The output annotation feature class already exists and cannot be overwritten.
Check to see if the Overwrite the output of geoprocessing operations option is turned off. Your settings may be preventing you from overwriting any data that already exists. To access the geoprocessing settings, click the Customize menu on the Standard toolbar of the application you are working in and click ArcMap Options, then click the Geoprocessing tab. Learn more about Controlling tool results.