
accounts which beneficially owned 160,000 shares of Common Stock as of
December 31, 1997. The Advisory Subsidiaries are granted sole voting and
investment power over such shares by the advisory clients, and, as a result,
the Advisory Subsidiaries may be deemed to be the beneficial owner of the
160,000 shares of Common Stock. FRI and Charles B. Johnson and Rupert H.
Johnson, Jr., the principal stockholders of FRI, also may be deemed to be
the beneficial owner of the 160,000 shares of Common Stock. Each of FRI,
Charles B. Johnson, Rupert H. Johnson, Jr. and the Advisory Subsidiaries
disclaim beneficial ownership of all such shares.
(6) Based upon information contained in a Schedule 13D filed with the Securities
and Exchange Commission and other information provided by Tweedy, Browne
Company LLC ("TBC"). TBC is a registered investment advisor beneficially
owning 199,320 shares of Common Stock, of which TBC exercises shared
dispositive power with respect to all such shares and sole voting power with
respect to 184,506 such shares. Additionally, certain of the general
partners of TBC may be deemed to have sole power to vote certain shares and
shared power to direct the disposition of all the shares of Common Stock
held in the TBC Accounts.
(7) Based upon information furnished by directors and executive officers.
Includes 29,000 shares issuable on exercise of options.
3
<PAGE> 6
ELECTION OF DIRECTORS
At the meeting, three Class I directors (constituting all of the Class I
directors) are to be elected to hold office for terms of three years or until
their respective successors shall have been elected and shall qualify. It is the
intention of the persons named in the enclosed form of proxy to vote such proxy
for the election of the three nominees named below for Class I directorships
unless authorization is withheld on the proxy. The Board of Directors of the
Company do not contemplate that any of the nominees will be unable or unwilling
to serve as a director or become unavailable for any reason, but if that should
occur before the meeting, each of the proxies received by the Board of Directors
which do not withhold authority to vote for directors will be voted for another
nominee or nominees to be selected by the Board of Directors.
The enclosed form of proxy provides a means for stockholders to vote for
each of the nominees listed therein or to withhold authority to vote for certain
or all of the nominees. Each properly executed proxy received in time for the
meeting will be voted as specified therein. If a stockholder does not specify
otherwise, the shares represented by his or her proxy will be voted for the
nominees listed therein or, as noted above, for other nominees selected by the
Board of Directors. Since the Company's bylaws provide that the directors are
elected by a plurality of votes cast, broker non-votes or withholding authority
to vote for any of the nominees will have no effect upon the election of
directors, unless a vote is cast in person or by means of another proxy.
However, all shares represented by proxies that are signed by the holder of
record will be counted for purposes of determining the presence of a quorum. The
presence at the meeting, in person or by proxy, of the holders of a majority of
the shares of Common Stock is necessary to constitute a quorum for the
transaction of business at the meeting.
The following table sets forth information with respect to each person
nominated for election as a Class I director and each person whose term of
office as a director will continue after the annual meeting. Except for J.
Fellman Seinsheimer, III, William C. Levin, M.D. and Harris L. Kempner, Jr., who
owned beneficially 29.5%, 2.2% and 1.2%, respectively, of the outstanding shares
of Common Stock at March 16, 1998, each nominee and director owned less than 1%
of the outstanding shares of Common Stock at such date. The table has been
prepared from information obtained from the respective nominees and directors.
<TABLE>
<CAPTION>
SHARES OF
COMMON
STOCK
BENEFICIALLY
SERVED AS OWNED ON
PRINCIPAL DIRECTOR MARCH 16,
NAME AGE OCCUPATION SINCE 1998(1)
---- --- ---------- --------- ------------
<S> <C> <C> <C> <C>
CLASS I -- NOMINEES FOR TERMS EXPIRING IN 2001
Henry W. Hope(2)(3)............ 57 Partner -- Fulbright & Jaworski 1977 4,479(4)
L.L.P.
James W. McFarland, Ph.D(5).... 52 Dean -- A.B. Freeman School of 1994 3,500(6)
Business, Tulane University
Marvin L. West(2)(5)........... 69 Management Consultant 1980 3,053(6)
CLASS II -- DIRECTORS WHOSE TERMS EXPIRE IN 1999
Jack T. Currie(3)(7)........... 69 Investments 1977 7,751(4)
Synott L. McNeel(5)(7)......... 74 Investments 1973 8,000(8)
J. Fellman Seinsheimer, 57 President and Chief Executive 1973 578,205(9)
III(3)(7).................... Officer of the Company
CLASS III -- DIRECTORS WHOSE TERMS EXPIRE IN 2000
Fred C. Burns.................. 60 Managing Partner -- John L. 1997 2,000(8)
Wortham & Son, L.L.P.
Harris L. Kempner, Jr.(2)...... 58 President -- Kempner Capital 1991 22,611(4)(10)
Management, Inc.
William C. Levin, M.D.......... 81 Consultant in Hematology 1973 42,587(11)
</TABLE>
(Footnotes on following page)
4
<PAGE> 7
- ---------------
(1) Unless otherwise indicated below, each director or nominee has sole voting
and investment power with respect to the shares attributed to him.
(2) Member of the Compensation Committee of the Board of Directors.
(3) Member of the Nominating and Management Development Committee of the Board
of Directors.
(4) Includes 4,000 shares issuable on the exercise of options.
(5) Member of the Audit Committee of the Board of Directors.
(6) Includes 3,000 shares issuable on the exercise of options.
(7) Member of the Executive Committee of the Board of Directors.
(8) Includes 2,000 shares issuable on the exercise of options.
(9) Does not include 270 shares owned of record by his sons, as to which Mr.
Seinsheimer disclaims any beneficial ownership or interest. See Notes (1)
and (3) under "Principal Stockholders".
(10) Includes 18,611 shares held by the H. Kempner Trust, of which Mr. Kempner
is a beneficiary, is one of five trustees and shares voting and investment
power.
(11) Includes 4,000 shares issuable upon the exercise of options, but does not
include 471,770 shares beneficially owned by the Family Trust, of which Dr.
Levin is a co-trustee. See Note (2) under "Principal Stockholders".
Fred C. Burns joined John L. Wortham & Son in 1963 and was elected Partner
in 1970. He became Managing Partner in 1985. Mr. Burns serves as a director of
Chase Bank of Texas, The Council of Insurance Agents and Brokers, Assurex
Development Corporation and is a registered principal of the National
Association of Securities Dealers.
Jack T. Currie has been engaged in managing personal investments since
January 1986. Prior to 1986, he was engaged in the merchant banking and
investment banking businesses. Mr. Currie is also a member of the Boards of
Directors of American National Growth Fund, American National Income Fund,
Triflex Fund, Inc. and Stewart & Stevenson Services, Inc.
Henry W. Hope has been a partner in the law firm of Fulbright & Jaworski
L.L.P. since 1975.
Harris L. Kempner, Jr. has served as a Trustee of H. Kempner Trust
Association of Galveston since 1964 and as President of Kempner Capital
Management, Inc. since 1981. He serves on the Boards of Directors of Imperial
Holly Corp., TNP Enterprises and Cullen Frost Bankers, Inc.
William C. Levin, M.D. served as President of the University of Texas
Medical Branch at Galveston from 1974 until his retirement in September 1987. He
served as the Ashbel Smith Professor at the University until his retirement from
that position in September 1992 and now serves as a consultant in hematology.
James W. McFarland is dean and professor at Tulane University's A.B.
Freeman School of Business, positions he has held since 1988. Prior to that
time, he was dean of the College of Business Administration at the University of
Houston. He is a member of the Boards of Directors of Sizeler Property
Investors, Inc. and Stewart Enterprises, Inc. and serves on the Audit and
Compensation Committees of both companies. Mr. McFarland also serves on the
Executive Committee of Sizeler Property Investors, Inc. In addition, Mr.
McFarland is a member of the Board of Directors of Petroleum Helicopters Inc.
and serves on the Audit Committee of that company.
Synott L. McNeel served as Senior Vice President, Secretary and Treasurer
of the Company from January 1983 until his retirement on December 31, 1993.
Prior to that time he served as Senior Vice President and Treasurer of the
Company since 1973.
J. Fellman Seinsheimer, III has served as President and Chief Executive
Officer since July 1992. He served as President and Chief Operating Officer from
January 1983 to July 1992, and prior to that time was Executive Vice President
and Secretary of both the Company and American Indemnity Company, the Company's
principal insurance subsidiary ("American Indemnity").
5
<PAGE> 8
Marvin L. West has served as a management consultant since July 1991. From
November 1988 until July 1991, Mr. West handled personal investments. Mr. West
served as Chairman of the Board and President of Westheimer National Bank from
July 1984 until November 1988.
J. Fellman Seinsheimer, III is the son and William C. Levin, M.D. is the
brother-in-law of Mr. Seinsheimer, Jr., the principal stockholder of the
Company.
The Company's Board of Directors has an established Executive Committee,
Audit Committee, Nominating and Management Development Committee and
Compensation Committee. The Executive Committee performs various tasks in the
management of the business and affairs of the Company and may exercise all of
the powers of the Board of Directors when it is not in session except those
reserved by law to the Board. The Audit Committee recommends the selection of
and confers with the Company's independent accountants regarding the scope and
adequacy of annual audits and other review procedures, reviews reports from the
independent accountants relating to the annual audits and quarterly reviews, and
meets with such independent accountants and the Company's internal auditors and
financial personnel to review such reports and the adequacy of the Company's
financial controls, accounting principles and policies. The Audit Committee also
reviews compliance with the Company's reporting obligations and certain Company
policies. The Compensation Committee is responsible for reviewing and
recommending to the Board of Directors the compensation for the executive
officers and directors of the Company and for administering the Company's
employee stock option plans. The primary function of the Nominating and
Management Development Committee is to review management's recommendations for
persons to serve as the Company's executive officers and as members of the Board
of Directors and committees of the Board of Directors (other than the Nominating
and Management Development Committee), together with such other nominees as it
may choose to consider, and to recommend to the Board of Directors the persons
nominated by the Committee for such positions. The Nominating and Management
Development Committee will consider for the annual meeting of stockholders to be
held in 1999 nominees for director recommended by stockholders that are
submitted in writing, together with adequate information regarding such person's
biographical data and qualifications, addressed to the Nominating and Management
Development Committee at the address of the Company's principal executive office
and received no later than November 25, 1998. The Nominating and Management
Development Committee periodically considers executive management development
and succession matters.
During 1997, the Board of Directors held four meetings, the Executive
Committee held no meetings, the Audit Committee held four meetings, the
Nominating and Management Development Committee held one meeting and the
Compensation Committee held one meeting. During 1997, each incumbent director
attended 75% or more of the total number of meetings of the Board and the
committees on which he served.
6
<PAGE> 9
EXECUTIVE OFFICERS
The following table lists the persons currently serving as the executive
officers of the Company and who have been nominated for re-election to such
positions at the directors' meeting to be held following the Annual Meeting of
Stockholders. If elected, the persons named below are expected to serve in the
position stated until the next annual meeting of the directors and until their
successors are elected and qualified. Both officers have been continually
employed by the Company in an executive capacity for the last five years, except
Mr. Apgar who was elected to his position with the Company in January 1994. Mr.
Apgar is 44 years of age and has been employed with American Indemnity Company
in various capacities since April 1974, most recently as Vice President and
Controller. Mr. Apgar beneficially owns 3,500 shares of Common Stock, including
3,000 shares issuable upon the exercise of options, which represents less than
1% of the shares of Common Stock outstanding as of March 16, 1998.
<TABLE>
<CAPTION>
SERVED AS
OFFICER
NAME SINCE POSITION
---- --------- --------
<S> <C> <C>
J. Fellman Seinsheimer, III.......... 1973 President and Chief Executive Officer
Phillip E. Apgar, C.P.A.............. 1994 Vice President, Treasurer and Chief
Financial Officer
</TABLE>
EXECUTIVE COMPENSATION
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee (the "Committee") of the Board of Directors of
the Company is pleased to present this report on the compensation policies of
the Company for its executive officers. This report sets forth the major
components of executive compensation and the basis by which the 1997
compensation determinations were made by the Committee and the Board of
Directors with respect to the executive officers of the Company.
The compensation programs of the Company as they apply to executive
officers are generally administered by or under the direction of the Committee
and are reviewed on an annual basis to insure that remuneration levels and
benefits are competitive and reasonable in light of the overall performance of
the Company in recent years. The Committee is composed of three directors who
are not employees of the Company or its subsidiaries and is responsible for
recommending to the full Board of Directors compensation for the executive
officers of the Company. Specifically, stock based compensation decisions for
the Company's executive officers are in each case approved by the full Board of
Directors of the Company following recommendations by the Committee.
COMPENSATION POLICIES
In determining compensation for the Company's executive officers, the
Committee and the Board seek to ensure that the executive officers are
effectively compensated in terms that are both internally equitable and
externally competitive. Compensation decisions should include consideration of
all factors relevant to these decisions, including the performance of the
specific officer under consideration, the financial condition and results of
operations of the Company, conditions prevailing generally in the Company's
industry during the applicable periods and the Company's performance in light of
such conditions. Management's recommendations are requested and considered by
the Committee.
COMPENSATION PROGRAM CONSIDERATIONS
In 1997, compensation for the Company's executive officers consisted
primarily of base salary and certain other benefits, including contributions to
the Company's cash balance retirement plan and to the Company's 401(k) plan. The
Committee and the Board considered certain of these components as follows.
7
<PAGE> 10
Base Salary -- Base salary levels are determined principally on the factors
mentioned above, as well as the Company's past compensation practices,
compensation practices in the applicable geographic region and by comparison
with companies that are similar to the Company. The most important factor in the
Committee's determination is the Committee's understanding and perception of how
the particular officer performed during the preceding periods under the
circumstances as they existed at such times.
In early 1997, the Company commissioned an outside consulting firm to
update its previous report on compensation arrangements for the executive
officers (the "compensation survey"). This compensation survey illustrated that
the executive officers' base salaries were at or below the weighted averages of
the ranges shown in that survey for their respective positions. The companies
used in the compensation survey are not the companies comprising the indices
utilized in the performance graph.
In general, base salary levels and increases in these levels reflect the
Committee's view of the contribution made by the particular executive officer
based on, among other things, the factors listed above. These factors are
typically subjective. No quantifiable goals or standards are established,
although the compensation survey provides certain benchmarks considered by the
Committee for compensation levels. While the profitability of the Company is
considered, it is not determinative in setting executive officer compensation.
With this background, the Committee recommended increases in base salaries for
the executive officers in 1997 that were in keeping with the general increases
given to other employees.
Stock Options -- The Committee and the Board believe that stock options
provide a valuable incentive to the key employees of the Company, particularly
those having substantial responsibility for the future and success of the
Company. By providing an opportunity to increase their ownership of Company
stock, the interests of the stockholders and those key personnel will become
more closely aligned. Stock options provide the option holder with additional
incentive to remain in the Company's employ and to bring about greater growth
and success of the Company. Options also provide a means to tie compensation
more closely to the Company's financial performance to the extent reflected in
the price of the Company's Common Stock. It was noted that all options held by
the Chief Executive Officer had now lapsed or been exercised, while the Chief
Financial Officer retained options granted in 1994.
Following review and consideration of the options previously granted to the
executive officers and that are currently outstanding, the Committee determined
that no additional options for the executive officers would be recommended to
the Board at the time the Committee conducted its compensation review but may be
considered later in the year. However, no further action was taken on this
matter during 1997.
Other Matters -- The Company has various other employee benefit plans and
executive officers participate in these on the same terms as eligible,
non-executive employees, subject to any legal limits on such participation.
These include the cash balance retirement plan and 401(k) Plan adopted by the
Company's subsidiary and an automobile bonus plan whereby employees are
compensated for taxes incurred for personal use of company automobiles.
1997 COMPENSATION FOR THE CHIEF EXECUTIVE OFFICER
The leading role taken by J. Fellman Seinsheimer, III in bringing about the
improved results experienced by the Company in recent years, and particularly in
1996 as compared to 1995, and in handling the many adverse circumstances that
arose during 1995 was considered by the Committee in its review. The Committee
recognized that during 1995 there were many difficulties encountered such as the
extensive weather related losses. The Committee's perception of the performance
of the Chief Executive Officer was that such individual has performed well over
the past several years under the circumstances that existed during such periods.
For these reasons, the Committee determined that the Chief Executive Officer
should receive the increase in base compensation discussed above. Even with this
increase, such officer's compensation remained below the weighted average of the
compensation range for his position based upon the compensation survey update
commissioned by the Company.
8
<PAGE> 11
SUMMARY
The Committee believes that the annual compensation for the Company's
executive officers appropriately reflects the contribution of such officers to
the Company and is linked to and reflective of the individual performance and
the financial performance of the Company.
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
Henry W. Hope
Harris L. Kempner, Jr.
Marvin L. West
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Harris L. Kempner, Jr., a director of the Company, is Chairman Emeritus of
the Board of United States National Bank, which serves as the principal banking
institution for the Company. Henry W. Hope, a director of the Company, is a
partner in the law firm of Fulbright & Jaworski L.L.P., which serves as
corporate and securities counsel to the Company.
The full Board of Directors of the Company approves all stock grants to
employees, including the executive officers. Mr. Seinsheimer, III, the sole
employee director of the Company, abstains from voting with respect to such
matters. Mr. Seinsheimer, III, however, does make recommendations to the
Compensation Committee and the full Board of Directors with regard to
compensation and stock option grants for all employees of the Company.
SUMMARY OF COMPENSATION
The following table summarizes compensation information concerning each of
the Company's executive officers for each of the three years ended December 31,
1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
(AWARDS)
------------
ANNUAL COMPENSATION OTHER SHARES
----------------------- ANNUAL UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($)(1) (#) ($)(2)
--------------------------- ---- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. Fellman Seinsheimer, III..... 1997 212,500 -- 12,911 -- 6,107
President and Chief........... 1996 206,400 -- 14,254 -- 6,192
Executive Officer............. 1995 199,500 -- 6,541 -- 3,393
Phillip E. Apgar, C.P.A......... 1997 117,276 -- 10,975 -- 3,372
Vice President, Treasurer..... 1996 113,850 -- 12,148 -- 3,416
and Chief Financial Officer... 1995 110,000 -- 4,355 -- 3,300
</TABLE>
- ---------------
(1) Amounts represent tax gross-ups for the lease value and expenses relating to
the use of Company automobiles. The dollar value of all other perquisites
and personal benefits were less than the lesser of either $50,000 or 10% of
the total annual salary and bonus for each named executive officer and
therefore have been excluded.
(2) Amounts represent matching contributions made by the Company under the
Company's 401(k) Plan.
Each executive officer of the Company holds office until the regular
meeting of directors following the annual meeting of stockholders or until his
successor is elected and qualifies.
9
<PAGE> 12
COMPENSATION OF DIRECTORS
Directors of the Company who are not employed by the Company or its
subsidiaries receive $1,200 for each meeting of the Board of Directors attended
by such director and $50 to $200 for each meeting of the Company's subsidiaries'
Boards of Directors on which such persons may serve. Committee members serving
on established committees of the Board of Directors receive $300 for each
meeting attended. The Company does not pay director or committee fees to persons
who also serve as officers of the Company.
Non-employee directors also receive options every other year to purchase
1,000 shares of the Company's Common Stock pursuant to the 1997 Non-Employee
Director Stock Option Plan (the "1997 Director Plan"), which was approved by the
Company's stockholders in April 1997. See "Option Grants and Exercises". Each
option is exercisable for a term of ten years from the date of grant, subject to
earlier termination as set forth in the plan. Prior to 1997, options to purchase
an aggregate of 22,000 shares were granted to non-employee directors under the
Company's 1992 Non-Employee Director Stock Option Plan (the "1992 Director
Plan"). Upon approval of the 1997 Director Plan by the Company's stockholders,
the 1992 Director Plan terminated and the remaining 3,000 shares then reserved
for issuance under the 1992 Director Plan were reclassified as authorized but
unissued shares of the Company's Common Stock. All options previously granted
under the 1992 Director Plan will continue for the remainder of their respective
terms.
OPTION GRANTS AND EXERCISES
The Company currently maintains two plans pursuant to which options to
purchase shares of the Company's Common Stock are outstanding or available for
future grants.
In April 1992, the Company's stockholders approved the 1992 Employee Stock
Option Plan (the "1992 Option Plan"). Options to purchase up to an aggregate of
100,000 shares may be granted under the 1992 Option Plan at no less than the
fair market value of the shares of Common Stock on the date of grant for
incentive stock options, and no less than 85% of the fair market value of the
shares of Common Stock on the date of grant for non-incentive stock options.
Under the 1997 Director Plan, 25,000 shares were reserved for the grant of
options. The selection of non-employee directors to whom options are to be
granted, the number of shares subject to an option, the date of grant, the
exercise price and the term of an option are specified in the 1997 Director
Plan. Options to purchase 1,000 shares and 8,000 shares were granted under the
1992 Director Plan and the 1997 Director Plan in January 1997 and January 1998,
respectively. As of March 16, 1998, there were 96,000 shares available for the
grant of options under the 1992 Option Plan and 17,000 shares under the 1997
Director Plan.
AGGREGATED OPTION EXERCISES IN 1997 AND OPTION VALUES AT DECEMBER 31, 1997
The following table sets forth information concerning each exercise of
stock options during the year ended December 31, 1997 by each of its executive
officers and the value of unexercised in-the-money options at December 31, 1997.
OPTION EXERCISES AND OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS AT
SHARES AT DECEMBER 31, 1997 DECEMBER 31, 1997
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
J. Fellman Seinsheimer, III.... 6,700 42,937 -0- -- -0- --
Phillip E. Apgar, C.P.A........ -- -- 3,000 -- 1,125 --
</TABLE>
10
<PAGE> 13
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total stockholder return on Common Stock with the cumulative total
return of the NASDAQ U.S. Market Index and the Dow Jones Property and Casualty
Insurance Industry Index for the five years ended December 31, 1997. The graph
assumes that the value of the investment in the Company's Common Stock and each
index was $100 at December 31, 1992 and that all dividends were reinvested.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG THE COMPANY, THE NASDAQ U.S. MARKET INDEX AND
THE DOW JONES PROPERTY AND CASUALTY INSURANCE INDUSTRY INDEX
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEASUREMENT PERIOD NASDAQ DOW
(FISCAL YEAR COVERED) AIFC U.S. JONES P & C
<S> <C> <C> <C>
1992 100 100 100
1993 219 115 101
1994 172 112 106
1995 174 159 149
1996 182 195 179
1997 248 240 263
</TABLE>
PENSION PLAN
Effective January 1, 1988, American Indemnity established a
noncontributory, retirement plan (the "Plan") carried and funded through a group
annuity covering substantially all full-time employees over 21 years of age who
have more than one year of service. The Plan was amended January 1, 1992 to
comply with the Tax Reform Act that was effective January 1, 1989. Effective
January 1, 1996, the Plan was converted to a Cash Balance Plan and the Company
contributes for each participant 5% of such person's salary. In addition, the
Cash Balance Plan provides for 6% interest per annum on such cash balance.
Similar to the pre-1996 Plan, an annuity at retirement, which is based upon
stated plan factors, is available as an alternative to the lump sum payment of
the cash balance. The following table sets forth estimated cash balances and
estimated annuities at an assumed retirement age of 65 and assumed annual salary
growth of 4%.
11
<PAGE> 14
Projected Cash Balances
<TABLE>
<CAPTION>
SALARY AT JANUARY 1, 1997, OR HIRE DATE IF LATER
--------------------------------------------------------
$20,000 $40,000 $60,000 $80,000 $100,000
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Age at January 1, 1997, or hire
date if later
25........................... $274,251 $548,502 $822,753 $1,097,004 $1,371,255
35........................... 125,013 250,026 375,039 500,052 625,065
45........................... 50,806 101,612 152,418 203,224 254,030
55........................... 15,532 31,064 46,596 62,128 77,660
</TABLE>
Projected Annual Annuity
<TABLE>
<CAPTION>
SALARY AT JANUARY 1, 1997, OR HIRE DATE IF LATER
--------------------------------------------------------
$20,000 $40,000 $60,000 $80,000 $100,000
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Age at January 1, 1997, or hire
date if later
25........................... $ 25,760 $ 51,520 $ 77,280 $ 103,040 $ 128,800
35........................... 11,742 23,484 35,226 46,968 58,710
45........................... 4,772 9,544 14,316 19,088 23,860
55........................... 1,459 2,918 4,377 5,836 7,295
</TABLE>
The benefits under the Cash Balance Plan would be supplemented by the
benefits, if any, from the Plan as in effect prior to January 1, 1996 and any
benefit which was earned under previous plans prior to January 1, 1988. The
compensation covered by the Plan includes all salary costs, excluding bonuses,
for all employees who have reached the age of 21. Such compensation includes the
salaries set forth in the salary column of the Summary Compensation Table. Upon
retirement at an assumed retirement age of 65, the estimated annual and lump sum
benefit payable under the Cash Balance Plan would be approximately $15,000 and
$159,600, respectively, for J. Fellman Seinsheimer, III and approximately
$40,000 and $429,500, respectively, for Phillip E. Apgar. Mr. Seinsheimer, III
and Mr. Apgar are the only employees of the Company whose annual salaries exceed
the range of salaries reflected in the tables above.
KEY EXECUTIVE SEVERANCE AGREEMENTS
J. Fellman Seinsheimer, III, the President and Chief Executive Officer of
the Company and American Indemnity Company ("American Indemnity"), a subsidiary
of the Company, and one other key employee of American Indemnity have each
entered into a Key Executive Severance Agreement ("Executive Agreement") with
the Company and American Indemnity. Each officer's Executive Agreement is
effective as of February 7, 1983 and provides that if in the event that a third
person or group commences a tender or exchange offer, circulates a proxy to
stockholders, or takes other steps to effect a change in control of the Company,
such officer will not voluntarily leave the employ of the Company or American
Indemnity, as the case may be, and will continue to perform the duties of his
office until such time as such third person has abandoned or terminated his
efforts to effect a change of control or until a change of control has occurred.
In the event that such officer's employment with the Company or any of its
subsidiaries terminates for any reason (either voluntary or involuntary, other
than as a consequence of his death, disability or willful misconduct) within two
years after a change of control of the Company, the Company or American
Indemnity, or both, will (i) pay to such officer as compensation for services
rendered to the Company and its subsidiaries a lump sum in cash equal to five
times the highest aggregate compensation paid or payable to such officer with
respect to any 12 consecutive month period during the three years ending with
the date of such officer's termination, and (ii) continue to provide such
officer, for a period of 15 years from the date of his termination, with such
life, accident, medical and long-term disability insurance plans of the Company
and its subsidiaries as provided to him prior to the change of control, unless
and until he obtains other employment that provides comparable coverage. For
purposes of each officer's Executive Agreement, a change of control of the
Company will result from the occurrence of either of the following events: (i) a
third person, including a "group" as defined in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended, becomes the beneficial owner of
12
<PAGE> 15
shares of the Company having 25% or more of the total number of votes that may
be cast for the election of directors of the Company; or (ii) as the result of,
or in connection with, any cash tender or exchange offer, merger or other
business combination, sale of assets or contested election, or any combination
of the foregoing transactions, the persons who were directors of the Company
before any of such transactions shall cease to constitute a majority of the
Board of Directors of the Company or any successor to the Company. The Executive
Agreements also provide that, for a period of one year following any voluntary
termination (except one following a change in control of the Company) by an
officer who is a party to the agreement, that such officer will not participate
in any business which is in competition with the business of the Company and its
subsidiaries within a defined geographic area. Except during the pendency of or
following a change in control, the Board of Directors may determine that an
officer who is a party to an Executive Agreement is no longer a "key executive"
of the Company or American Indemnity and thereupon terminate such officer's
Executive Agreement. If the terms of the Executive Agreements had been activated
during the Company's 1997 fiscal year, the sum which would have been payable to
the executive officer named above is $1,062,500. Such payment, if required to be
made during 1997, would have had an adverse impact on the 1997 reported results
of operations; however, it would not have had an adverse effect on the overall
financial condition of the Company.
OTHER TRANSACTIONS
Harris L. Kempner, Jr., a director of the Company, is Chairman Emeritus of
the Board of United States National Bank, which serves as the principal banking
institution for the Company.
Henry W. Hope, a director of the Company, is a partner in the law firm of
Fulbright & Jaworski L.L.P., which serves as corporate and securities counsel to
the Company.
Eugene Hornstein, in his capacity as First Vice President of American
Indemnity, received compensation from such company in the amount of $89,880 as a
base salary, $2,576 in matching contributions made by the Company under the
Company's 401(k) Plan and $9,675 included as earnings in connection with the use
of Company automobiles for the fiscal year ending December 31, 1997. Mr.
Hornstein is the son-in-law of William C. Levin, M.D., a director of the
Company.
Matthew W. Seinsheimer, in his capacity as Assistant Vice President of
American Indemnity, received compensation from such company in the amount of
$61,540 as a base salary and $1,767 in matching contributions made by the
Company under the Company's 401(k) Plan. Mr. Seinsheimer is the son of J.
Fellman Seinsheimer, III, president and chief executive officer of the Company.
See Notes (1) and (3) under "Principal Stockholders" for information
concerning J. Fellman Seinsheimer, III's shared power to vote and dispose of
shares of Common Stock owned of record by his father, Mr. Seinsheimer, Jr., and
shares of Common Stock held by the Seinsheimer Trust.
RELATIONSHIP WITH INDEPENDENT AUDITORS
Deloitte & Touche LLP, or a predecessor of such firm, has been auditing the
accounts of the Company since its inception and has been selected as the
Company's independent accountants for the current year. A representative of
Deloitte & Touche LLP is expected to be available at the Annual Meeting of
Stockholders to respond to appropriate questions and will be permitted to make a
statement if such representative desires to do so.
13
<PAGE> 16
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than 10% of a registered class
of the Company's equity securities to file Form 3, Form 4 and Form 5 reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than 10% stockholders are required by the
regulation to furnish the Company with copies of all Section 16(a) reports they
file.
To the Company's knowledge, based solely on a review of Forms 3 and 4, and
amendments thereto furnished to the Company during its most recent fiscal year
and Forms 5 and amendments thereto furnished to the Company with respect to its
most recent fiscal year, and written representations from reporting persons that
no Form 5 was required, all Section 16(a) filing requirements were complied
with.
PROPOSALS FOR NEXT ANNUAL MEETING
Any proposals of holders of Common Stock intended to be presented at the
annual meeting of stockholders of the Company to be held in 1999 must be
received by the Company at P.O. Box 8985, Wilmington, Delaware 19899-8985, no
later than November 25, 1998, in order to be included in the proxy statement and
form of proxy relating to that meeting.
GENERAL
Management of the Company does not intend to present any other items of
business and knows of no other items of business that are likely to be brought
before the meeting, except those set forth in the attached Notice of Annual
Meeting of Stockholders. However, if any other matter should properly come
before the meeting, the persons named in the enclosed proxy will have the
discretionary authority to vote such proxy in accordance with their best
judgment on such matters.
This solicitation is made on behalf of the Board of Directors of the
Company. The cost of solicitation of proxies in the accompanying form will be
paid by the Company. In addition to solicitation by use of mails, certain
directors, officers and employees may solicit the return of proxies by
telephone, telegram or personal interviews. The Company will also request banks,
brokers and other custodians, nominees and fiduciaries to send proxy materials
to the beneficial owners of shares of the Common Stock, and upon request, they
will be reimbursed by the Company for postage and clerical expenses.
HELEN K. LOHEC
Secretary
March 27, 1998
14
