<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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 under Rule 14a-12
</TABLE>
HSB GROUP, INC.
--------------------------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] No fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[X] 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:
$232,182.22
$1,515.64
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
Registration Statement on Form S-4
Amendment No. 1 to Form S-4 (Registration Statement No.
333-45828)
------------------------------------------------------------------------
(3) Filing Party:
American International Group, Inc.
------------------------------------------------------------------------
(4) Dates Filed:
September 15, 2000
September 29, 2000
------------------------------------------------------------------------
<PAGE> 2
[HARTFORD STEAM BOILER LOGO]
HSB GROUP, INC.
YOUR VOTE ON THE PROPOSED MERGER IS VERY IMPORTANT!
Dear HSB Group, Inc. shareholder:
HSB Group, Inc. has agreed to merge with and into a wholly owned subsidiary
of American International Group, Inc., referred to as "AIG", under the terms of
a merger agreement, dated as of August 17, 2000. Upon completion of the merger,
the AIG subsidiary will continue in existence and will be renamed HSB Group,
Inc. The HSB Board of Directors, referred to as the "HSB Board", carefully
considered and reviewed various strategic options available to HSB and carefully
evaluated the operating risks facing the company prior to entering into the
merger agreement.
If the merger is completed, for each share of HSB common stock, you will
receive a portion of a share of AIG common stock, or in certain circumstances at
the option of AIG, a portion of a share of AIG common stock and cash, in each
case, with a total value equal to $41.00. The final calculation of the merger
consideration will be determined by AIG prior to completion of the merger and
HSB and AIG plan to issue a joint press release announcing the proportion of a
share of AIG common stock and cash, if any, constituting the merger
consideration promptly after it is determined. AIG will pay cash instead of
issuing fractional shares of AIG common stock. HSB shareholders who comply with
Connecticut law will be entitled to dissenters' rights to obtain payment for the
fair value of their shares of HSB common stock.
The proxy statement/prospectus accompanying this letter provides you with
detailed information about the proposed merger. It also contains information
about HSB and AIG that has been filed with the Securities and Exchange
Commission. You are encouraged to read this document carefully. PLEASE SEE PAGE
22 OF THE PROXY STATEMENT/PROSPECTUS ACCOMPANYING THIS LETTER FOR RISK FACTORS
YOU SHOULD CONSIDER BEFORE VOTING YOUR SHARES.
The HSB Board has determined that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, are advisable and
fair to and in the best interests of HSB and its shareholders and recommends
that HSB shareholders vote to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the merger, at the
special meeting of HSB shareholders. The special meeting of HSB shareholders
will be held at the office of HSB, One State Street, Hartford, Connecticut
06102-5024, on November 6, 2000, at 10:00 a.m., local time.
Your vote is very important, regardless of the number of shares you own.
Please vote your shares as soon as possible so that your shares are represented
at the special meeting. To vote your shares, please complete, sign and date the
enclosed proxy card and promptly return it in the enclosed postage-paid envelope
or vote your shares by telephone or the Internet by following the instructions
for telephone or Internet voting on the enclosed proxy card.
If you have any questions prior to the special meeting or need further
assistance, please call our proxy solicitor, Corporate Investor Communications,
Inc., at (888) 682-7219.
Thank you for your cooperation.
Very truly yours,
/s/ Richard H. Booth
Richard H. Booth
Chairman, President and Chief
Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated September 29, 2000,
and is first being mailed to HSB shareholders on or about October 2, 2000.
<PAGE> 3
HSB GROUP, INC.
ONE STATE STREET
P.O. BOX 5024
HARTFORD, CONNECTICUT 06102-5024
-------------------------
NOTICE OF SPECIAL MEETING OF
HSB GROUP, INC. SHAREHOLDERS
-------------------------
To the shareholders of HSB Group, Inc.:
NOTICE IS HEREBY GIVEN that HSB Group, Inc., referred to as "HSB", will
hold a special meeting of its shareholders at the office of HSB, One State
Street, Hartford, Connecticut 06102-5024, on November 6, 2000, at 10:00 a.m.,
local time, for the following purposes:
1. To ask you to consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 17, 2000, among HSB,
American International Group, Inc. and Engine Acquisition Corporation, a
wholly owned subsidiary of AIG, and the transactions contemplated by the
merger agreement, including the merger. A copy of the merger agreement
is attached as Appendix A to the proxy statement/prospectus accompanying
this notice; and
2. To transact such other business as may properly come before the special
meeting and any adjournment or postponement of the special meeting.
Only holders of record of HSB common stock at the close of business on
September 28, 2000 are entitled to receive this notice and to vote their shares
at the special meeting or any adjournment or postponement of the special
meeting. On the record date, there were 4,944 shareholders of record of HSB
common stock and 29,166,659 shares of HSB common stock were issued and
outstanding. Each share of HSB common stock is entitled to one vote on each
matter properly brought before the special meeting.
A list of all shareholders of record entitled to notice of and to vote at
the special meeting, including the name, address and number of shares held by
each shareholder, will be available beginning two business days after the date
of this notice and continuing through the date of the special meeting. The list
may be inspected by any shareholder during regular business hours at HSB's
principal office in Hartford, Connecticut, and may be copied, at the
shareholders' expense, upon written demand made in good faith and for a proper
purpose. The list will be available at the special meeting and may be inspected
at any time during the special meeting and any adjournment or postponement of
the special meeting.
Please vote your shares as soon as possible so that your shares are
represented at the special meeting. To vote your shares, please complete, sign
and date the enclosed proxy card and promptly return it in the enclosed postage-
paid envelope or vote your shares by telephone or the Internet by following the
instructions for telephone or Internet voting on the enclosed proxy card. If you
attend the special meeting, you may vote in person if you wish by completing a
ballot at the special meeting, whether or not you have already signed, dated and
returned your proxy card or voted by telephone or the Internet.
THE HSB BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE TO APPROVE AND ADOPT
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT,
INCLUDING THE MERGER, AT THE SPECIAL MEETING, EACH OF WHICH ARE DESCRIBED IN
DETAIL IN THE PROXY STATEMENT/PROSPECTUS ACCOMPANYING THIS NOTICE.
Please review the proxy statement/prospectus accompanying this notice for
more complete information regarding the matters proposed for your consideration
at the special meeting.
By the Order of the HSB Board of Directors,
/s/ R. Kevin Price
R. Kevin Price
Corporate Secretary
Dated: September 29, 2000
PLEASE VOTE YOUR SHARES PROMPTLY.
YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL
MEETING................................................... 1
SUMMARY..................................................... 5
COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND
INFORMATION............................................... 15
Dividend Information...................................... 15
Recent Closing Sale Prices................................ 16
Number of HSB Shareholders................................ 16
SELECTED CONSOLIDATED FINANCIAL DATA........................ 17
COMPARATIVE PER SHARE DATA.................................. 21
RISK FACTORS................................................ 22
AIG Cash Payment Election................................. 22
Market Fluctuations....................................... 22
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION............................................... 23
THE HSB SPECIAL MEETING..................................... 25
Date, Time and Place of the Special Meeting............... 25
Purpose of the Special Meeting ........................... 25
Record Date of the Special Meeting........................ 25
Majority of Outstanding Shares Must be Represented for a
Vote to be Taken....................................... 25
Vote Required at the Special Meeting...................... 25
Voting Your Shares and Changing Your Vote................. 25
How Proxies are Counted................................... 26
Proxies for Participants in HSB's Dividend Reinvestment
Plan and 401(k) Plan................................... 27
Costs of Solicitation..................................... 27
Other Business; Adjournments.............................. 27
THE MERGER.................................................. 28
Background of the Merger.................................. 28
Reasons for the Merger; Recommendation of the HSB Board of
Directors.............................................. 30
Opinion of HSB's Financial Advisor........................ 31
Material United States Federal Income Tax Consequences of
the Merger............................................. 41
Regulatory Filings and Approvals.......................... 44
Resale of AIG Common Stock................................ 46
Management and Operations Following the Merger............ 46
Interests of Certain Persons in the Merger................ 46
HSB Shareholders' Dissenters' Rights to Obtain Payment for
their Shares........................................... 53
Accounting Treatment...................................... 56
Public Trading Markets.................................... 56
RECENT DEVELOPMENTS......................................... 57
Redemption of the HSB Debentures and HSB Capital II
Securities............................................. 57
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE MERGER AGREEMENT........................................ 58
The Merger................................................ 58
Completion of the Merger.................................. 58
Consideration to Be Received in the Merger................ 58
Fractional Shares......................................... 59
Adjustments to Prevent Dilution........................... 59
Conditions of the Proposed Merger......................... 59
Covenants................................................. 60
Agreement Not to Solicit Other Offers..................... 63
Employee Benefits......................................... 64
Treatment of Stock Options................................ 64
Tax Matters............................................... 65
Certain Other Covenants and Agreements.................... 65
Indemnification of Officers and Directors................. 66
Representations and Warranties............................ 67
Termination............................................... 69
Expenses and Termination Fees............................. 70
Amendment and Waiver...................................... 70
RELATED AGREEMENTS AND TRANSACTIONS......................... 71
Stock Option Agreement.................................... 71
Term Loan Agreement....................................... 73
Amendment to HSB's Rights Agreement....................... 74
Employment Agreements..................................... 75
INFORMATION REGARDING AIG................................... 77
INFORMATION REGARDING HSB................................... 78
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF HSB COMMON STOCK............................ 79
DEADLINE FOR HSB SHAREHOLDER PROPOSALS...................... 81
DESCRIPTION OF AIG CAPITAL STOCK............................ 82
General................................................... 82
AIG Common Stock.......................................... 82
AIG Preferred Stock....................................... 82
COMPARISON OF RIGHTS OF AIG AND HSB SHAREHOLDERS............ 83
WHERE YOU CAN FIND MORE INFORMATION......................... 100
LEGAL MATTERS............................................... 102
EXPERTS..................................................... 102
APPENDIX A -- Agreement and Plan of Merger, dated as of
August 17, 2000, among American International
Group, Inc., HSB Group, Inc. and Engine
Acquisition Corporation....................... A-1
APPENDIX B -- Stock Option Agreement dated as of August 17,
2000, between American International Group,
Inc. and HSB Group, Inc....................... B-1
</TABLE>
ii
<PAGE> 6
<TABLE>
<CAPTION>
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<S> <C>
APPENDIX C -- Amendment No. 1 to Rights Agreement, dated
August 17, 2000, between HSB Group, Inc. and
Fleet National Bank, previously known as
BankBoston, N.A. ............................. C-1
APPENDIX D -- Opinion of Goldman, Sachs & Co. .............. D-1
APPENDIX E -- Connecticut Business Corporation
Act -- Sections 33-855 through 33-872 --
Dissenters' Rights............................ E-1
APPENDIX F -- Form of Proxy Card (with Voting Instructions)
for Special Meeting........................... F-1
</TABLE>
iii
<PAGE> 7
QUESTIONS AND ANSWERS
ABOUT THE MERGER AND THE SPECIAL MEETING
Q: WHY IS HSB GROUP, INC. HOLDING THE SPECIAL MEETING?
A: HSB Group, Inc., referred to as "HSB", is holding the special meeting for
the following purposes:
- to ask you to consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 17, 2000, among HSB,
American International Group, Inc. referred to as "AIG", and Engine
Acquisition Corporation, a wholly owned subsidiary of AIG, referred to as
"EAC", and the transactions contemplated by the merger agreement,
including the merger; and
- to transact such other business as may properly come before the special
meeting and any adjournment or postponement of the special meeting.
A copy of the merger agreement is attached as Appendix A to this proxy
statement/prospectus and is incorporated by reference in this proxy
statement/prospectus.
Q: WHY IS HSB PROPOSING THE MERGER?
A: During 1999, the HSB Board of Directors, referred to as the "HSB Board",
and senior management of HSB had been considering the revenue and earnings
growth challenges faced by the company from severe price competition in the
international and special risk businesses, continuing industry
consolidation, the increasing competitive strength of large global insurers
and the difficulties of achieving earnings growth in HSB's engineering
businesses because of constraints on additional investments needed to
achieve efficient scale and scope in that business. Beginning in late 1999,
Richard H. Booth, HSB's current Chairman and Chief Executive Officer and
President, undertook a detailed strategic and operational review of HSB's
businesses, focusing on opportunities for revenue growth and ways to
improve shareholder value. As part of Mr. Booth's process, he met with a
number of entities with which HSB then currently had or might form a
strategic relationship, joint venture or other alliance, including AIG.
Throughout this process, Mr. Booth discussed the results of his review with
the HSB Board, including strategic options and entities expressing an
interest in a business combination with HSB. After considerable discussion
and after weighing the strategic opportunities available to HSB, the HSB
Board determined that the merger with EAC was the best course for the
company to maximize shareholder value because, among other reasons, HSB
shareholders would have the opportunity to participate, as holders of AIG
common stock, in a larger, more diversified insurance and financial services
organization and to benefit from the additional value expected to be
generated by AIG.
Q: WHAT WILL HSB SHAREHOLDERS RECEIVE WHEN THE MERGER IS CONSUMMATED?
A: If the merger is consummated, for each share of HSB common stock you will
receive a portion of a share of AIG common stock or, in certain
circumstances at the option of AIG, a portion of a share of AIG common
stock and cash, in each case with a total value of $41.00, in exchange for
each share of HSB common stock, in accordance with the following:
- if the average of the closing prices per share of AIG common stock on the
NYSE composite transactions reporting system for each of the 10
consecutive trading days in the period ending five trading days prior to
the closing date, which is referred to as the "base period stock price,"
is greater than or equal to $87.55, you will receive a portion of a share
of AIG common stock equal to $41.00 divided by the base period stock
price; or
- if the base period stock price is less than $87.55, you will receive, at
the option of AIG, one of the following:
-- 0.4683 of a share of AIG common stock plus cash in an amount equal
to $41.00 minus the product of 0.4683 and the base period stock
price; or
-- a portion of a share of AIG common stock equal to $41.00 divided by
the base period stock price; or
<PAGE> 8
-- a portion of a share of AIG common stock greater than 0.4683 plus
cash in an amount equal to $41.00 minus the product of such portion
of a share of AIG common stock and the base period stock price.
Please refer to "The Merger Agreement -- Consideration to be Received in the
Merger" for a more detailed explanation of the merger consideration.
Q: WILL AIG ISSUE FRACTIONAL SHARES OF AIG COMMON STOCK AS MERGER
CONSIDERATION?
A: AIG will not issue fractional shares in the merger. As a result, the total
number of shares of AIG common stock that each HSB shareholder will receive
in the merger will be rounded down to the nearest whole number and each HSB
shareholder will receive a cash payment for the value of any remaining
fraction of a share of AIG common stock that he or she would otherwise
receive, if any. Please see "The Merger Agreement -- Fractional Shares" for
further information.
Q: WILL THE MERGER CONSIDERATION BE ANNOUNCED?
A: Yes. The companies intend to issue a press release announcing the
proportion of a share of AIG common stock and cash, if any, constituting
the merger consideration promptly after it is determined.
Q: WHAT IS THE DETERMINATION AND RECOMMENDATION OF THE HSB BOARD WITH RESPECT
TO THE MERGER?
A: The HSB Board has determined that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, are advisable
and fair to and in the best interests of HSB and its shareholders and
recommends that HSB shareholders vote to approve and adopt the merger
agreement and the transactions contemplated by the merger agreement,
including the merger, at the special meeting. In making its determination
and recommendation, the HSB Board took into account, among other things,
the opinion of Goldman Sachs & Co., the financial advisor of HSB, referred
to as "Goldman Sachs", dated as of August 17, 2000, that as of the date of
that opinion, the merger consideration was fair from a financial point of
view to holders of HSB common stock, other than AIG.
Q: WHEN DOES HSB EXPECT TO COMPLETE THE MERGER?
A: HSB is working with AIG to complete the merger as quickly as possible. In
addition to obtaining the approval of HSB shareholders, HSB and AIG must
obtain various regulatory approvals. HSB and AIG expect to complete the
merger later this year or early next year.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER?
A: The merger agreement and the transactions contemplated by the merger
agreement, including the merger, must be approved and adopted by the
affirmative vote of the holders of at least a majority of the issued and
outstanding shares of HSB common stock entitled to vote at the special
meeting. If you return a signed and dated proxy card but do not indicate
how the shares are to be voted, those shares represented by your proxy card
will be voted as recommended by the HSB Board. A properly executed proxy
card marked "ABSTAIN" as well as a vote by telephone or the Internet for
"ABSTAIN" will not be voted at the special meeting. An abstention may be
counted to determine whether there is a quorum present at the special
meeting.
However, because the affirmative vote of at least a majority of the issued
and outstanding shares of HSB common stock entitled to vote at the special
meeting is required to approve the merger agreement and the transactions
contemplated by the merger agreement, including the merger, abstaining from
voting will have the same effect as a vote against the proposed merger.
Q: WILL THE HSB GROUP, INC. AND THE HARTFORD STEAM BOILER INSPECTION AND
INSURANCE COMPANY NAMES BE ELIMINATED?
A: EAC, the wholly owned subsidiary of AIG which will continue in existence
after consummation of the merger, will be renamed HSB Group, Inc. and its
subsidiary The Hartford Steam Boiler Inspection and Insurance Company will
keep its name and be a subsidiary of HSB Group, Inc.
2
<PAGE> 9
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting of HSB shareholders will be held on November 6, 2000 at
10:00 a.m., local time, at the office of HSB, One State Street, Hartford,
Connecticut 06102-5024.
Q: WHO CAN VOTE AT THE SPECIAL MEETING?
A: HSB shareholders who hold their shares of record as of the close of
business on September 28, 2000, are entitled to notice of and to vote at
the special meeting. On the record date, there were 4,944 shareholders of
record of HSB common stock and 29,166,659 shares of HSB common stock were
issued and outstanding.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER OR NOMINEE, WILL MY
BROKER OR NOMINEE VOTE MY SHARES FOR ME?
A: Your broker or nominee will vote your shares only if you provide
instructions on how you want your shares to be voted. You should follow the
directions provided by them regarding how to instruct them to vote your
shares.
HSB common stock is listed on the New York Stock Exchange. The New York
Stock Exchange rules do not permit brokers and nominees to vote the shares
that they hold on another's behalf either for or against the merger without
specific instructions from the person who beneficially owns those shares.
Broker non-votes, which are shares held by brokers or nominees which are
represented at a meeting but with respect to which the broker or nominee is
not empowered to vote on a particular proposal, may be counted for purposes
of determining whether there is a quorum at the special meeting.
However, because the affirmative vote of at least a majority of the issued
and outstanding shares of HSB common stock entitled to vote at the special
meeting is required to approve the merger agreement and the transactions
contemplated by the merger agreement, including the merger, broker non-votes
will have the same effect as a vote against the proposed merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD OR VOTED BY TELEPHONE
OR THE INTERNET?
A: Yes. You may change your vote by revoking your proxy. You can do this in
one of three ways:
- timely delivery of a valid, later-dated proxy, including a proxy cast by
telephone or the Internet;
- written notice to HSB's Corporate Secretary which is timely received
before the special meeting that you have revoked your proxy; or
- attendance at the special meeting in person and completing a ballot.
In order to help ensure timely delivery of a proxy sent by mail, please
return it in the enclosed envelope by November 1, 2000. Telephone and
Internet voting will be accessible until Midnight on November 5, 2000.
You will not revoke your proxy by simply attending the special meeting
unless you complete a ballot. If you have instructed a broker or nominee to
vote your shares, you must follow directions from them to change those
instructions.
Q: SHOULD I SEND IN MY SHARE CERTIFICATES NOW?
A: No. After the merger is completed, AIG will instruct the exchange agent to
send transmittal forms as soon as practicable to HSB shareholders with
instructions on how to exchange their share certificates.
Q: WHAT HAPPENS TO SHARES OF HSB COMMON STOCK PURCHASED THROUGH THE HSB
DIVIDEND REINVESTMENT PLAN IN THE MERGER?
A: These shares will be treated as all other outstanding shares of HSB common
stock and will be entitled to the merger consideration. AIG does not
maintain a dividend reinvestment plan.
Q: WHAT DO I NEED TO DO NOW?
A: Please vote your shares as soon as possible, so that your shares are
represented at the special meeting. TO VOTE YOUR SHARES, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND PROMPTLY RETURN IT IN THE
ENCLOSED POSTAGE-PAID ENVELOPE OR VOTE YOUR SHARES BY
3
<PAGE> 10
TELEPHONE OR THE INTERNET BY FOLLOWING THE INSTRUCTIONS FOR TELEPHONE OR
INTERNET VOTING ON THE ENCLOSED PROXY CARD. If you attend the special
meeting, you may vote in person if you wish by completing a ballot at the
special meeting, whether or not you have already signed, dated and returned
your proxy card or voted by telephone or the Internet.
Please review this proxy statement/prospectus for more complete information
regarding the matters proposed for your consideration at the special
meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you would like additional copies of this proxy statement/prospectus or
if you have questions about the merger agreement, the transactions
contemplated by the merger agreement, including the merger, or how to
complete and return your proxy and/or vote by telephone or the Internet,
you should call Corporate Investor Communications, Inc. at (888) 682-7219.
4
<PAGE> 11
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that is
important to you. We urge you to read carefully the entire proxy
statement/prospectus, the other documents to which this document refers and the
documents of HSB and AIG which are incorporated by reference in this proxy
statement/prospectus to understand fully the merger. See "Where You Can Find
More Information" (page 100). A copy of the merger agreement is attached as
Appendix A to this proxy statement/ prospectus and is incorporated by reference
in this proxy statement/prospectus. Each item in this summary includes a page
reference directing you to a more complete description of that item.
THE COMPANIES
AMERICAN INTERNATIONAL GROUP, INC. (page 77)
70 Pine Street
New York, New York 10270
(212) 770-7000
AIG is a holding company with a market capitalization, as of June 30, 2000,
of approximately $181 billion. Through its subsidiaries, AIG is primarily
engaged in a broad range of insurance and insurance-related activities and
financial services in the United States and abroad. AIG's primary activities
include both general and life insurance operations. Other significant activities
include financial services and asset management.
AIG's general insurance subsidiaries are multiple line companies writing
substantially all lines of property and casualty insurance. One or more of these
companies is licensed to write substantially all of these lines in all states of
the United States and in approximately 70 foreign countries.
AIG's life insurance subsidiaries offer a wide range of traditional
insurance and financial and investment products. One or more of these
subsidiaries is licensed to write life insurance in all states in the United
States and in more than 70 foreign countries.
AIG's financial services subsidiaries engage in diversified financial
products and services including aircraft, consumer and premium financing and
banking services.
AIG's asset management operations offer a wide variety of investment
vehicles and services, including variable annuities, mutual funds and investment
asset management. These products and services are offered to individuals and
institutions both domestically and internationally.
HSB GROUP, INC. (page 78)
One State Street
P.O. Box 5024
Hartford, Connecticut 06102-5024
(860) 722-1866
HSB Group, Inc. was formed under the laws of the State of Connecticut in
1997 to serve as the holding company for The Hartford Steam Boiler Inspection
and Insurance Company, referred to as "HSBIIC", and its subsidiaries. HSBIIC was
chartered as an insurance company by the Connecticut legislature in 1866.
HSB's operations are divided into four reportable operating segments:
- Commercial insurance;
- Global Special Risk insurance;
- Engineering Services; and
- Investments.
Through its commercial insurance operating segment, HSB provides risk
modification services, equipment breakdown insurance and loss recovery services
to commercial businesses. The global special risk insurance operating segment
focuses on the needs of equipment-intensive industries by offering all-risk
coverages with customized engineering, consulting and risk management. HSB's
engineering services operating segment offers professional, scientific and
technical consulting for industry and government on a worldwide basis. HSB's
investment assets are managed by its investments operating segment.
HSB is a multi-national company operating primarily in North American,
European, and Asian markets. HSB conducts its business in Canada through its
insurance subsidiary, The Boiler Inspection and Insurance Company of Canada.
Insurance and related engineering services for risks located in countries other
than the United States and Canada are primarily provided by HSB Engineering
Insurance Limited, HSB's United Kingdom insurance subsidiary.
5
<PAGE> 12
THE MERGER (page 28)
Reasons for the Merger; Recommendation of the HSB Board of Directors (page
30)
In reaching the decision to approve the merger, the HSB Board consulted
with Goldman Sachs, its special counsel, Skadden, Arps, Slate, Meagher & Flom
LLP, and its Connecticut counsel, Shipman & Goodwin LLP, and with HSB senior
management, and considered a number of factors, including the following material
factors:
- the information and discussions with HSB's senior management and
financial advisor concerning each of HSB's and AIG's businesses, assets,
management, competitive position and prospects;
- the financial condition, cash flows and results of operations of HSB and
AIG, both on a historical and prospective basis;
- the opportunity for HSB shareholders to participate, as holders of AIG
common stock, in a larger, more diversified insurance and financial
services organization and to benefit from the additional value expected
to be generated by AIG; and
- the opportunity for HSB shareholders to receive AIG common stock valued
at a premium to the recent market prices of the HSB common stock,
specifically, 8.1% over the closing price on August 16, 2000, the date
prior to the HSB Board meeting approving the merger, 30.9% over the 30
day average price prior to that HSB Board meeting, and 36.7% over the 90
day average price prior to that HSB Board meeting.
The HSB Board has determined that the merger agreement and the transactions
contemplated by the merger agreement, including the merger, are advisable and
fair to and in the best interests of HSB and its shareholders and recommends
that HSB shareholders vote to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the merger, at the
special meeting.
Opinion of HSB's Financial Advisor (page 31)
Goldman Sachs provided its opinion to the HSB Board that, as of the date of
its opinion, which was August 17, 2000, the merger consideration was fair from a
financial point of view to holders of HSB common stock, other than AIG and its
subsidiaries. The full text of Goldman Sachs' opinion, which sets forth
assumptions made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Appendix D to this proxy
statement/prospectus and is incorporated by reference into this proxy
statement/prospectus.
The opinion of Goldman Sachs does not constitute a recommendation as to how
you should vote your shares with respect to the merger agreement and the merger.
We urge you to read the opinion in its entirety.
HSB has agreed to pay Goldman Sachs a transaction fee equal to 1% of the
aggregate merger consideration. If the merger is completed for an approximate
aggregate merger consideration of $1.2 billion, Goldman Sachs' fee will be
approximately $12 million for services as financial advisor and rendering its
opinion to the HSB Board. HSB has also agreed to indemnify Goldman Sachs against
certain liabilities, including certain liabilities under the federal securities
laws. See "The Merger -- Opinion of HSB's Financial Advisor" beginning on page
31.
Interests of Certain Persons in the Merger (page 46)
Certain HSB executive officers and certain members of the HSB Board may be
deemed to have interests in the merger that are in addition to their interests
as shareholders of HSB generally. These interests include, among other things,
provisions in the merger agreement relating to indemnification and insurance,
and the acceleration and/or payout of benefits under certain agreements,
employee benefit plans and employment agreements, as described below.
STOCK OPTIONS; RESTRICTED STOCK. Upon the completion of the merger, all
options to acquire shares of HSB common stock held by HSB executive officers
will become immediately exercisable and all restricted shares of HSB common
stock held by HSB executives will become immediately free of those restrictions.
SEVERANCE AGREEMENTS; EMPLOYMENT AGREEMENTS. HSB had previously entered
into severance agreements with each of its executive officers which provide for
specified severance payments to be made and benefits to be provided to those
executives upon a qualifying termination of their
6
<PAGE> 13
employment following a change in control of HSB. The completion of the merger
will constitute a change in control for purposes of these severance agreements.
AIG and HSB anticipate that certain of these executives will enter into new
employment agreements with EAC that will become effective upon the completion of
the merger and that the severance agreement of each of these executives with HSB
will terminate and become null and void upon the completion of the merger. For a
description of the payments and benefits to be provided under such employment
agreements, see "The Merger -- Interests of Certain Persons in the
Merger -- Severance Agreements; Employment Agreements" and "Related Agreements
and Transactions -- Employment Agreements".
LONG-TERM INCENTIVE PLAN; SHORT-TERM INCENTIVE PLAN. Certain executive
officers are participants in HSB's long-term and short-term incentive plans. The
merger agreement provides that, as soon as practicable following the completion
of the merger, AIG will, or will cause EAC to, pay each participant in HSB's
long-term and short-term incentive plans, in accordance with the terms of those
plans, a lump sum amount in cash with respect to each performance cycle which
includes the date the merger is completed, calculated based upon the assumption
of achievement of target performance levels under each applicable plan with
respect to each applicable performance cycle. The merger agreement further
provides that where the award with respect to the target performance level is
denominated by a range, such payment shall be the amount, within that range,
mutually agreed upon by AIG and HSB.
PRE-RETIREMENT DEATH BENEFIT AND SUPPLEMENTAL PENSION AGREEMENTS. HSB had
previously entered into Pre-Retirement Death Benefit and Supplemental Pension
agreements with certain executive officers. Each of these agreements generally
provides that the executive is entitled to an annual supplemental retirement
benefit equal to a specified percentage of his annual salary, exclusive of
bonuses, for 15 years, which supplemental retirement benefit is reduced if the
executive retires prior to age 65.
Each of these agreements further provides that if:
(1) the executive is terminated within three years following a change in
control other than:
(a) for cause;
(b) by reason of death or disability; or
(c) by the executive without good reason;
or
(2) the executive voluntarily terminates for any reason during the
one-month period commencing on the first anniversary of the change in control,
then, in either case, the executive will be entitled to receive a supplemental
retirement benefit as though the executive had retired at age 65 and, other than
with respect to Richard H. Booth and Robert C. Walker, has been employed for at
least 60 months since his date of election. The completion of the merger will
constitute a change in control for purposes of these agreements.
NON-EMPLOYEE DIRECTORS STOCK AND DEFERRED COMPENSATION PLAN. HSB's
non-employee directors are participants in HSB's Directors Stock and Deferred
Compensation Plan. In the event of a change in control of HSB pursuant to this
plan, participants in this plan will receive a lump sum cash payment equal to
the amount credited to their account under the plan. The completion of the
merger will constitute a change in control for purposes of this plan.
The HSB Board was aware of these interests and considered them, among other
matters, in approving the merger agreement and the transactions contemplated by
the merger agreement, including the merger. For additional information,
including amounts payable under these employee benefit plans and agreements in
specified circumstances, see "The Merger -- Interests of Certain Persons in the
Merger".
Conditions of the Proposed Merger (page 59)
The completion of the merger depends on a number of conditions being met,
including the following:
- the approval and adoption of the merger agreement and the merger
contemplated by that agreement by the holders of at least a majority of
the issued and outstanding
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<PAGE> 14
shares of HSB common stock entitled to vote at the special meeting;
- the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
referred to as the "HSR Act", and applicable state insurance laws;
- the receipt of all required governmental consents, authorizations, orders
and approvals;
- the absence of any legal prohibition against the merger;
- the registration statement filed by AIG with the Securities and Exchange
Commission referred to as the "Commission", of which this proxy
statement/prospectus forms a part becoming effective under the Securities
Act of 1933, referred to as the "Securities Act", and no stop order being
filed;
- the shares of AIG common stock to be issued in the merger being
authorized for listing on the New York Stock Exchange, referred to as the
"NYSE";
- the material accuracy of the representations and warranties of the
parties contained in the merger agreement and the material compliance
with the obligations of the parties to be performed under the merger
agreement;
- the receipt by each party of opinions of their tax counsel that the
merger will be a reorganization under Section 368(a) of the Internal
Revenue Code of 1986, as amended, referred to as the "Code";
- no occurrence of any event since December 31, 1999 that would have a
material adverse effect on HSB;
- the holders of less than 5% of the outstanding shares of HSB common stock
having exercised their dissenters' rights;
- the entry by AIG and/or EAC into employment agreements with certain
executive officers and employees of HSB; and
- the redemption or other treatment satisfactory to AIG of HSB's $300.0
million principal amount of 7% convertible subordinated deferrable
interest debentures due December 31, 2017, referred to as the "HSB
Debentures".
Some of the conditions to the merger may be waived by the party entitled to
assert the condition.
Covenants (page 60)
HSB has agreed as to itself, and where indicated below, its subsidiaries,
to the following material restrictions with respect to the conduct of its
business between the signing of the merger agreement and closing:
- HSB and HSB's subsidiaries will use reasonable best efforts consistent
with past practice to:
-- preserve their business organizations intact;
-- maintain their existing relations and goodwill with their officers,
employees, brokers and agents and various third parties; and
-- maintain their existing relationships with their employees in
general;
- HSB and HSB's subsidiaries will not change any provision of their
respective governing documents or, in the case of HSB, it will not amend,
modify or terminate the HSB rights agreement;
- HSB will not make, declare or pay a dividend or make any other
distribution with respect to any shares of capital stock, except regular
quarterly cash dividends not in excess of $0.44 per share per quarter;
- HSB will not split, combine or reclassify its outstanding shares of
capital stock;
- except in connection with the issuance of shares of HSB common stock
pursuant to the exercise of presently outstanding HSB stock options and
except for certain actions involving the HSB Debentures under the terms
of the merger agreement, HSB will not:
-- sell, issue, encumber or otherwise dispose or redeem, purchase or
otherwise acquire any shares of its outstanding capital stock; or
-- grant any options, warrants or rights to purchase any securities
convertible
8
<PAGE> 15
into shares of its outstanding capital stock;
- HSB will and will cause its subsidiaries to:
-- promptly notify AIG and use its reasonable best efforts to prevent
or remedy any fact or circumstance reasonably likely to result in:
-- any material change in its condition, business, results of
operations or prospects;
-- any material adverse effect on HSB and its subsidiaries as a
whole;
-- any material litigation or material governmental complaints,
investigations or hearings; or
-- the breach of any representation or warranty or material failure
to satisfy any condition or agreement in the merger agreement;
-- promptly deliver to AIG true and correct copies of any report,
statement or schedule filed with the Commission and any public
communication released by HSB or its subsidiaries after the date of
the merger agreement; and
-- use their reasonable best efforts to maintain insurance with
financially responsible companies in such amounts and against such
risks and losses as are customary.
HSB has also agreed that it will not and will not permit any of its
subsidiaries, except to the extent consented to by AIG in writing, to:
- except in the ordinary course of business consistent with past practices:
-- enter into any agreement for indebtedness;
-- increase the indebtedness under any existing agreement;
-- become responsible for the obligations of a third party; or
-- take any of those actions for obligations in excess of $250,000;
- except in the ordinary course of business consistent with past practices,
mortgage, pledge or encumber any of its properties or assets;
- except as may be required by applicable laws or except in the ordinary
course of business consistent with past practices:
-- take any action to amend or terminate any employee benefit plan;
-- grant new or additional incentive compensation awards;
-- increase the compensation of any of its current or former officers,
employees or directors; or
-- adopt new plans providing new or increased benefits or
compensation;
- materially amend or cancel or enter into a new agreement, treaty or
arrangement which is material to HSB and its subsidiaries or to its
insurance subsidiaries on a consolidated basis;
- enter into any negotiation with respect to, or adopt or amend in any
material respect, any collective bargaining agreement;
- materially change any underwriting, investment, reserving, claims
administration, financial reporting or accounting practices used by HSB
or any of its subsidiaries, except as required by generally accepted
accounting principles or other principles and practices of an applicable
government authority or as required by law;
- except for transactions between HSB and any of its subsidiaries, pay,
loan or advance, other than in specified circumstances, any amount to, or
sell, transfer or lease any properties or assets to, or enter into any
material agreement or arrangement with, any of its officers or directors
or any "affiliate" or "associate", as each are defined in Rule 405 of the
Securities Act;
- make or rescind any express or deemed tax election;
- make a request for a tax ruling or enter into a written agreement with a
tax authority regarding taxes;
9
<PAGE> 16
- settle or compromise any material claim or litigation relating to taxes;
- make a material change to any of its methods of tax reporting from those
used in the preparation of its federal income tax return for the taxable
year ending December 31, 1998, except as may be required by applicable
laws;
- pay, discharge, settle or satisfy any material claims or liabilities
other than policy claims in the ordinary course of business;
- other than consistent with past practice, materially alter the mix of
investment assets of HSB or any of its subsidiaries or the duration or
credit quality of those assets or materially alter HSB's existing
investment policies;
- materially alter the profile of the insurance liabilities or the pricing
practices of its insurance subsidiaries;
- engage in the business of selling any products or services materially
different from existing products or services or engage in new lines of
business;
- except in the ordinary course of business, lease or otherwise dispose of
or transfer any of its assets, including capital stock of its
subsidiaries;
- make, authorize or agree to make any capital expenditure which
individually is in excess of $50,000 or in the aggregate is in excess of
$1.0 million;
- except for existing agreements disclosed to AIG, acquire or agree to
acquire:
-- any business or any entity; or
-- except in the ordinary course of business consistent with past
practices, any assets or securities other than portfolio
investments or venture capital investments;
- take or omit to take any action that would or is reasonably likely to
result in any of its representations and warranties or in any of the
conditions to the merger in the merger agreement becoming untrue or not
being satisfied, respectively;
- enter into any agreement limiting in any respect the ability of HSB or
any of its subsidiaries or affiliates to:
-- sell any products or services of or to any other person;
-- engage in any line of business; or
-- compete with or obtain products or services from any person or
limit the ability of any person to provide products or services to
HSB or any of its subsidiaries or affiliates; or
- authorize or enter into any agreement, or commit or agree, to take any of
the foregoing actions.
Termination (page 69)
AIG and HSB may agree to terminate the merger agreement by mutual written
consent at any time before completing the merger, even after HSB's shareholders
have approved and adopted the merger agreement and the merger contemplated by
that agreement.
Either AIG or HSB may terminate the merger agreement if:
- the merger is not completed by March 31, 2001;
- HSB's shareholders do not approve the merger agreement and the merger
contemplated by that agreement; or
- there is a legal prohibition against the merger.
In addition, HSB may terminate the merger agreement if:
- AIG or EAC breaches any representation, warranty, covenant or agreement
contained in the merger agreement that is not cured within 30 days after
notice is sent to AIG;
- so long as HSB is not in material breach of the merger agreement, the HSB
Board determines that an unsolicited proposal from another entity would
result in a transaction more favorable to HSB's shareholders than the
transactions contemplated by the merger agreement with AIG, after giving
AIG the opportunity to compete with the other proposal, and HSB prior to
terminating
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<PAGE> 17
the merger agreement pays or causes to be paid to AIG the termination
fee, if any; or
- as a result of AIG's determination to pay part of the merger
consideration in cash, the merger fails to qualify as a reorganization
under Section 368(a) of the Code.
In addition, AIG may terminate the merger agreement if:
- HSB breaches any representation, warranty, covenant or agreement
contained in the merger agreement that is not cured within 30 days after
notice is sent to HSB;
- the HSB Board withdraws or adversely modifies its recommendation of the
merger agreement and the merger or fails to reconfirm its recommendation
of the merger agreement and the merger within a specified period of time
after a written request by AIG to do so; or
- the HSB Board approves or recommends another acquisition proposal or HSB
has entered into an agreement with respect to another acquisition
proposal.
Termination Fees (page 70)
The merger agreement requires HSB to pay to AIG a termination fee of $45.0
million if the merger agreement is terminated under specified circumstances.
Regulatory Filings and Approvals (page 44)
The HSR Act prohibits AIG and HSB from completing the merger until after
AIG and HSB have furnished information and materials to the United States
Department of Justice and the United States Federal Trade Commission and a
required waiting period has ended. On September 18, 2000, AIG and on September
19, 2000, HSB furnished the information and materials to the United States
Department of Justice and the United States Federal Trade Commission. On
September 29, 2000, early termination of the waiting period was granted.
However, the United States Department of Justice, the United States Federal
Trade Commission or any state will continue to have the authority to challenge
the merger on antitrust grounds before or after the merger is completed.
The merger is also subject to the receipt of approvals from various state
and foreign regulatory authorities and the expiration of specified waiting
periods. AIG has made in September 2000 and expects to make in October 2000 the
applicable filings. As of the date of this proxy statement/prospectus, approvals
are pending in certain jurisdictions.
AIG and HSB cannot predict whether the required regulatory and other
approvals will be obtained within the time frame contemplated by the merger
agreement or on conditions that would not be detrimental to AIG, HSB or the
combined company, or whether these approvals will be obtained at all.
Accounting Treatment (page 56)
The merger will be accounted for under the "purchase" method of accounting
as this term is used under United States generally accepted accounting
principles. This means that AIG will record the excess of the purchase price
paid by it over the fair market value of HSB's net assets as goodwill.
Material United States Federal Income Tax Consequences of the Merger (page
41)
No ruling has been or will be sought from the Internal Revenue Service on
the United States federal income tax consequences of the merger to HSB
shareholders. The merger has been structured to qualify as a reorganization
under Section 368(a) of the Code. The respective obligations of AIG and HSB to
complete the merger are conditioned on the receipt by AIG of an opinion from
Sullivan & Cromwell, counsel to AIG, and by HSB of an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP, special counsel to HSB in the merger, in each case,
based on certain facts, representations, assumptions, limitations and
qualifications set forth in those opinions, that the merger will qualify as a
reorganization.
Assuming the merger qualifies as a reorganization for United States federal
income tax purposes and subject to the assumptions and qualifications set forth
under the heading "The Merger -- Material United States Federal Income Tax
Consequences of the Merger", except to the extent of any cash received in the
merger, HSB shareholders generally will not recognize any gain or loss on the
receipt of AIG common stock received pursuant to the merger. See "The
Merger -- Material United States Federal Income Tax Consequences of the Merger".
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<PAGE> 18
Tax matters are very complicated and the tax consequences of the merger to
HSB shareholders will depend on their individual circumstances. HSB shareholders
should consult their tax advisers for a full understanding of the tax
consequences to them of the merger.
HSB Shareholders' Dissenters' Rights to Obtain Payment for their Shares
(page 53)
Under the laws of Connecticut, where HSB is incorporated, holders of record
of shares of HSB common stock who follow the procedures specified in the
Connecticut Business Corporation Act, referred to as the "CBCA", will be
entitled to dissenters' rights to obtain payment for the fair value of their
shares upon compliance with certain procedures prescribed by Connecticut law.
Under sections 33-855 through 33-872 of the CBCA, holders of HSB common stock
have a right to dissent from the merger and choose to be paid the fair value of
their HSB shares once the merger is completed, provided they follow the
procedures outlined in the statute. The complete text of these sections is
included in Appendix E to this proxy statement/prospectus and is incorporated by
reference in this proxy statement/prospectus.
Public Trading Markets (page 56)
AIG will list the shares of AIG common stock to be issued in connection
with the merger on the NYSE.
Comparison of Rights of AIG and HSB Shareholders (page 83)
AIG is incorporated under the laws of the State of Delaware. HSB is
incorporated under the laws of the State of Connecticut. The rights of
shareholders of HSB are governed by Connecticut law, the HSB certificate of
incorporation and the HSB by-laws. Upon the exchange of their shares under the
terms of the merger agreement, they will become holders of shares of AIG common
stock, and their rights as such will be governed by Delaware law, the AIG
restated certificate of incorporation and the AIG by-laws.
HSB has a shareholder rights agreement in place. HSB adopted its
shareholder rights agreement for the purpose of deterring coercive takeover
tactics and otherwise to encourage third parties interested in acquiring HSB to
negotiate with the HSB Board. AIG has not adopted a shareholder rights
agreement.
Please refer to the section titled "Comparison of Rights of AIG and HSB
Shareholders" for a detailed discussion of the material differences between the
rights of holders of shares of HSB common stock and the rights of holders of
shares of AIG common stock.
RISK FACTORS (page 22)
In considering whether to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the merger, you
should carefully review and consider the information contained below in "Risk
Factors".
RECENT DEVELOPMENTS (page 57)
Redemption of HSB Debentures and HSB
Capital II Securities
HSB entered into an agreement with Employers Reinsurance Corporation,
referred to as "ERC", on August 28, 2000 with respect to the exercise by ERC of
the change of control redemption provision of the indenture under which the HSB
Debentures were issued. This provision required HSB to redeem the HSB Debentures
upon a change of control of HSB if requested by ERC.
HSB issued the HSB Debentures on December 31, 1997 to HSB Capital II, a
Delaware statutory business trust wholly owned by HSB, referred to as "HSB
Capital II", in exchange for proceeds received from the issuance to ERC of
$300.0 million of HSB Capital II's convertible capital securities, referred to
as the "HSB Capital II Securities", on December 31, 1997.
Under the terms of the HSB Capital II trust agreement, upon a redemption by
HSB of the HSB Debentures, HSB Capital II was required to redeem the HSB Capital
II Securities. HSB redeemed the HSB Debentures from HSB Capital II on September
14, 2000 for $315.0 million, which amount included the change of control
redemption premium, plus accrued and unpaid interest, and on the same date, HSB
Capital II redeemed the HSB Capital II Securities from ERC for $315.0 million,
plus accrued and unpaid interest.
Under the terms of the agreement with ERC, HSB agreed:
- in the event HSB and EAC do not complete the merger, there will be no
retroactive effect on HSB's redemption of the HSB
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Debentures and HSB Capital II's redemption of the HSB Capital II
Securities;
- to pay all expenses of ERC associated with the redemption;
- to transfer HSB's membership interest in HSB Industrial Risk Insurers LLC
to ERC and to the withdrawal of HSB from Industrial Risk Insurers; and
- for each of the two annual periods commencing on January 1, 2001 and
January 1, 2002, to enter into agreements under which HSB will provide
inspection, engineering and mechanical breakdown services to Industrial
Risk Insurers.
HSB and AIG entered into a 5-year term loan agreement on September 6, 2000
under which AIG loaned HSB the funds to redeem the HSB Debentures. Please refer
to the section titled "Related Agreements and Transactions -- Term Loan
Agreement" for more information on the provisions of the loan from AIG to HSB.
RELATED AGREEMENTS AND TRANSACTIONS (page 71)
Stock Option Agreement (page 71)
AIG and HSB entered into a stock option agreement under which HSB granted
AIG an option, subject, upon any exercise, to regulatory approval to the extent
required, to purchase a number of newly issued shares of HSB common stock equal
to approximately 19.9% of the outstanding shares of HSB common stock if
specified events occur. The combined value of the termination fee and the stock
option is limited to $50.0 million. The stock option agreement may make it more
difficult and expensive for HSB to consummate a business combination with a
party other than AIG.
Term Loan Agreement (page 73)
In connection with the merger, AIG extended a loan to HSB in the principal
amount of $315.0 million in order for HSB to fund its redemption of the HSB
Debentures issued by HSB to HSB Capital II, which redemption occurred on
September 14, 2000. HSB Capital II used the proceeds from the redemption of the
HSB Debentures to redeem the HSB Capital II Securities. The loan is a five-year
term loan, maturing on September 30, 2005, and is evidenced by a promissory note
given by HSB to AIG, dated September 14, 2000.
INTEREST RATE The loan bears interest on the unpaid principal amount at a
rate per annum of 7.47%. The interest is payable quarterly and on the date of
any repayment of the principal amount under the terms of the agreement. After
the principal amount of the loan becomes due and payable the loan will bear
interest, payable on demand, at an annual rate equal to 2% in excess of the
annual interest rate of the loan.
MANDATORY PREPAYMENT HSB must prepay the loan in whole together with
accrued interest to the prepayment date on the amount prepaid on the business
day on which HSB terminates the merger agreement under the section of the merger
agreement which permits termination if the HSB Board determines that an
unsolicited proposal from another entity would result in a more favorable
transaction to HSB's shareholders.
OPTIONAL PREPAYMENT HSB has the option to prepay the loan at any time, in
whole or in part, without premium or penalty, upon at least three business days
notice to AIG, specifying the date and amount of prepayment. The notice will be
irrevocable and interest will be due in the amount accrued to the prepayment
date on the amount prepaid. If HSB elects to make a partial prepayment, the
prepayment will be in a minimum aggregate principal amount of $50.0 million or,
if greater, an integral multiple of $25.0 million.
EVENTS OF DEFAULT If an "event of default" occurs, AIG may, at its option
and upon a written notice given to HSB at any time after the occurrence of such
an event of default, declare the loan to be due and payable, together with any
interest accrued to that date. However, the loan will become immediately due and
payable, without a declaration or notice, if the event of default is an
involuntary or voluntary federal or state bankruptcy or similar case or other
similar proceeding, involving HSB, HSBIIC or The Hartford Steam Boiler
Inspection and Insurance Company of Connecticut, referred to as "HSBIICC", as
described below.
Under the terms of the loan agreement an "event of default" includes, among
other things, the following events:
- a default in the payment of the principal amount of, or any interest on,
the loan;
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<PAGE> 20
- any false or misleading representation or warranty made by HSB in the
loan agreement; and
- the commencement of a voluntary or involuntary case or proceeding by or
against HSB, HSBIIC or HSBIICC under any applicable federal or state
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium,
conservatorship, receivership or other similar law.
AMENDMENT TO HSB'S RIGHTS AGREEMENT (page 74)
In connection with the merger, HSB agreed to amend its rights agreement,
dated as of November 28, 1998, between HSB and Fleet National Bank, previously
known as BankBoston, N.A. The rights agreement was amended to provide that
neither the signing of the merger agreement or the stock option agreement nor
the completion of the merger or the exercise of the stock option in accordance
with their respective terms would:
- cause AIG to become an "acquiring person", as that term is defined in the
rights agreement; or
- constitute a "triggering event", as that term is defined in the rights
agreement.
Please refer to the section titled "Related Agreements and
Transactions -- Amendment to HSB's Rights Agreement" for more information.
EMPLOYMENT AGREEMENTS (page 75)
One of the conditions to be satisfied before AIG is required to complete
the merger is AIG and/or EAC entering into employment agreements with Richard H.
Booth and Normand Mercier, executive officers of HSB, and at least eight of the
13 other persons, including the seven other executive officers of HSB,
identified in the merger agreement. For a description of the payments and
benefits to be provided under the employment agreements, see "The
Merger -- Interests of Certain Persons in the Merger -- Severance Agreements;
Employment Agreements" and "Related Agreements and Transactions -- Employment
Agreements".
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COMPARATIVE PER SHARE
MARKET PRICE AND DIVIDEND INFORMATION
The table below sets forth, for the calendar quarters indicated, the high
and low closing sale prices per share of AIG common stock and the high and low
sale prices per share of HSB common stock, in each case as reported on the NYSE
Composite Tape, and the dividends declared by AIG and HSB during those periods.
Under the terms of the merger agreement, HSB has agreed not to declare or pay
dividends, except regular quarterly cash dividends not to exceed $0.44 per share
per quarter in the period between signing of the merger agreement and completion
of the merger.
Shares of AIG common stock are listed on the NYSE under the symbol "AIG".
Shares of HSB common stock are listed on the NYSE under the symbol "HSB".
<TABLE>
<CAPTION>
AIG HSB
COMMON STOCK(1) COMMON STOCK(2)
--------------------------------------------- --------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1998
First Quarter............ $46.00 $35.78 $.027 $ 44.92 $ 36.45 $.40
Second Quarter........... 51.91 43.63 .027 53.50 43.17 .40
Third Quarter............ 54.38 40.67 .030 57.63 40.38 .42
Fourth Quarter........... 53.80 35.50 .030 42.00 36.00 .42
1999
First Quarter............ $65.41 $52.00 $.030 $ 41.31 $ 35.50 $.42
Second Quarter........... 70.91 59.47 .030 41.88 35.50 .42
Third Quarter............ 66.50 56.33 .033 41.94 34.19 .44
Fourth Quarter........... 74.45 54.67 .033 38.38 31.88 .44
2000
First Quarter............ $76.05 $54.30 $.033 $ 33.81 $ 21.81 $.44
Second Quarter........... 82.17 67.75 .033 31.81 26.13 .44
Third Quarter (through
September 28, 2000)... 94.75 78.75 .037 40.44 29.88 .44
</TABLE>
---------------------------------------
(1) All AIG common stock information has been adjusted to reflect stock splits
effected as 50 percent common stock dividends in July 1997, July 1998 and
July 2000 and a stock split effected as a 25 percent common stock dividend
in July 1999.
(2) All HSB common stock information has been adjusted to reflect a stock split
effected as a 50 percent common stock dividend in May 1998.
DIVIDEND INFORMATION
Subject to the dividend preference of any of AIG's preferred stock which
may be outstanding, none of which is currently outstanding, the holders of AIG
common stock will be entitled to receive dividends that may be declared by the
AIG Board of Directors from funds legally available for the payment of
dividends. There are restrictions that apply under applicable insurance laws,
however, to the payment of dividends to AIG by its insurance subsidiaries.
Similar restrictions apply to the payment of dividends to HSB by its insurance
subsidiaries.
15
<PAGE> 22
RECENT CLOSING SALE PRICES
The following table sets forth the closing sale prices per share of AIG
common stock and HSB common stock as reported on the NYSE Composite Tape on
August 17, 2000, the last full trading day before public announcement of the
proposed merger, and on September 28, 2000, the last full trading day before the
date of this proxy statement/prospectus.
<TABLE>
<CAPTION>
AIG HSB
COMMON STOCK COMMON STOCK
------------ ------------
<S> <C> <C>
August 17, 2000............................................. $87.50 $38.69
September 28, 2000.......................................... 94.75 40.19
</TABLE>
AIG AND HSB URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS BEFORE VOTING YOUR
SHARES. BECAUSE THE PORTION OF A SHARE OF AIG COMMON STOCK YOU WILL RECEIVE IN
THE MERGER FOR EACH SHARE OF HSB COMMON STOCK YOU OWN IS BASED ON THE AVERAGE OF
THE CLOSING SALE PRICES OF AIG COMMON STOCK DURING THE PRICING PERIOD SET FORTH
IN THE MERGER AGREEMENT, THE PORTION OF A SHARE OF AIG COMMON STOCK YOU WILL
RECEIVE UPON THE COMPLETION OF THE MERGER MAY VARY SIGNIFICANTLY FROM THE
PORTION OF A SHARE OF AIG COMMON STOCK THAT HOLDERS OF HSB COMMON STOCK WOULD
RECEIVE IF THE MERGER WERE COMPLETED ON THE DATE OF THIS PROXY
STATEMENT/PROSPECTUS.
NUMBER OF HSB SHAREHOLDERS
As of September 28, 2000, there were 4,944 shareholders of record who held
shares of HSB common stock, as shown on the records of HSB's transfer agent for
these shares.
16
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL DATA
The following information is being provided to assist you in your analysis
of the financial aspects of the merger.
The selected consolidated financial data of AIG as of and for the years
ended December 31, 1999, 1998 and 1997, with the exception of the balance sheet
data for 1997, has been derived from consolidated financial statements of AIG
which have been audited by PricewaterhouseCoopers LLP, independent auditors, and
incorporated by reference in this proxy statement/prospectus. The balance sheet
data for 1997 and the selected consolidated financial data of AIG as of and for
the years ended December 31, 1996 and 1995 have been derived from audited
consolidated financial statements previously filed with the Commission but not
incorporated by reference in this proxy statement/prospectus.
The selected consolidated financial data of AIG as of and for the six
months ended June 30, 2000 and June 30, 1999 has been derived from unaudited
consolidated financial statements filed with the Commission and incorporated by
reference in this proxy statement/prospectus and includes all adjustments,
consisting of normal recurring accruals, which AIG considers necessary for a
fair presentation of the consolidated financial position, results of operations
and cash flows. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 2000.
The AIG information is qualified in its entirety by, and you should read it
in conjunction with, the consolidated financial statements, the notes thereto,
and "Management's Discussion and Analysis of Results of Operations and Financial
Condition" for AIG incorporated by reference in this proxy statement/prospectus.
See "Where You Can Find More Information".
17
<PAGE> 24
SELECTED CONSOLIDATED FINANCIAL DATA OF AIG
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------------- ----------------------------------------------------
2000 1999 1999 1998(3) 1997(3) 1996(3) 1995(3)
----------- ----------- -------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues(1)...................... $ 22,316 $20,020 $ 40,656 $ 35,716 $ 32,553 $ 29,325 $ 26,610
General insurance:
Net premiums written........... 8,730 8,245 16,224 14,586 13,408 12,692 11,893
Net premiums earned............ 8,509 7,753 15,544 14,098 12,421 11,855 11,406
Adjusted underwriting profit... 439 418 669 531 490 450 417
Net investment income.......... 1,323 1,237 2,517 2,192 1,854 1,691 1,547
Realized capital gains......... 9 139 295 205 128 65 68
Operating income............... 1,771 1,794 3,481 2,928 2,472 2,206 2,032
Life insurance:
Premium income................. 6,665 5,857 11,942 10,293 9,956 8,995 8,044
Net investment income.......... 3,411 3,037 6,206 5,201 4,521 3,805 3,059
Realized capital gains
(losses)..................... (58) (49) (148) (74) (9) 4 1
Operating income............... 1,649 1,386 2,858 2,373 2,048 1,657 1,331
Financial services operating
income......................... 585 506 1,081 869 671 501 424
Asset management operating
income......................... 210 131 314 191 127 101 35
Equity in income of
minority-owned insurance
operations..................... -- -- -- 57 114 99 82
Other realized capital losses.... (6) (13) (25) (7) (29) (12) (30)
Other income
(deductions) -- net............ (122) (87) (197) (134) (93) (84) (91)
Income before income taxes and
minority interest.............. 4,087 3,717 7,512 6,277 5,310 4,468 3,783
Income taxes..................... 1,213 1,091 2,219 1,785 1,525 1,234 1,041
Income before minority
interest....................... 2,874 2,626 5,293 4,492 3,785 3,234 2,742
Minority interest................ (121) (150) (238) (210) (74) (63) (38)
Net income....................... 2,753 2,476 5,055 4,282 3,711 3,171 2,704
Earnings per common share(2):
Basic.......................... 1.19 1.06 2.18 1.87 1.63 1.39 1.19
Diluted........................ 1.17 1.05 2.15 1.83 1.60 1.37 1.17
Cash dividends per common
share(4)....................... .07 .06 .13 .11 .10 .09 .07
Total assets..................... 281,214 255,019 268,238 233,676 199,614 172,330 150,981
Long-term debt(5)................ 26,687 24,425 22,896 22,720 18,950 18,079 14,977
Capital funds (shareholders'
equity)........................ 34,805 31,872 33,306 30,123 26,585 23,705 21,040
</TABLE>
---------------
(1) Represents the sum of general net premiums earned, life premium income, net
investment income, financial services commissions, transaction and other
fees, asset management commissions and other fees, equity in income of
minority-owned insurance operations, and realized capital gains (losses).
Commencing in 1997, agency operations were presented as a component of
general insurance and for years prior to 1997 agency results have been
reclassified to conform to this presentation.
(2) Per share amounts for all periods presented have been retroactively
adjusted to reflect all stock dividends and splits and reflect the adoption
of the Statement of Financial Accounting Standards No. 128 "Earnings per
Share." Per share information also reflects an adjustment on a pro forma
basis for a common stock split in the form of a 50 percent common stock
dividend paid July 28, 2000.
(3) The selected consolidated financial data as of and for the years ended
December 31, 1998, 1997, 1996 and 1995 has been restated to include the
operations of SunAmerica Inc., which was merged into AIG on January 1,
1999, on a pooling of interest basis.
(4) Cash dividends have not been restated to reflect dividends paid by
SunAmerica Inc.
(5) Including commercial paper and excluding that portion of long-term debt
maturing in less than one year.
18
<PAGE> 25
The selected consolidated financial data of HSB at or for the years ended
December 31, 1999, 1998 and 1997, with the exception of the balance sheet data
for 1997, has been derived from consolidated financial statements of HSB which
have been audited by PricewaterhouseCoopers LLP, independent auditors, and
incorporated by reference in this proxy statement/prospectus. The balance sheet
data for 1997 and the selected consolidated financial data of HSB at or for the
years ended December 31, 1996 and 1995 have been derived from audited
consolidated financial statements previously filed with the Commission but not
incorporated by reference in this proxy statement/prospectus.
The selected consolidated financial data of HSB at or for the six months
ended June 30, 2000 and June 30, 1999 has been derived from unaudited
consolidated financial statements filed with the Commission and incorporated by
reference in this proxy statement/prospectus and includes all adjustments,
consisting of normal recurring accruals, which HSB considers necessary for a
fair presentation of the consolidated financial position, results of operations
and cash flows. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of results that may be expected for the entire year
ending December 31, 2000.
The HSB information is qualified in its entirety by, and you should read it
in conjunction with, the consolidated financial statements, the notes thereto,
and "Management's Discussion and Analysis of Consolidated Financial Condition
and Results of Operations" for HSB incorporated by reference in this proxy
statement/prospectus. See "Where You Can Find More Information".
19
<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA OF HSB
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT OR FOR THE
SIX MONTHS ENDED
JUNE 30, AT OR FOR THE YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
----------- ----------- -------- -------- -------- -------- ------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF CONSOLIDATED STATEMENTS
OF OPERATIONS
Revenues:
Gross earned premiums............ $ 358.5 $ 415.7 $ 823.8 $ 770.5 $ 609.3 $ 556.5 $455.0
Ceded premiums................... 167.8 225.5 441.9 374.4 118.1 107.9 65.9
-------- -------- -------- -------- -------- -------- ------
Insurance premiums............... $ 190.7 $ 190.2 $ 381.9 $ 396.1 $ 491.2 $ 448.6 $389.1
Engineering services............. 77.2 55.4 119.6 93.5 61.3 55.8 49.9
Income from investment
operations..................... 54.0 49.6 104.7 89.6 50.9 44.4 31.7
-------- -------- -------- -------- -------- -------- ------
Total revenues(1).............. $ 321.9 $ 295.2 $ 606.2 $ 579.2 $ 603.4 $ 548.8 $470.7
-------- -------- -------- -------- -------- -------- ------
Income from continuing
operations..................... $ 39.5 $ 43.8 $ 72.8 $ 104.1(2) $ 66.3 $ 54.6 $ 52.7
Income from continuing operations
per common share -- basic...... $ 1.36 $ 1.51 $ 2.51 $ 3.55 $ 2.21 $ 1.81 $ 1.72
Income from continuing operations
per common share -- assuming
dilution....................... $ 1.35 $ 1.46 $ 2.50 $ 3.35 $ 2.20 $ 1.81 $ 1.72
Cash dividends declared per
common share................... $ 0.88 $ 0.84 $ 1.72 $ 1.64 $ 1.56 $ 1.52 $ 1.49
SUMMARY OF CONSOLIDATED STATEMENTS
OF FINANCIAL POSITION
Total assets....................... $1,953.2 $2,162.8 $2,263.2 $2,138.6 $1,537.2 $1,112.3 $951.9
Claims and adjustment expense
liabilities...................... $ 674.4 $ 592.2 $ 782.3 $ 558.2 $ 276.7 $ 302.9 $190.9
Company obligated mandatorily
redeemable capital
securities(3).................... $ 407.0 $ 408.9 $ 409.0 $ 408.9 $ 408.9 $ -- $ --
Convertible redeemable preferred
stock............................ $ -- $ -- $ -- $ -- $ -- $ 20.0 $ --
Long-term borrowings and capital
lease obligations................ $ 28.9 $ 52.9 $ 52.9 $ 53.0 $ 53.0 $ 53.0 $ 53.4
Common shareholders' equity........ $ 382.3 $ 422.8 $ 376.5 $ 419.3 $ 345.3 $ 345.6 $341.1
</TABLE>
---------------
(1) Excludes revenues from investments accounted for under the equity method.
(2) Includes $23.8 million related to the gain on sale of HSB's interest in
Industrial Risk Insurers.
(3) On September 14, 2000, HSB redeemed the $300.0 million principal amount of
its 7% convertible subordinated deferrable interest debentures due December
31, 2017 and HSB Capital II used the proceeds of such redemption to redeem
the HSB Capital II Securities on the same date. For further explanation,
please see "Recent Developments -- Redemption of HSB Debentures and HSB
Capital II Securities".
20
<PAGE> 27
COMPARATIVE PER SHARE DATA
Summarized below is certain per share information of AIG on a historical
and pro forma basis and of HSB on a historical and equivalent pro forma basis.
You should read the comparative per share information below in conjunction with
the selected consolidated financial data on pages 17-20 of this proxy
statement/prospectus. The equivalent pro forma per share data for HSB has been
determined using an assumed exchange ratio of 0.4683.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 2000 DECEMBER 31, 1999
---------------- -----------------
(UNAUDITED)
<S> <C> <C>
AIG -- HISTORICAL
Earnings per common share:
Basic..................................................... $ 1.19 $ 2.18
Diluted................................................... $ 1.17 $ 2.15
Cash dividends per common share............................. $ 0.07 $ 0.13
Book value per share at period end.......................... $15.04 $14.33
HSB -- HISTORICAL
Earnings per common share:
Basic..................................................... $ 1.36 $ 2.51
Diluted................................................... $ 1.35 $ 2.50
Cash dividends per common share............................. $ 0.88 $ 1.72
Book value per share at period end.......................... $13.28 $12.95
AIG -- PRO FORMA(UNAUDITED)
Earnings per common share:
Basic..................................................... $ 1.20 $ 2.20
Diluted................................................... $ 1.19 $ 2.17
Cash dividends per common share............................. $ 0.07 $ 0.13
Book value per share at period end.......................... $15.48 $14.76
HSB -- EQUIVALENT PRO FORMA(UNAUDITED)
Earnings per common share:
Basic..................................................... $ 0.56 $ 1.03
Diluted................................................... $ 0.56 $ 1.02
Cash dividends per common share............................. $ 0.03 $ 0.06
Book value per share at period end.......................... $ 7.25 $ 6.91
</TABLE>
21
<PAGE> 28
RISK FACTORS
You should consider carefully all of the information contained in this
proxy statement/prospectus, including the following factors:
AIG CASH PAYMENT ELECTION
The merger agreement provides that if the base period stock price is
greater than or equal to $87.55, holders of HSB common stock will receive a
portion of a share of AIG common stock with a value of $41.00 for each share of
HSB common stock. In the event, however, that the base period stock price is
below $87.55, AIG will be entitled, at its election, to pay you a portion of the
merger consideration in cash. The maximum amount of cash that AIG may elect to
pay you per share of HSB common stock will equal $41.00 minus the product of
0.4683 and the base period stock price.
Depending upon the amount of cash paid by AIG in the merger, the payment of
cash could jeopardize the status of the merger as a reorganization for United
States federal income tax purposes. Under the merger agreement, the obligations
of both AIG and HSB to complete the merger are subject to the receipt by each
party of its respective legal counsel's opinion that the merger will be treated
as a reorganization for United States federal income tax purposes. In the event
that either party is unable to obtain this opinion, it may either refuse to
complete the merger or waive this condition and complete the merger.
In addition, if AIG's determination to pay a portion of the merger
consideration in cash would result in the failure of the merger to qualify as a
reorganization for United States federal income tax purposes, HSB has the right
to terminate the merger agreement without paying a termination fee. If the
merger qualifies as a reorganization for United States federal income tax
purposes, you will be subject to United States federal income tax on any cash
received to the extent of any gain you may realize on your exchange of HSB
common stock for AIG common stock and cash in the merger. See "The
Merger -- Material United States Federal Income Tax Consequences of the Merger"
on page 41 for a description of the United States federal income tax
consequences of the merger.
MARKET FLUCTUATIONS
You are urged to consider the impact of the fluctuations in the market
price of AIG common stock. There is no assurance that the market value of the
portion of a share of AIG common stock plus, if applicable, any cash you receive
for each share of HSB common stock you own, will equal $41.00 at the time of the
merger, or thereafter, because the base period stock price used to calculate the
exchange ratio and the amount of cash, if any, you will receive, will be based
on an average of the closing sales prices per share of AIG common stock on the
NYSE composite transactions reporting system for each of the 10 consecutive
trading days in the period ending five days prior to the closing date of the
merger.
22
<PAGE> 29
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This proxy statement/prospectus contains forward-looking information. The
Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking information to encourage companies to provide prospective
information about themselves without fear of litigation so long as that
information is identified as forward-looking and is accompanied by meaningful
cautionary statements identifying important factors that could cause actual
results to differ materially from those projected in the information. Forward-
looking information may be included in this proxy statement/prospectus or may be
"incorporated by reference" from other documents filed with the Commission by
HSB and may include statements for the periods from and after the completion of
the merger. You can find many of these statements by looking for words such as
"believes", "expects", "anticipates", "estimates" or similar expressions in this
proxy statement/prospectus or in documents incorporated by reference in this
proxy statement/prospectus.
The forward-looking information is subject to numerous assumptions, risks
and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by the forward-looking information include, among others, the
following:
- general economic and business conditions;
- the entry of new or stronger competitors and the intensification of
pricing competition;
- the loss of current customers or the inability to obtain new customers
whether or not the merger is consummated;
- changes in interest rates and the performance of the financial markets;
- changes in the availability, cost and collectibility of reinsurance;
- catastrophic events, such as earthquakes or hurricanes and other
severe-weather related events;
- changes in the coverage terms selected by insurance customers, including
higher deductibles and lower limits;
- the adequacy of loss reserves;
- political risk in some of the countries in which AIG and HSB operate or
insure risks;
- changes in asset valuations;
- consolidation and restructuring in the insurance industry;
- changes in the demand and customer base for engineering and inspection
services offered by HSB, whether resulting from changes in applicable law
or otherwise and other general market conditions;
- the risks and other factors described under the caption "Risk Factors" in
this proxy statement/prospectus;
- the failure of the HSB shareholders to approve the merger;
- the risk that the HSB businesses will not be successfully integrated into
AIG;
- the integration and other costs related to the merger;
- the inability to obtain or meet conditions imposed for governmental
approvals, including HSR and insurance regulatory approvals for the
merger; and
- the risk that anticipated synergies will not be obtained or not obtained
in the amounts and within the time anticipated.
Because forward-looking information is subject to various risks and
uncertainties, actual results may differ materially from that expressed or
implied by the forward-looking information. AIG and HSB caution HSB shareholders
not to place undue reliance on this information, which speaks only as of the
date of this
23
<PAGE> 30
proxy statement/prospectus or, in the case of a document incorporated by
reference, the date of that document.
All subsequent written and oral forward-looking information attributable to
AIG or HSB or any person acting on their behalf is expressly qualified in its
entirety by the cautionary statements contained or referred to in this section.
Neither AIG nor HSB, nor any person acting on their behalf, undertakes any
obligation to release publicly any revisions to forward-looking information to
reflect events or circumstances after the date of this proxy
statement/prospectus or to reflect the occurrence of unanticipated events.
24
<PAGE> 31
THE HSB SPECIAL MEETING
This proxy statement/prospectus is being furnished in connection with the
solicitation of proxies from the holders of HSB common stock by the HSB Board
for use at the special meeting and any adjournment or postponement of the
special meeting. HSB first mailed this proxy statement/prospectus to HSB
shareholders on or about October 2, 2000. You should read this proxy
statement/prospectus carefully before voting your shares.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held at the office of HSB, One State Street,
Hartford, Connecticut 06102-5024, on November 6, 2000, starting at 10:00 a.m.,
local time.
PURPOSE OF THE SPECIAL MEETING
HSB is holding the special meeting for the following purposes:
- to ask you to consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 17, 2000, among HSB, AIG
and EAC and the transactions contemplated by the merger agreement,
including the merger; and
- to transact such other business as may properly come before the special
meeting and any adjournment or postponement of the special meeting.
RECORD DATE OF THE SPECIAL MEETING
HSB shareholders who hold their shares of HSB common stock of record as of
the close of business on September 28, 2000, are entitled to notice of and to
vote at the special meeting. On the record date, there were 4,944 shareholders
of record of HSB common stock and 29,166,659 shares of HSB common stock were
issued and outstanding.
MAJORITY OF OUTSTANDING SHARES MUST BE REPRESENTED FOR A VOTE TO BE TAKEN
In order to have a quorum at the special meeting, a majority of the shares
of HSB common stock that are issued and outstanding and entitled to vote at the
special meeting must be represented in person or by proxy. If a quorum is not
present, a majority of the shares of HSB common stock that are represented may
adjourn or postpone the special meeting.
VOTE REQUIRED AT THE SPECIAL MEETING
The merger agreement and the transactions contemplated by the merger
agreement, including the merger, must be approved and adopted by the affirmative
vote of the holders of at least a majority of the issued and outstanding shares
of HSB common stock entitled to vote at the special meeting. Each share of HSB
common stock is entitled to cast one vote.
As of the record date for the special meeting, HSB directors and executive
officers were the owners of 322,034 shares, representing less than 1% of issued
and outstanding HSB common stock. All HSB directors and executive officers have
indicated that they intend to vote the shares of HSB common stock owned by them
for the approval and adoption of the merger agreement and the transactions
contemplated by the merger agreement, including the merger.
VOTING YOUR SHARES AND CHANGING YOUR VOTE
Voting Your Shares
The HSB Board is soliciting proxies from the HSB shareholders. This will
give you the opportunity to vote at the special meeting. When you deliver or
cast a valid proxy, the shares represented by that proxy will be voted in
accordance with your instructions. If you do not vote by proxy card, telephone
or the Internet or attend the special meeting and vote in person by completing a
ballot, it will have the same effect as voting against the merger agreement and
the transactions contemplated by the merger agreement, including the merger.
25
<PAGE> 32
To grant your proxy by mail, please complete the enclosed proxy card, sign,
date and return it in the enclosed envelope by November 1, 2000 to help ensure
timely delivery or vote your shares by telephone or the Internet by following
the instructions for telephone or Internet voting on the enclosed proxy card. To
be valid, a returned proxy card must be signed and dated. Telephone and Internet
voting will be accessible until Midnight on November 5, 2000. If you vote by
telephone or the Internet, you do not need to return a proxy card.
If your shares are held in the name of your broker or nominee, they will
vote your shares only if you provide instructions on how you want your shares to
be voted. You should follow the directions provided by them regarding how to
instruct them to vote your shares.
If you attend the special meeting, you may vote in person if you wish by
completing a ballot at the special meeting, whether or not you have already
signed, dated and returned your proxy card or voted by telephone or the
Internet. The giving of a proxy does not affect your right to vote should you
attend the special meeting in person and complete a ballot, and you may revoke
your proxy any time before the polls close at the special meeting. Properly
executed proxies that have not been revoked will be voted as specified. If your
shares are held in the name of your broker or nominee, you must obtain a proxy,
executed in your favor, from the holder of record to be able to vote in person
by completing a ballot at the special meeting.
Changing Your Vote by Revoking Your Proxy
You may change your vote by revoking your proxy. You can do this in one of
three ways:
- timely delivery of a valid, later-dated proxy, including a proxy cast by
telephone or the Internet;
- written notice to HSB's Corporate Secretary which is timely received
before the special meeting that you have revoked your proxy; or
- attendance at the special meeting in person and completing a ballot.
You will not revoke your proxy by simply attending the special meeting
unless you complete a ballot. If you have instructed a broker or nominee to vote
your shares, you must follow directions from them to change those instructions.
HOW PROXIES ARE COUNTED
If you return a signed and dated proxy card but do not indicate how the
shares are to be voted, those shares represented by your proxy card will be
voted as recommended by the HSB Board. A valid proxy also gives the individuals
named as proxies authority to vote in their discretion when voting the shares on
any other matters that are properly presented for action at the special meeting
and any adjournment or postponement of the special meeting.
HSB common stock is listed on the New York Stock Exchange. The New York
Stock Exchange rules do not permit brokers and nominees to vote the shares that
they hold on behalf of others either for or against the merger without specific
instructions from the person who beneficially owns those shares. Broker
non-votes, which are shares held by brokers or nominees that are represented at
a meeting but with respect to which the broker or nominee is not empowered to
vote on a particular proposal, may be counted for purposes of determining
whether there is a quorum at the special meeting. However, because the
affirmative vote of a least a majority of the issued and outstanding shares of
HSB common stock entitled to vote at the special meeting is required to approve
the merger agreement and the transactions contemplated by the merger agreement,
including the merger, broker non-votes will have the same effect as a vote
against the proposed merger.
A properly executed proxy card marked "ABSTAIN" as well as a vote by
telephone or the Internet for "ABSTAIN" will not be voted at the special
meeting. An abstention may be counted to determine whether there is a quorum
present at the special meeting. However, because the affirmative vote of at
least a majority of the issued and outstanding shares of HSB common stock
entitled to vote at the special meeting is required to approve the merger
agreement and the transactions contemplated by the merger agreement, including
the merger, abstaining from voting will have the same effect as a vote against
the proposed merger.
26
<PAGE> 33
PROXIES FOR PARTICIPANTS IN HSB'S DIVIDEND REINVESTMENT PLAN AND 401(K) PLAN
If you own shares of HSB common stock as a participant in the HSB dividend
reinvestment plan or the HSB 401(k) plan you will receive a proxy card to vote
those shares. If you own additional shares of HSB common stock outside of these
plans and you are the record holder, you will receive one proxy card covering
both the plan shares and the shares owned outside the plans.
COSTS OF SOLICITATION
HSB will pay the costs of soliciting HSB proxies from its shareholders.
However, HSB and AIG will share equally the cost of printing this proxy
statement/prospectus. In addition to solicitation by mail, telephone, electronic
or other means, HSB has made arrangements with brokerage houses and other
custodians, nominees and fiduciaries, referred to as the "nominees", to send
proxy materials to beneficial owners of shares of HSB common stock held of
record by such nominees. HSB will, upon request, reimburse these nominees for
their reasonable expenses in forwarding the proxy materials to beneficial owners
of shares of HSB common stock.
The directors and executive officers of HSB may solicit proxies on behalf
of the HSB Board. The directors and executive officers of HSB who may solicit
proxies include: Richard H. Booth, Saul L. Basch, Michael L. Downs, John J.
Kelley, William A. Kerr, Normand Mercier, R. Kevin Price, William Stockdale,
Robert C. Walker, William B. Ellis, E. James Ferland, Henrietta Holsman Fore,
Colin G. Campbell, Simon W. Leathes, Joel B. Alvord, Richard G. Dooley, Lois D.
Rice and James C. Rowan, Jr.
In addition to proxy solicitation activities of directors, executive
officers and employees of HSB, HSB has retained Corporate Investor
Communications, Inc. to aid in the solicitation of proxies from HSB shareholders
in connection with the special meeting and to verify certain records related to
the solicitation. Corporate Investor Communications will receive a fee of
approximately $5,000 as compensation for its services, plus reimbursement of its
reasonable out-of-pocket expenses. HSB has agreed to indemnify Corporate
Investor Communications against related liabilities arising out of or in
connection with its engagement with HSB.
The extent to which these proxy soliciting efforts will be necessary
depends entirely upon how promptly proxies are submitted. You should send in
your proxy without delay by mail or vote by telephone or the Internet.
Please do not send in any share certificates with your proxy cards. The
exchange agent will mail transmittal forms with instructions for the surrender
of share certificates for HSB common stock to former HSB shareholders as soon as
practicable after completion of the merger.
OTHER BUSINESS; ADJOURNMENTS
HSB is not currently aware of any other business to be acted upon at the
special meeting. If, however, other matters are properly brought before the
special meeting and any adjournment or postponement of the special meeting, your
proxies will have discretion to vote or act on those matters according to their
best judgment, including to adjourn or postpone the special meeting or any
adjournment or postponement of a later-held special meeting.
Adjournments may be made for the purpose of, among other things, soliciting
additional proxies. Any adjournment may be made from time to time by approval of
the holders of shares representing a majority of the votes present in person or
by proxy at the special meeting, whether or not a quorum exists, with notice of
the adjournment made at the special meeting. In addition, HSB's by-laws provide
that notice of the adjournment will be given to shareholders not present or
represented at the meeting. HSB does not currently intend to seek an adjournment
of the special meeting.
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<PAGE> 34
THE MERGER
BACKGROUND OF THE MERGER
During 1999, the HSB Board received presentations from senior management on
the challenges of achieving revenue and earnings growth in an insurance
environment marked by severe price competition in the international and special
risk businesses. In addition, senior management and the HSB Board discussed the
issues associated with continuing consolidation in the insurance industry and
the increasing competitive strength of large global insurers. Also, senior
management and the HSB Board discussed the difficulties of achieving earnings
growth in HSB's engineering businesses because of constraints on the additional
investments needed to achieve efficient scale and scope in that business. From
time to time during this period, senior management had discussions with various
companies that management believed might have an interest in a strategic
relationship with HSB.
On November 29, 1999, Mr. Richard H. Booth was elected President and Chief
Executive Officer of HSB effective January 1, 2000. At the direction of the HSB
Board, Mr. Booth undertook a detailed strategic and operational review of HSB's
businesses, focusing on opportunities to achieve growth in revenues and earnings
in existing businesses and the potential from new businesses with an emphasis on
improving shareholder value. In addition, Mr. Booth evaluated various risks
facing the company, such as revenue and earnings erosion in the company's
international insurance business, continuing price pressures in the company's
domestic special risk business, changes in reinsurance relationships and the
decrease in profitability of HSB's venture with ERC/Industrial Risk Insurers.
As part of the process Mr. Booth undertook, he met with a number of
entities with which HSB then currently had or might form strategic
relationships, joint ventures or other alliances. One such meeting occurred on
April 13, 2000, between Mr. Booth and Mr. Maurice R. Greenberg, Chairman and
Chief Executive Officer of AIG, at AIG's headquarters in New York. They
discussed industry conditions, strategies being pursued by AIG and HSB and the
competencies of each company in their respective marketplace. Both prior and
subsequent to this meeting, Mr. Booth met with other industry senior executives
to discuss potential relationships which could provide a strategic breakthrough
for HSB.
At a June 5, 2000 meeting, Mr. Booth discussed with the HSB Board the
results of his review to date, the various strategic options available to HSB
and an evaluation of the various operating risks facing HSB. Representatives of
Goldman Sachs discussed various shareholder value issues with the HSB Board.
After a thorough discussion, the HSB Board instructed and authorized Mr. Booth
to explore all strategic options, including the possible sale of HSB. On June
14, 2000, HSB engaged Goldman Sachs as its financial advisor in connection with
possible strategic transactions, including a possible sale of HSB. Goldman Sachs
contacted nine entities regarding potential interest in a strategic transaction
with HSB.
At a July 24, 2000 meeting, Mr. Booth updated the HSB Board on strategic
options and Goldman Sachs reviewed shareholder valuation issues with the HSB
Board. After considerable discussion, an indication of interest from AIG was
judged to be superior, based on price and currency, to indications of interest
from other potential bidders. The HSB Board authorized Mr. Booth to proceed with
discussions with AIG.
On July 26, 2000, Mr. Booth, Mr. Saul L. Basch, Senior Vice President,
Treasurer and Chief Financial Officer of HSB, and Mr. Normand Mercier, Senior
Vice President and Chief Global Insurance Officer of HSB, met with Mr. Greenberg
and other members of AIG senior management in New York to discuss corporate
strategies and the potential benefits of a business combination. Thereafter, AIG
and HSB conducted due diligence. AIG was provided with a form of proposed merger
agreement by HSB. Following several days of intensive negotiations, commencing
early in the week of August 13, 2000, the principal elements of a transaction
and related documentation were agreed upon.
At a special meeting of the HSB Board on August 17, 2000, the HSB Board,
representatives of Goldman Sachs, representatives of Skadden, Arps, Slate,
Meagher & Flom LLP, HSB's special counsel, and
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<PAGE> 35
representatives of Shipman & Goodwin LLP, HSB's Connecticut counsel, reviewed
the terms of a draft of the merger agreement, in particular:
- the structure of the merger;
- the representations and warranties made by HSB in the agreement;
- the operating parameters placed on HSB between signing of the agreement
and closing of the merger;
- the agreement by HSB not to solicit, participate in discussions or
negotiations regarding, provide any person any information with respect
to or otherwise facilitate an acquisition proposal, as such term is
defined in the merger agreement, subject to its fiduciary duties to its
shareholders;
- the agreement by HSB not to withdraw or modify in a manner adverse to AIG
its recommendation of the agreement or the merger or approve, recommend
or enter into an agreement with respect to an acquisition proposal,
subject to its fiduciary duties to its shareholders;
- the termination fee that HSB would have to pay to AIG if HSB terminated
the merger agreement under specified conditions set forth in the
agreement;
- the conditions of the agreement, including HSR and insurance regulatory
approvals; and
- the amendment to the HSB rights agreement required under the terms of the
agreement.
In addition, representatives of Skadden Arps discussed with the HSB Board
the terms and conditions of a draft of the stock option agreement, including
among others:
- the grant by HSB to AIG of an unconditional option to purchase up to
19.9% of the shares of HSB common stock outstanding at the time the
option is exercised;
- specified "triggering events" under the stock option agreement that would
permit AIG to exercise the option to purchase shares of HSB common stock
at $41.00 per share;
- that under certain circumstances, HSB would be required to repurchase the
options at the spread between the "market/offer price", as defined in the
stock option agreement, and $41.00 per share, subject to state law on
repurchase of shares;
- the termination fee payable under the merger agreement together with any
amounts payable under the stock option agreement would not exceed $50.0
million; and
- the stock option agreement could make it more difficult and expensive for
HSB to consummate a business combination with a party other than AIG.
In addition, at the special meeting of the HSB Board, representatives of
Goldman Sachs discussed financial aspects of the merger, after which Goldman
Sachs rendered to the HSB Board its opinion, later confirmed in writing, to the
effect that, as of that date and based upon and subject to the matters described
in its opinion, the consideration to be received by holders of shares of HSB
common stock, other than AIG and its subsidiaries, was fair from a financial
point of view to such holders.
At the special meeting of the HSB Board, the members voted to approve the
terms of the merger agreement and the stock option agreement and the
transactions contemplated by those agreements, and determined that those
agreements and the transactions contemplated by those agreements were advisable
and fair to, and in the best interests of, HSB and its shareholders. The members
also voted to recommend to shareholders that they approve and adopt the merger
agreement and the transactions contemplated by the merger agreement, including
the merger, at the special meeting.
The Executive Committee of the AIG Board of Directors also approved the
merger agreement and the stock option agreement and the transactions
contemplated by those agreements on August 17, 2000 after discussions among the
AIG board members.
29
<PAGE> 36
The merger agreement and the stock option agreement were finalized and
signed prior to the opening of business on August 18, 2000, at which time the
parties disseminated a joint press release announcing the merger.
REASONS FOR THE MERGER; RECOMMENDATION OF THE HSB BOARD OF DIRECTORS
On August 17, 2000, the HSB Board unanimously determined that the merger
agreement and the transactions contemplated by the merger agreement, including
the merger, were advisable and fair to and in the best interests of HSB and its
shareholders.
In reaching its decision to approve the merger agreement and the
transactions contemplated by the merger agreement, including the merger, and to
recommend to shareholders that they approve and adopt the merger agreement and
the transactions contemplated by the merger agreement, the HSB Board consulted
with its financial advisor, Goldman Sachs, its special counsel, Skadden Arps and
its Connecticut counsel, Shipman & Goodwin, and with HSB senior management and
considered a number of factors, including the following material factors:
- the information and discussions with HSB's senior management and
financial advisor concerning each of HSB's and AIG's businesses, assets,
management, competitive position and prospects;
- the financial condition, cash flows and results of operations of HSB and
AIG, both on a historical and prospective basis;
- the opportunity for HSB shareholders to participate, as holders of AIG
common stock, in a larger, more diversified insurance and financial
services organization and to benefit from the additional value expected
to be generated by AIG;
- the opportunity for HSB shareholders to receive AIG common stock valued
at a premium to the recent market prices of the HSB common stock,
specifically, 8.1% over the closing price on August 16, 2000, the date
prior to the HSB Board meeting approving the merger, 30.9% over the 30
day average price prior to that HSB Board meeting, and 36.7% over the 90
day average price prior to that HSB Board meeting;
- the fact that the consideration for each HSB share is fixed, which
provides downside protection in the event general market prices or the
price of AIG common stock declines prior to the time the merger
consideration is determined;
- the strategic and financial alternatives available to HSB in the rapidly
changing insurance environment, including the business and operating
risks of remaining as an independent company;
- the fact that HSB and its financial advisor had contacted a number of
potential bidders and that no other party demonstrated sufficient
interest in or was expected to yield greater acquisition value or
strategic benefits to HSB;
- the HSB Board's belief that the required insurance and other regulatory
approvals for the merger would be obtainable, given AIG's reputation in
the industry;
- the terms and conditions of the merger agreement and the HSB Board's view
that satisfaction of the conditions to closing of the merger was
probable;
- the various agreements and undertakings made by AIG to HSB employees and
the Hartford, Connecticut community and the anticipated long-term and
short-term interests of HSB and HSB's employees, customers, creditors and
suppliers;
- the financial presentation by and written opinion addressed to the HSB
Board of Goldman Sachs as to the fairness, from a financial point of view
as of August 17, 2000, of the merger consideration to be received by the
holders of shares of HSB common stock, other than AIG and its
subsidiaries, under the merger agreement, as described below under the
subcaption "The Merger -- Opinion of HSB's Financial Advisor" on page 31;
and
30
<PAGE> 37
- the fact that the receipt of AIG common stock in the merger is intended
to be tax-free to HSB shareholders.
The HSB Board also considered potentially negative factors in its
deliberations concerning the merger, including:
- the risk that anticipated benefits, long-term as well as short-term, of
the merger for HSB shareholders might not be realized;
- the restrictions that are placed on HSB by the merger agreement during
the period between signing of the merger agreement and closing of the
merger; and
- the fact that the price for each HSB share is fixed which means that HSB
shareholders will not receive the benefit of any increase in the market
price of the AIG common stock during the period before the merger
consideration is determined.
The foregoing discussion of the information and factors considered by the
HSB Board is not intended to be exhaustive. While the members of the HSB Board
considered each of the foregoing factors in reaching its determinations,
individual members of the HSB Board may have attached different importance to
each of the factors. In view of the number and wide variety of factors
considered in connection with their evaluations of the merger, the members of
the HSB Board did not consider it practicable, nor did they attempt, to assign
relative weight to the factors considered in reaching their determinations.
In addition, the HSB Board did not undertake to make any specific
determination as to whether any particular factor was favorable or unfavorable
to the HSB Board's ultimate determinations or assign any particular weight to
any factor, but rather conducted an overall evaluation of the reasons described
above. The HSB Board considered all these factors as a whole, and considered the
factors to be favorable to and to support each of its determinations.
OPINION OF HSB'S FINANCIAL ADVISOR
On August 17, 2000, Goldman Sachs rendered to the HSB Board its oral
opinion, which was subsequently confirmed in writing, to the effect that, based
upon and subject to the considerations set forth in its opinion, as of that
date, the merger consideration to be received by the holders of shares of HSB
common stock, other than AIG and its subsidiaries, under the merger agreement
was fair from a financial point of view to those holders.
You should consider the following when reading the discussion of the
opinion of Goldman Sachs below:
- The description of Goldman Sachs' opinion is qualified by reference to
the full opinion located in Appendix D to this proxy
statement/prospectus, which you should read carefully;
- Goldman Sachs' advisory service and opinion were provided to the HSB
Board for its information in its consideration of the merger and were
directed only to the fairness from a financial point of view to holders
of shares of HSB common stock, other than AIG and its subsidiaries, of
the merger consideration;
- Goldman Sachs' opinion does not address the merits of HSB's underlying
business decision to engage in the merger;
- Goldman Sachs' opinion does not address the price or range of prices at
which the shares of HSB common stock may trade before the merger;
- Goldman Sachs' opinion was necessarily based upon conditions as they
existed and could be evaluated on August 17, 2000 and Goldman Sachs
assumed no responsibility to update or revise its opinion based upon
circumstances or events occurring after such date; and
- Goldman Sachs' opinion does not constitute a recommendation to the HSB
Board in connection with the merger, and does not constitute a
recommendation to any holder of shares of HSB common stock as to how to
vote on the merger or any related matter.
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<PAGE> 38
In connection with its opinion, Goldman Sachs, among other things:
- reviewed the merger agreement;
- reviewed the annual reports to shareholders and annual reports on Form
10-K of HSB and AIG for the five years ended December 31, 1999;
- reviewed a summary of the budget of AIG provided by HSB for the year
ending December 31, 2000;
- reviewed certain interim reports to shareholders and quarterly reports on
Form 10-Q of HSB and AIG;
- reviewed statutory annual statements filed by the insurance subsidiaries
of HSB with certain state insurance departments for the five years ended
December 31, 1999;
- reviewed certain internal financial analyses and forecasts for HSB
prepared by its management;
- held discussions with members of the senior management of HSB and AIG
regarding their assessment of the strategic rationale for, and the
potential benefits of, the transaction contemplated by the merger
agreement and the past and current business operations, financial
condition and future prospects of HSB and AIG, respectively;
- reviewed the reported price and trading activity for the shares of HSB
common stock and AIG common stock, compared certain financial and stock
market information for HSB and AIG with similar information for certain
other publicly traded companies;
- reviewed the financial terms of certain recent business combinations in
the insurance industry specifically and in other industries generally;
and
- performed such other studies and analyses as it considered appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information discussed with or reviewed by it and assumed
such accuracy and completeness for purposes of rendering its opinion. Since AIG
did not make available to Goldman Sachs its projections of expected future
financial performance, other than a summary of its budget for the year ending
December 31, 2000 provided to Goldman Sachs by HSB, its review of such future
performance was limited accordingly to discussions with members of the senior
management of AIG regarding publicly available research analyst estimates.
Goldman Sachs is not an actuary and its services did not include actuarial
determinations or evaluations or any attempt to evaluate actuarial assumptions.
In addition, Goldman Sachs did not make an independent evaluation or appraisal
of the assets and liabilities, including the loss and loss adjustment expense
reserves of HSB, AIG or any of their respective subsidiaries and was not
furnished with any such evaluation or appraisal. In that regard, Goldman Sachs
made no analysis of, and expressed no opinion as to, the adequacy of the loss
and loss adjustment expense reserves of AIG.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with HSB, having provided certain investment banking services to HSB
from time to time, including having acted as sole lead placement agent for HSB's
Rule 144A private placement of $110 million floating rate capital securities in
July 1997, exclusive placement agent for the placement of securities of
Integrated Process Technologies, LLC, a 51% owned subsidiary of HSB, from March
2000 through July 2000, and HSB's financial advisor in connection with, and
having participated in certain of the negotiations leading to, the merger
agreement.
Goldman Sachs also has provided certain investment banking services to AIG
from time to time, including having acted as its financial advisor in connection
with the sale of its 25% equity interest in Alexander & Alexander Services Inc.
to AON Corporation in February 1997, in its bid for American Bankers, Inc. in
1997 and in the sale of aircraft portfolio assets for $1.0 billion in July 1999.
Goldman Sachs may also provide other investment banking services to AIG in the
future. Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, does from time to
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<PAGE> 39
time effect transactions and hold securities, including derivative securities,
of HSB and/or AIG, for its own account and the accounts of customers.
HSB has agreed to pay Goldman Sachs, upon completion of the merger, a
transaction fee equal to 1% of the aggregate consideration paid in the
transaction, which, if the merger is completed for an approximate aggregate
merger consideration of $1.2 billion, will be equal to approximately $12
million. HSB has also agreed to indemnify Goldman Sachs against certain
liabilities, including certain liabilities under the federal securities laws.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to the HSB Board and does
not purport to be a complete description of the analyses performed by Goldman
Sachs. The following quantitative information, to the extent it is based on
market data, is based on market data as it existed at or about August 17, 2000
and is not necessarily indicative of current market conditions. You should
understand that the order of analyses, and results thereof, described does not
represent relative importance or weight given to such analyses by Goldman Sachs.
The summary of financial analyses includes information presented in tabular
format. THE TABLES MUST BE READ TOGETHER WITH THE TEXT OF SUCH SUMMARIES.
Results of Solicitation Process. Goldman Sachs reviewed the results of
efforts to solicit proposals with respect to a transaction involving HSB.
Goldman Sachs noted that a total of 10 parties had been contacted, of which
eight expressed no interest and two parties, including AIG, submitted
preliminary indications of interest with respect to a transaction. The
preliminary indication of interest submitted by the party other than AIG
reflected a per share consideration lower than the merger consideration.
Historical Stock Performance. Goldman Sachs reviewed daily indexed
historical closing prices per share of HSB common stock during the period from
August 16, 1999 to August 16, 2000, and compared those prices to the closing
share prices of mid cap property and casualty insurance industry peers,
including Markel Corporation, Ohio Casualty Corporation and W.R. Berkley
Corporation and the Standard & Poor's 500 stock index during this period.
Goldman Sachs also compared the closing share price of HSB and each of five
publicly traded large cap property and casualty insurance industry peers on July
20, 2000, one day prior to the submission of AIG's preliminary bid, and on
August 16, 2000, one day prior to the announcement date, and calculated the
percentage change in closing share price for each company between such dates.
The large cap selected property and casualty insurance industry peer companies
were: AIG; Chubb Corporation; St. Paul Companies, Inc.; XL Capital; and Hartford
Financial Services Group. In addition, Goldman Sachs derived and compared the
ratio of each company's closing share price on each of those dates to its
estimated earnings per share, referred to as "EPS", for 2000 and its estimated
EPS for 2001, in each case using estimates from Institutional Brokers Estimates
Systems, referred to as "IBES", except with respect to the earnings estimate for
2000 and 2001 for HSB, for which Goldman Sachs performed the calculations based
upon HSB management's fully diluted estimated operating EPS of $2.00 and $2.20
per share of HSB common stock. IBES is a data service that monitors and
publishes compilations of earnings estimates by selected research analysts
regarding companies of interest to institutional investors.
The comparison yielded the following results:
<TABLE>
<CAPTION>
LARGE CAP PEERS
-------------------------
RANGE MEDIAN HSB
--------------- ------ ------
<S> <C> <C> <C>
Closing share price on July 20, 2000.............. $37.75 - $81.25 $30.81
Estimated P/E ratio for 2000...................... 12.5x - 33.2x 13.8x 15.4x
Estimated P/E ratio for 2001...................... 10.8x - 29.0x 12.3x 14.0x
Closing share price on August 16, 2000............ $46.31 - $86.19 $37.94
Estimated P/E ratio for 2000...................... 14.5x - 35.2x 16.8x 19.0x
Estimated P/E ratio for 2001...................... 12.5x - 30.8x 14.7x 17.2x
Change in closing share price..................... 6.1% - 22.7% 11.4% 23.1%
</TABLE>
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<PAGE> 40
The percentage change in closing share price of HSB between July 20, 2000
and August 16, 2000 was higher than the range for the large cap peer group, and
the ratio of closing share prices to HSB management's fully diluted estimated
operating EPS derived for HSB was in each case higher than the median and within
the range for the large cap peer group.
Implied Premium and Multiple Analysis. Goldman Sachs compared the stock
price premiums using the $41.00 per share of HSB common stock value of the
merger consideration and the closing price per share of HSB common stock on July
20, 2000, as adjusted to reflect the median price increase of 11.4% to the large
cap peer group between July 20, 2000 and August 16, 2000, and the 30 and 90-day
average and the 52-week high and 52-week low market prices prior to AIG's
preliminary bid on July 21, 2000. The following table sets forth such
comparisons.
<TABLE>
<CAPTION>
PREMIUM AT $41.00
MERGER CONSIDERATION
--------------------
<S> <C>
Closing price on July 20, 2000.............................. 33.1%
Closing price on July 20, 2000, as adjusted................. 19.5%
30 days through July 21, 2000............................... 30.9%
90 days through July 21, 2000............................... 36.7%
Closing price on August 16, 2000............................ 8.1%
52-week high through August 16, 2000........................ 1.4%
52-week low through August 16, 2000......................... 88.0%
</TABLE>
Goldman Sachs also analyzed and calculated the following:
- the multiple of the transaction value to (1) EPS of HSB for the last
12-month period ending June 30, 2000, assuming no conversion of the HSB
Debentures, (2) HSB management's fully diluted estimated operating EPS of
HSB for 2000, assuming no conversion of the HSB Debentures, and (3) HSB
management's fully diluted estimated operating EPS of HSB for 2001,
assuming no conversion of the HSB Debentures;
- the multiple of the transaction value to operating income of HSB for the
12-month period ending June 30, 2000;
- the multiple of the transaction value to (1) HSB management's fully
diluted estimated operating EPS of HSB for 2000 and (2) HSB management's
fully diluted estimated operating EPS of HSB for 2001, assuming no
conversion of the HSB Debentures, each adjusted to assume a 100% fixed
income investment portfolio at an after tax reinvestment rate of 5.0%;
and
- the multiple of transaction value to the stated book value of HSB as of
June 30, 2000, assuming no conversion of the HSB Debentures.
The following table sets forth the results of these analyses:
<TABLE>
<CAPTION>
THE MULTIPLE OF THE TRANSACTION VALUE TO:
<S> <C>
EPS
Last Twelve Month Period.................................. 23.0x
Estimated 2000............................................ 21.6x
Estimated 2001............................................ 19.2x
Operating Income
Last Twelve Month Period.................................. 21.7x
Adjusted EPS
Estimated 2000............................................ 19.9x
Estimated 2001............................................ 17.9x
Stated book value........................................... 3.2x
</TABLE>
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<PAGE> 41
Review of Selected HSB Property and Casualty Peers. In order to provide
context for its other comparisons and analyses, Goldman Sachs reviewed publicly
available financial, operating and stock market information, and forecasted
financial information, for HSB and selected other publicly traded companies that
operate in the property and casualty insurance industry. For this purpose,
Goldman Sachs divided these companies into three groups: (1) large
capitalization companies; (2) mid capitalization companies; and (3)
international companies.
The large capitalization group consisted of:
- AIG;
- Hartford Financial Services Group;
- Chubb Corporation;
- St. Paul Companies, Inc.;
- XL Capital;
- CNA Financial Corporation;
- ACE Limited; and
- SAFECO Corporation.
The mid capitalization group consisted of:
- Markel Corporation;
- Ohio Casualty Corporation; and
- W.R. Berkley Corporation.
The international group consisted of:
- Allianz;
- AXA;
- Munich Re;
- Swiss Re;
- Zurich Allied; and
- Allied Zurich.
For HSB and each other company, except as set forth below, Goldman Sachs
derived the following:
- each company's total market capitalization, based on its closing share
price on August 16, 2000;
- the ratio of each company's closing share price on August 16, 2000 to its
52-week high closing share price;
- the ratio of each company's closing share price on August 16, 2000 to (1)
its estimated EPS for 2000 and (2) its estimated EPS for 2001, in each
case based on IBES estimates;
- the projected EPS percentage growth rates from estimated EPS for 2000 to
estimated EPS for 2001, based on IBES estimates;
- the estimated five-year EPS percentage growth rate, based on IBES
estimates;
- the ratio of each company's price to earnings ratio (based on closing
share prices on August 16, 2000 and estimated 2001 earnings) to its
five-year EPS growth estimate as published by IBES;
- the ratio of each company's closing share price on August 16, 2000 to its
stated book value per share excluding the adjustment pursuant to
Statement of Financial Accounting Standards No. 115
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<PAGE> 42
"Accounting for Certain Investments in Debt and Equity Securities",
referred to as "Book Value ex-115";
- the percentage return on average common equity in the last 12-month
period through August 16, 2000, excluding extraordinary and one-time
charges; and
- the percentage dividend yield.
With respect to HSB, Goldman Sachs performed the calculations described
above based upon HSB management's fully diluted estimated EPS for 2000 and 2001
of $2.00 and $2.20, respectively. With respect to the international selected
peer companies, Goldman Sachs performed the calculations described above based
upon market data as of July 21, 2000.
The following table sets forth the results of these analyses:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT HSB AT
AUGUST 16, 2000 AUGUST 16,
CLOSING SHARE PRICE 2000
-------------------------- CLOSING SHARE
RANGE MEDIAN PRICE
---------------- ------ -------------
<S> <C> <C> <C>
RATIO OF CLOSING SHARE PRICE TO:
Estimated EPS for 2000
- Large Cap............................... 14.3x - 35.2x 17.8x
- Mid Cap................................. N.M. N.M.
- International........................... 13.1x - 45.6x 20.9x 19.0x
Estimated EPS for 2001
- Large Cap............................... 12.5x - 30.8x 14.1x
- Mid Cap................................. 11.9x - 15.8x 12.5x
- International........................... 11.4x - 39.2x 17.7x 17.2x
Book value ex-115
- Large Cap............................... 0.9x - 5.6x 1.7x
- Mid Cap................................. 0.7x - 1.6x 1.0x
- International........................... 1.2x - 4.0x 2.3x 2.9x
52-week high closing share price:
- Large Cap................................. 69% - 97% 95.0%
- Mid Cap................................... 45% - 92% 81.0%
- International............................. 91% - 99% 93.0% 94.0%
LAST TWELVE MONTHS RETURN ON AVERAGE COMMON
EQUITY
- Large Cap............................... 2.6% - 15.0% 9.3%
- Mid Cap................................. (10.6)% - 8.2% (2.6)%
- International........................... 10.9% - 17.5% 14.5% 10.0%
DIVIDEND YIELD
- Large Cap............................... 0.0% - 5.8% 1.6%
- Mid Cap................................. 0.0% - 5.9% 2.2%
- International........................... 0.4% - 2.6% 1.8% 4.6%
EPS GROWTH RATE RATIOS
Estimated EPS 2000 growth rate to estimated
EPS 2001 growth rate
- Large Cap............................... 10.2% - 108.9% 15.1%
- Mid Cap................................. N.M. N.M.
- International........................... 12.7% - 23.6% 14.9% 14.0%
</TABLE>
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<PAGE> 43
<TABLE>
<CAPTION>
COMPARABLE COMPANIES AT HSB AT
AUGUST 16, 2000 AUGUST 16,
CLOSING SHARE PRICE 2000
-------------------------- CLOSING SHARE
RANGE MEDIAN PRICE
---------------- ------ -------------
<S> <C> <C> <C>
Estimated five-year growth rate
- Large Cap............................ 8.0% - 14.0% 11.8%
- Mid Cap.............................. 11.0% - 15.0% 12.0%
- International........................ 10.0% - 22.7% 12.4% 12.0%
Estimated 2001 P/E ratio to estimated
five-year EPS growth rate
- Large Cap............................ 1.0x - 2.2x 1.3x
- Mid Cap.............................. 1.0x - 1.1x 1.1x
- International........................ 0.5x - 3.9x 1.5x 1.4x
</TABLE>
---------------
N.M. means not meaningful because of wide range of data points.
As a result of the foregoing procedures, Goldman Sachs noted that the
multiples and percentages derived for HSB, in each case, with the exception of
the percentage returns on average common equity in the last 12-month period for
international selected peer companies, were higher than, within the range of, or
similar to the median for the comparable companies in the three categories.
Summary of Selected Acquisitions in the Property and Casualty Insurance
Industry. Goldman Sachs reviewed publicly available information for 28
completed acquisitions in the property and casualty insurance industry which
were announced since 1995. These precedent transactions considered by Goldman
Sachs were the following (in each case, the acquiror's name is listed first and
the acquired company's name is listed second):
- Citigroup/Travelers Property Casualty;
- Dexia Group/Financial Security Assurance Holdings, Ltd.;
- Travelers Property Casualty/Reliances' Surety Unit;
- Farmers (Zurich)/Foremost;
- Markel/Terra Nova Holdings;
- MetLife/The St. Paul Companies (Personal Lines);
- Royal and Sun Alliance/Orion Capital;
- Allstate/CNA's Personal Lines Business;
- Countrywide Credit/Balboa Life & Casualty (Associates);
- Fortis/American Bankers;
- XL Capital/NAC Re;
- Chubb/Executive Risk;
- Liberty Mutual (AXA)/GRE (U.S. Operations);
- ACE Limited/CIGNA P&C;
- Fairfax Financial/TIG Holdings;
- Marsh & McLennan/Sedgwick;
- Berkshire Hathaway/General Re;
- Guardian Royal Exchange/US P&C Ops. of ING;
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<PAGE> 44
- Nationwide Financial Services/Allied;
- Fairfax Financial/Crum & Forster;
- The St. Paul Companies/USF&G;
- Nationwide Mutual/TIG Personal Lines;
- ACE Limited/Westchester;
- SAFECO/American States;
- General Electric/Coregis;
- The St. Paul Companies/Northbrook;
- Travelers Group/Aetna P&C; and
- Berkshire Hathaway/GEICO.
For each selected transaction, Goldman Sachs derived the following:
- the ratio of the transaction value to the tangible book value of the
acquired company, excluding unrealized gains; and
- the premium represented by the price paid in the transaction to the
acquired company's market value on the announcement date of the
transaction.
With respect to certain financial information for the companies involved in
the selected acquisition transactions, Goldman Sachs relied on information
available in public documents, equity research reports published by certain
investment banks, and then current IBES estimates.
The following table sets forth the results of these analyses and compares
such results to similar results obtained for HSB, using the $41.00 per share of
HSB common stock value of the merger consideration, except that (1) the ratio of
transaction value to tangible book value is calculated based on HSB stated book
value as of June 30, 2000 and assuming that there has been no conversion of the
HSB Debentures and (2) the premium is calculated based upon the HSB closing
price per share of HSB common stock on August 16, 2000 ($37.94):
<TABLE>
<CAPTION>
COMPARABLE TRANSACTIONS
------------------------
RANGE MEDIAN HSB
------------- ------- -----
<S> <C> <C> <C>
RATIO OF TRANSACTION VALUE TO:
Acquired company's tangible book value................ 0.8x - 3.8x 1.7x 3.2x
PREMIUM OF TRANSACTION VALUE TO:
Acquired company's market value on the announcement
date................................................ 2.6% - 69.4% 23.5% 8.1%
</TABLE>
Using the $41.00 per share of HSB common stock value of the merger
consideration, the ratios derived for HSB were, in the case of the ratio of the
transaction value to the tangible book value, within the range and higher than
the median, and the premium was within the range for the comparable
transactions.
Property and Casualty and Life Insurance Merger Transactions
Analysis. Goldman Sachs reviewed certain financial, operating, stock market and
other publicly available information for 10 selected public merger transactions,
each with a value in excess of $800 million, in the property and casualty
insurance industry and life insurance industry, announced since June 1998, in
each case, the acquiror's name is listed first and the acquired company's name
is listed second,:
- In the property and casualty insurance industry the selected transactions
were:
-- Dexia/FSA;
-- Farmers (Zurich)/Foremost;
-- Fortis/American Bankers;
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<PAGE> 45
-- Chubb/Executive Risk; and
-- Berkshire Hathaway/General Re.
- In the life insurance industry the selected transactions were:
-- ING Group/Reliastar;
-- Allstate/American Heritage;
-- Aegon/Transamerica;
-- AIG/SunAmerica; and
-- Swiss Re/Life Re.
For each selected transaction, Goldman Sachs derived, among other things:
- the ratio of the transaction value to
-- the operating income of the acquired company for the last 12-month
period prior to the announcement of the transaction for which financial
results were available,
-- the estimated operating income of the acquired company on a stand-alone
basis for the first fiscal year following the announcement of the
transaction, and
-- the estimated operating income of the acquired company on a stand-alone
basis for the second fiscal year following the announcement of the
transaction;
- the acquired company's percentage of growth, based on IBES estimates;
- the ratio of the share price of the acquired company based on the
transaction value to the tangible book value, defined to mean the stated
book value less intangible assets, of the acquired company as of the last
completed fiscal quarter prior to the announcement of the transaction;
and
- the premium represented by the share price of the acquired company based
on transaction value to the market value of the acquired company on the
announcement date of the transaction.
With respect to certain financial information for the companies involved in
the selected transactions, Goldman Sachs relied on information available in
public documents, equity research reports published by certain investment banks
and then current IBES estimates.
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<PAGE> 46
The following table sets forth the results of these analyses and compares
such analyses in certain cases, to similar HSB ratios based on the $41.00 per
share of HSB common stock value of the merger consideration, except that (1) the
ratio of transaction value to tangible book value is calculated based upon HSB
stated book value as of June 30, 2000 and (2) the premium is calculated based
upon the closing price per share of HSB common stock on August 16, 2000
($37.94):
<TABLE>
<CAPTION>
COMPARABLE TRANSACTIONS
-----------------------
RANGE MEDIAN HSB
------------- ------ ----
<S> <C> <C> <C>
RATIO OF TRANSACTION VALUE TO:
Acquired company's operating income for last 12-month
period prior to announcement
Property and casualty................................ 16.5x - 21.4x 19.7x
Life................................................. 21.5x - 39.7x 23.8x 23.0x
Acquired company's estimated operating income for the
first fiscal year following announcement
Property and casualty................................ 14.6x - 21.9x 17.3x
Life................................................. 19.3x - 31.4x 22.2x 21.6x
Acquired company's estimated operating income for the
second fiscal year following announcement
Property and casualty................................ 12.8x - 20.1x 15.9x
Life................................................. 17.4x - 27.3x 19.5x 19.2x
RATIO OF SHARE PRICE OF ACQUIRED COMPANY BASED ON
TRANSACTION VALUE TO:
Acquired company's tangible book value for last
completed fiscal quarter prior to announcement
Property and casualty................................ 1.4x - 3.1x 2.5x
Life................................................. 1.7x - 5.1x 3.0x 3.2x
PREMIUM OF TRANSACTION VALUE TO:
Acquired company's market value on announcement date
Property and casualty................................ 22.5% - 63.0% 38.5%
Life................................................. 15.4% - 70.4% 30.0% 8.1%
</TABLE>
Using the $41.00 per share of HSB common stock value of the merger
consideration, the selected ratios derived were, in each case, within the range
for the comparable transactions and the premium derived for HSB was lower than
the low-end premium. Goldman Sachs considered that there was a 23.1% increase in
the closing price per share of HSB common stock from July 20, 2000, one day
prior to the submission of AIG's preliminary bid, to August 16, 2000, one day
prior to the announcement date and that the merger consideration reflected a
33.1% premium to market value on July 20, 2000, and a 19.5% premium to market
value on August 16, 2000, as adjusted to reflect the median price increase of
11.4% to its large cap property and casualty insurance industry peer group
between July 20, 2000 and August 16, 2000. The large cap selected property and
casualty insurance industry peer companies were: AIG; Chubb Corporation; St.
Paul Companies, Inc.; XL Capital; and Hartford Financial Services Group.
Pro Forma Merger Analysis. Goldman Sachs calculated the pro forma
financial impact of the merger on the estimated EPS of AIG and summarized the
accretion or dilution per share of AIG to the estimated EPS of AIG for the years
2000 and 2001, respectively. In performing this analysis, Goldman Sachs assumed
pre-tax transaction synergies at an annualized run rate of $25.0 million as a
result of the merger. Goldman Sachs made pro forma adjustments to estimated
combined operating earnings of the merged entity assuming that the merger would
be considered a purchase for financial reporting purposes, assuming a price of
AIG common stock of $86.19 per share and using the closing share price of HSB on
August 16, 2000 of $37.94 per share of HSB common stock. Goldman Sachs derived
the estimated EPS of the combined company for 2000 and 2001, respectively, from
the combined estimated EPS for AIG of IBES of $2.45 and $2.80,
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<PAGE> 47
respectively, and for HSB of HSB's management fully diluted estimated EPS of
$2.00 and $2.20, respectively, amortizing goodwill over 20 years.
The following table shows the dilution to the estimated EPS of AIG expected
to result from the merger.
<TABLE>
<CAPTION>
DILUTION
--------
<S> <C>
Estimated EPS for 2000...................................... 0.22%
Estimated EPS for 2001...................................... 0.03%
</TABLE>
Goldman Sachs found that, based on the foregoing analysis, HSB shareholders
would have a resulting percentage ownership in the merged entity of 0.61%, using
the closing share price of AIG common stock on August 16, 2000 of $86.19.
The preparation of a fairness opinion is a complex process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, is not necessarily susceptible to partial analysis
or summary description. Selecting portions of the analyses or of the summary set
forth above, without considering the analysis as a whole, could create an
incomplete view of the processes underlying Goldman Sachs' opinion. In arriving
at its fairness determination Goldman Sachs considered the results of all such
analyses and did not attribute any particular weight to any factor or analysis
considered by it, rather, Goldman Sachs made its determination as to fairness on
the basis of its experience and professional judgment after considering the
results of all such analyses. In addition, in performing the analyses, Goldman
Sachs made numerous assumptions with respect to industry performance, general
business, economic, market and financial conditions and other matters. No
company or transaction used in the above analyses is directly comparable to HSB
or the merger.
The analyses were prepared solely for the purposes of Goldman Sachs
providing its opinion to the HSB Board as to the fairness of the consideration
and do not purpose to be appraisals or necessarily reflect the prices at which
businesses or securities may actually be sold. Analyses based on forecasts of
future results are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses.
Because such analyses are inherently subject to uncertainty, being based upon
numerous factors or events beyond the control of the parties or their respective
advisors, none of HSB, Goldman Sachs or any other person assumes responsibility
if future results are materially different from those forecast. As described
above, the opinion of Goldman Sachs to the HSB Board was among many factors
taken into consideration by the HSB Board in making its determination to approve
the merger agreement.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the anticipated material United States
federal income tax consequences of the merger that are applicable to holders of
HSB common stock. This discussion is not binding on the Internal Revenue
Service. This discussion is based on the Internal Revenue Code of 1986, as
amended, referred to as the "Code", applicable United States Treasury
Regulations, judicial authority and administrative rulings and practice, all as
of the date of this proxy statement/prospectus and all of which are subject to
change, including changes with retroactive effect.
The discussion below does not address any state, local or foreign tax
consequences of the merger. The tax treatment of an HSB shareholder may vary
depending upon the shareholder's particular situation, and this discussion does
not address all of the United States federal income tax consequences that may be
relevant to particular HSB shareholders in light of their individual
circumstances or to HSB shareholders that may be subject to special rules, such
as individuals who purchased their shares of HSB common stock pursuant to the
exercise of employee stock options or otherwise acquired shares as compensation,
insurance companies, mutual funds, tax-exempt organizations, financial
institutions, broker-dealers, persons who are neither citizens nor residents of
the United States and persons who hold their shares of HSB common stock as part
of a hedge, straddle or conversion transaction.
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<PAGE> 48
The following discussion assumes that HSB common stock will be held as a
capital asset at the effective time of the merger. Neither AIG nor HSB has
requested or will request an advance ruling from the Internal Revenue Service as
to the tax consequences of the merger.
Exchange of HSB Shares in the Merger
The respective obligations of HSB and AIG to consummate the merger are
conditioned upon the receipt by HSB and AIG of an opinion, in respect of HSB of
Skadden, Arps, Slate, Meagher & Flom LLP, special counsel to HSB, that on the
basis of the facts, representations, assumptions, qualifications and limitations
set forth or referred to in such opinion, for United States federal income tax
purposes, the merger will qualify as a reorganization under Section 368(a) of
the Code, and, except to the extent of cash received, no gain or loss will be
recognized by HSB shareholders as a result of the merger, and in respect of AIG
of Sullivan & Cromwell, counsel to AIG, that on the basis of the facts,
representations, assumptions, qualifications and limitations set forth or
referred to therein for United States federal income tax purposes, the merger
will qualify as a reorganization under Section 368(a) of the Code and no gain or
loss will be recognized by AIG, EAC or HSB as a result of the merger. Such
opinions are collectively referred to as the "tax opinions".
The tax opinions will be based upon certain facts, representations,
assumptions, qualifications and limitations set forth or referred to in the
opinions and the continued accuracy and completeness of certain representations
made by AIG, EAC and HSB, including representations in certificates to be
delivered to counsel by the management of each of AIG and HSB which, if
incorrect in certain material respects, would jeopardize the conclusions reached
by their respective counsel in their tax opinion. In addition, in the event that
AIG or HSB is unable to obtain their respective tax opinion, each of AIG and HSB
is permitted under the merger agreement to waive the receipt by it of the tax
opinion as a condition to its obligation to complete the merger. As of the date
of this proxy statement/prospectus, neither AIG nor HSB intends to waive the
receipt by it of the tax opinion as a condition to its obligation to complete
the merger.
The following discussion assumes that the merger will constitute a
reorganization under Section 368(a) of the Code.
Merger Consideration Includes Only AIG Common Stock
Subject to the discussion below regarding fractional shares, each HSB
shareholder who receives solely AIG common stock in the merger will not
recognize any gain or loss as a result of the receipt of AIG common stock in the
merger.
Merger Consideration Includes Both AIG Common Stock and Cash
Under certain circumstances, at the option of AIG, the merger consideration
received by shareholders of HSB in the merger may include both AIG common stock
and cash, other than cash in lieu of fractional shares. Subject to the
discussion below regarding fractional shares, if an HSB shareholder receives a
combination of AIG common stock and cash in exchange for HSB common stock in the
merger, gain, but not loss, will be recognized in an amount equal to the lesser
of:
(1) the excess, if any, of:
(a) the sum of the fair market value at the effective time of the merger
of the AIG common stock and the cash received; over
(b) each shareholder's tax basis in the shares of HSB common stock
surrendered in the merger; and
(2) the amount of cash consideration.
Any such recognized gain will be treated as capital gain unless the receipt
of the cash has the effect of a distribution of a dividend for United States
federal income tax purposes, in which case such gain will be treated as ordinary
dividend income to the extent of each such shareholder's ratable share of HSB's
accumulated earnings and profits. Any capital gain will be long-term capital
gain if, as of the effective time of the merger, the holding period for such
shareholder's HSB common stock exceeds one year.
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<PAGE> 49
The following discussion briefly describes under what circumstances any
gain recognized will be treated as capital gain versus a distribution of a
dividend. Based on the advice of Skadden, Arps, Slate, Meagher & Flom LLP, HSB
believes that under most circumstances, any gain recognized by HSB shareholders
in the merger will be treated as capital gain for United States federal income
tax purposes. HSB shareholders, however, should consult their tax advisors as to
the possibility that any cash received in exchange for their HSB common stock
will be treated as a dividend.
The stock redemption rules of Section 302 of the Code apply in determining
whether cash received by a shareholder of HSB in the merger has the effect of a
distribution of a dividend, referred to as the "hypothetical redemption
analysis". Under the hypothetical redemption analysis, a shareholder of HSB will
be treated as if the portion of shares of HSB common stock exchanged for cash in
the merger had been instead exchanged for shares of AIG common stock, referred
to as the "hypothetical shares," followed immediately by a redemption of the
hypothetical shares by AIG for cash.
Under the principles of Section 302 of the Code, a shareholder of HSB will
recognize capital gain rather than dividend income with respect to the cash
received if the hypothetical redemption is "not essentially equivalent to a
dividend" or is "substantially disproportionate" with respect to such
shareholder. In applying the principles of Section 302 of the Code, the
constructive ownership rules under Section 318 of the Code apply in computing an
HSB shareholder's ownership interest in AIG both immediately after the merger,
but before the hypothetical redemption, and after the hypothetical redemption.
Whether the hypothetical redemption by AIG of the hypothetical shares for
cash is "essentially equivalent to a dividend" with respect to a shareholder of
HSB will depend on such shareholder's particular circumstances. However, the
hypothetical redemption must, in any event, result in a "meaningful reduction"
in such shareholder's percentage ownership of AIG's stock. In determining
whether the hypothetical redemption by AIG results in a meaningful reduction in
the shareholder's ownership interest in AIG, and therefore, does not have the
effect of a distribution of a dividend, a shareholder of HSB should compare his
or her share interest in AIG, including interests owned actually, hypothetically
and constructively, immediately after the merger, but before the hypothetical
redemption, to his or her interest after the hypothetical redemption.
The Internal Revenue Service has indicated that a shareholder in a publicly
held corporation whose relative stock interest in the corporation is minimal and
who exercises no "control" over corporate affairs generally is treated as having
had a meaningful reduction in his or her stock interest after a redemption
transaction if his or her percentage stock ownership in the corporation has been
reduced to any extent, taking into account the shareholder's actual and
constructive ownership before and after the redemption.
The hypothetical redemption transaction would be "substantially
disproportionate," and therefore, would not have the effect of a distribution of
a dividend with respect to a shareholder of HSB who owns less than 50% of the
voting power of the outstanding AIG common stock if the percentage of AIG common
stock actually and constructively owned by such shareholder immediately after
the hypothetical redemption is less than 80% of the percentage of AIG common
stock actually, hypothetically, and constructively owned by such shareholder
immediately before the hypothetical redemption.
Tax Basis and Holding Period
The aggregate tax basis of the AIG common stock, including any fractional
shares deemed received, as described below, will be equal to the aggregate tax
basis of the HSB common stock surrendered in the exchange, decreased by the
amount of cash received and increased by the amount of gain recognized. The
holding period of the AIG common stock received pursuant to the merger will
include the holding period of the HSB common stock surrendered in exchange
therefor.
Cash Received in Lieu of Fractional Shares
Any HSB shareholder who receives cash in lieu of fractional shares of AIG
common stock will be treated as having first received such fractional shares
pursuant to the merger and then as having sold those fractional
43
<PAGE> 50
shares in the market for cash. Such HSB shareholder will recognize gain or loss
with respect to such fractional shares in an amount equal to the difference
between the amount of cash received and the portion of the tax basis allocable
to such fractional interest, as determined above. Any such gain or loss will be
capital gain or loss and will constitute long-term capital gain or loss if the
holding period of such fractional shares, as determined above, exceeds one year.
Dissenting Shareholders
The transaction will be a taxable event for United States federal income
tax purposes for those HSB shareholders who exercise and perfect their
dissenters' rights. Each such shareholder will recognize gain or loss in an
amount equal to the difference between the amount of cash received, other than
in respect of interest awarded by a court, and such shareholder's tax basis in
his or her HSB common stock. Any such gain or loss will be capital gain or loss
and will constitute long-term capital gain or loss if the holding period of the
shares exceeds one year. Dissenting shareholders will be required to include any
interest in gross income as ordinary income for United States federal income tax
purposes.
REGULATORY FILINGS AND APPROVALS
The merger is subject to a number of regulatory approvals that are
described below. While AIG and HSB believe that they will be able to obtain
these regulatory approvals, AIG and HSB cannot predict whether the required
regulatory approvals will be obtained within the time frame contemplated by the
merger agreement or on conditions that would not be detrimental to AIG, HSB, or
the combined company, or whether these approvals will be obtained at all.
Antitrust. Transactions such as the merger are reviewed by the United
States Department of Justice and the United States Federal Trade Commission to
determine whether they comply with applicable antitrust law. Under the
provisions of the HSR Act and the rules promulgated under the HSR Act, the
merger cannot be completed until AIG and HSB furnish information and materials
to the United States Department of Justice and the United States Federal Trade
Commission and a required waiting period has ended. On September 18, 2000, AIG
and on September 19, 2000, HSB furnished the information and materials to the
United States Department of Justice and the United States Federal Trade
Commission. On September 29, 2000, early termination of the waiting period was
granted.
At any time before or after the merger is completed, the United States
Department of Justice, the United States Federal Trade Commission or any state
could take action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the merger or seeking
divestiture of substantial assets of AIG or HSB or their subsidiaries. Private
parties may also seek to take legal action under the antitrust laws under some
circumstances.
In addition, the merger provisions of the Competition Act of Canada permit
the Commissioner of Competition appointed under that Act to apply to the
Competition Tribunal to seek relief in respect of a merger or proposed merger
which prevents or lessens, or is likely to prevent or lessen, competition
substantially. The relief that the Competition Tribunal may order with regard to
a proposed merger includes ordering any party to the merger or any other person
or entity to not proceed with the merger or to not proceed with any part of the
merger, or with the consent of the Commissioner and the person or entity against
whom the order is directed, ordering that person or entity to take any other
action. Additionally, the Competition Tribunal may issue an order prohibiting
the person or entity against whom the order is directed, should the merger or
part thereof be completed, from taking any action the prohibition of which the
Competition Tribunal determines necessary to ensure that the merger or part
thereof does not prevent or lessen competition substantially.
The Competition Act requires parties to proposed mergers that exceed
specified size thresholds to provide the Commissioner with prior notice of and
information relating to the transaction and the parties to the transaction, and
to await the expiration or earlier termination of the prescribed waiting
periods, prior to completing the transaction. A party to a proposed merger may
also apply to the Commissioner for an advance ruling certificate or a "no
action" letter, which the Commissioner may issue if the Commissioner is
satisfied
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<PAGE> 51
there would not be sufficient grounds on which to apply to the Competition
Tribunal for an order under the merger provisions in respect of the transaction.
Where an advance ruling certificate is issued and the transaction to which it
relates is substantially completed within one year after the advance ruling
certificate is issued, the Commissioner cannot seek an order of the Competition
Tribunal in respect of the transaction solely on the basis of information that
is the same or substantially the same as the information on which the advance
ruling certificate was issued. The issuance of an advance ruling certificate
would exempt the transaction from the pre-notification requirements of the
Competition Act.
In September 2000, AIG applied to the Commissioner for an advance ruling
certificate under the Competition Act with respect to the indirect acquisition
of HSB's Canadian subsidiary.
AIG and HSB can give no assurance that a challenge to the merger on
antitrust grounds will not be made or if such a challenge is made, of the
result.
U.S. Insurance Filings. The merger is also subject to the receipt of
necessary approvals from various U.S. state insurance regulatory authorities.
The insurance laws and regulations of all U.S. jurisdictions generally require
that, prior to the acquisition of control of an insurance company domiciled or
commercially domiciled in such jurisdiction through the acquisition of or merger
with the holding company parent of the insurance company, the acquiror must
obtain prior approval of the commissioner of insurance of such jurisdiction for
the acquisition of control of the domestic insurance company.
AIG filed an application for approval of acquisition of control of or
merger with a domestic insurer (Form A) with the Commissioner of Insurance of
Connecticut and with the Commissioner of Insurance of Texas on August 31, 2000
and September 5, 2000, respectively. The insurance laws and regulations of
Connecticut require a hearing by the State Insurance Department before the
Commissioner's determination whether to grant approval of the acquisition of
control described in the filing is made. In Texas a hearing is discretionary,
but AIG would be entitled to a hearing in the event the Texas Insurance
Department proposes not to grant its approval. Applications seeking the
approvals described in this paragraph are pending.
In addition to those Form A filings, in September 2000 AIG filed
Pre-Acquisition Notification Forms Regarding the Potential Competitive Impact of
a Proposed Merger or Acquisition by a Non-Domiciliary Insurer Doing Business in
this State or by a Domestic Insurer (Form E) or a comparable form in 23 states
and the District of Columbia where filings are required. These filings are
reviewed or non-disapproved within 60 days with respect to the State of
Washington and 30 days with respect to the other 22 states and the District of
Columbia after the filing with the applicable state insurance department is
deemed complete, which filing may require additional information on the
competitive impact of a proposed acquisition. The insurance departments of these
states could determine to take action to impose conditions on the merger,
including possible divestitures of assets of AIG or HSB or their subsidiaries.
Other Foreign Regulatory Filings. AIG and HSB each conduct business in a
number of foreign countries and jurisdictions. In connection with the merger,
the laws of certain of those foreign countries and jurisdictions may require the
filing of information with, or the obtaining of the approval of, governmental
authorities in such countries and jurisdictions. In September 2000, AIG made a
required application to The Financial Services Authority in the United Kingdom
for regulatory approval to complete the merger, a required application to the
Minister of Finance of Canada through the Office of the Superintendent of
Financial Institutions for Canada for the consent of the Minister to the
indirect acquisition of HSB's Canadian subsidiary and a notification filing in
Bermuda, and AIG and HSB jointly made a notification filing in Ireland. AIG
anticipates that in October 2000 it will make regulatory filings that are
required in Germany and China and regulatory filings which may be required in
other non-U.S. jurisdictions to complete the merger.
AIG and HSB can give no assurance that the required regulatory approvals
described above will be received or, if received, the timing and the terms and
conditions of the regulatory approvals or whether conditions will be imposed.
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<PAGE> 52
RESALE OF AIG COMMON STOCK
All shares of AIG common stock received by you in the merger will be freely
transferable, except that shares of AIG common stock received by persons who are
deemed to be "affiliates", as defined under the Securities Act, of HSB at the
time of the special meeting may be resold by them only in transactions (1)
permitted by the resale provisions of Rule 145 promulgated under the Securities
Act, (2) pursuant to an effective registration statement other than the Form S-4
under the Securities Act of which this proxy statement/prospectus forms a part,
(3) covered by a Commission no-action letter or (4) which, in the reasonable
opinion of counsel to AIG, are not required to be registered under the
Securities Act. Persons who may be deemed to be affiliates of HSB generally
include individuals or entities that control, are controlled by, or are under
common control with, HSB and may include certain directors and executives of HSB
as well as principal shareholders of HSB.
The merger agreement requires HSB to use its reasonable best efforts to
cause each of its affiliates to execute a written agreement to not transfer,
offer to sell or otherwise dispose of any of the shares of AIG common stock
issued to them in the merger, unless the transfer, sale or other disposition
satisfies one of the above permitted transactions.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Following the merger, EAC will change its name to "HSB Group, Inc." and
will continue the operations of HSB as a wholly owned subsidiary of AIG. The
officers of HSB and the directors of EAC before the merger will continue as the
initial officers and directors of the surviving corporation, until such time as
they may be replaced in accordance with the governing documents of EAC. It is
anticipated that a number of current executive officers of HSB will enter into
employment agreements with EAC to be effective upon completion of the merger.
See "The Merger -- Interests of Certain Persons in the Merger -- Severance
Agreements; Employment Agreements" and "Related Agreements and
Transactions -- Employment Agreements" for a description of these employment
agreements.
The shareholders of HSB will become shareholders of AIG, and their rights
as shareholders will be governed by AIG's restated certificate of incorporation,
as amended, AIG's by-laws and the laws of the State of Delaware. See "Comparison
of Rights of AIG and HSB Shareholders" for a summary description of the changes
associated with HSB shareholders becoming AIG shareholders.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
General. Certain HSB executive officers and certain members of the HSB's
Board may be deemed to have interests in the merger that are in addition to
their interests as shareholders of HSB generally. The HSB Board was aware of
these interests and considered them, among other matters, in approving the
merger agreement and the transactions contemplated by the merger agreement,
including the merger.
Stock Options. HSB's executive officers hold options to acquire shares of
HSB common stock. In accordance with the terms of the stock option plans
maintained by HSB and the terms of the merger agreement, all options to purchase
shares of HSB common stock that are unexpired and unexercised immediately prior
to the completion of the merger will become immediately exercisable upon the
completion of the merger. The merger agreement provides that these options will
be converted into options to purchase AIG common stock upon the completion of
the merger. With respect to each converted option, the number of shares of AIG
common stock subject to the converted option will be determined by multiplying
the number of shares of HSB common stock that could have been purchased under
the option by the "option exchange ratio", as described below, and rounding any
fractional share up to the nearest whole share, and the exercise price of the
converted option will be determined by dividing the exercise price per share
specified in the option by the option exchange ratio, and rounding the exercise
price thus determined up to the nearest whole cent. Each converted option will
otherwise be subject to the same terms and conditions that were applicable to
that option prior to its conversion. The merger agreement defines the option
exchange ratio to mean $41.00 divided by the average of the closing sale prices
per share of AIG common stock as reported on the NYSE
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composite transactions reporting system for each of the 10 consecutive trading
days in the period ending five trading days prior to the completion of the
merger.
The following table sets forth, with respect to each of the executive
officers of HSB who holds options to acquire shares of HSB common stock as of
September 28, 2000, the number of shares of HSB common stock subject to options
held by that person that will become exercisable immediately upon the completion
of the merger and the weighted average exercise price per share of the options.
In the event the merger is not completed, Mr. Booth's options would become
exercisable on January 2, 2001 and the respective options of the other executive
officers would become exercisable on January 23, 2001.
<TABLE>
<CAPTION>
OPTIONS WHICH WEIGHTED AVERAGE
WILL BECOME EXERCISE PRICE
NAME OF EXECUTIVE EXERCISABLE PER SHARE
----------------- ------------- ----------------
<S> <C> <C>
Richard H. Booth............................................ 130,000 $32.18
Saul L. Basch............................................... 27,500 29.09
Michael L. Downs............................................ 27,500 29.09
John J. Kelley.............................................. 27,500 29.09
William A. Kerr............................................. 27,500 29.09
Normand Mercier............................................. 27,500 29.09
R. Kevin Price.............................................. 27,500 29.09
William Stockdale........................................... 27,500 29.09
Robert C. Walker............................................ 27,500 29.09
</TABLE>
Restricted Stock. Certain of the executive officers, other than Mr. Booth,
hold shares of restricted HSB common stock awarded under long-term incentive
plans maintained by HSB. These shares were awarded for performance between the
years 1994 and 1999. Mr. Booth holds shares of restricted HSB common stock
awarded to him in 1999 as an inducement to accept the position of President and
Chief Executive of HSB and to compensate him for long-term incentive awards from
his previous employer that he was required to forego as a result of accepting
the positions at HSB. In accordance with the terms of the HSB long-term
incentive plans, the terms of restricted stock awards and the terms of the
merger agreement, the restrictions with respect to all HSB restricted stock
awards will lapse immediately prior to the completion of the merger. The shares
of previously restricted stock will be converted in accordance with the
provisions of the merger agreement.
The following table sets forth, with respect to each of the executive
officers of HSB who holds restricted shares of HSB common stock as of September
28, 2000, the number of restricted shares of HSB common stock as to which
restrictions will lapse immediately prior to the completion of the merger.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF EXECUTIVE OF RESTRICTED STOCK
----------------- -------------------
<S> <C>
Richard H. Booth............................................ 60,000
Saul L. Basch............................................... 22,114
Michael L. Downs............................................ 27,919
John J. Kelley.............................................. 23,548
William A. Kerr............................................. 19,805
Normand Mercier............................................. 11,660
R. Kevin Price.............................................. 19,259
William Stockdale........................................... 0
Robert C. Walker............................................ 21,151
</TABLE>
Severance Agreements; Employment Agreements. HSB had previously entered
into severance agreements with the following executive officers:
- Richard H. Booth;
- Saul L. Basch;
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<PAGE> 54
- Michael L. Downs;
- John J. Kelley;
- William A. Kerr;
- Normand Mercier;
- R. Kevin Price;
- William Stockdale; and
- Robert C. Walker,
referred to collectively, as the "severance agreements", which provide for
specified severance payments to be made and benefits to be provided to such
executives upon qualifying terminations of their employment following a change
in control of HSB. The completion of the merger will constitute a change in
control for purposes of the severance agreements.
One of the conditions to be satisfied before AIG is required to complete
the merger is AIG and/or EAC entering into employment agreements with Richard H.
Booth and Normand Mercier, executive officers of HSB, and at least eight of the
13 other persons, including the seven other executive officers of HSB,
identified in the merger agreement.
AIG and HSB expect that each employment agreement will provide that EAC
agrees to continue to employ the executive for the period commencing on the date
the merger is completed and ending on the fourth anniversary of that date,
referred to as the "employment period", and that the executive agrees to
continue in the employ of EAC, subject to the terms and conditions of his
employment agreement. AIG and HSB expect that the employment agreements will
provide that these executive officers will continue to serve EAC in the same
capacities they currently serve HSB.
AIG and HSB expect that during the employment period, the annual base
salary provided for in the employment agreement for each of the executives will
be as follows:
- Richard H. Booth, $750,000;
- Saul L. Basch, $425,000;
- Michael L. Downs, $415,000;
- John J. Kelley, $425,000;
- William A. Kerr, $370,000;
- Normand Mercier, $425,000;
- R. Kevin Price, $350,000;
- William Stockdale, $343,265; and
- Robert C. Walker, $385,000.
AIG and HSB expect that each employment agreement will provide that
during the employment period:
- the executive will be paid an annual cash bonus in accordance with EAC's
performance based bonus program and customary practices; provided that
the bonus award for 2001 as a percentage of annual base salary and the
corresponding target levels will be those utilized in the annual
incentive plan that was applicable to the executive for the year 2000 and
the applicable performance targets will be based on a formula relating to
the operating plan similar to the one established for 2000 as agreed
between Mr. Booth and the board of directors of EAC;
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<PAGE> 55
- if the executive is employed by EAC on the first anniversary date of the
completion of the merger, the executive will be paid a retention bonus
equal to his annual base salary within one month of that anniversary; and
- the executive will be eligible to participate in all employee benefit and
welfare plans of EAC on a basis no less favorable than that provided to
other senior executive officers of EAC and other similarly situated
executive officers of other AIG subsidiaries; provided that nothing will
require the executive's participation in any such plans in which
participation of any individual employee is discretionary; and provided
further that the executive's prior service with HSB will be taken into
account for all purposes except benefit accruals.
Except for Mr. Booth's employment agreement, each employment agreement will
also provide that EAC shall take such steps to grandfather the executive such
that EAC will be required to provide retirement medical coverage to the
executive on terms and conditions no less favorable than would have been
available to the executive upon retirement under HSB's retirement medical
coverage plan as in effect on the date of the employment agreement.
Mr. Booth's employment agreement will also provide that Mr. Booth will be
credited with 10 additional years of service for purposes of determining any
retirement benefits to which Mr. Booth would be entitled under any tax-qualified
defined benefit pension plan, or non-qualified supplemental or excess benefit
plan relating thereto, which is maintained by EAC and designed to provide Mr.
Booth defined benefit type retirement benefits.
Each employment agreement will provide that if, during the employment
period, the executive's employment is terminated for any reason, EAC will:
- pay to the executive his annual base salary through the date of
termination to the extent not yet paid and any bonus payments for a prior
bonus year that have been earned but not yet paid; and
- to the extent not yet paid or provided, pay or provide to the executive
any other amounts or benefits required under any plan, program, policy,
practice, contract or agreement of EAC through the date of termination.
Mr. Booth's employment agreement will provide that in the event his
employment is terminated for any reason during the employment period:
- for purposes of any retiree medical benefits insurance program then in
effect, Mr. Booth will be deemed to have satisfied any years of service
and retirement status requirements as of his date of termination in order
to be eligible to receive benefits under such program, which benefits
shall commence immediately following his date of termination or, if
applicable, the expiration of the period of welfare benefit continuation
described below; and
- notwithstanding the fact that Mr. Booth's severance agreement has been
terminated, Mr. Booth will be entitled to receive from EAC a credit of 10
additional years of service for purposes of determining Mr. Booth's
retirement benefits as provided for under his severance agreement as if
such severance agreement were still in effect.
Mr. Booth's employment agreement will also provide that if, during the
employment period, he dies, notwithstanding the fact that Mr. Booth's severance
agreement has terminated, his spouse will be entitled to receive from EAC credit
of 10 additional years of service for purposes of determining his spouse's death
benefits as provided for under Mr. Booth's severance agreement as if such
agreement were still in effect.
Each employment agreement will provide that if, during the employment
period, EAC terminates the executive's employment other than for "cause", as
defined in the executive's employment agreement, or the executive terminates his
employment for "good reason", as defined in the executive's employment
agreement, the executive will be entitled to the following additional payments
and benefits:
- EAC will pay the executive a lump sum cash payment within 30 days after
the date of termination in an amount equal to the product of (x) the sum
of the executive's annual base salary and the average
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<PAGE> 56
annual bonus paid to the executive, including as paid for this purpose
any compensation earned but deferred, whether or not at the election of
the executive and whether or not vested, for the three years prior to the
date of termination and (y) 3.0, if the date of termination is on or
before the second anniversary of the completion of the merger, 2.0, if
the date of termination is after the second anniversary but on or before
the third anniversary of the completion of the merger, or 1.0, if the
date of termination is after the third anniversary but on or before the
fourth anniversary of the completion of the merger; provided that this
amount shall be decreased by the amount of any retention bonus paid to
the executive; and
- for the remainder of the employment period, EAC will continue to provide
insurance, medical, dental and other welfare benefits to the executive,
his spouse and eligible dependents on the same basis as such benefits are
then currently provided to its employees; provided that any payments
received with respect to such welfare benefits will be secondary to any
payments made pursuant to other coverage obtained by the executive.
It is expected that each employment agreement will also provide for the
executive to receive a gross-up payment if the executive becomes subject to
excise tax as a result of any of the payments that the executive receives under
his employment agreement, or otherwise, being determined to be "excess parachute
payments" within the meaning of Section 280G of the Code.
The employment agreements provide that during the term of the executive's
employment and for the one-year period thereafter, each executive will not, in
any manner, directly or indirectly, solicit any person who is an employee of
HSB, AIG or EAC to apply for or accept employment with any competing business.
In addition, the employment agreements provide that during the term of the
executive's employment and at all times thereafter, each executive will keep
secret and not disclose confidential information.
If the merger occurs, the employment agreements will replace the severance
agreements currently in effect between HSB and the executives. Please see
"Related Agreements and Transactions -- Employment Agreements" for more
discussion of the terms of these employment agreements.
Long-Term Incentive Plan; Short-Term Incentive Plan. Richard H. Booth,
Saul L. Basch, Michael L. Downs, John J. Kelley, William A. Kerr, Normand
Mercier, R. Kevin Price and Robert C. Walker each are participants in HSB's
long-term incentive plan, referred to as "LTIP", and HSB's short-term incentive
plan, referred to as "STIP". William Stockdale participates in similar plans, as
described below. The LTIP provides for awards of performance contingent units.
Depending upon the level of achievement of applicable performance goals over
three year periods, a participant receives a payment in respect of a certain
percentage of the performance contingent units awarded to him.
William Stockdale, Senior Vice President of HSB and Managing Director and
Chief Executive Officer of HSB Engineering Insurance Limited, referred to as
"HSB EIL", a United Kingdom subsidiary of HSB, participates in long-term and
short-term incentive plans maintained by HSB EIL. Participants in the HSB EIL
long-term and short-term incentive plans receive a payment equal to a specified
percentage of base salary depending on the level of achievement of specific
performance goals over the applicable performance period.
As a matter of convenience, AIG and HSB have translated the Pounds Sterling
amounts into United States dollars that William Stockdale will be entitled to
receive under his employment agreement and the long-term and short-term
incentive plans maintained by HSB EIL. The translations were based on the Daily
Noon Buying Rate in New York certified by the Federal Reserve Bank for customs
purposes on September 27, 2000 at L1.00 equals $1.4607.
Upon a change in control, the terms of the LTIP provide that each
participant will be paid a lump sum cash amount equal to the aggregate value of
the performance contingent awards payable in respect of each outstanding
three-year performance period. In calculating this payment, target performance
is assumed and the amount payable is prorated based on the number of months
completed in the applicable performance period. The STIP has similar provisions
as the LTIP, but the performance period is for one year, there is no proration
of an award (the full target award is paid) if a change in control occurs and
the award with respect
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<PAGE> 57
to the target performance level under the STIP is denominated by a range. The
completion of the merger will constitute a change in control for purposes of the
LTIP and the STIP.
The terms of the merger agreement provide that, as soon as practicable
following the completion of the merger, AIG will pay, or will cause EAC to pay,
the executives who are participants in the plans described above, in accordance
with the terms of these plans, a lump sum amount in cash with respect to each
performance cycle which includes the date the merger is completed, calculated
based upon the assumption of achievement of target performance levels under each
applicable plan with respect to each applicable performance cycle. The merger
agreement also provides that where the award with respect to the target
performance level is denominated by a range, such payment shall be the amount,
within such range, mutually agreed by AIG and HSB. Accordingly, in the event the
merger is completed, AIG and HSB presently estimate, based upon information
currently available, that each of the executives would be entitled to aggregate
lump sum cash payments under the applicable long-term incentive plan in the
circumstances described above in the following amounts:
- Richard H. Booth, $1,525,282;
- Saul L. Basch, $540,339;
- Michael L. Downs, $537,797;
- John J. Kelley, $540,339;
- William A. Kerr, $481,750;
- Normand Mercier, $537,428;
- R. Kevin Price, $434,026;
- William Stockdale, $343,265; and
- Robert C. Walker, $485,563.
In the event the merger is completed, AIG and HSB presently estimate, based
upon information currently available, that each of the executives would be
entitled to aggregate lump sum cash payments under the applicable short-term
incentive plan in the circumstances described above within the following ranges
or with respect solely to Mr. Stockdale, the following amount:
- Richard H. Booth, Minimum -- $750,000, Maximum -- $1,125,000;
- Saul L. Basch, Minimum -- $255,000, Maximum -- $382,500;
- Michael L. Downs, Minimum -- $249,000, Maximum -- $373,500;
- John J. Kelley, Minimum -- $255,000, Maximum -- $382,500;
- William A. Kerr, Minimum -- $222,000, Maximum -- $333,000;
- Normand Mercier, Minimum -- $255,000, Maximum -- $382,500;
- R. Kevin Price, Minimum -- $210,000, Maximum -- $315,000;
- William Stockdale, $171,632; and
- Robert C. Walker, Minimum -- $231,000, Maximum -- $346,500.
Pre-Retirement Death Benefit and Supplemental Pension Agreements. HSB had
previously entered into Pre-Retirement Death Benefit and Supplemental Pension
Agreements with Richard H. Booth, Saul L. Basch, Michael L. Downs, John J.
Kelley, Normand Mercier, R. Kevin Price and Robert C. Walker, each referred to
as a "supplemental pension agreement". Each supplemental pension agreement
generally provides that the executive is entitled to an annual supplemental
retirement benefit equal to a specified percentage of his annual salary,
exclusive of bonuses, for 15 years. Each supplemental pension agreement
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<PAGE> 58
provides that supplemental retirement benefits are reduced if the executive
retires prior to age 65. Each supplemental pension agreement also provides that
if:
(1) the executive is terminated within three years following a change in
control other than:
(a) for cause, as defined in their supplemental pension agreement;
(b) by reason of death or disability, as defined in their supplemental
pension agreement; or
(c) by the executive without good reason, as defined in their
supplemental pension agreement; or
(2) the executive voluntarily terminates for any reason during the one
month period commencing on the first anniversary of the change in
control,
then, in either case, the executive will be entitled to receive a supplemental
retirement benefit as though the executive had retired at age 65 and, other than
with respect to Richard H. Booth and Robert C. Walker, has been employed for at
least 60 months since his date of election.
Each supplemental pension agreement also provides that the executive will
be deemed to have been terminated after a change in control without cause or by
the executive for good reason if:
- the executive's employment is terminated by HSB without cause prior to a
change in control, regardless of whether a change in control occurs, and
such termination was at the request of EAC;
- the executive terminates his employment for good reason prior to a change
in control, regardless of whether a change in control occurs, and the
circumstance or event which constitutes good reason occurs at the request
of EAC; or
- the executive is terminated during the period between a potential change
in control and a change in control by HSB without cause or by the
executive for good reason in connection with a change in control which
occurs within six months of the notice of termination.
The completion of the merger will constitute a change in control for purposes of
the supplemental pension agreements.
Directors Stock and Deferred Compensation Plan. Each of William B. Ellis,
E. James Ferland, Henrietta Holsman Fore, Colin G. Campbell, Simon W. Leathes,
Joel B. Alvord, Richard G. Dooley and Lois D. Rice are participants in HSB's
Directors Stock and Deferred Compensation Plan, referred to as the "directors
stock plan". Mr. Booth also has deferred shares credited to him under the
directors stock plan for the period while he was a non-employee director prior
to his election as President and Chief Executive Officer of HSB. At the end of
each calendar year, the directors stock plan entitles a participant to receive
825 deferred shares, prorated if the participant served as a director for less
than a year in the applicable year. A deferred share represents the right to
receive the fair market value of a share of HSB common stock.
The directors stock plan also allows participants to defer the receipt of
cash compensation they receive in connection with their service as directors.
Cash amounts deferred are held in a deferred account and are held as cash, which
earns interest, or as deferred shares, which accrue dividend equivalents. In the
event of a change in control, participants are credited with deferred shares as
if their service ceased on the change in control date, which is deemed to be the
last day of the calendar year, interest and dividend equivalents are credited to
participants, and participants will receive a lump sum cash payment equal to the
amount credited to their deferred account. The completion of the merger will
constitute a change in control for purposes of the directors stock plan.
In the event the merger is completed, AIG and HSB presently estimate, based
upon information currently available, that each of the directors who are
participants in the directors stock plan would be entitled to lump sum cash
payments in the circumstances described above in the following amounts:
- Richard H. Booth, $134,409;
- William B. Ellis, $335,735;
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- E. James Ferland, $529,985;
- Henrietta Holsman Fore, $193,500;
- Colin G. Campbell, $295,321;
- Simon W. Leathes, $142,987;
- Joel B. Alvord, $498,374;
- Richard G. Dooley, $721,699; and
- Lois D. Rice, $429,898.
Indemnification and Insurance. Pursuant to the merger agreement, until
such time as the applicable statute of limitations shall have expired, AIG will
cause EAC to provide with respect to each present or former director and officer
of HSB or any HSB subsidiary the indemnification rights, including any rights to
advancement of expenses, which each of these persons had or that was made
available to these persons from HSB or any HSB subsidiary immediately prior to
the completion of the merger.
The merger agreement also provides that, immediately following the
completion of the merger, AIG will cause EAC to maintain HSB's current policies
of directors' and officers' liability insurance for a period of six years after
the completion of the merger or maintain a run-off or tail policy or endorsement
with respect to covering claims asserted within six years after the completion
of the merger arising from facts or events occurring at or before the completion
of the merger. AIG, however, will not be required to expend on an annual basis
more than an amount equal to 150% of the current annual premiums paid by HSB for
such insurance and, in the event the cost of such coverage exceeds that amount,
AIG will purchase as much coverage as possible for such amount.
HSB SHAREHOLDERS' DISSENTERS' RIGHTS TO OBTAIN PAYMENT FOR THEIR SHARES
Under the laws of Connecticut, where HSB is incorporated, holders of record
of shares of HSB common stock who follow the procedures specified in the
Connecticut Business Corporation Act, referred to as the "CBCA", will be
entitled to dissenters' rights to obtain payment for the fair value of their
shares upon compliance with certain procedures prescribed by the CBCA. Holders
of HSB common stock who want to invoke their dissenters' rights should therefore
follow the procedures described below.
Under sections 33-855 through 33-872 of the CBCA, holders of HSB common
stock have a right to dissent from the merger and choose to be paid the fair
value of their HSB shares once the merger is completed, provided they follow the
procedures outlined in the statute. The complete text of these sections is
included in Appendix E to this proxy statement/prospectus and is incorporated by
reference in this proxy statement/prospectus.
The dissenters' rights described in this section are your exclusive remedy
under Connecticut law. If you wish to exercise your dissenters' rights to obtain
payment of the fair value for your shares or to preserve the right to do so, you
should carefully review Appendix E and seek the advice of counsel. If you do not
comply with the deadlines and procedures specified in the applicable sections of
the CBCA, you may lose your dissenters' rights to obtain payment of the fair
value of your shares. If you have a beneficial interest in shares held of record
by another person, such as a broker or nominee, you should have the record owner
follow these procedures in a timely manner.
Under the CBCA, "fair value" means the value of your shares immediately
before the merger, excluding any appreciation or depreciation in anticipation of
the merger. You should be aware that the fair value of your shares as determined
under the applicable provisions of the CBCA could be greater than, the same as
or less than the merger consideration.
To exercise your dissenters' rights, you must satisfy each of the following
conditions:
- you must not vote to approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the merger;
and
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<PAGE> 60
- you must deliver to the Corporate Secretary of HSB, before the vote on
the merger at the special meeting is taken, a written notice of your
intent to demand payment of the fair value of your shares.
You must deliver the notice of intent even if you submit or cast a proxy
and vote against the merger. Merely voting against, abstaining from voting or
failing to vote in favor of the approval and adoption of the merger agreement
and the transactions contemplated by the merger agreement, including the merger,
will not constitute a notice of your intent to exercise dissenters' rights under
the CBCA.
If HSB shareholders approve and adopt the merger agreement and the
transactions contemplated by the merger agreement, including the merger, at the
special meeting and you meet the requirements above, HSB will send you, no later
than 10 days after the merger, a written "dissenters' notice" concerning your
demand of payment for your shares. The dissenters' notice delivered by HSB must:
- state where you must send the "payment demand", which is described below,
and when and where certificates for certificated shares must be
deposited;
- inform holders of uncertificated shares to what extent transfer of their
shares will be restricted after the payment demand is received;
- supply a form for you to make the payment demand that includes the date
of the first announcement to the news media or to HSB shareholders of the
terms of the merger agreement, referred to as the "date of the first
announcement", and requires that you certify whether or not you acquired
beneficial ownership of your shares of HSB common stock before the date
of the first announcement;
- set a date by which HSB must receive your payment demand, which may not
be fewer than 30 days nor more than 60 days after the dissenters' notice
is delivered by HSB; and
- be accompanied by a copy of sections 33-855 through 33-872 of the CBCA,
which are the sections that discuss dissenters' rights.
Under section 33-863(a) of the CBCA, if you receive a dissenters' notice
and wish to exercise your dissenters' rights, you must:
- demand payment for your shares;
- certify whether you acquired beneficial ownership of your shares of HSB
common stock before the date of the first announcement set forth in the
dissenters' notice; and
- deposit the certificate or certificates representing your shares in
accordance with the terms of the dissenters' notice.
HSB may place restrictions on the transfer of any uncertificated shares as
to which you are exercising your dissenters' rights.
Upon completion of the merger, EAC will pay to each dissenting HSB
shareholder who made a proper payment demand in compliance with Section
33-863(a) of the CBCA and who certified that he or she was the beneficial owner
before the date of the first announcement, the amount it estimates to be the
fair value of the dissenting shareholder's shares, plus accrued interest. That
payment will be accompanied by:
- HSB's balance sheet as of the end of a fiscal year ending not more than
16 months before the date of payment, an income statement for that year,
a statement of changes in shareholders' equity for that year and the
latest available interim financial statements, if any;
- a statement of EAC's estimate of the fair value of the shares;
- an explanation of how the accrued interest was calculated;
- a statement of the dissenters' right to demand payment under section
33-868 of the CBCA, described below; and
- a copy of sections 33-855 through 33-872 of the CBCA, which are the
sections that discuss dissenters' rights.
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If the merger does not take place within 60 days after the date set for
receipt of the payment demand and depositing of the certificates representing
dissenting shareholders' shares, HSB will return the deposited certificates and
release any transfer restrictions that may have been imposed on uncertificated
shares. If the merger is completed after the return of the deposited shares and
the release of transfer restrictions, EAC will send a new dissenters' notice and
repeat the payment-demand procedure.
Under section 33-868 of the CBCA, you may send to EAC your own estimate of
the fair value of your shares and the amount of interest due, and make a demand
for payment of the difference between your estimate and the amount paid, if any,
by EAC in the following cases:
- if you believe that the amount paid by EAC is less than the fair value of
your shares or that the interest due is incorrectly calculated;
- if EAC fails to make payment within 60 days after the date set in the
dissenters' notice for receipt of the payment demand; or
- if the merger is not completed and HSB does not return the deposited
certificates or release any transfer restrictions imposed on
uncertificated shares within 60 days after the date set in the
dissenters' notice for receipt of the payment demand.
If you do not make a demand for payment of the difference between your
estimate of the fair value of your shares, plus interest, and the amount paid by
EAC within 30 days after EAC made payment, you will lose your right to make
demand for payment of any such difference.
Under sections 33-871(a) and (b) of the CBCA, if your demand for payment of
your estimate of the fair value and accrued interest remains unsettled, EAC will
commence a proceeding within 60 days after receipt of your demand for payment
and petition the Connecticut Superior Court for the judicial district where
EAC's principal office is located to determine the fair value of your shares and
accrued interest. If EAC does not timely commence this proceeding, EAC must pay
you the unsettled amount that you demanded.
If this proceeding takes place, EAC will make all dissenting shareholders
whose demands remain unsettled, even if they are not residents of Connecticut,
parties to the proceeding, and all parties will be served with a copy of the
petition. The court may appoint appraisers who will receive evidence and
recommend a decision on the question of fair value. If the court finds that the
amount EAC paid is less than the fair value of a dissenting shareholder's
shares, plus accrued interest, the court will order EAC to pay the difference to
the dissenting shareholders.
The court will determine all costs of the proceeding, including the
reasonable compensation and expenses of court-appointed appraisers. EAC
generally will pay these costs, but the court may order all or some of the
dissenting shareholders to pay the costs, in an amount the court finds
equitable, if the court finds that the shareholders acted arbitrarily,
vexatiously or not in good faith in demanding payment. The court may also assess
the fees and expenses of counsel and experts of any party, in an amount the
court finds equitable, against:
- EAC and in favor of some or all of the dissenting shareholders, if the
court finds that HSB or EAC did not substantially comply with the
provisions of the CBCA; or
- either EAC or a dissenting shareholder, in favor of any other party, if
the court finds that the party against whom the fees and expenses are
assessed acted arbitrarily, vexatiously or not in good faith with respect
to the rights provided by the CBCA.
Also, if the court finds that the services of counsel for any dissenting
shareholder were of substantial benefit to other dissenting shareholders, and
that the fees should not be assessed against EAC, the court may award to such
counsel reasonable fees to be paid out of the awards of the dissenting
shareholders who were benefited.
If you give notice of your intent to demand dissenters' rights for your
shares under the applicable provisions of the CBCA but fail to return the
dissenters' notice or withdraw or lose your right to make a
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demand for payment, your shares of HSB common stock will be converted into the
right to receive the consideration in the merger.
The foregoing discussion is only a summary of the applicable provisions of
the CBCA and is qualified in its entirety by reference to the full text of the
provisions, which is included in Appendix E to this proxy statement/prospectus
and is incorporated by reference in this proxy statement/prospectus.
ACCOUNTING TREATMENT
AIG will account for the merger under the "purchase" method of accounting
as that term is used under United States generally accepted accounting
principles. Under this method of accounting, the purchase price paid by AIG will
be allocated based on fair values of HSB's assets and liabilities. AIG will make
this allocation based upon valuations and other studies that have not been
finalized. The excess of the purchase price over the amounts so allocated will
be treated as goodwill.
PUBLIC TRADING MARKETS
HSB common stock currently is listed on the NYSE under the symbol "HSB".
Upon completion of the merger, HSB common stock will be delisted from the NYSE
and deregistered under the Securities Exchange Act of 1934, as amended, referred
to as the "Exchange Act". AIG common stock currently is listed on the NYSE under
the symbol "AIG". Application will be made for the listing on the NYSE of the
shares of AIG common stock to be issued in the merger. The listing of the AIG
common stock issued in the merger on the NYSE is a condition to completion of
the merger.
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RECENT DEVELOPMENTS
REDEMPTION OF HSB DEBENTURES AND HSB CAPITAL II SECURITIES
HSB entered into an agreement with ERC on August 28, 2000 with respect to
the exercise by ERC of the change of control redemption provision of the
indenture under which the HSB Debentures were issued. This provision required
HSB to redeem the HSB Debentures upon a change of control of HSB if requested by
ERC.
HSB issued the HSB Debentures on December 31, 1997 to HSB Capital II in
exchange for proceeds received from the issuance to ERC of $300.0 million of the
HSB Capital II Securities, on December 31, 1997.
Under the terms of the HSB Capital II trust agreement, upon a redemption by
HSB of the HSB Debentures, HSB Capital II was required to redeem the HSB Capital
II Securities. HSB redeemed the HSB Debentures from HSB Capital II on September
14, 2000 for $315.0 million, which amount included the change of control
redemption premium, plus accrued and unpaid interest, and on the same date, HSB
Capital II redeemed the HSB Capital II Securities from ERC for $315.0 million,
plus accrued and unpaid interest.
Under the terms of the agreement with ERC, HSB agreed:
- if in the event HSB and EAC do not complete the merger, there will be no
retroactive effect on HSB's redemption of the HSB Debentures and HSB
Capital II's redemption of the HSB Capital II Securities;
- to pay all expenses of ERC associated with the redemption;
- to transfer HSB's membership interest in HSB Industrial Risk Insurers LLC
to ERC and to the withdrawal of HSB from Industrial Risk Insurers; and
- for each of the two annual periods commencing on January 1, 2001 and
January 1, 2002, to enter into agreements under which HSB will provide
inspection, engineering and mechanical breakdown services to Industrial
Risk Insurers.
HSB and AIG entered into a 5-year term loan agreement on September 6, 2000
under which AIG loaned HSB the funds to redeem the HSB Debentures. Please refer
to the section titled "Related Agreements and Transactions -- Term Loan
Agreement" for more information on the provisions of the loan from AIG to HSB.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. Because the following description is not a complete description of
the merger agreement, the description is qualified by reference to the merger
agreement and you are urged to read the merger agreement carefully. A copy of
the merger agreement is attached as Appendix A to this proxy
statement/prospectus and is incorporated by reference in this proxy
statement/prospectus.
THE MERGER
The merger agreement provides that, at the time the merger becomes
effective, HSB will be merged with and into EAC, a wholly owned subsidiary of
AIG. EAC will be the surviving corporation in the merger, will succeed to the
business of HSB and will be renamed HSB Group, Inc.
COMPLETION OF THE MERGER
The merger will become effective on the later filing of:
- a certificate of merger with the Secretary of State of Connecticut; and
- a certificate of merger with the Secretary of State of Delaware.
The closing of the merger will take place after all conditions to the
merger are fulfilled or waived or another date is agreed upon by HSB and AIG.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the time the merger is completed, each share of HSB common stock
outstanding, including each attached right issued pursuant to the Rights
Agreement dated as of November 28, 1998, as amended, between HSB and Fleet
National Bank, previously known as BankBoston, N.A., excluding shares:
- owned by HSB, AIG or by any of their respective subsidiaries, except
shares held in the investment portfolio of any subsidiary of HSB or AIG;
and
- owned by shareholders who have perfected their rights to dissent under
applicable law,
will be converted, subject to AIG's election set forth below, into a portion of
a share of AIG common stock with a value equal to $41.00.
This portion of a share of AIG common stock is referred to as the "exchange
ratio." The merger agreement provides that if the average of the closing prices
per share of AIG common stock on the NYSE composite transactions reporting
system for each of the 10 consecutive trading days in the period ending five
trading days prior to the closing date, referred to as the "base period stock
price", is greater than or equal to $87.55, you will receive a portion of a
share of AIG common stock equal to $41.00 divided by the base period stock
price. If the base period stock price is less than $87.55, you will receive, at
AIG's option, one of the following:
- 0.4683 of a share of AIG common stock plus cash in an amount equal to
$41.00 minus the product of 0.4683 and the base period stock price; or
- a portion of a share of AIG common stock equal to $41.00 divided by the
base period stock price; or
- a portion of a share of AIG common stock greater than 0.4683 plus cash in
an amount equal to $41.00 minus the product of such portion of a share
and the base period stock price.
The maximum amount of cash that AIG may elect to pay for each share of HSB
common stock is equal to $41.00 minus the product of 0.4683 and the base period
stock price.
Also at the time the merger is completed each share of HSB common stock
owned by HSB or AIG or by any of their respective subsidiaries, including any
attached rights issued under the rights agreement, except
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for shares held in the investment portfolio of any subsidiary of HSB or AIG,
will be canceled and retired without any payment.
FRACTIONAL SHARES
No fractional shares of AIG common stock will be issued in the merger. Any
holder of shares of HSB common stock otherwise entitled to receive fractional
shares of AIG common stock will receive instead a cash payment, without
interest, in an amount equal to the fractional share of AIG common stock
multiplied by the base period stock price.
ADJUSTMENTS TO PREVENT DILUTION
In the event that HSB or AIG change the number of shares of its respective
common stock issued and outstanding prior to the completion of the merger as a
result of a reclassification, stock split, reverse split, stock dividend,
recapitalization, subdivision, combination, exchange or other similar
transaction, AIG will equitably adjust the merger consideration.
CONDITIONS OF THE PROPOSED MERGER
The respective obligations of each of HSB and AIG to complete the merger
are subject to the satisfaction or waiver of the following conditions:
- the approval and adoption of the merger agreement and the merger
contemplated by the merger agreement by the HSB shareholders;
- the absence of any law, rule, regulation, executive order, decree,
injunction or other order, whether temporary, preliminary or permanent,
that makes illegal, materially restricts, or prevents or prohibits the
merger;
- the registration statement, of which this proxy statement/prospectus
forms a part, becoming effective, no stop order or proceeding seeking a
stop order to suspend the registration statement being in effect and the
registration statement not containing any untrue statement or omission of
a material fact necessary to make the statements contained in the
registration statement not misleading; and
- the authorization for listing on the NYSE of the shares of AIG common
stock to be issued in the merger.
The obligations of HSB to complete the merger are also subject to the
satisfaction or waiver by HSB of each of the following conditions:
- AIG's and EAC's representations and warranties are true and correct in
all material respects, without giving effect to materiality qualifiers
contained in the merger agreement;
- all covenants and agreements of AIG and EAC are performed in all material
respects;
- the expiration or termination of the waiting period applicable to the
merger under the HSR Act and applicable insurance laws;
- subject to certain materiality exceptions, all consents, authorizations,
orders and approvals of, or filings, reports, registrations with or
notifications to, all applicable insurance authorities or other
governmental authorities, are obtained and are in full force and effect;
and
- the receipt by HSB of the legal opinion of its counsel regarding the
treatment of the merger as a reorganization under the Code.
The obligations of AIG to complete the merger are also subject to the
satisfaction or waiver by AIG of each of the following conditions:
- HSB's representations and warranties are true and correct in all material
respects, without giving effect to materiality qualifiers contained
therein;
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- all covenants and agreements of HSB are performed in all material
respects;
- the absence of any material adverse changes or effects with respect to
HSB and its subsidiaries since December 31, 1999;
- the receipt by AIG of the legal opinion of its counsel regarding the
treatment of the merger as a reorganization under the Code;
- the expiration or termination of the waiting period applicable to the
merger under the HSR Act and applicable insurance laws;
- subject to certain materiality exceptions, all consents, authorizations,
orders and approvals of, or filings, reports, registrations with or
notifications to, all applicable insurance authorities or other
governmental authorities, are obtained and are in full force and effect;
- the receipt of any material third-party consents;
- the aggregate number of shares held by shareholders who have perfected
their rights to dissent under applicable law being less than 5% of the
total number of outstanding shares of HSB common stock;
- entry by AIG and/or EAC into employment agreements with certain executive
officers and other employees of HSB;
- the receipt from each person who is an affiliate of HSB, as specified in
the merger agreement and updated to the time of the completion of the
merger, of a written agreement not to offer to sell, transfer, or
otherwise dispose of any of the shares of AIG common stock issued to him
or her in the merger unless the sale, transfer or other disposition is
made in conformity with Rule 145 under the Securities Act or is not
otherwise in violation of the Securities Act,
- the absence of pending or threatened claims or proceedings seeking to
prohibit or restrain the transaction contemplated by the merger
agreement; and
- the redemption or other treatment satisfactory to AIG of the HSB
Debentures.
COVENANTS
Conduct of HSB's Business Prior to the Merger. HSB has agreed as to itself
and, where indicated below, its subsidiaries, that until the completion of the
merger, unless AIG otherwise approves in writing and except as otherwise
expressly contemplated by the merger agreement or the stock option agreement, it
will conduct its businesses in the ordinary and usual course in substantially
the same manner as previously conducted.
Specifically, HSB has agreed that:
- it and its subsidiaries will use reasonable best efforts consistent with
past practice to:
-- preserve their business organizations intact;
-- maintain their existing relations and goodwill with their officers,
employees, brokers and agents and various third parties; and
-- maintain their existing relationships with their employees in
general;
- it and its subsidiaries will not change any provision of their respective
governing documents or, in the case of HSB, it will not amend, modify or
terminate the rights agreement;
- it will not make, declare or pay a dividend or make any other
distribution with respect to any shares of capital stock, except regular
quarterly cash dividends not in excess of $0.44 per share per quarter;
- it will not split, combine or reclassify its outstanding shares of
capital stock;
- except in connection with the issuance of shares of HSB common stock
pursuant to the exercise of presently outstanding HSB stock options and
except for certain actions involving the HSB Debentures under the terms
of the merger agreement, it will not:
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-- sell, issue, encumber or otherwise dispose or redeem, purchase or
otherwise acquire any shares of its outstanding capital stock; or
-- grant any options, warrants or rights to purchase any securities
convertible into shares of its outstanding capital stock;
- it will and it will cause its subsidiaries to:
-- promptly notify AIG and use its reasonable best efforts to prevent or
remedy any fact or circumstance reasonably likely to result in:
-- any material change in its condition, business, results of
operations or prospects;
-- any material adverse effect on HSB and its subsidiaries as a
whole;
-- any material litigation or material governmental complaints,
investigations or hearings; or
-- the breach of any representation or warranty or material failure
to satisfy any condition or agreement in the merger agreement;
-- promptly deliver to AIG true and correct copies of any report,
statement or schedule filed with the Commission and any public
communication released by HSB or its subsidiaries after the date of
the merger agreement; and
-- use its reasonable best efforts to maintain insurance with
financially responsible companies in such amounts and against such
risks and losses as are customary.
HSB has also agreed that it will not and will not permit any of its
subsidiaries, except to the extent consented to by AIG in writing, to:
- except in the ordinary course of business consistent with past practices;
-- enter into any agreement for indebtedness;
-- increase the indebtedness under any existing agreement;
-- become responsible for the obligations of a third party; or
-- take any of those actions for obligations in excess of $250,000;
- except in the ordinary course of business consistent with past practices,
mortgage, pledge or encumber any of its properties or assets;
- except as may be required by applicable laws or except in the ordinary
course of business consistent with past practices;
-- take any action to amend or terminate any employee benefit plan;
-- grant new or additional incentive compensation awards;
-- increase the compensation of any of its current or former officers,
employees or directors; or
-- adopt new plans providing new or increased benefits or compensation;
- materially amend or cancel or enter into a new agreement providing new or
increased benefits or compensation which is material to HSB and its
subsidiaries or to its insurance subsidiaries on a consolidated basis;
- enter into any negotiation with respect to, or adopt or amend in any
material respect, any collective bargaining agreement;
- materially change any underwriting, investment, reserving, claims
administration, financial reporting or accounting practices used by HSB
or any of its subsidiaries, except as required by generally accepted
accounting principles or other principles and practices of an applicable
government authority or as required by law;
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- except for transactions between HSB and any of its subsidiaries, pay,
loan or advance, other than in specified circumstances, any amount to, or
sell, transfer or lease any properties or assets to, or enter into any
material agreement or arrangement with, any of its officers or directors
or any "affiliate" or "associate", as each are defined in Rule 405 of the
Securities Act;
- make or rescind any express or deemed tax election;
- make a request for a tax ruling or enter into a written agreement with a
tax authority regarding taxes;
- settle or compromise any material claim or litigation relating to taxes;
- make a material change to any of its methods of tax reporting from those
used in the preparation of its federal income tax return for the taxable
year ending December 31, 1998, except as may be required by applicable
laws;
- pay, discharge, settle or satisfy any material claims or liabilities
other than policy claims in the ordinary course of business;
- other than consistent with past practice, materially alter the mix of
investment assets of HSB or any of its subsidiaries or the duration or
credit quality of those assets or materially alter their existing
investment policies;
- materially alter the profile of the insurance liabilities or the pricing
practices of its insurance subsidiaries;
- engage in the business of selling any products or services materially
different from existing products or services or engage in new lines of
business;
- except in the ordinary course of business, lease or otherwise dispose of
or transfer any of its assets, including capital stock of its
subsidiaries;
- make, authorize or agree to make any capital expenditure which
individually is in excess of $50,000 or in the aggregate is in excess of
$1.0 million;
- except for existing agreements disclosed to AIG, acquire or agree to
acquire:
-- any business or any entity; or
-- except in the ordinary course of business consistent with past
practices, any assets or securities other than portfolio investments
or venture capital investments;
- take or omit to take any action that would or is reasonably likely to
result in any of its representations and warranties or in any of the
conditions to the merger in the merger agreement becoming untrue or not
being satisfied, respectively;
- enter into any agreement limiting in any respect the ability of HSB or
any of its subsidiaries or affiliates to:
-- sell any products or services of or to any other person;
-- engage in any line of business; or
-- compete with or obtain products or services from any person or limit
the ability of any person to provide products or services to HSB or
any of its subsidiaries or affiliates; or
- authorize or enter into any agreement, or commit or agree, to take any of
the foregoing actions.
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AGREEMENT NOT TO SOLICIT OTHER OFFERS
HSB has agreed that neither it nor any of its subsidiaries nor its or its
subsidiaries' officers or directors will, and that it will direct and use its
best efforts to cause its and its subsidiaries' employees, agents and
representatives not to:
- solicit, initiate, encourage or otherwise facilitate any inquiries or the
submission of any proposal or offer with respect to;
- participate in any discussions or negotiations regarding;
- provide any person any information with respect to; or
- otherwise facilitate any effort or attempt to make or implement,
an "acquisition proposal", which the merger agreement defines as:
- any acquisition or purchase of 15% or more of the assets or equity
securities of HSB or any of its "significant subsidiaries" as that term
is defined in Rule 1-02(w) of Regulation S-X promulgated under the
Exchange Act, referred to as "significant subsidiaries";
- any tender offer or exchange offer that would result in any person owning
15% or more of the equity securities of HSB or any of its significant
subsidiaries;
- any reinsurance transaction entered into outside the ordinary course of
business involving more than 15% of the assets or policyholder
liabilities of any of HSB's significant subsidiaries; or
- any merger, consolidation or business combination involving HSB or any
significant subsidiary,
provided that none of the following will be considered an "acquisition
proposal":
- the transactions contemplated by the merger agreement;
- any activities of ERC taken at the time it was a holder of HSB Capital II
Securities with respect to its interest in HSB Capital II Securities in
accordance with the terms of arrangements existing at the time it was a
holder of HSB Capital II Securities;
- any discussions conducted on or on behalf of HSB and ERC with respect to
the redemption of the HSB Debentures by HSB and the HSB Capital II
Securities by HSB Capital II; or
- any activities in connection with the proposed disposition of Integrated
Process Technologies, LLC.
The HSB Board may, however,
- furnish information with respect to HSB or any of its subsidiaries to, or
participate in discussions or negotiations with, any person that makes an
unsolicited bona fide written acquisition proposal, but only to the
extent that:
-- it determines in good faith after receiving and considering advice
from its legal and financial advisors that it is necessary to do so
to comply with its fiduciary duties to its shareholders;
-- HSB receives from the person making the acquisition proposal an
executed confidentiality agreement substantially similar to the one
with AIG; and
-- HSB determines in good faith after receiving and considering advice
from its legal and financial advisors that the acquisition proposal,
if accepted, is reasonably likely to be completed and will result in
a more favorable transaction than the transactions contemplated by
the merger agreement; and
- comply with Rule 14e-2 promulgated under the Exchange Act with regard to
an acquisition proposal.
HSB has agreed to notify AIG immediately of its receipt of an acquisition
proposal, including the identity of the person and the terms and conditions of
the acquisition proposal.
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HSB also has agreed to terminate any discussions or negotiations with any
parties with respect to any of the foregoing and to promptly inform these
parties of its obligations under the merger agreement with respect to
acquisition proposals.
HSB has agreed that, unless the HSB Board determines in good faith after
consulting with and considering advice from its legal and financial advisors
that it is necessary to do so in order to comply with its fiduciary duties to
its shareholders under applicable law, the HSB Board will not:
- withdraw or modify in a manner adverse to AIG its approval or
recommendation of the merger or merger agreement; or
- approve, recommend or cause HSB to enter into any agreement with respect
to an acquisition proposal,
except that, if the HSB Board determines in good faith after consulting with and
considering advice from its legal and financial advisors that another
acquisition proposal is reasonably likely to be completed and will result in a
more favorable transaction than the transactions contemplated by the merger
agreement, then the HSB Board may:
- withdraw or modify its approval or recommendation of the merger agreement
and the merger;
- approve or recommend the superior proposal; or
- cause HSB to enter into a definitive agreement providing for the
consummation of the superior proposal and terminate the merger agreement.
EMPLOYEE BENEFITS
EAC has agreed, and AIG has agreed to cause EAC, to honor and make all
required payments when due under all contracts, plans and commitments of HSB and
its subsidiaries in effect prior to the completion of the merger which are
applicable to all current and former employees, officers, directors or
executives of HSB or any of its subsidiaries. EAC has also agreed to assume and
honor each employment, retention, consulting or severance agreement in effect
immediately prior to the completion of the merger that was disclosed to AIG.
EAC has agreed for the one-year period following the completion of the
merger it will continue to provide benefits under employee benefit, incentive
compensation, welfare and fringe benefit plans for the benefit of HSB's
employees, other than stock options or other plans involving the issuance of
securities by AIG or by EAC, that are no less favorable in the aggregate than
those provided to the participants prior to completion of the merger.
EAC has agreed that after the completion of the merger no HSB employee will
be entitled to fewer annual vacation days than those to which he or she was
entitled as of the date of the merger agreement.
EAC has also agreed that for a period of two years after the completion of
the merger, EAC will provide severance benefits to employees of HSB and its
subsidiaries who are terminated by AIG or EAC at any time during that two-year
time period in an amount equal to the severance payable to them under HSB's
employees' severance plan as in effect at the time of completion of the merger.
TREATMENT OF STOCK OPTIONS
The merger agreement provides that HSB will take all necessary actions so
that at the time of the completion of the merger, each unexpired and unexercised
stock option to purchase shares of HSB common stock will become immediately
exercisable and will be assumed by AIG. At the time of the merger each of these
stock options will be automatically converted into an option to purchase a
number of shares of AIG common stock determined by multiplying the number of
shares of HSB common stock that could have been purchased under that stock
option by the option exchange ratio, as such term is defined in "The Merger --
Interests of Certain Persons in the Merger -- Stock Options" and rounding any
fractional share up to the nearest whole share. AIG will determine the exercise
price of these options by dividing the exercise price per share specified in the
stock option by the option exchange ratio and rounding the exercise price thus
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determined up to the nearest whole cent. At the time of completion of the
merger, AIG will assume the HSB stock plans and all of HSB's obligations with
respect to the HSB stock plans.
AIG has agreed, as soon as practicable after the completion of the merger,
to file a registration statement on Form S-8 with respect to the shares of AIG
common stock receivable upon exercise of these stock options and to use its best
efforts to maintain such registration statement so long as any stock options
assumed by AIG in the manner described above remain outstanding.
AIG and HSB have agreed to take all necessary actions in order to cause any
dispositions of HSB equity securities or acquisitions of AIG equity securities
by directors or officers of HSB or by directors and officers of HSB who will be
directors and officers of AIG after the completion of the merger to be exempt
under Rule 16b-3 of the Exchange Act and the applicable no-action letters issued
by the Commission. AIG does not expect any director or officer of HSB will
become a director or officer of AIG after the completion of the merger.
AIG and HSB have agreed that all restrictions with respect to HSB
restricted stock awards will lapse when the merger is completed and that the
shares of HSB common stock subject to these awards will be converted into AIG
common stock in accordance with the terms of the merger agreement.
TAX MATTERS
AIG and HSB have agreed that, except as may result from AIG's determination
to pay a portion of the merger consideration in cash and subject to HSB's right
to terminate the merger agreement in the event the cash payments by AIG result
in the merger failing to qualify as a reorganization within the meaning of
Section 368(a) of the Code, neither of them nor any of their respective
subsidiaries will knowingly take or fail to take any action that would be
reasonably likely to jeopardize qualification of the merger as a reorganization
within the meaning of Section 368(a) of the Code.
CERTAIN OTHER COVENANTS AND AGREEMENTS
The parties also agreed:
- in the event any state takeover statute or federal law becomes applicable
to the merger or the provisions of the merger agreement or stock option
agreement, to take all necessary actions to cause the completion of the
merger and the transactions contemplated by those agreements;
- to cooperate with each other and use their respective reasonable best
efforts to obtain all consents and approvals of all governmental
authorities, regulatory bodies and third parties necessary to complete by
the merger, except that AIG is not obligated to agree to any condition
that is reasonably likely to materially and adversely impact the economic
or business benefits of the merger to AIG and its subsidiaries;
- to promptly file and prosecute diligently all applications and documents
required to be filed with any governmental authority and to cooperate
with each other and use reasonable best efforts to complete the merger;
- to advise each other upon the receipt of communications from governmental
authorities, whose consent is required for the completion of the merger,
and to furnish each other with necessary information and assistance in
connection with required governmental filings, including providing each
other with a draft and as-filed copies of governmental submissions;
- to:
-- prepare and file the registration statement and the proxy
statement/prospectus;
-- use their respective reasonable best efforts to have the registration
statement declared effective;
-- after the registration statement is declared effective, mail the
proxy statement/prospectus to the HSB shareholders;
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-- use their respective reasonable best efforts to cause to be delivered
to the other party a customary "cold comfort" letter from
PricewaterhouseCoopers LLP;
- to pay their own expenses relating to preparing and carrying out the
merger agreement if the merger agreement is terminated for any reason
without a breach by any party;
- to obtain each other's consent before making any public statement or
press release regarding the merger; and
- to treat the merger as a reorganization within the meaning of Section
368(a) of the Code.
HSB has also agreed:
- to give AIG and its representatives reasonable access to information
pertaining to HSB and its subsidiaries and to permit them to consult with
HSB's and its subsidiaries' respective officers, employees, auditors,
actuaries, attorneys and agents;
- to cause a shareholders' meeting to be held for the purpose of voting
upon the merger and the merger agreement;
- to use its reasonable best efforts to cause each of its affiliates, as
defined under Rule 145 of the Securities Act, to execute a written
agreement not to transfer, offer to sell or otherwise dispose of any of
the shares of AIG common stock issued to them in the merger, unless
certain conditions are met;
- to redeem, or use its best efforts to take action that AIG requests with
respect to, the HSB Debentures; and
- to coordinate with AIG the declaration, setting of record dates and
payment dates of dividends on HSB common stock.
AIG has also agreed:
- to list on the New York Stock Exchange a sufficient number of shares of
AIG common stock to be issued in the merger; and
- to take all reasonable actions required under applicable state blue sky
laws or securities laws in connection with its issuance of AIG common
stock in the merger.
The merger agreement provides that HSB may take such actions as are
necessary to donate the HSB art collection to a charitable organization that is
not a private foundation so long as that organization will use the property in a
manner that would maximize the tax deduction to HSB. HSB intends to keep the art
collection in Connecticut and available to the public.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
AIG has agreed to cause EAC to provide to all present and former directors
and officers of HSB and its subsidiaries after the merger the indemnification
rights they each had prior to the merger from HSB or its subsidiaries, whether
or not available under any of the following:
- the CBCA;
- the corporate laws governing any HSB subsidiary;
- the certificate of incorporation or the by-laws of HSB or the comparable
organizational documents of any of its subsidiaries; or
- by any contract, agreement, arrangement or course of dealing disclosed to
AIG as in effect on the date of the merger agreement.
AIG has agreed to cause EAC to maintain HSB's current directors' and
officers' liability insurance for a period of six years after completion of the
merger or to maintain a run-off or tail policy or endorsement for claims
asserted during the same period. During the six-year period, however, AIG will
only be required to
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spend up to 150% of the current annual premiums paid by HSB for this insurance
and, in the event the cost of coverage exceeds that amount, AIG will purchase as
much coverage as possible for that amount.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties made
by HSB some of which are qualified by materiality or subject to a disclosure
schedule. The matters these representations cover include:
- capitalization and organization of HSB, its subsidiaries and its
insurance subsidiaries;
- absence of participation in joint ventures by HSB or any of its
subsidiaries, other than as disclosed to AIG;
- HSB's corporate power to authorize, execute, deliver and perform the
merger agreement and the stock option agreement and the validity and
enforceability of such agreements;
- non-violation of HSB's and its subsidiaries' governing documents or any
of their agreements or law because of the execution and delivery of the
merger agreement and the stock option agreement and the completion of the
merger;
- the governmental and regulatory filings and approvals required for the
merger;
- documents filed with the Commission and the accuracy of information
contained therein;
- annual and quarterly financial statements filed by HSB and its insurance
subsidiaries with insurance regulatory authorities;
- absence of material adverse events, changes or effects on HSB or any of
its subsidiaries since December 31, 1999;
- tax matters, including absence of written agreements between HSB or any
of its subsidiaries and a tax authority regarding taxes;
- absence of litigation and undisclosed liabilities of HSB and any of its
subsidiaries;
- the enforceability of material contracts of HSB and its subsidiaries;
- absence of material misstatements and omissions in the registration
statement, the proxy statement that is part of the registration statement
or any other documents filed with the Commission in connection with the
merger;
- employee benefit plans of HSB and its subsidiaries;
- the absence of contracts or disputes of HSB and its subsidiaries with
labor unions or organizations;
- compliance with domestic or foreign laws, including compliance with
insurance laws and regulations by HSB and its subsidiaries;
- absence of environmental liabilities of HSB and its subsidiaries;
- receipt of an opinion of HSB's financial advisor;
- absence of fees of brokers and finders paid by HSB or any of its
subsidiaries, except as disclosed to AIG;
- inapplicability of any takeover statute or restrictive provision of HSB's
certificate of incorporation and by-laws to the merger;
- actions by HSB in order to prevent the separation of the rights from the
HSB common stock or other ways of triggering of the rights under the HSB
rights agreement;
- voting requirements to complete the merger;
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- ownership of intellectual property and absence of infringement of third
party intellectual property by HSB or its subsidiaries;
- HSB's and its insurance subsidiaries' insurance business;
- the absence of the status of HSB or any of its subsidiaries as an
investment company;
- maintenance of adequate insurance coverage by HSB and its subsidiaries;
- transactions with affiliates by HSB, its subsidiaries, or its insurance
subsidiaries;
- agents' and brokers' premiums paid by HSB or any of its insurance
subsidiaries for the year ended December 31, 1999;
- the absence of termination or threat of termination by large
policyholders as a result of the merger agreement, stock option agreement
or otherwise;
- HSB's insurance subsidiaries' analyses and reports relating to risk-based
capital calculations and IRIS ratios;
- HSB's and its insurance subsidiaries' investments assets; and
- absence of surplus relief agreements by the HSB insurance subsidiaries.
The merger agreement also contains various representations and warranties
made by AIG and EAC, some of which are qualified with respect to materiality.
The matters these representations cover include:
- capitalization and organization of AIG and EAC and similar corporate
matters;
- AIG's and EAC's corporate power to authorize, execute, deliver and
perform the merger agreement and the stock option agreement and the
validity and enforceability of these agreements;
- the governmental and regulatory filings and approvals required for the
merger;
- non-violation of AIG's and EAC's governing documents or any of their
agreements or law because of the execution and delivery of the merger
agreement and the stock option agreement and the completion of the
merger;
- documents filed with the Commission and the accuracy of information
contained therein;
- absence of certain material adverse events, changes or effects on AIG
since December 31, 1999;
- absence of material misstatements and omissions in the registration
statement, the proxy statement that is part of the registration statement
or any other document filed with the Commission in connection with the
merger;
- absence of fees of brokers and finders paid by AIG in connection with the
merger, except as disclosed to HSB;
- organization of EAC solely for the purpose of effecting the merger;
- absence of actions by AIG or EAC that will jeopardize the treatment of
the merger as a reorganization under Section 368(a) of the Code; and
- maintenance of the corporate headquarters of EAC at HSB's existing
location in Hartford, Connecticut.
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TERMINATION
The merger agreement may be terminated and the merger abandoned at any time
before the completion of the merger:
- by mutual written consent of HSB and AIG;
- by HSB if:
-- the merger is not completed before March 31, 2001, except that HSB
cannot terminate the merger agreement if it has failed to perform any
of its obligations under the merger agreement;
-- there has been a breach of a representation, warranty, covenant or
agreement contained in the merger agreement by AIG or EAC or any
representation or warranty contained in the merger agreement becomes
untrue after the date of the merger agreement, such that specified
conditions to the obligation of HSB to complete the merger would not
be satisfied and the breach or condition is not curable, or if
curable, is not cured within 30 days after written notice is sent to
AIG;
-- any order permanently prohibiting completion of the merger becomes
final and non-appealable, whether before or after the approval of the
HSB shareholders;
-- so long as HSB is not in material breach of the terms of the merger
agreement, after receiving an acquisition proposal by another person
which the HSB's Board determines, after taking into account the
advice of its financial and legal advisors, is reasonably likely to
be consummated and would result in a more favorable transaction than
the merger, and after giving AIG the opportunity to compete with this
more favorable proposal, the HSB Board authorizes HSB to enter into a
binding written agreement with the other person and pays AIG the
applicable termination fees prior to terminating the merger
agreement;
-- the approval of the merger by HSB shareholders is not obtained at the
special meeting; or
-- the merger fails to qualify as a reorganization under Section 368(a)
of the Code because of AIG's determination to pay part of the merger
consideration in cash.
- by AIG if:
-- the merger is not completed before March 31, 2001, except that AIG
cannot terminate the merger agreement if it or EAC has failed to
perform any of their obligations under the merger agreement;
-- there has been a breach of a representation, warranty, covenant or
agreement contained in the merger agreement by HSB or any
representation or warranty contained in the merger agreement becomes
untrue after the date of the merger agreement, such that specified
conditions to the obligation of AIG to complete the merger would not
be satisfied and the breach or condition is not curable, or if
curable, is not cured within 30 days after written notice is sent to
HSB;
-- any order permanently prohibiting completion of the merger becomes
final and non-appealable, whether before or after the approval of the
HSB shareholders;
-- the approval of the merger by HSB's shareholders is not obtained at
the special meeting;
-- the HSB Board has approved or recommended, or HSB has entered into an
agreement with respect to, another acquisition proposal; or
-- the HSB Board has withdrawn or adversely modified its recommendation
of the merger agreement and the merger or failed to reconfirm its
recommendation within five business days after a written request by
AIG to do so, except that this five business day period may be
extended for a limited time in specified circumstances.
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EXPENSES AND TERMINATION FEES
If the merger agreement is terminated:
- by either AIG or HSB in the event an acquisition proposal has been made
to HSB, any of its subsidiaries or any of its shareholders, or any person
has publicly announced an intention, whether or not conditional, to make
an acquisition proposal, and
-- the HSB shareholders fail to approve the merger and the merger
agreement, and
-- within 15 months of the termination a third person has acquired a
majority of the voting power, or substantially all the assets, of HSB
or has entered into a definitive agreement with HSB with respect to a
merger, consolidation or similar business combination;
- by HSB because the HSB Board has authorized HSB to enter into a binding
written agreement with another person who has made a more favorable
acquisition proposal after giving AIG the opportunity to compete with
such proposal as described above; or
- by AIG because:
-- of a willful or intentional breach of a representation or warranty by
HSB;
-- the HSB Board has approved or recommended, or HSB has entered into an
agreement with respect to, another acquisition proposal; or
-- the HSB Board has withdrawn or adversely modified its recommendation
of the merger agreement and the merger or failed to reconfirm its
recommendation within five business days after written request by AIG
to do so, taking into account any applicable extensions,
then HSB is required, not later than two days after the date of termination by
AIG, to pay AIG a termination fee of $45.0 million.
HSB has also agreed to reimburse AIG and EAC for all reasonable
out-of-pocket charges and expenses incurred by AIG and EAC in connection with
the merger agreement and the stock option agreement up to a maximum amount of
$5.0 million if:
- HSB is obligated to pay a termination fee, as described above; or
- AIG terminates the merger agreement because of a breach of a
representation or warranty by HSB, other than due to a willful or
intentional breach.
AMENDMENT AND WAIVER
HSB and AIG may, subject to the provisions of applicable law, amend, modify
or waive any provision of the merger agreement by a signed written agreement at
any time prior to the time the merger is complete.
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RELATED AGREEMENTS AND TRANSACTIONS
STOCK OPTION AGREEMENT
The following description of certain terms of the stock option agreement is
only a summary and does not purport to be complete. This discussion is qualified
in its entirety by reference to the stock option agreement, a copy of which is
attached to this proxy statement/prospectus as Appendix B and is incorporated by
reference in this proxy statement/prospectus.
The Option
In order to induce AIG to enter into the merger agreement, HSB and AIG
entered into the stock option agreement. HSB granted AIG the option to acquire
up to 5,777,272 shares of HSB common stock at a price of $41.00 per share.
Although this number of shares is subject to adjustment, as described in more
detail in the stock option agreement, it will never exceed 19.9% of the number
of shares of HSB common stock outstanding at the time of exercise of the option.
The stock option agreement could have the effect of making an acquisition of HSB
by a third party more costly because of the need to acquire in any such
transaction the shares issued under the stock option agreement, and also could
jeopardize the ability of a third party to acquire HSB in a transaction
accounted for as a "pooling of interests" as such term is used under United
States generally accepted accounting principles.
AIG or any other person that may become a holder of all or part of the
option may exercise the option, in whole or in part, at any time following the
occurrence of a "triggering event". The stock option agreement defines the term
"triggering event" to mean any one of the following transactions:
- any person other than AIG or any of its subsidiaries commences a tender
offer, or files a registration statement under the Securities Act with
respect to an exchange offer, to purchase 15% or more of the then
outstanding shares of HSB common stock;
- any person other than AIG or any of its subsidiaries publicly announces
or delivers to HSB a proposal to purchase 15% or more of the assets or
any equity securities of, or to engage in a merger, reorganization,
tender offer, share exchange, consolidation or similar transaction
involving, HSB or any of its subsidiaries and HSB does not reject such
proposal within 10 business days thereafter;
- HSB or any of its subsidiaries authorizes, recommends or proposes or
publicly announces an intention to authorize, recommend or propose or
enter into, an agreement with a third person to purchase 15% or more of
the assets or any equity securities of, or to engage in a merger,
reorganization, tender offer, share exchange, consolidation or similar
transaction involving, HSB or any of its subsidiaries;
- any person other than AIG or any of its subsidiaries acquires beneficial
ownership of 20% or more of the then outstanding shares of HSB common
stock, or
- the merger agreement is terminated and AIG becomes entitled to receive a
termination fee pursuant to the merger agreement.
AIG or any other holder's right to exercise the option is subject to
satisfaction of the following conditions, if applicable:
- prior approval by or notice to the insurance regulatory authorities of
the jurisdictions in which the HSB insurance subsidiaries are domiciled;
and
- a filing under the HSR Act.
Registration
The stock option agreement further provides that upon the occurrence of a
"triggering event", HSB will, at the request of AIG and as promptly as
practicable, file and cause to remain effective for one year from the date of
effectiveness a shelf registration statement under the Securities Act covering
all shares issued and issuable pursuant to the option. HSB may postpone filing a
registration statement relating to a registration
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request by AIG for a period of time not in excess of 30 days if in its
reasonable judgment that filing would require the disclosure of material
information that HSB has a bona fide business purpose to preserve as
confidential.
HSB may request AIG to suspend use of the registration statement for no
more than 30 consecutive days and for no more than 90 days in any year, if HSB
is in possession of material non-public information which it has a bona fide
reason not to publicly disclose.
Repurchase Right and Resale
HSB will repurchase the option and/or the shares of HSB common stock issued
upon exercise of the option, in whole or in part, following the occurrence of a
"triggering event", subject to the following conditions and to certain statutory
and regulatory requirements:
- provided that there has been a written request by the holder of the
option within 180 days of the occurrence of the "triggering event", HSB
will repurchase the option, in whole or in part, at a price equal to the
number of shares then purchasable upon exercise of the option, or such
lesser number of shares as is designated by the holder, multiplied by the
amount by which the "market/offer price" exceeds $41.00, subject to
adjustment as provided in the stock option agreement, or
- provided that there has been a written request by the holder of the
option, or any person who has been a holder of the option, within 180
days of the occurrence of the "triggering event", HSB will repurchase
such number of shares of HSB common stock issued upon exercise of the
option as the holder has designated at a price equal to the number of
shares designated multiplied by the "market/offer price."
The term "market/offer price" means the highest of (1) the price per share
of HSB common stock to be paid by any third party pursuant to an agreement
relating to an acquisition proposal, as defined in the "The Merger
Agreement -- Agreement Not to Solicit Other Offers", with HSB and (2) the
highest trading price for the shares of HSB common stock on the NYSE or any
other national securities or automated quotation system on which the shares are
then listed or quoted, within the 120-day period immediately preceding the
delivery of the notice to HSB to repurchase the shares.
Profit Limitation
The stock option agreement provides that AIG's "total profit" may not
exceed $50.0 million and that the option may not be exercised for a number of
shares of HSB common stock that would result in a "notional total profit" in
excess of $50.0 million.
"Total profit" means the aggregate amount before taxes of
(1) (A) the amount received by AIG pursuant to HSB's repurchase of the
option or any shares of HSB common stock issued upon exercise of
the option, less, in the case of any repurchase of such shares,
(B) AIG's purchase price for such shares, plus
(2) (A) the net cash amounts received by AIG pursuant to the sale of such
shares to any unaffiliated party, less
(B) AIG's purchase price for such shares, plus
(3) any termination fee paid by HSB to AIG under the merger agreement minus
(4) (A) the amount of any cash previously paid by AIG to HSB as determined
under terms of the stock option agreement plus
(B) the value of shares of HSB common stock previously delivered by AIG
to HSB for cancellation as determined under terms of the stock
option agreement.
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"Notional total profit" means, with respect to any number of shares of HSB
common stock as to which AIG may propose to exercise the option, the total
profit determined as of the date of such proposal assuming that the option were
exercised on such date for such number of shares and assuming that such shares,
together with all other shares issued upon exercise of the option and held by
AIG as of such date, were sold for cash at the closing market price for the
shares as of the close of business on the preceding trading day, less customary
brokerage commissions.
Termination
AIG's right to exercise the option terminates upon:
- the date of completion of the merger;
- 180 days after the date that the merger agreement is terminated if AIG is
entitled to or may be entitled to a termination fee; or
- the date that the merger agreement is terminated if AIG is not entitled
to and has no possible entitlement to a termination fee.
TERM LOAN AGREEMENT
In connection with the merger, AIG extended a loan to HSB in the principal
amount of $315.0 million in order for HSB to fund its redemption of the HSB
Debentures issued by HSB to HSB Capital II which redemption occurred on
September 14, 2000. HSB Capital II used the proceeds from the redemption of the
HSB Debentures to redeem the HSB Capital II Securities. The loan is a five-year
term loan, maturing on September 30, 2005, and is evidenced by a promissory note
given by HSB to AIG, dated September 14, 2000.
Interest Rate
The loan bears interest on the unpaid principal amount at a rate per annum
of 7.47%. The interest is payable quarterly and on the date of any repayment of
the principal amount under the terms of the agreement. After the principal
amount of the loan becomes due and payable, the loan will bear interest, payable
on demand, at an annual rate equal to 2% in excess of the annual interest rate
of the loan.
Mandatory Prepayment
HSB must prepay the loan in whole together with accrued interest to the
prepayment date on the amount prepaid on the business day on which HSB
terminates the merger agreement under the section of the merger agreement which
permits termination if the HSB Board determines that an unsolicited proposal
from another entity would result in a more favorable transaction to HSB's
shareholder.
Optional Prepayment
HSB has the option to prepay the loan at any time, in whole or in part,
without premium or penalty, upon at least three business days notice to AIG,
specifying the date and amount of prepayment. The notice will be irrevocable and
interest will be due in the amount accrued to the prepayment date on the amount
prepaid. If HSB elects to make a partial prepayment, the prepayment will be in a
minimum aggregate principal amount of $50.0 million or, if greater, an integral
multiple of $25.0 million.
Covenants
The loan agreement contains covenants customarily found in loan agreements
of such type.
Events of Default
If an "event of default" occurs, AIG may, at its option and upon a written
notice given to HSB at any time after the occurrence of such an event of
default, declare the loan to be due and payable, together with any interest
accrued to that date. However, the loan will become immediately due and payable,
without a
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declaration or notice, if the event of default is an involuntary or voluntary
federal or state bankruptcy or similar case or other proceeding, involving HSB,
The Hartford Steam Boiler Inspection and Insurance Company, referred to as
"HSBIIC" or The Hartford Steam Boiler Inspection and Insurance Company of
Connecticut, referred to as "HSBIICC," as described below.
Under the terms of the loan agreement an "event of default" includes, among
other things, the following events:
- a default in the due payment of the principal amount of the loan, when it
becomes due at maturity, by acceleration, by notice of prepayment, by
mandatory prepayment, or otherwise;
- a default in the due payment of any interest on the loan, when it becomes
due, if the default has not been cured within five business days;
- the proof of any representation or warranty made by HSB in the loan
agreement or any certificate or financial statement delivered in
connection with the loan agreement to be false or misleading in any
material respect on the date on which made;
- a default by HSB in the performance or material compliance with the terms
of the loan agreement, if the default is not remedied within 30 days;
- HSB or any of its subsidiaries fail to make any payment at maturity,
including any grace periods, on any bond, debenture, note or other
evidence of indebtedness, other than non-recourse indebtedness and the
promissory note on the loan from AIG, having a principal amount in excess
of $5.0 million in the aggregate for HSB and its subsidiaries for a
period of 30 days, or if a default shall have occurred with respect to
any debt having a principal amount in excess of $5.0 million in the
aggregate for HSB and its subsidiaries which results in the acceleration
of the debt without the debt having been discharged or the acceleration
having been cured, waived, rescinded or annulled for a period of 30 days;
- the commencement of a voluntary or involuntary case or proceeding by or
against HSB, HSBIIC or HSBIICC under any applicable federal or state
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium,
conservatorship, receivership or other similar law;
- the filing by HSB, HSBIIC or HSBIICC of a petition or answer or consent
seeking reorganization or relief under any applicable federal or state
law, or consent to the filing of such petition or to the appointment of
or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official for any of them or any
substantial part of their property;
- the assignment by HSB, HSBIIC or HSBIICC for the benefit of creditors, or
the admission in writing of an inability to pay their debts generally as
they become due; and
- a final judgment in excess of $5.0 million shall have been rendered by a
court of competent jurisdiction in the United States against HSB and its
subsidiaries, and within 60 days after the entry of the final judgment,
the final judgment will not have been discharged or satisfied or
execution of the final judgment stayed pending appeal.
AMENDMENT TO HSB'S RIGHTS AGREEMENT
In connection with the merger, HSB agreed to amend its rights agreement,
dated as of November 28, 1998, between HSB and Fleet National Bank, previously
known as BankBoston, N.A. The rights agreement was amended to provide that
neither the signing of the merger agreement or the stock option agreement nor
the completion of the merger or the exercise of the stock option in accordance
with their respective terms would:
- cause AIG to become an "acquiring person", as that term is defined in the
rights agreement; or
- constitute a "triggering event", as that term is defined in the rights
agreement.
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HSB delivered an officers' certificate to Fleet National Bank certifying that
the amendment complied with the terms of the rights agreement.
The merger agreement provides that during the period between the signing of
the merger agreement and the completion of the merger, HSB will not amend,
modify or terminate the rights agreement.
A copy of the amendment to the rights agreement is attached as Appendix C
to this proxy statement/prospectus and is incorporated by reference in this
proxy statement/prospectus.
EMPLOYMENT AGREEMENTS
One of the conditions to be satisfied before AIG is required to complete
the merger is AIG and/or EAC entering into employment agreements with Richard H.
Booth and Normand Mercier, executive officers of HSB, and at least eight of the
13 other persons, including the seven other executive officers of HSB,
identified in the merger agreement. The employment agreements will generally
become effective upon completion of the merger and continue for four years.
AIG and HSB expect that each employment agreement will provide that during
the employment period:
- the executive will be paid an annual cash bonus in accordance with EAC's
performance based bonus program and customary practices; provided that
the bonus award for 2001 as a percentage of annual base salary and the
corresponding target levels will be those utilized in the annual
incentive plan that was applicable to the executive for the year 2000 and
the applicable performance targets will be based on a formula relating to
the operating plan similar to the one established for 2000 as agreed
between Mr. Booth and the board of directors of EAC;
- if the executive is employed by EAC on the first anniversary date of the
completion of the merger, the executive will be paid a retention bonus
equal to his annual base salary within one month of that anniversary; and
- the executive will be eligible to participate in all employee benefit and
welfare plans of EAC on a basis no less favorable than that provided to
other senior executive officers of EAC and other similarly situated
executive officers of other AIG subsidiaries; provided that nothing will
require the executive's participation in any such plans in which
participation of any individual employee is discretionary; and provided
further that the executive's prior service with HSB will be taken into
account for all purposes except benefit accruals.
Except for Mr. Booth's employment agreement, each employment agreement will
also provide that EAC shall take such steps to grandfather the executive such
that EAC will be required to provide retirement medical coverage to the
executive on terms and conditions no less favorable than would have been
available to the executive upon retirement under HSB's retirement medical
coverage plan as in effect on the date of the employment agreement.
Mr. Booth's employment agreement will also provide that Mr. Booth will be
credited with 10 additional years of service for purposes of determining any
retirement benefits to which Mr. Booth would be entitled under any tax-qualified
defined benefit pension plan, or non-qualified supplemental or excess benefit
plan relating thereto, which is maintained by EAC and designed to provide Mr.
Booth defined benefit type retirement benefits.
Each employment agreement will provide that if, during the employment
period, the executive's employment is terminated for any reason, EAC will:
- pay to the executive his annual base salary through the date of
termination to the extent not yet paid and any bonus payments for a prior
bonus year that have been earned but not yet paid; and
- to the extent not yet paid or provided, pay or provide to the executive
any other amounts or benefits required under any plan, program, policy,
practice, contract or agreement of EAC through the date of termination.
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Mr. Booth's employment agreement will provide that in the event his
employment is terminated for any reason during the employment period:
- for purposes of any retiree medical benefits insurance program then in
effect, Mr. Booth will be deemed to have satisfied any years of service
and retirement status requirements as of his date of termination in order
to be eligible to receive benefits under such program, which benefits
shall commence immediately following his date of termination or, if
applicable, the expiration of the period of welfare benefit continuation
described below; and
- notwithstanding the fact that Mr. Booth's severance agreement has been
terminated, Mr. Booth will be entitled to receive from EAC a credit of 10
additional years of service for purposes of determining Mr. Booth's
retirement benefits as provided for under his severance agreement as if
such severance agreement were still in effect.
Mr. Booth's employment agreement will also provide that if, during the
employment period, he dies, notwithstanding the fact that Mr. Booth's severance
agreement has terminated, his spouse will be entitled to receive from EAC credit
of 10 additional years of service for purposes of determining his spouse's death
benefits as provided for under Mr. Booth's severance agreement as if such
agreement were still in effect.
Each employment agreement will provide that if, during the employment
period, EAC terminates the executive's employment other than for "cause", as
defined in such executive's employment agreement, or the executive terminates
his employment for "good reason", as defined in such executive's employment
agreement, the executive will be entitled to the following additional payments
and benefits:
- EAC will pay the executive a lump sum cash payment within 30 days after
the date of termination an amount equal to the product of (x) the sum of
the executive's annual base salary and the average annual bonus paid to
the executive, including as paid for this purpose any compensation earned
but deferred, whether or not at the election of the executive and whether
or not vested, for the three years prior to the date of termination and
(y) 3.0, if the date of termination is on or before the second
anniversary of the consummation of the merger, 2.0, if the date of
termination is after the second anniversary but on or before the third
anniversary of the consummation of the merger, or 1.0, if the date of
termination is after the third anniversary but on or before the fourth
anniversary of the consummation of the merger; provided that any such
amount shall be decreased by the amount of any retention bonus paid to
the executive; and
- for the remainder of the employment period, EAC will continue to provide
insurance, medical, dental and other welfare benefits to the executive,
his spouse and eligible dependents on the same basis as such benefits are
then currently provided to its employees; provided that any payments
received with respect to such welfare benefits will be secondary to any
payments made pursuant to other coverage obtained by the executive.
AIG and HSB expect that each employment agreement will also provide for the
executive to receive a gross-up payment if the executive becomes subject to
excise tax as a result of any of the payments that the executive receives under
his employment agreement, or otherwise, being determined to be "excess parachute
payments" within the meaning of Section 280G of the Code.
The employment agreements provide that during the term of the executive's
employment and for the one-year period thereafter, each executive will not, in
any manner, directly or indirectly, solicit any person who is an employee of
HSB, AIG or EAC to apply for or accept employment with any competing business.
In addition, the employment agreements provide that during the term of the
executive's employment and at all times thereafter, each executive will keep
secret and not disclose confidential information.
If the merger occurs, the employment agreements will replace the severance
agreements currently in effect between HSB and the executives. Please see "The
Merger -- Interests of Certain Persons in the Merger -- Severance Agreements;
Employment Agreements".
76
<PAGE> 83
INFORMATION REGARDING AIG
AIG is a holding company with a market capitalization, as of June 30, 2000,
of approximately $181 billion, which through its subsidiaries is primarily
engaged in a broad range of insurance and insurance-related activities and
financial services in the United States and abroad. AIG's primary activities
include both general and life insurance operations. Other significant activities
include financial services and asset management.
AIG's general insurance subsidiaries are multiple line companies writing
substantially all lines of property and casualty insurance. One or more of these
companies is licensed to write substantially all of these lines in all states of
the United States and in approximately 70 foreign countries.
AIG's life insurance subsidiaries offer a wide range of traditional
insurance and financial and investment products. One or more of these
subsidiaries is licensed to write life insurance in all states in the United
States and in over 70 foreign countries. Traditional products consist of
individual and group life, annuity, endowment and accident and health policies.
Financial and investment products consist of single premium annuity, variable
annuities, guaranteed investment contracts, universal life and pensions.
AIG's financial services subsidiaries engage in diversified financial
products and services including aircraft, consumer and premium financing, and
banking services.
AIG's asset management operations offer a wide variety of investment
vehicles and services, including variable annuities, mutual funds, and
investment asset management. Such products and services are offered to
individuals and institutions both domestically and internationally.
77
<PAGE> 84
INFORMATION REGARDING HSB
HSB Group, Inc. was formed under the laws of the State of Connecticut in
1997 to serve as the holding company for The Hartford Steam Boiler Inspection
and Insurance Company, referred to as "HSBIIC", and its subsidiaries. HSBIIC was
chartered as an insurance company by the Connecticut legislature in 1866.
HSB has its principal executive offices at One State Street, P.O. Box 5024,
Hartford, Connecticut 06102-5024, and its telephone number is (860) 722-1866.
HSB's operations are divided into four reportable operating segments:
- Commercial insurance;
- Global Special Risk insurance;
- Engineering Services; and
- Investments.
Through its Commercial insurance operating segment, HSB provides risk
modification services, equipment breakdown insurance and loss recovery services
to commercial businesses. The Global Special Risk insurance operating segment
focuses on the needs of equipment-intensive industries by offering all-risk
coverages with customized engineering consulting and risk management. HSB's
Engineering Services operations offer professional scientific and technical
consulting for industry and government on a worldwide basis. HSB's investment
assets are managed by its Investment operating segment.
HSB is a multi-national company operating primarily in North American,
European, and Asian markets. Currently, HSB's principal market for its insurance
and engineering services is the United States.
HSB conducts its business in Canada through its insurance subsidiary, The
Boiler Inspection and Insurance Company of Canada. Insurance and related
engineering services for risks located in countries other than the United States
and Canada are primarily provided by HSB Engineering Insurance Limited, HSB's
United Kingdom insurance subsidiary.
The most significant business of HSB is providing insurance against losses
from accidents to boilers, pressure vessels, and a wide variety of mechanical
and electrical machinery and equipment along with a high level of inspection and
engineering services aimed at loss prevention. HSB is the largest writer of
equipment breakdown insurance in North America.
HSBIIC's Engineering Services division and engineering company affiliates
provide:
- quality assurance services;
- inspections to code standards of the American Society of Mechanical
Engineers and other organizations;
- International Standards Office certification and registration services;
- using their proprietary technologies and databases, other specialized
consulting, condition monitoring, benchmarking and inspection services
related to the design and applications of boilers, pressure vessels, and
many other types of equipment for domestic and foreign equipment
manufacturers and operators;
- preventive maintenance services and programs;
- protection consulting services;
- comparitive benchmarking consulting services to refining, petrochemical
and power-generation industries; and
- services related to analysis, control and prevention of structual and
equipment failures.
HSBIIC is the largest Authorized Inspection Agency for the American Society
of Mechanical Engineers codes in the world. The Engineering Services operations
also offer training and educational services related to certain of these areas.
In addition, HSB has been developing and expanding its services to respond to
the growing trend to outsource the management and maintenance of property, plant
and equipment.
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<PAGE> 85
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT OF HSB COMMON STOCK
HSB is unaware of any shareholder who on September 25, 2000 was the
beneficial owner of 5% or more of HSB common stock outstanding, except as noted
in the following table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
-------------- -------------------------- ----------------- ----------------
<S> <C> <C> <C>
Common Stock.......... American International
Group, Inc.
70 Pine Street
New York, New York 10270
(1) (1)
</TABLE>
---------------
(1) As of September 25, 2000, AIG and its subsidiaries beneficially owned
359,950 shares of HSB common stock. In addition, HSB entered into a stock
option agreement, dated as of August 17, 2000 with American International
Group, Inc. The stock option agreement grants AIG the right to acquire up to
5,777,272 shares of HSB common stock at a price of $41.00 per share upon the
occurrence of a "triggering event" as defined in the stock option agreement.
This share number is subject to adjustment but will never exceed 19.9% of
the issued and outstanding shares of HSB common stock at the time of
exercise of the option. AIG's ability to exercise its rights under the stock
option agreement is subject to applicable legal and regulatory requirements
and approvals. For a description of the stock option agreement, see "Related
Agreements and Transactions -- Stock Option Agreement".
The number of shares of HSB common stock beneficially owned as of September
25, 2000 by each director and each current executive officer, which in each
case, other than Mr. Downs, represents less than 1% of HSB common stock
outstanding as of such date, and by all current directors and executive officers
as a group, is shown in the table below. Assuming the exercise of all currently
exercisable options, Mr. Downs would beneficially own 1.2% of HSB common stock
as of September 25, 2000. For non-employee members of the HSB Board
participating in the Directors Stock and Deferred Compensation Plan, and for Mr.
Booth, who received deferred shares under the plan while a non-employee
director, the number of shares shown as held directly also includes the number
of deferred shares credited to their accounts. Individuals are at full risk as
to the value of deferred shares held in their deferred accounts.
Unless otherwise indicated, each executive officer and director has sole
voting and investment power, or shares such powers with a family member, with
respect to shares of HSB common stock shown as held directly, other than
deferred shares, which cannot be voted. All shares of HSB common stock shown as
held indirectly reflect sole voting and investment power exercised by the
individual specified unless otherwise indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNER DIRECTLY HELD(1) INDIRECTLY HELD TOTAL
---------------- ---------------- --------------- -------
<S> <C> <C> <C>
Joel B. Alvord............................... 13,381 13,381
Saul L. Basch................................ 238,442(2) 238,442
Richard H. Booth............................. 85,481 500(3) 85,981
Colin G. Campbell............................ 7,209 2,151(4) 9,360
Richard G. Dooley............................ 26,255 26,255
Michael L. Downs............................. 364,162(5) 364,162
William B. Ellis............................. 8,518 8,518
E. James Ferland............................. 9,422 3,000(3) 12,422
Henrietta H. Fore............................ 8,716 8,716
John J. Kelley............................... 212,561(6) 1,600(3) 214,161
William A. Kerr.............................. 216,806(7) 216,806
Simon W. Leathes............................. 3,494 3,494
Normand Mercier.............................. 112,230(8) 112,230
</TABLE>
79
<PAGE> 86
<TABLE>
<CAPTION>
BENEFICIAL OWNER DIRECTLY HELD(1) INDIRECTLY HELD TOTAL
---------------- ---------------- --------------- -------
<S> <C> <C> <C>
R. Kevin Price............................... 257,057(9) 257,057
Lois D. Rice................................. 9,690 300(10) 9,990
William Stockdale............................ 166,500(11) 166,500
Robert C. Walker............................. 252,197(12) 252,197
</TABLE>
All current directors and executive officers as a group (seventeen in
number): 1,999,672 (13)
------------------------
(1) Includes deferred shares held in the Directors Stock and Deferred
Compensation Plan for the following directors: Mr. Alvord, 10,845; Mr.
Booth, 2,406; Mr. Campbell, 6,081; Mr. Dooley, 16,069; Mr. Ellis, 7,018;
Mr. Ferland, 7,922; Ms. Fore, 3,716; Mr. Leathes, 2,519; and Mrs. Rice,
8,562.
(2) Includes 210,000 shares subject to options to purchase shares of HSB common
stock that are exercisable on or before November 24, 2000.
(3) Shares held by spouse.
(4) 600 shares held in trusts for benefit of children over which Mr. Campbell
exercises shared voting and investment power. 1,551 shares are held by his
spouse.
(5) Includes 307,500 shares subject to options to purchase shares of HSB common
stock that are exercisable on or before November 24, 2000.
(6) Includes 187,500 shares subject to options to purchase shares of HSB common
stock that are exercisable on or before November 24, 2000.
(7) Includes 195,000 shares subject to options to purchase shares of HSB common
stock that are exercisable on or before November 24, 2000.
(8) Includes 97,500 shares subject to options to purchase shares of HSB common
stock that are exercisable on or before November 24, 2000.
(9) Includes 225,000 shares subject to options to purchase shares of HSB common
stock that are exercisable on or before November 24, 2000.
(10) As trustee.
(11) Includes 165,000 shares subject to options to purchase shares of HSB common
stock that are exercisable on or before November 24, 2000.
(12) Includes 225,000 shares subject to options to purchase shares of HSB common
stock that are exercisable on or before November 24, 2000.
(13) Includes 1,612,500 shares subject to options to purchase shares of HSB
common stock that are exercisable on or before November 24, 2000 and 65,138
deferred shares held under the Directors Stock and Deferred Compensation
Plan. Assuming the exercise of all such options and the issuance of all
such deferred shares, the percentage of HSB common stock beneficially owned
by all current directors and executive officers as a group would be
approximately 6.5% of HSB common stock.
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<PAGE> 87
DEADLINE FOR HSB SHAREHOLDER PROPOSALS
HSB will hold a 2001 annual meeting of its shareholders in the second
quarter of 2001 only if the merger is not completed before the scheduled date of
the 2001 annual meeting. HSB expects to complete the merger prior to the second
quarter of 2001. In the event the merger is not completed by this time, the
following information shall apply with respect to shareholder proposals to be
included in the proxy statement for the 2001 annual meeting.
The Commission rules set forth standards as to what shareholder proposals
are required to be included in a proxy statement. HSB shareholders who wish to
submit written proposals for possible inclusion in the proxy materials for the
2001 annual meeting must make certain that they are received no later than
November 8, 2000. Proposals should be sent to the Corporate Secretary, HSB
Group, Inc., One State Street, P.O. Box 5024, Hartford, Connecticut 06102-5024.
81
<PAGE> 88
DESCRIPTION OF AIG CAPITAL STOCK
The following description of the material terms of the capital stock of AIG
does not purport to be complete and is qualified in its entirety by reference to
AIG's restated certificate of incorporation, as amended, by-laws and the
Delaware General Corporation Law, referred to as the "DGCL".
GENERAL
The authorized capital stock of AIG consists of 5,000,000,000 shares of AIG
common stock, par value $2.50 per share, and 6,000,000 shares of serial
preferred stock, par value $5.00 per share. As of June 30, 2000, there were
1,542,555,812 shares of AIG common stock outstanding and no shares of AIG
preferred stock outstanding. Adjusting on a pro forma basis, AIG common shares
outstanding would have been 2,313,833,718 after reflecting a common stock split
in the form of a 50 percent common stock dividend paid on July 28, 2000.
AIG COMMON STOCK
All of the outstanding shares of AIG common stock are fully paid and
nonassessable. Subject to the prior rights of the holders of shares of AIG
preferred stock that may be issued and outstanding, none of which are currently
outstanding, the holders of AIG common stock are entitled to receive:
- dividends as and when declared by the AIG Board or Directors out of funds
legally available for the payment of dividends; and
- in the event of the dissolution of AIG, to share ratably in all assets
remaining after payment of liabilities and satisfaction of the
liquidation preferences, if any, of then outstanding shares of AIG
preferred stock, as provided in AIG's restated certificate of
incorporation, as amended.
Each holder of AIG common stock is entitled to one vote for each share held
of record on all matters presented to a vote at a shareholders meeting,
including the election of directors. Holders of AIG common stock have no
cumulative voting rights or preemptive rights to purchase or subscribe for any
stock or other securities and there are no conversion rights or redemption or
sinking fund provisions with respect to the stock. Additional authorized shares
of AIG common stock may be issued without shareholder approval.
AIG PREFERRED STOCK
The authorized but unissued shares of AIG preferred stock are available for
issuance from time to time at the discretion of the AIG Board of Directors
without shareholder approval. The AIG Board of Directors has the authority to
determine for each series of AIG preferred stock it establishes the number,
designation, preferences, limitations, and relative rights of the shares of the
series, subject to applicable law and the provisions of any outstanding series
of AIG preferred stock. The terms of any series of AIG preferred stock,
including the dividend rate, redemption price, liquidation rights, sinking fund
provisions, conversion rights and voting rights, and any corresponding effect on
other shareholders, will be dependent largely on factors existing at the time of
issuance. These terms and effects could include:
- restrictions on dividends on the AIG common stock if dividends on the AIG
preferred stock are in arrears;
- dilution of the voting power of other shareholders to the extent a series
of the AIG preferred stock has voting rights; and
- reduction of amounts available for liquidation as a result of any
liquidation preference granted to any series of AIG preferred stock.
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<PAGE> 89
COMPARISON OF RIGHTS OF AIG AND HSB SHAREHOLDERS
AIG is incorporated under the laws of the State of Delaware. HSB is
incorporated under the laws of the State of Connecticut. The holders of shares
of HSB common stock whose rights as shareholders are currently governed by
Connecticut law, the HSB certificate of incorporation, and the HSB by-laws,
will, upon the exchange of their shares under the terms of the merger agreement,
become holders of shares of AIG common stock, and their rights as such will be
governed by Delaware law, the AIG restated certificate of incorporation, as
amended, and the AIG by-laws. The material differences between the current
rights of HSB shareholders and the rights those shareholders will have as
shareholders of AIG upon completion of the merger, which result from differences
in AIG's and HSB's respective governing corporate documents and differences in
Delaware and Connecticut corporate law, are summarized below.
The following summary is not intended to be complete and is qualified in
its entirety by reference to the CBCA, the DGCL, the HSB certificate of
incorporation, the HSB by-laws, the HSB rights agreement, the AIG restated
certificate of incorporation, as amended, and the AIG by-laws, as appropriate.
The identification of specific differences is not meant to indicate that other
equally or more significant differences do not exist. Copies of the HSB
certificate of incorporation, the HSB by-laws, the HSB rights agreement, the AIG
restated certificate of incorporation, as amended, and the AIG by-laws are
incorporated by reference and will be sent to holders of shares of HSB common
stock upon request. See "Where You Can Find More Information".
<TABLE>
<S> <C>
AUTHORIZED CAPITAL STOCK
The AIG restated certificate of The HSB certificate of incorporation
incorporation, as amended, currently currently provides for authorized stock
provides for authorized stock consisting of consisting of 50,000,000 shares of HSB
5,000,000,000 shares of AIG common stock, common stock, no par value, and 500,000
$2.50 par value, and 6,000,000 shares of AIG shares of preferred stock, no par value, of
preferred stock, $5.00 par value. No shares which 250,000 shares have been designated as
of AIG preferred stock are currently "Series A Junior Participating Preferred
outstanding. Stock" and 2,000 shares have been desig-
nated as "Series B Convertible Preferred
Stock". No shares of HSB preferred stock are
currently outstanding.
</TABLE>
<TABLE>
<S> <C>
ELECTION AND SIZE OF BOARD OF DIRECTORS
Under Delaware law, directors, unless their Under Connecticut law, directors, unless
terms are staggered, are elected at each their terms are staggered, are elected at
annual shareholder meeting. Vacancies on the each annual shareholder meeting. Vacancies
board of directors may be filled by the on the board of directors may be filled by
shareholders or directors, unless the the shareholders or directors, unless the
certificate of incorporation or the by-laws certificate of incorporation provides
provides otherwise. The certificate of otherwise. The certificate of incorporation
incorporation may authorize the election of may authorize the election of a certain
certain directors by one or more classes or number of directors by one or more classes
series of stocks, and the certificate of or series of shares. Connecticut law also
incorporation, an initial by-law or a by-law permits a Connecticut corporation to provide
adopted by a vote of the shareholders may in its certificate of incorporation for the
provide for staggered terms for the staggering of the terms of its directors by
directors. The certificate of incorporation dividing the total number of directors into
or the by-laws also may allow the up to five groups, with each group
shareholders or the board of directors to containing approximately the same percentage
fix or change the number of directors, but a of the total, as nearly as may be. The
corporation must have at least one director. certificate of incorporation or the
</TABLE>
83
<PAGE> 90
<TABLE>
<S> <C>
Under Delaware law, shareholders do not have by-laws may allow the shareholders or the
cumulative voting rights unless the board of directors to fix or change the
certificate of incorporation so provides. number of directors, but a corporation must
have at least one director. Under
The AIG by-laws provide that directors are Connecticut law, shareholders do not have
elected by a plurality of votes at annual cumulative voting rights unless the
meetings and hold office until the annual certificate of incorporation so provides.
meeting of shareholders next succeeding
their election until successors are elected The HSB by-laws provide that the number of
and qualified or until their earlier directors shall consist of the number of
resignation or removal. The AIG restated directors fixed from time to time by
certificate of incorporation, as amended, resolution adopted by the affirmative vote
provides that the number of directors shall of a majority of the entire HSB Board. The
be fixed in the manner provided in the AIG HSB certificate of incorporation provides
by-laws. The AIG by-laws fix the number of for the HSB Board to be divided into three
directors at not less than 7 or more than classes. Each class is to consist, as nearly
21. Currently there are 18 directors. The as may be possible, of one-third of the
AIG by-laws provide that the size of the AIG total number of directors constituting the
board of directors may be increased by the HSB Board. Each director serves a term of
vote of a majority of directors then in three years.
office, although less than a quorum, or by
the affirmative vote of the holders of a
majority of the outstanding shares of all
classes of stock entitled to vote thereon.
</TABLE>
<TABLE>
<S> <C>
REMOVAL OF DIRECTORS
Under the DGCL, a director of a corporation Connecticut law provides that shareholders
that does not have a classified board of may remove one or more directors with or
directors or cumulative voting may be without cause only at a meeting called for
removed, with or without cause, with the that purpose unless the certificate of
approval of a majority of the outstanding incorporation provides that directors may be
shares entitled to vote. The AIG by-laws removed only for cause. Connecticut law also
provide that any director may be removed, enables a corporation or holders of 10% or
with or without cause, by the holders of a more of its shares to seek removal of a
majority of the shares entitled to vote at director through court action in cases of
an election of directors. fraud, dishonesty or gross abuse of
authority or discretion if the court finds
that removal is in the best interest of the
corporation.
The HSB certificate of incorporation
provides that any director or the entire HSB
Board may be removed only for cause, as that
term is defined in the certificate of
incorporation, by the affirmative vote of
80% of the votes entitled to be cast by the
holders of all then-outstanding shares of
voting stock of HSB, voting together as a
single class.
</TABLE>
<TABLE>
<S> <C>
VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, unless the certificate Under Connecticut law, unless the
of incorporation or by-laws provide certificate of incorporation provides
otherwise, the board of directors of a otherwise, if a vacancy occurs on the board
corporation may fill any vacancy on the of directors, including a vacancy resulting
board, including vacancies resulting from an from an increase in the number of directors,
increase in the number of directors. The AIG (1) the shareholders may fill the vacancy,
by-laws provide that any vacancy created by (2) the board of directors may fill the
the removal of directors with or without vacancy or (3) if the directors remaining in
cause by holders of a majority of shares office constitute fewer than a quorum of the
entitled to vote at board of
</TABLE>
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<PAGE> 91
<TABLE>
<S> <C>
an election of directors may be filled by directors, they may fill the vacancy by the
the same majority or by a majority of the affirmative vote of a majority of all the
holders of a class or series of shares where directors remaining in office.
such class or series is entitled to elect
one or more of the directors of the class The HSB certificate of incorporation
from which directors were so removed. Other provides that any vacancy on the HSB Board
vacancies and newly created directorships that results from an increase in the number
resulting from any increase in the of directorships may be filled by the
authorized number of directors elected by concurring vote of the majority of directors
all of the shareholders having a right to and that any vacancy arising out of any
vote as a single class or from any other other circumstances may be filled by the
cause may be filled by a majority of concurring vote of a majority of the
directors then in office, although less than remaining directors then in office, although
a quorum, or by the sole remaining director. less than quorum, or by a sole remaining
Whenever the holders of any class or series director.
of stock are entitled to elect one or more
directors, vacancies and newly created
directorships of such class or series may,
unless otherwise provided in the AIG
restated certificate of incorporation, as
amended, be filled by a majority of the
directors elected by such class or series
thereof then in office, or by the sole
remaining director so elected.
</TABLE>
<TABLE>
<S> <C>
ACTION BY WRITTEN CONSENT
Delaware law provides that, unless limited Under Connecticut law, any action required
by the certificate of incorporation, any or permitted to be voted on at a meeting of
action that could be taken by shareholders shareholders may be taken without a meeting
at a meeting may be taken without a meeting and without a shareholder vote, if (1) there
if a consent or consents in writing, setting is a unanimous written consent of all
forth the action so taken, is signed by the persons entitled to vote on the action or
holders of record of outstanding stock (2) the certificate of incorporation
having not less than the minimum number of provides that the consent of the holders of
votes that would be necessary to authorize a number of shares not less than a majority
or take such action at a meeting at which is required for approval of an action
all shares entitled to vote thereon were without a meeting, other than the election
present and voted. The AIG by-laws provide of directors, and the consent of such
that any action which is required by law to holders is achieved. The HSB certificate of
be taken or which may be taken at any incorporation does not provide for less than
meeting of shareholders, may be taken unanimous written consent.
without a meeting, without prior notice and
without a vote, by consent in writing of
shareholders having not less than the
minimum number of votes that would be
necessary to take the action at a meeting.
The AIG by-laws provide that prompt notice
of an action taken by written consent which
is not unanimous is required to be given to
those shareholders who do not consent.
</TABLE>
<TABLE>
<S> <C>
AMENDMENTS TO CERTIFICATE OF INCORPORATION
Under Delaware law, unless a higher vote is Under Connecticut law, in most
required in the certificate of circumstances, a proposed amendment to the
incorporation, an amendment to the certificate of incorporation must be
certificate of incorporation of a recommended by the corporation's board,
corporation may be approved by a majority of unless the corporation's board determines
the outstanding shares entitled to vote upon that because of conflicts of interest or
the proposed amendment. The AIG restated other special circumstances it should make
certificate of incorporation, as amended, no recommendation, followed by, in most
provides AIG with circumstances, the approval
</TABLE>
85
<PAGE> 92
<TABLE>
<S> <C>
the right to amend, alter, change or repeal by (1) a majority of the votes entitled to
any provision contained in the AIG restated be cast on the amendment by any voting group
certificate of incorporation, as amended, in with respect to which the amendment would
the manner prescribed by law and states that create dissenters' rights and (2) if a
the rights and powers conferred therein on quorum exists, a majority of the votes cast
shareholders, directors and officers are by each other voting group entitled to vote
subject to such reserved power. on the amendment, unless a greater vote is
required by law or the certificate of
incorporation.
Under the HSB certificate of incorporation,
subject to certain exceptions, the
affirmative vote of the holders of not less
than 80% of the votes entitled to be cast by
the holders of all then-outstanding shares
of voting stock is required to amend, repeal
or adopt any provisions inconsistent with
Article VI, relating to the HSB Board, and
Article VII, relating to business
combinations, of the HSB certificate of
incorporation.
</TABLE>
<TABLE>
<S> <C>
AMENDMENTS TO BY-LAWS
The DGCL provides that a corporation's Connecticut law provides that, unless
by-laws may be amended by that corporation's provided otherwise in the corporation's
shareholders, or, if so provided in the certificate of incorporation or Connecticut
corporation's certificate of incorporation, law, the board of directors may amend the
the power to amend the corporation's by-laws corporation's by-laws. An amendment to the
may also be conferred on the corporation's by-laws that adds, changes or deletes a
directors. The AIG restated certificate of greater quorum or voting requirement for
incorporation, as amended, gives its shareholders must be adopted by shareholders
directors the power to make, alter, amend, and meet the same quorum requirement and be
change, add to or repeal the AIG by-laws. adopted by the same vote required to take
The AIG by-laws provide that they may be action under the quorum and voting
amended or repealed, and new by-laws may be requirement then in effect or proposed to be
adopted, by the affirmative vote of a adopted, whichever is greater. An amendment
majority of the AIG board of directors, but to the by-laws that adds, changes or deletes
the holders of a majority of the shares then a greater quorum or voting requirement for
entitled to vote may adopt additional directors may be adopted by shareholders or
by-laws and may amend or repeal any by-law the board of directors. If adopted by
whether or not adopted by them. shareholders, it may be amended or repealed
only by shareholders; if adopted by the
board of directors, it may be amended or
repealed by shareholders, or the board of
directors if it meets the same quorum
requirement and is adopted by the same vote
required to take action under the quorum and
voting requirement then in effect.
The HSB by-laws provide that the HSB by-laws
may be altered, amended, added to or
repealed by a majority of the entire HSB
Board at any meeting of the HSB Board,
provided that notice of the amendment shall
have been given in the notice of that
meeting.
</TABLE>
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<PAGE> 93
<TABLE>
<S> <C>
SPECIAL MEETINGS OF SHAREHOLDERS
Delaware law provides that special meetings Under Connecticut law, special meetings of a
of the shareholders of a corporation may be corporation's shareholders shall be held
called by the corporation's board of upon call of the corporation's board or such
directors or by such other persons as may be other persons as are authorized to do so by
authorized in the corporation's certificate the certificate of incorporation or by-laws
of incorporation or by-laws. The AIG by-laws and if a written request is delivered to the
provide that special meetings of sharehold- corporate secretary from the holders of at
ers may be called by the chairman, a vice least 10% of the shares entitled to vote on
chairman, if any, the president, if any, the a particular issue, except in the case of
secretary or the AIG board of directors and companies which have a class of voting stock
shall be called by the secretary upon the registered pursuant to Section 12 of the
written request of shareholders who together Exchange Act, in which case the demand must
own of record 25% or more of the outstanding be made by the holders of not less than 35%
shares of each class of stock entitled to of such shares.
vote at such meeting.
The HSB certificate of incorporation and
by-laws do not authorize any other person to
call a special meeting of the shareholders.
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VOTE ON EXTRAORDINARY CORPORATE TRANSACTIONS
The DGCL provides that, unless otherwise Under Connecticut law, unless the
specified in a corporation's certificate of certificate of incorporation requires a
incorporation or unless the provisions of greater vote or a vote by voting groups, the
the DGCL relating to business combinations sale of all or substantially all of a
discussed below under "-- Business corporation's assets other than in the
Combination Restrictions" are applicable, a regular course of business requires the
sale or other disposition of all or substan- affirmative vote of a majority of the votes
tially all of the corporation's assets, a entitled to be cast. Unless Connecticut law
merger or consolidation of the corporation or the certificate of incorporation provides
with another corporation or a dissolution of otherwise, and except under certain cir-
the corporation requires the affirmative cumstances where the Connecticut corporation
vote of the board of directors (except in is the surviving corporation, a merger or
certain limited circumstances) plus, with share exchange of a Connecticut corporation
certain exceptions, the affirmative vote of must be approved by each voting group
a majority of the outstanding stock entitled entitled to vote separately on the plan by a
to vote thereon. The foregoing provisions majority of all of the votes entitled to be
apply to AIG. The AIG restated certificate cast thereon by that voting group. See
of incorporation, as amended, does not "-- Business Combination Restrictions"
contain vote requirements for extraordinary below.
corporate transactions in addition to or
different from the approvals mandated by The HSB certificate of incorporation does
law. not contain vote requirements for
extraordinary corporate transactions in
addition to or different from the approvals
set forth in the CBCA.
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INSPECTION OF DOCUMENTS
The DGCL allows any shareholder, upon Connecticut law provides that a shareholder
written demand under oath stating the of a corporation is entitled to inspect and
purpose thereof, the right during the usual copy, during regular business hours at the
hours for business to inspect for any proper corporation's principal office, certain
purpose the corporation's stock ledger, a records of the corporation if he or she
list of its shareholders, and its other gives the corporation five days' prior
books and records, and to make copies or written notice and if the demand is made in
extracts therefrom. A proper purpose means a good faith and for a proper purpose.
purpose reasonably related to such person's
interest as a shareholder.
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DIVIDENDS
Subject to any restrictions contained in a Under Connecticut law, a corporation may
corporation's certificate of incorporation, make a distribution to shareholders,
Delaware law generally provides that a including a cash or property dividend, or
corporation may declare and pay dividends stock repurchase, with respect to their
out of "surplus" -- defined as the excess, shares unless, after giving effect to such
if any, of net assets, which is total assets distribution:
less total liabilities, over capital, or,
when no surplus exists, out of net profits - the corporation would not be able to pay
for the fiscal year in which the dividend is its debts as they become due in the usual
declared and/or the preceding fiscal year, course of business; or
except that dividends may not be paid out of
net profits if the capital of the - the corporation's total assets would be
corporation is less than the amount of less than the sum of its total liabilities
capital represented by the issued and plus, unless the certificate of
outstanding stock of all classes having a incorporation provides otherwise, the
preference upon the distribution of assets. amount that would be needed, if the
In accordance with the DGCL, "capital" is corporation were to be dissolved at the
determined by the board of directors and time of the distribution, to satisfy the
shall not be less than the aggregate par preferential rights upon dissolution of
value of the outstanding capital stock of a HSB shareholders whose preferential rights
corporation having par value. The AIG are superior to those receiving the
by-laws provide that the AIG board of distribution.
directors may, out of funds legally
available and at any regular or special The HSB certificate of incorporation does
meeting, declare dividends upon the capital not contain any provisions which alter the
stock of AIG as and when it deems expedient. above provisions of the CBCA with respect to
All outstanding classes of AIG preferred dividends.
stock shall rank senior to the AIG common
stock in respect of the right to receive
dividends.
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APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
Under Delaware law, in certain circumstances Connecticut law provides for dissenters'
a shareholder of a Delaware corporation is rights to obtain payment of the fair value
generally entitled to demand appraisal and of shares to a dissenting shareholder:
obtain payment of the judicially determined
fair value of his or her shares in the event - if the shareholder is entitled to vote on
of any plan of merger or consolidation to a merger or share exchange;
which the corporation, the shares of which
he or she holds, is a party, provided such - in the case of a short form merger of a
shareholder continuously holds such shares subsidiary into its parent corporation;
through the effective date of the merger,
otherwise complies with the requirements of - if the shareholder is entitled to vote on
Delaware law for the perfection of appraisal the sale of all or substantially all of the
rights and does not vote in favor of the assets of a corporation other than in the
merger. However, this right to demand usual or regular course of business,
appraisal does not apply to shareholders if: except when done pursuant to court order
or a liquidation plan resulting in
- they are shareholders of a surviving distributions to shareholders within one
corporation and if a vote of the year after the date of sale;
shareholders of such corporation is not
necessary to authorize the merger or - in the case of an amendment to the
consolidation; and certificate of incorporation that materially
and adversely affects rights in respect of
- the shares held by the shareholders are of the dissenters' shares; and
a class or series listed on a national
securities exchange, designated as a - in the case of any corporate action taken
national market system security on an pursuant to a shareholder vote, to the
interdealer quotation system by the extent the certificate of incorporation,
National Association of Securities Deal- the by-laws or a directors' resolution
ers, Inc., referred to as the "NASD", or provides that voting or non-voting
are shareholders are entitled to dissent and
obtain payment for their shares.
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held of record by more than 2,000
shareholders on the date set to determine
the shareholders entitled to vote on the Under Connecticut law, the dissenter's right
merger or consolidation. Notwithstanding to payment and appraisal under the statute
the above, appraisal rights are available is the dissenter's exclusive remedy. Please
for the shares of any class or series of refer to the section titled "The
stock of a Delaware corporation if the Merger -- HSB Shareholders' Dissenters'
holders thereof are required by the terms Rights to Obtain Payment for their Shares"
of an agreement of merger or consolidation for a detailed discussion of dissenting HSB
to accept for their stock anything except: shareholders' rights.
(1) shares of stock of the corporation
surviving or resulting from the
merger or consolidation;
(2) shares of stock of any other
corporation which at the effective
date of the merger or consolidation
will be listed on a national
securities exchange, designated as
a national market system security
on an interdealer quotation system
by the NASD or held of record by
more than 2,000 shareholders;
(3) cash in lieu of fractional shares
of the corporations described in
(1) and (2); or
(4) any combination of the shares of
stock and cash in lieu of
fractional shares described in (1),
(2) and (3).
A Delaware corporation may provide in its
certificate of incorporation that appraisal
rights shall be available for the shares of
any class or series of its stock as the
result of an amendment to its certificate of
incorporation, any merger or consolidation
to which the corporation is a party or a
sale of all or substantially all of the
assets of the corporation. The AIG restated
certificate of incorporation, as amended,
does not contain any provision regarding
appraisal rights.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a corporation may Under Connecticut law, unless the
indemnify any person made a party or certificate of incorporation provides
threatened to be made a party to any type of otherwise, a corporation must indemnify a
proceeding other than an action by or in the director, officer, employee or agent of the
right of the corporation because he or she corporation who was wholly successful, on
is or was an officer, director, employee or the merits or otherwise, in the defense of
agent of the corporation or was serving at any proceeding to which he or she was a
the request of the corporation as a party because he or she is or was a
director, officer, employee or agent of director, officer, employee or agent of the
another corporation or entity, against corporation, against reasonable expenses
expenses, judgments, costs and amounts paid including counsel fees, incurred by him or
in settlement actually and reasonably her in connection with the proceeding.
incurred in connection with such proceeding:
(1) if he or she acted in good faith and in
a manner he or she
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reasonably believed to be in or not opposed Additionally, a corporation may indemnify
to the best interests of the corporation; or the director, officer, employee or agent of
(2) in the case of a criminal proceeding, he the corporation made party to a proceeding
or she had no reasonable cause to believe if:
that his or her conduct was unlawful. A
corporation may indemnify any person made a - he or she conducted himself or herself in
party or threatened to be made a party to good faith;
any threatened, pending or completed action
or suit brought by or in the right of the - he or she reasonably believed (A) in the
corporation because he or she was an case of conduct in his or her official
officer, director, employee or agent of the capacity with the corporation, that his or
corporation, or is or was serving at the her conduct was in its best interests and
request of the corporation as a director, (B) in all other cases, that his or her
officer, employee or agent of another conduct was at least not opposed to the
corporation or other entity, against corporation's best interests; and
expenses actually and reasonably incurred in
connection with such action or suit if he or - in the case of any criminal proceeding, he
she acted in good faith and in a manner he or she had no reasonable cause to believe
or she reasonably believed to be in or not his or her conduct was unlawful.
opposed to the best interests of the
corporation, except that there may be no An officer, employee or agent who is not a
such indemnification if the person is found director may be indemnified to such further
liable to the corporation unless, in such a extent, consistent with public policy, as
case, the court determines the person is may be provided by contract, the certificate
entitled thereto. A corporation must of incorporation, the by-laws or a
indemnify a director or officer who resolution of the board of directors.
successfully defends himself or herself in a
proceeding to which he or she was a party Unless a court orders otherwise, Connecticut
because he or she is or was a director or law prohibits indemnification:
officer against expenses actually and
reasonably incurred by him or her. - in connection with a proceeding by or in
the right of the corporation except for
Expenses incurred by an officer or director reasonable expenses if it is determined
or other employees or agents as deemed that the director, officer, employee or
appropriate by the corporation in defending agent met the relevant standard of conduct
a civil or criminal proceeding may be paid stated above; or
by the corporation in advance of the final
disposition of such proceeding upon receipt - in connection with any proceeding with
of an undertaking by or on behalf of such respect to conduct for which he or she was
director or officer to repay such amount if adjudged liable to the corporation on the
it shall ultimately be determined that he or basis that an improper personal benefit
she is not entitled to be indemnified by the was received by him or her.
corporation. The Delaware law
indemnification and expense advancement The indemnification requirements under
provisions are not exclusive of any other Connecticut law remain limited by the
rights which may be granted by the by-laws, provision that requires that such
a vote of shareholders or disinterested indemnification be authorized in the
directors, agreement or otherwise. specific case after a determination that
indemnification is permissible because the
AIG's restated certificate of incorporation, director, officer, employee or agent has met
as amended, and by-laws provide for the the standard of conduct set forth by
indemnification to the fullest extent Connecticut law. However, under Connecticut
permitted by law of any person made, or law, a corporation may, by a provision in
threatened to be made, a party to an action, its certificate of incorporation or by-laws
suit or proceeding whether civil, crimi- or in a resolution adopted or contract ap-
nal, administrative or investigative by proved by its board of directors or
reason of the fact that the person or his or shareholders, obligate itself in advance to
her testator or intestate is or was a provide indemnification or advance funds to
director, officer or employee of AIG or pay for or reimburse expenses. Also, any
serves or served any other enterprise at the such provision that obligates a corporation
request of AIG. to provide indemnification to the
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fullest extent permitted by law shall be
deemed to obligate the corporation to
advance funds to the fullest extent
permitted by law.
Connecticut law provides that a corporation
may, before final disposition of a
proceeding, advance funds to pay for or to
reimburse the reasonable expenses incurred
by a director, officer, employee or agent
who is party to a proceeding if he or she
delivers:
- a written affirmation of his or her good
faith belief that he or she has met the
relevant standard of conduct entitling him
or her to indemnification; and
- his or her written undertaking to repay
the funds if it is determined that he or she
is not entitled to indemnification.
The HSB certificate of incorporation
provides that officers and directors of HSB
shall be indemnified by HSB to the fullest
extent permitted by Connecticut law and that
subject to Connecticut law, HSB may pay for
or reimburse the reasonable expenses
incurred by a director who is a party to a
proceeding in advance of final disposition
of the proceeding.
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LIMITATION OF LIABILITY
Delaware law permits a corporation to adopt Connecticut law authorizes a corporation to
a provision in its certificate of include in its certificate of incorporation
incorporation eliminating or limiting the a provision limiting the personal liability
personal liability of a director to the of a director to the corporation and its
corporation or its shareholders for monetary shareholders for monetary damages for breach
damages for breach of fiduciary duty as a of duty as a director to an amount that is
director, except that such provision shall not less than the compensation received by
not limit the liability of a director for: the director for serving the corporation
during the year of the violation, if such
- any breach of the director's duty of breach did not:
loyalty to the corporation or its
shareholders; - involve a knowing and culpable violation
of law by the director;
- acts or omissions not in good faith or
which involve intentional misconduct or a - enable the director or an associate to
knowing violation of law; receive an improper personal economic gain;
- show a lack of good faith and a conscious
- liability under Section 174 of the DGCL disregard for the duty of the director to
for unlawful payment of dividends or stock the corporation under circumstances in
purchases or redemptions; or which the director was aware that his or
her conduct or omission created an
- any transaction from which the director unjustifiable risk of serious injury to
derived an improper personal benefit. the corporation;
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The AIG restated certificate of
incorporation, as amended, provides that no
director of AIG shall be liable to AIG or - constitute a sustained and unexcused
its shareholders for monetary damages for pattern of inattention that amounted to an
breach of fiduciary duty as a director, abdication of the director's duty to the
except to the extent such an exemption from corporation; or
liability or limitation thereof is not
permitted under the DGCL. - create liability under Section 757 of the
CBCA for an unlawful distribution to
shareholders.
The HSB certificate of incorporation
provides that subject to Connecticut law, no
director of HSB shall be personally liable
to HSB or its shareholders for monetary
damages for breach of duty as a director in
an amount that exceeds the compensation
received by the director during the year of
the violation.
Connecticut law authorizes a corporation to
include in its certificate of incorporation
a provision permitting or obligating a
corporation to indemnify a director for
liability to any person for any action
taken, or any failure to take action, as a
director, except for liability that arose in
any of the five circumstances described
above.
The HSB certificate of incorporation does
not contain this type of provision.
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PREEMPTIVE RIGHTS
Delaware law does not provide, except in Connecticut law does not provide for a
limited instances, for preemptive rights to preemptive right to acquire a corporation's
acquire a corporation's unissued stock. unissued shares unless expressly granted to
However, such right may be expressly granted the shareholders in the corporation's
to the shareholders in a corporation's certificate of incorporation.
certificate of incorporation.
The HSB certificate of incorporation
The restated AIG certificate of provides that no shareholder shall have any
incorporation, as amended, provides that preemptive rights.
holders of AIG common stock and preferred
stock are not entitled to preemptive rights.
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SPECIAL REDEMPTION PROVISIONS
Under the DGCL, a corporation may purchase Under Connecticut law, a corporation may
or redeem shares of any class of its capital acquire its own shares, subject to the
stock, but subject generally to the limitations on distributions discussed above
availability of sufficient lawful funds under "-- Dividends", and shares so acquired
therefor and provided that immediately constitute authorized but unissued shares.
following any such redemption the corpora-
tion shall have outstanding one or more
shares of one or more classes or series of
stock, which share, or shares together,
shall have full voting powers. The AIG
restated certificate of incorporation, as
amended, contains no provision for special
redemptions of shares of its capital stock.
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SHAREHOLDER RIGHTS AGREEMENT
Delaware law permits Delaware corporations Connecticut law permits Connecticut
to issue stock purchase rights. The AIG corporations to issue stock purchase rights.
board of directors has not adopted a The HSB Board has adopted a shareholder
shareholder rights agreement. rights agreement. Under the rights
agreement, dated as of November 28, 1998, by
and between HSB and Fleet National Bank,
previously known as Bank Boston N.A.,
amended as of August 17, 2000, the rights
will separate from the common stock and
become exercisable if a person or group
acquires ownership of 15% or more of the
outstanding common stock of HSB or commences
a tender or exchange offer to acquire 10% or
more of the outstanding shares. Each right
entitles a holder to purchase one
two-hundredth of a share of Series A Junior
Participating Preferred Stock, without par
value, of HSB at an exercise price of
$162.00 per share, subject to adjustment.
If an acquirer obtains 15% or more of HSB's
common stock and the HSB Board determines
that such acquisition is not in the best
interest of the shareholders, the rights of
shareholders other than the acquirer will
entitle the holder to purchase common shares
of HSB, or, under certain circumstances, of
the acquirer, at a 50% discount. The rights
expire on November 28, 2008 and may be
redeemed by HSB for $0.01 per right any time
until the tenth business day following
public announcement that a 15% position has
been acquired.
For a discussion of the amendment entered
into by HSB of its rights agreement in
connection with the merger agreement which
places certain obligations and restrictions
on HSB with respect to the rights agreement,
please see "Related Agreements and
Transactions -- Amendment to HSB's Rights
Agreement".
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SHAREHOLDER SUITS
Under Delaware law, a shareholder may Under Connecticut law, no shareholder may
institute a lawsuit against one or more commence a derivative proceeding until:
directors, either on his or her own behalf,
or derivatively on behalf of the - a written demand has been made upon the
corporation. An individual shareholder may corporation to take suitable action; and
also commence a lawsuit on behalf of himself
or herself and other similarly situated - 90 days have expired from the date the
shareholders when the requirements for demand was made unless the shareholder has
maintaining a class action lawsuit under earlier been notified that the demand has
Delaware law have been met. been rejected by the corporation or unless
irreparable injury to the corporation
would result by waiting for the expiration
of the 90-day period.
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BUSINESS COMBINATION RESTRICTIONS
In general, Section 203 of the DGCL prevents Connecticut law generally prohibits a
an "interested shareholder" -- defined Connecticut corporation from engaging in
generally as a person with 15% or more of a certain "business combinations" -- as
corporation's outstanding voting stock, with defined by the statute to include certain
the exception of any person who owned and mergers and consolidations, dispositions of
has continued to own shares in excess of the assets and issuances of securities, as well
15% limitation since December 23, as certain other transactions, with an
1987 -- from engaging in a "business "interested shareholder" -- defined by the
combination", as defined below, with a statute generally to include holders of 10%
Delaware corporation for three years or more of the outstanding voting stock of
following the date such person became an the corporation or an affiliate
interested shareholder. thereof -- for a period of five years
following the date that such shareholder
The term "business combination" includes became an interested shareholder, unless the
mergers or consolidations with an interested business combination or the purchase of
shareholder and certain other transactions stock is approved by the corporation's board
with an interested shareholder, including, and by a majority of the non-employee
without limitation: directors of which there must be at least
two, prior to the date such shareholder
- any sale, lease, exchange, mortgage, became an interested shareholder. The
pledge, transfer or other disposition, holders of two-thirds of the voting shares
except proportionately as a shareholder of of the corporation, other than shares held
such corporation to or with the interested by the interested shareholder and its
shareholder of assets, except affiliates, may, subject to certain
proportionately as a shareholder of the conditions, adopt an amendment to the
corporation having an aggregate market corporation's certificate of incorporation
value equal to 10% or more of the or by-laws electing not to be governed by
aggregate market value of all assets of this provision.
the corporation or of certain subsidiaries
thereof determined on a consolidated basis Connecticut law also generally requires
or the aggregate market value of all the business combinations with an interested
outstanding stock of the corporation; shareholder to be approved by the board of
directors and then by the affirmative vote
- any transaction which results in the of at least (1) the holders of 80% of the
issuance or transfer by the corporation or voting power of the outstanding shares of
by certain subsidiaries thereof of stock voting stock and (2) the holders of
of the corporation or such subsidiary to two-thirds of such voting power excluding
the interested shareholder, except the voting stock held by the interested
pursuant to certain transfers in a shareholder, unless the consideration to be
conversion or exchange or pro rata received by the shareholders of the
distribution to all shareholders of the corporation meets certain price and other
corporation, or pursuant to a holding requirements set forth in the statute or
company merger under Section 251(g), or unless the board of directors of the
certain other transactions, none of which corporation has by resolution determined to
increase the interested shareholder's exempt business combinations with such
proportionate ownership of any class or interested shareholder prior to the time
series of the corporation's or such that such shareholder became an interested
subsidiary's stock; shareholder. The holders of 80% of the
voting shares of the corporation, and the
- any transaction involving the corporation holders of two-thirds of the voting shares
or certain subsidiaries thereof which has of the corporation other than shares held by
the effect, directly or indirectly, of the interested shareholder and its
increasing the proportionate share of the affiliates, may adopt an amendment to its
stock of any class or series, or certificate of incorporation electing not to
securities convertible into stock of the be governed by this provision.
corporation or any subsidiary which is
owned by the interested shareholder, The HSB certificate of incorporation
except as a result of immaterial changes provides that a "business combination" -- as
due to fractional share adjustments or as defined below, with an "interested
a result of any purchase or shareholder" -- as defined below, or
associates or affiliates of an interested
shareholder,
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redemption of any shares of stock not requires the affirmative vote of not less
caused directly or indirectly by the than 80% of the votes entitled to be cast by
interested shareholder; or the holders of all then-outstanding shares
of voting stock, voting together as a single
- any receipt by the interested shareholder class. However, this 80% affirmative vote
of the benefit, except proportionately as requirement will not be triggered if:
a shareholder of such corporation, of any
loans, advances, guarantees, pledges, or (1) the business combination is approved by
other financial benefits provided by or two- thirds of the "continuing directors",
through the corporation or certain as defined below; or
subsidiaries.
(2) (A) the aggregate amount of cash and the
The three-year moratorium may be avoided if: fair market value, as of the date of the
consummation of the business combination,
- before such person became an interested of the consideration other than cash to be
shareholder, the board of directors of the received per share by the holders of HSB
corporation approved either the business common stock and other HSB securities in
combination or the transaction in which such business combination is at least an
the interested shareholder became an amount determined by the provisions of the
interested shareholder, or HSB certificate of incorporation; (B)
subject to certain conditions, the
- upon consummation of the transaction which consideration to be received by the
resulted in the shareholder becoming an holders of a particular class or series
interested shareholder, the shareholder of outstanding capital stock of HSB is in
owned at least 85% of the voting stock of cash or in the same form as previously
the corporation outstanding at the time paid by the interested shareholder in
the transaction commenced, excluding connection with its direct or indirect
shares held by directors who are also acquisition of beneficial ownership of
officers of the corporation and by such class or series of capital stock; (C)
employee stock ownership plans that do not after the interested shareholder has
provide employees with the right to become an interested shareholder and
determine confidentially whether shares prior to the consummation of the busi-
held subject to the plan will be tendered ness combination, except as approved by
in a tender or exchange offer; or two-thirds of the continuing directors,
there is no failure to declare and pay
- on or following the date on which such quarterly dividends and no reduction in
person became an interested shareholder, the annual rate of dividends, and,
the business combination is approved by subject to certain exceptions, such
the board of directors of the corporation interested shareholder has not become the
and authorized at an annual or special beneficial owner of any additional shares
meeting of shareholders, not by written of capital stock; (D) after the
consent, by the affirmative vote of the interested shareholder has become an
shareholders of at least 66 2/3% of the interested shareholder, such interested
outstanding voting stock of the shareholder has not yet received the
corporation not owned by the interested benefit of any loans, advances,
shareholder. guarantees, pledges or other financial
assistance by HSB; (E) a proxy or
The business combination restrictions information statement describing the pro-
described above do not apply if, among other posed business combination and complying
things: with the requirements of the Exchange Act
or other applicable laws, containing
- the corporation's original certificate of certain information if sought by the
incorporation contains a provision continuing directors, is mailed to all
expressly electing not to be governed by HSB shareholders at least 30 days prior
the statute; to the consummation of the business
combination; and (F) such interested
- the corporation by action by the holders shareholder has not made or caused to be
of a majority of the voting stock of the made any major changes in
corporation approves an amendment to its
certificate of incorporation or by-laws
expressly electing not to
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be governed by the statute, effective 12 HSB's business or equity capital structure
months after the amendment's adoption, without the approval of a majority of the
except in limited instances, which continuing directors.
amendment shall not be applicable to any
business combination with a person who was "Business combination" is generally defined
an interested shareholder at or prior to in the HSB certificate of incorporation as:
the time of the amendment; or
- any merger, consolidation of HSB or a
- the corporation does not have a class of subsidiary of HSB with an interested
voting stock that is: shareholder, or associate or affiliate of
an interested shareholder;
-- listed on a national securities
exchange; - any sale, lease, exchange, mortgage,
pledge, transfer or other disposition with
-- authorized for quotation on the NASDAQ an interested shareholder, or associate
Stock Market; or or affiliate of an interested
shareholder, of any asset or securities
-- held of record by more than 2,000 of HSB or any subsidiary of HSB, or any
shareholders. interested shareholder or any affiliate
or associate of an interested party,
The statute also does not apply to certain having an aggregate fair market value
business combinations with an interested of $10.0 million or more;
shareholder when such combination is
proposed after the public announcement of, - the adoption of any plan for the
and before the consummation or abandonment liquidation or dissolution of HSB proposed
of, a merger or consolidation, a sale of 50% by or on behalf of an interested
or more of the aggregate market value of the shareholder or associate or affiliate of
assets of the corporation on a consolidated an interested shareholder;
basis or the aggregate market value of all
outstanding stock of the corporation, or a - any reclassification of securities or
tender offer for 50% or more of the recapitalization of HSB that has the effect
outstanding voting stock of the corporation, of increasing the proportionate share of
if the triggering transaction is with or by any series of capital stock of HSB that is
a person who either was not an interested beneficially owned by an interested
shareholder during the previous three years shareholder or associate or affiliate of
or who became an interested shareholder with an interested shareholder; or
board of director approval, and if the
transaction is approved or not opposed by a - any agreement, contract or arrangement
majority of the current directors who were providing for any one or more of the actions
also directors prior to any person becoming specified in the four immediately
an interested shareholder during the preceding bullet points.
previous three years.
"Continuing directors" is defined in the HSB
AIG is subject to the business combination certificate of incorporation as a director
restrictions described above. The AIG who is not an affiliate, associate or
restated certificate of incorporation, as representative of the interested
amended, does not contain a provision shareholders and was a member of the HSB
electing not to be governed by the business Board prior to the time the interested
combination restrictions. shareholder became an interested shareholder
and any successor to a continuing director
recommended or elected to succeed the
continuing director by a majority of
continuing directors.
"Interested shareholder" is defined in the
HSB certificate of incorporation as any
person other than HSB, any HSB subsidiary or
employee benefit plan of HSB or any
subsidiary, who (1) is the beneficial owner
of voting stock representing 10% or more of
the votes entitled to be cast by the holders
of all then-outstanding shares of voting
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stock or (2) is an associate or affiliate of
HSB and at any time within the two-year
period immediately prior to the date in
question was the beneficial owner of voting
stock representing 10% or more of the votes
entitled to be cast by the holders of all
then-outstanding shares of voting stock.
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ADVANCE NOTICE OF SHAREHOLDER PROPOSALS AND NOMINATION OF DIRECTORS
Under AIG's by-laws, persons nominated by Under HSB's by-laws, for a matter to be
shareholders for election as directors of properly brought before a meeting by a
the corporation and any other proposals by shareholder, the shareholder must give
shareholders shall be properly brought timely written notice to the Corporate
before an annual meeting of shareholders Secretary of HSB not less than 60 days or
only if notice of any such matter to be more than 90 days prior to the anniversary
presented by a shareholder at such meeting of the immediately preceding annual meeting.
shall be delivered to the secretary at the However, if the annual meeting is called for
principal executive office of the a date that is not within 30 days before or
corporation not less than 90 days nor more after such anniversary date, notice must be
than 120 days prior to the first anniversary received not later than the 10th day
date of the annual meeting for the preceding following the date on which notice of the
year; provided, however, that if and only if date of the annual meeting is mailed or
the annual meeting is not scheduled to be publicized, whichever first occurs.
held within a period that commences 30 days
before and ends 30 days after such A shareholder's notice must state as to each
anniversary date an annual meeting date matter the shareholder proposes to bring
outside such period being referred to as an before the annual meeting: (1) a brief
"other meeting date", such notice shall be description of the matter desired to be
given by the later of (i) the close of brought before the meeting; (2) the name and
business on the date 90 days prior to such record address of the shareholder; (3) the
other meeting date or (ii) the close of class and number of shares which are
business on the 10th day following the date beneficially owned by the shareholder; and
on which such other meeting date is first (4) any material interest of the shareholder
publicly announced or disclosed. Any in such business.
shareholder desiring to nominate any person
or persons for election as a director or Under HSB's by-laws, nominations of persons
directors of the corporation at an annual for election to the HSB Board may be made by
meeting of shareholders shall deliver, as the HSB Board or by any shareholder who is
part of the notice, a statement in writing entitled to vote for the election of
setting forth the name of the person or directors. A shareholder may nominate
persons to be nominated, the number and persons for election as directors only if
class of all shares of each class of stock written notice of such shareholder's intent
of the corporation owned of record and to make such nominations is given to the
beneficially by each such person, as Corporate Secretary of HSB not less than 60
reported to such shareholder by such person, days nor more than 120 days prior to the
the information regarding each such person anniversary of the immediately preceding
required by paragraphs (a), (e) and (f) of annual meeting.
Item 401 of Regulation S-K adopted by the
Commission, each such person's signed However, if the annual meeting is called for
consent to serve as a director of the a date that is not within 30 days before or
corporation if elected, such shareholder's after such anniversary date, notice must be
name and address, the number and class of received not later than the 10th day
all shares of each class of stock of the following the day on which notice of the
corporation owned of record and beneficially date of the annual meeting was mailed or
by such shareholder. If a shareholder is publicized, whichever first occurs.
entitled to vote only for a specific class
or category of directors at an annual The notice must set forth:
meeting, such shareholder's right to
nominate one or more individuals for (1) as to each proposed nominee, the name,
election as a director at the annual meeting age, business and residence addresses, the
shall be limited to such class or category principal
of directors.
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occupation or employment, the class and
number of shares of capital stock
Under AIG's by-laws, any shareholder who beneficially owned by such person and
gives a notice on any matter other than a any other information relating to such
nomination for director, proposed to be person required to be disclosed pursuant
brought before an annual meeting of to the proxy rules under the Exchange
shareholders shall deliver, as part of such Act and the consent of such person to
notice, the text of the proposal to be being named as a nominee and to serving
presented and a brief written statement of as a director if elected; and
the reasons why the shareholder favors the
proposal and setting forth such (2) the name and address of the shareholder
shareholder's name and address, the number making the nomination and the class and
and class of all shares of each class of number of shares of capital stock which
stock of the corporation owned of record and are beneficially owned by such
beneficially by the shareholder and any shareholder.
material interest of such shareholder in the
matter proposed other than as a shareholder.
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CONSIDERATION OF CONSTITUENCIES
Although the DGCL does not provide for the Under the CBCA, a director of a Connecticut
consideration by a director of a Delaware corporation that has voting stock registered
corporation of constituencies other than its under Section 12 of the Exchange Act, when
shareholders when determining whether a determining whether they reasonably believe
course of action is in the best interests of a merger, share exchange, sale of assets,
the corporation, under Delaware case law, a whether or not in the regular course of
director of a Delaware corporation may business, approval of a business combination
consider the impact on other constituencies, or approval of entering into a business
provided that it bears some reasonable combination with an interested shareholder
relationship to general shareholder of the corporation, in each case, is in the
interests. best interests of the corporation, shall
consider, among other matters:
- the long-term as well as the short-term
interests of the corporation;
- the interests of the shareholders,
long-term as well as short-term, including
the possibility that these interests may
best be served by the continued
independence of the corporation;
- the corporation's employees, creditors,
customers and suppliers; and
- community and societal considerations,
including those of any community in which
any office or other facility of the
corporation is located.
Directors of a Connecticut corporation may
also in their discretion consider any other
factors they reasonably consider appropriate
in determining what they reasonably believe
to be in the best interests of the
corporation.
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DIVIDEND REINVESTMENT PLAN
AIG does not maintain a dividend HSB offers a dividend reinvestment plan that
reinvestment plan. enables shareholders to increase their
holdings of HSB common stock without paying
any broker commissions or fees. The plan
permits voluntary cash investments in HSB
common stock up to $24,000 per year.
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WHERE YOU CAN FIND MORE INFORMATION
AIG has filed with the Commission a registration statement on Form S-4
under the Securities Act that registers the distribution to the HSB shareholders
of the AIG common stock to be issued under the terms of the merger agreement.
AIG also filed with the Commission a Schedule 13D and an amendment to the
Schedule 13D under the Exchange Act in relation to AIG's ownership of HSB common
stock and AIG's option to acquire up to 19.9% of the HSB common stock, subject
to the terms of the stock option agreement.
This proxy statement/prospectus forms a part of that registration statement
and constitutes a prospectus of AIG in addition to being a proxy statement of
HSB for the special meeting. The registration statement, including the exhibits
and schedules to the registration statement, contains additional relevant
information about AIG and the AIG common stock. The rules and regulations of the
Commission allow AIG to omit certain information included in the registration
statement and the exhibits and schedules to the registration statement from this
proxy statement/prospectus.
In addition, AIG and HSB file annual, quarterly and current reports, proxy
statements and other information with the Commission under the Exchange Act. You
may read and copy any reports, statements or other information at the following
locations of the Commission:
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Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center, Suite 1400
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, New York 10048 Chicago, Illinois 60661-2511
</TABLE>
You may also obtain copies of this information by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. Further information on the
operation of the Commission's Public Reference Room in Washington, D.C. can be
obtained by calling the Commission at l-800-SEC-0330.
The Commission also maintains an Internet world wide web site that contains
annual, quarterly and current reports, proxy statements and other information
about issuers, such as AIG and HSB, who file electronically with the Commission.
The address of that site is http://www.sec.gov.
You may also inspect annual, quarterly and current reports, proxy
statements and other information about AIG and HSB at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Commission allows AIG and HSB to "incorporate by reference" information
into this proxy statement/prospectus. This means that AIG and HSB can disclose
important business, financial and other information to you by referring you to
another document filed separately with the Commission. The information
incorporated by reference is deemed to be part of this proxy
statement/prospectus, except for any information superseded by information in
this proxy statement/prospectus or in later filed documents incorporated by
reference in this proxy statement/prospectus. This proxy statement/prospectus
incorporates by reference the documents set forth below that each of AIG and HSB
have previously filed with the Commission. These documents contain important
information about the respective companies and their finances.
This information is available to you without charge upon your written or
oral request. You can obtain documents incorporated by reference in this proxy
statement/prospectus, other than exhibits to a filing unless
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the exhibit is specifically incorporated by reference into the filing, by
requesting them in writing or by telephone from the appropriate company at the
following contact information:
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AMERICAN INTERNATIONAL GROUP, INC. HSB GROUP, INC.
70 Pine Street One State Street
New York, New York 10270 P.O. Box 5024
(212) 770-7074 Hartford, Connecticut 06102-5024
Attention: Director of Investor Relations (860) 722-1866
Attention: Chief Investment Officer
</TABLE>
AIG and HSB also incorporate by reference additional documents that either
company may file with the Commission between the date of this proxy
statement/prospectus and the date of the special meeting. These documents
include periodic reports, such as annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, as well as proxy statements.
If you would like to request documents, including any documents
subsequently filed with the Commission prior to the special meeting, please do
so by October 24, 2000, so that you will receive them before the special
meeting.
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AIG COMMISSION FILINGS (FILE NO. 1-8787) PERIOD OR DATE FILED
---------------------------------------- --------------------
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Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Reports on Form 10-Q Quarters ended March 31, 2000 and June 30,
2000
Proxy Statement on Schedule 14A Filed on April 6, 2000
The description of the AIG common stock set Filed pursuant to Section 12 of the Exchange
forth in the AIG registration statement on Act on September 20, 1984, including any
Form 8-A amendment or report filed with the
Commission for the purpose of updating such
description
Schedule 13D Filed pursuant to Regulation 13D-G of the
Exchange Act on August 25, 2000
Amendment No. 1 to Schedule 13D Filed pursuant to Rule 13d-2(a) of the
Exchange Act on September 8, 2000
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HSB COMMISSION FILINGS (FILE NO. 1-13135) PERIOD OR DATE FILED
----------------------------------------- --------------------
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Annual Report on Form 10-K Year ended December 31, 1999
Quarterly Reports on Form 10-Q Quarters ended March 31, 2000 and June 30,
2000
Current Reports on Form 8-K Filed on January 19, 2000, January 26, 2000,
March 6, 2000, April 18, 2000, June 16,
2000, July 24, 2000, August 18, 2000 and
September 7, 2000
</TABLE>
AIG has supplied all information contained or incorporated by reference in
this proxy statement/ prospectus relating to AIG, and HSB has supplied all such
information relating to HSB.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/ PROSPECTUS TO VOTE ON THE MERGER. NEITHER AIG
NOR HSB HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM OR IN ADDITION TO WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS.
THIS PROXY STATEMENT/PROSPECTUS IS DATED SEPTEMBER 29, 2000. YOU SHOULD NOT
ASSUME THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THE PROXY STATEMENT/PROSPECTUS TO SHAREHOLDERS OF HSB NOR
THE ISSUANCE OF AIG COMMON STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO
THE CONTRARY.
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LEGAL MATTERS
The validity of the shares of AIG common stock to be issued in connection
with the merger will be passed upon for AIG by Kathleen E. Shannon, Esq., Vice
President and Associate General Counsel of AIG.
Sullivan & Cromwell, counsel to AIG, and Skadden Arps, Slate, Meagher &
Flom LLP, special counsel to HSB, will deliver opinions concerning certain
federal income tax consequences of the merger.
EXPERTS
The consolidated financial statements and schedules of American
International Group, Inc. at December 31, 1999 and 1998 and for the three year
period ended December 31, 1999 incorporated by reference in this proxy
statement/prospectus have been audited by PricewaterhouseCoopers LLP,
independent auditors as stated in their reports, which are incorporated by
reference. Those consolidated financial statements and schedules are
incorporated herein by reference in reliance upon their report given upon their
authority as experts in accounting and auditing.
The consolidated financial statements and schedules of HSB Group, Inc. at
December 31, 1999 and 1998 and for the three year period ended December 31, 1999
incorporated by reference in this proxy statement/ prospectus have been audited
by PricewaterhouseCoopers LLP, independent auditors as stated in their reports,
which are incorporated by reference. Those consolidated financial statements and
schedules are incorporated herein by reference in reliance upon their report
given upon their authority as experts in accounting and auditing.
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APPENDIX A
EXECUTION COPY
AGREEMENT AND PLAN OF
MERGER
AMONG
AMERICAN INTERNATIONAL GROUP, INC.,
ENGINE ACQUISITION CORPORATION
AND
HSB GROUP, INC.
DATED AS OF AUGUST 17, 2000
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TABLE OF CONTENTS
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ARTICLE 1
PLAN OF MERGER
1.1 The Merger.................................................. 1
1.2 Conversion of Shares........................................ 2
1.3 Exchange of Certificates.................................... 3
1.4 Dividends................................................... 4
1.5 Termination of Exchange Fund................................ 4
1.6 Investment of Exchange Fund................................. 5
1.7 Lost Certificates........................................... 5
1.8 Withholding Rights.......................................... 5
ARTICLE 2
CLOSING
2.1 Time and Place of Closing................................... 5
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization, Good Standing and Power....................... 5
3.2 Capitalization.............................................. 7
3.3 Subsidiaries................................................ 7
3.4 Authority; Enforceability................................... 8
3.5 Non-Contravention; Consents................................. 8
3.6 SEC Documents; GAAP Financial Statements.................... 9
3.7 Statutory Statements........................................ 9
3.8 Absence of Certain Changes or Events........................ 10
3.9 Taxes and Tax Returns....................................... 11
3.10 Litigation.................................................. 12
3.11 Contracts and Commitments................................... 13
3.12 Registration Statement, Etc................................. 13
3.13 Employee Benefit Plans...................................... 14
3.14 Collective Bargaining; Labor Disputes; Compliance........... 15
3.15 No Violation of Law......................................... 16
3.16 Environmental Matters....................................... 17
3.17 Fairness Opinion; Board Recommendation...................... 18
3.18 Brokers and Finders......................................... 18
3.19 Takeover Statutes; Rights Agreement......................... 18
3.20 Voting Requirements......................................... 19
3.21 Intellectual Property....................................... 19
3.22 Insurance Matters........................................... 19
3.23 Investment Company.......................................... 21
3.24 Insurance................................................... 21
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3.25 Transactions with Affiliates................................ 21
3.26 Agents and Brokers.......................................... 21
3.27 Threats of Cancellation..................................... 22
3.28 Risk-Based Capital; IRIS Ratios............................. 22
3.29 Company Investment Assets................................... 22
3.30 Surplus Relief Agreements................................... 22
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
4.1 Organization, Good Standing and Power....................... 22
4.2 Capitalization.............................................. 23
4.3 Authority; Enforceability................................... 23
4.4 Non-Contravention; Consents................................. 23
4.5 SEC Documents; GAAP Financial Statements.................... 24
4.6 Absence of Certain Changes or Events........................ 24
4.7 Registration Statement, Etc................................. 24
4.8 Brokers and Finders......................................... 25
4.9 Interim Operations of Merger Sub............................ 25
4.10 Tax-Free Reorganization..................................... 25
4.11 Headquarters................................................ 25
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; CERTAIN COVENANTS
5.1 Access and Information...................................... 25
5.2 Conduct of Business Pending Merger.......................... 26
5.3 No Solicitations............................................ 28
5.4 Fiduciary Duties............................................ 29
5.5 Certain Fees................................................ 29
5.6 Takeover Statutes........................................... 30
5.7 Consents.................................................... 30
5.8 Further Assurances.......................................... 30
5.9 New York Stock Exchange Listing............................. 31
5.10 Registration Statement; Stockholder Approvals............... 31
5.11 Expenses.................................................... 32
5.12 Press Releases.............................................. 32
5.13 Indemnification of Officers and Directors................... 32
5.14 Tax Treatment............................................... 33
5.15 Employee Benefits........................................... 33
5.16 Rule 145.................................................... 34
5.17 Stock Options and Other Incentive Programs.................. 35
5.18 Other Actions by the Company and Parent..................... 36
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ARTICLE 6
CONDITIONS PRECEDENT TO MERGER
6.1 Conditions to Each Party's Obligations...................... 36
6.2 Conditions to Obligations of the Company.................... 37
6.3 Conditions to Obligations of Parent......................... 37
ARTICLE 7
TERMINATION AND ABANDONMENT OF THE MERGER
7.1 Termination................................................. 39
7.2 Effect of Termination and Abandonment....................... 40
ARTICLE 8
GENERAL PROVISIONS
8.1 Non-Survival................................................ 40
8.2 Notices..................................................... 41
8.3 Entire Agreement............................................ 41
Waivers and Amendments; Non-Contractual Remedies;
8.4.. Preservation of Remedies.................................... 41
8.5 Governing Law............................................... 42
8.6 Waiver of Jury Trial........................................ 42
8.7 Binding Effect; Assignment.................................. 42
8.8 Interpretation.............................................. 42
8.9 No Third-Party Beneficiaries................................ 43
8.10 Counterparts................................................ 43
8.11 Severability................................................ 43
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of August 17, 2000
by and among American International Group, Inc., a Delaware corporation
("Parent"), Engine Acquisition Corporation, a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and HSB Group, Inc., a Connecticut
corporation (the "Company").
WHEREAS, Parent and the Company have determined that it would be in their
respective best interests and in the interests of their respective stockholders
to effect the transactions contemplated by this Agreement;
WHEREAS, in furtherance thereof, the respective Boards of Directors of
Parent, the Company and Merger Sub have approved the merger of the Company with
and into Merger Sub (the "Merger"), upon the terms and subject to the conditions
of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and this Agreement is
intended to be and is adopted as a plan of reorganization;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, as a condition and inducement to Parent's and Merger Sub's
willingness to enter into this Agreement, the Company is entering into a stock
option agreement with Parent (the "Stock Option Agreement"), pursuant to which
the Company has granted to Parent an option to purchase shares of Company Common
Stock (as defined in Section 1.2) under the terms and conditions set forth in
the Stock Option Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
ARTICLE 1
PLAN OF MERGER
1.1 The Merger.
(a) Upon the terms and subject to the conditions of this Agreement, at the
Effective Time (as defined herein) and in accordance with the provisions of this
Agreement, the Connecticut Business Corporation Act (the "CBCA") and the
Delaware General Corporation Law ("DGCL"), the Company shall be merged with and
into Merger Sub, with Merger Sub as the surviving corporation (sometimes
referred to hereinafter as the "Surviving Corporation") in the Merger, and the
separate corporate existence of the Company shall cease. Subject to the
provisions of this Agreement, a certificate of merger complying with Section
33-819 of the CBCA shall be duly prepared, executed and filed with the Secretary
of State of the State of Connecticut as provided in the CBCA (the "Connecticut
Certificate of Merger") and a certificate of merger complying with Section 252
of the DGCL shall be duly prepared, executed, acknowledged and filed with the
Secretary of State of Delaware as provided in the DGCL (the "Delaware
Certificate of Merger"), in each case on the Closing Date (as defined in Section
2.1). The Merger shall become effective on the date and at the time at which the
last of the following actions shall have been completed: (i) the Connecticut
Certificate of Merger has been duly filed with the Secretary of State of
Connecticut and (ii) the Delaware Certificate of Merger has been duly filed with
the Secretary of State of Delaware (the "Effective Time").
(b) From and after the Effective Time, the Merger shall have all the
effects set forth in the CBCA and the DGCL. Without limiting the generality of
the foregoing, and subject thereto, by virtue of the Merger and in accordance
with the CBCA and the DGCL, all of the properties, rights, privileges, powers
and franchises of the Company and Merger Sub shall vest in the Surviving
Corporation and all of the debts, liabilities and duties of the Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
(c) The Certificate of Incorporation of the Surviving Corporation shall be
the Certificate of Incorporation of Merger Sub in effect immediately prior to
the Effective Time until thereafter amended in accordance
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with the provisions thereof and the DGCL; provided that such Certificate of
Incorporation shall be amended to change the name of the Surviving Corporation
to the name of the Company.
(d) The by-laws of the Surviving Corporation shall be the by-laws of Merger
Sub in effect immediately prior to the Effective Time until altered, amended or
repealed as provided therein or in the Certificate of Incorporation of the
Surviving Corporation and the DGCL, provided that such by-laws shall be amended
to change the name of the Surviving Corporation to the name of the Company.
(e) The officers of the Company and the directors of Merger Sub immediately
prior to the Effective Time, respectively, shall be the initial officers and
directors of the Surviving Corporation, respectively, until their respective
successors are duly elected and qualified.
1.2 Conversion of Shares. As of the Effective Time, by virtue of the
Merger and without any action on the part of any holder thereof:
(a) Each share of capital stock of Merger Sub that is issued and
outstanding immediately prior to the Effective Time shall be converted into
one validly issued, fully paid and non-assessable share of common stock,
par value $0.01 per share, of the Surviving Corporation, and the Surviving
Corporation shall be a wholly owned subsidiary of Parent.
(b) All shares of common stock, no par value per share, of the Company
("Company Common Stock"), including each attached right (a "Company Right")
issued pursuant to the Rights Agreement dated as of November 28, 1998
between the Company and BankBoston, N.A. (the "Company Rights Agreement"),
that are owned by the Company or by any direct or indirect subsidiary of
the Company (other than shares held in the investment portfolio of a direct
or indirect subsidiary of the Company) and any shares of Company Common
Stock owned by Parent, Merger Sub or any other direct or indirect
subsidiary of Parent (other than shares held in the investment portfolio of
a direct or indirect subsidiary of Parent) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be canceled and
retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time, including any attached Company
Right (other than Dissenting Shares (as defined in Section 1.2(e)) and
shares of Company Common Stock canceled in accordance with Section 1.2(b)),
shall be converted into, and become exchangeable for, that portion of a
share of Common Stock, par value $2.50 per share, of Parent ("Parent Common
Stock") equal to the lesser of (i) .4683 (the "Maximum Exchange Ratio") and
(ii) the amount (the "Closing Price Exchange Ratio") derived by dividing
$41.00 by the average of the closing prices per share of Parent Common
Stock as reported on the NYSE composite transactions reporting system (as
reported in the New York City edition of The Wall Street Journal) for each
of the 10 consecutive trading days in the period ending five trading days
prior to the Closing Date (as defined in Section 2.1) (the "Base Period
Stock Price"); provided, however, if the Maximum Exchange Ratio is less
than the Closing Price Exchange Ratio, Parent shall elect either (i) in
addition to the issuance of a portion of a share of Parent Company Common
Stock equal to the Maximum Exchange Ratio, to pay a cash amount equal to
the Per Share Cash Top- Up Amount or (ii) (x) to increase the Maximum
Exchange Ratio (the "Adjusted Maximum Exchange Ratio") such that the
product of the Adjusted Maximum Exchange Ratio times the Base Period Stock
Price (the "Product") equals or is less than $41.00 and (y) if the Product
is less than $41.00 pay a cash amount equal to the difference between
$41.00 and such Product. The portion of a share of Parent Common Stock
exchanged and, if applicable, the cash amount paid for each share of
Company Common Stock pursuant to this Section 1.2(c) shall be referred to
as the "Merger Consideration".
For purposes of this Section 1.2(c) "Per Share Cash Top-Up Amount" means
the greater of (i) $0 and (ii) (x) $41.00 minus (y) the product of (A) the
Base Period Stock Price and (B) the Maximum Exchange Ratio. Prior to the
Closing, Parent will notify the Exchange Agent, if applicable, of the
Adjusted Maximum Exchange Ratio and any Per Share Cash Top-Up Amount or the
Closing Price Exchange Ratio.
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(d) In the event that, subsequent to the date hereof but prior to the
Effective Time, the outstanding shares of Parent Common Stock or Company
Common Stock, respectively, shall have been changed into a different number
of shares or a different class as a result of a stock-split, reverse stock
split, stock dividend, subdivision, reclassification, combination,
exchange, recapitalization or other similar transaction, the Merger
Consideration shall be appropriately adjusted to provide holders of Company
Common Stock with the same economic effect as contemplated by this
Agreement.
(e) Each outstanding share of Company Common Stock, including any
attached Company Right, the holder of which has perfected his right to
dissent under applicable Law (as defined in Section 3.15(b)) and has not
effectively withdrawn or lost such right as of the Effective Time (the
"Dissenting Shares") shall not be converted into or represent a right to
receive the Merger Consideration, and the holder thereof shall be entitled
only to such rights as are granted by applicable Law; provided, however,
that any Dissenting Share held by a person at the Effective Time who shall,
after the Effective Time, withdraw the demand for payment for shares or
lose the right to payment for shares, in either case pursuant to the CBCA,
shall be deemed to be converted into, as of the Effective Time, the right
to receive Merger Consideration pursuant to Section 1.2(c). The Company
shall give Parent (i) prompt notice upon receipt by the Company of any such
written demands for payment of the fair value of such shares of Company
Common Stock and of attempted withdrawals of such notice and any other
instruments provided pursuant to applicable Law and (ii) the opportunity to
direct all negotiations and proceedings with respect to demand for
appraisal under the CBCA. Any payments made in respect of Dissenting Shares
shall be made by the Surviving Corporation. The Company shall not, except
with the prior written consent of Parent, offer to settle or settle any
such demands or approve any withdrawal of any such demands.
1.3 Exchange of Certificates.
(a) From time to time after the Effective Time, Parent shall when and as
required make available to a bank or trust company designated by Parent and
reasonably acceptable to the Company (the "Exchange Agent"), for the benefit of
the holders of shares of Company Common Stock, for exchange in accordance with
this Article 1 through the Exchange Agent, certificates representing the shares
of Parent Common Stock and cash sufficient to pay the aggregate Merger
Consideration (such shares of Parent Common Stock and cash, if any, together
with any dividends or distributions with respect thereto made available by
Parent in accordance with this Section 1.3, being hereinafter referred to as the
"Exchange Fund"). Certificates (as defined herein) shall be surrendered and
exchanged as follows:
(i) As soon as reasonably practicable after the Effective Time, the
Exchange Agent will mail to each holder of record of a certificate
representing shares of Company Common Stock (a "Certificate"), whose shares
of Company Common Stock were converted into the right to receive Merger
Consideration, (x) a letter of transmittal (which will specify that
delivery will be effected, and risk of loss and title to the Certificates
will pass, only upon delivery of the Certificates to the Exchange Agent and
will be in such form and have such other provisions as Parent and the
Company may specify consistent with this Agreement) and (y) instructions
for use in effecting the surrender of the Certificates in exchange for the
Merger Consideration and any unpaid dividends and other distributions.
(ii) At the Effective Time, and upon surrender in accordance with
Section 1.3(a)(i) of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent and the
Company, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Exchange Agent, the
holder of such Certificate will be entitled to receive in exchange therefor
the Merger Consideration and any unpaid dividends or other distributions
that such holder has the right to receive pursuant to the provisions of
this Article 1, and the Certificate so surrendered will forthwith be
canceled. No interest will be paid or accrue on any amount payable upon due
surrender of the Certificates. In the event of a transfer of ownership of
shares of Company Common Stock that are not registered in the transfer
records of the Company, payment may be issued to a person other than the
person in whose name the Certificate so surrendered is registered if such
Certificate is properly endorsed or otherwise in proper form for transfer
and the person requesting
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such issuance pays any transfer or other Taxes (as defined in Section 3.9)
required by reason of such payment to a person other than the registered
holder of such Certificate or establishes to the satisfaction of the
Exchange Agent that such Tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 1.3, each Certificate (other
than a Certificate representing shares of Company Common Stock to be
canceled in accordance with Section 1.2(b) and other than Dissenting
Shares) will be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration and
any unpaid dividends or other distributions that the holder thereof has the
right to receive in respect of such Certificate pursuant to the provisions
of this Article 1.
(b) No certificate or scrip representing fractional shares of Parent Common
Stock shall be issued upon the surrender for exchange of Certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights as a stockholder of Parent. All fractional shares of Parent Common Stock
that a holder of Company Common Stock would otherwise be entitled to receive as
a result of the Merger shall be aggregated, and, if a fractional share results
from such aggregation, such holder shall be entitled to receive, in lieu
thereof, an amount in cash (without interest) determined by multiplying (i) the
fractional share interest to which such holder would otherwise be entitled by
(ii) the Base Period Stock Price. No such cash in lieu of fractional shares of
Parent Common Stock shall be paid to any holder of Company Common Stock until
Certificates are surrendered and exchanged in accordance with Section 1.3(a).
(c) The Merger Consideration paid upon the surrender for exchange of
Certificates in accordance with the terms of this Article 1 shall be deemed to
have been paid in full satisfaction of all rights pertaining to the shares of
Company Common Stock theretofore represented by such Certificates, subject,
however, to any obligation of Parent or the Surviving Corporation to pay any
dividends or make any other distributions with a record date prior to the
Effective Time which may have been authorized or made with respect to shares of
Company Common Stock which remain unpaid or unsatisfied at the Effective Time,
and there shall be no further registration from and after the Effective Time of
transfers on the stock transfer books of the Surviving Corporation of shares of
Company Common Stock which were out standing immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to Parent, the
Surviving Corporation or the Exchange Agent for any reason, they shall be
canceled and exchanged as provided in this Section 1.3, except as otherwise
provided by applicable Law.
1.4 Dividends. All shares of Parent Common Stock to be issued pursuant to
the Merger shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by Parent in respect of
the Parent Common Stock, the record date for which is at or after the Effective
Time, that declaration shall include dividends or other distributions in respect
of all shares of Parent Common Stock issuable pursuant to this Agreement. No
dividends or other distributions that are declared or made after the Effective
Time with respect to Parent Common Stock payable to holders of record thereof
after the Effective Time shall be paid to a Company stockholder entitled to
receive certificates representing Parent Common Stock until such stockholder has
properly surrendered such stockholders' Certificates. Upon such surrender, there
shall be paid to the stockholder in whose name the certificates representing
such Parent Common Stock shall be issued any dividends with a record date at or
after the Effective Time which shall have become payable with respect to such
Parent Common Stock between the Effective Time and the time of such surrender,
without interest. After such surrender, there shall also be paid to the
stockholder in whose name the certificates representing such Parent Common Stock
shall be issued any dividend on such Parent Common Stock that shall have a
record date subsequent to the Effective Time and prior to such surrender and a
payment date after such surrender; provided that such dividend payments shall be
made on such payment dates. In no event shall the stockholders entitled to
receive such dividends be entitled to receive interest on such dividends.
1.5 Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the holders of the Certificates for six months after
the Effective Time shall be delivered by the Exchange Agent to Parent, and any
holders of the Certificates who have not theretofore complied with this Article
1 shall thereafter look only to Parent for payment of their claim for any Merger
Consideration and, if applicable, any unpaid dividends or other distributions
which such holder may be due, subject to applicable
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Law. None of Parent, the Surviving Corporation or the Exchange Agent shall be
liable to any Person (as defined herein) in respect of any such shares of Parent
Common Stock or funds from the Exchange Fund delivered to a public official
pursuant to any applicable abandoned property, escheat or similar Law. As used
in this Agreement, "Person" shall mean any natural person, corporation, general
or limited partnership, limited liability company, joint venture, trust,
association or entity of any kind.
1.6 Investment of Exchange Fund. The Exchange Agent will invest any cash
included in the Exchange Fund, as directed by Parent. Any interest and other
income resulting from such investments will be paid to Parent.
1.7 Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting of a reasonable amount as Parent may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Certificate the
Merger Consideration and, if applicable, any unpaid dividends or distributions
on shares of Parent Common Stock deliverable in respect thereof, in each case
pursuant to this Agreement.
1.8 Withholding Rights. The Surviving Corporation or the Parent, as the
case may be, shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any Person such amounts as it is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law. To the extent
that amounts are so withheld by the Surviving Corporation or Parent, as the case
may be, such amounts withheld shall be treated for purposes of this Agreement as
having been paid to such Person in respect of which such deduction and
withholding was made by the Surviving Corporation or Parent as the case may be.
ARTICLE 2
CLOSING
2.1 Time and Place of Closing. Unless otherwise mutually agreed upon in
writing by Parent and the Company, the closing of the Merger (the "Closing")
will be held at 10:00 a.m., local time, on the first business day following the
date that all of the conditions precedent specified in Article VI (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions) have been satisfied or
waived by the party or parties permitted to do so (such date being referred to
hereinafter as the "Closing Date"). The place of Closing shall be at the offices
of Sullivan & Cromwell, 125 Broad Street, New York, New York, or at such other
place as may be agreed between Parent and the Company.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company's Form 10-K for the year ended December
31, 1999, or the Company's Form 10-Qs and Form 8-Ks filed since December 31,
1999 and prior to the date hereof or as set forth in the disclosure letter
delivered to Parent concurrent with the execution of this Agreement (the
"Company Disclosure Letter"), the Company hereby represents and warrants to
Parent and Merger Sub as follows:
3.1 Organization, Good Standing and Power.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the Laws of the State of Connecticut and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. The Company is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties make
such qualification or licensing necessary, except where the failure to be so
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qualified or licensed or to be in good standing is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company
(as defined herein). The Company has delivered to Parent complete and correct
copies of its Amended and Restated Certificate of Incorporation ("Certificate of
Incorporation") and its By-Laws, as amended to the date hereof. As used in this
Agreement, the phrase "Material Adverse Effect on the Company" means a material
adverse effect on the condition (financial or otherwise), properties, business,
or results of the operations of the Company and its subsidiaries (as defined
below) taken as a whole, other than (i) effects caused by changes in general
economic or securities markets conditions, (ii) changes or conditions that
affect the U.S. property-casualty insurance industry in general, (iii) changes
in generally accepted accounting principles, consistently applied ("GAAP") or
statutory accounting practices prescribed or permitted by the applicable
insurance regulatory authority and (iv) effects resulting from the announcement
of this Agreement and the transactions contemplated hereby.
For purposes of this Agreement; the term "Responsible Executive Officers"
shall mean the persons designated as such in Schedule 3.1 of the Company
Disclosure Letter. As used in this Agreement, the term "subsidiary" of a party
shall mean any corporation or other entity (including joint ventures,
partnerships and other business associations) in which such party directly or
indirectly owns outstanding capital stock or other voting securities having the
power to elect a majority of the directors or similar members of the governing
body of such corporation or other entity, or otherwise direct the management and
policies of such corporation or other entity.
(b) Each subsidiary of the Company (a "Company Subsidiary") is a
corporation duly organized, validly existing and in good standing under the Laws
of its jurisdiction of incorporation, and has the corporate or other power and
authority necessary for it to own or lease its properties and assets and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing or in good standing or to have such power and
authority is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company. Each Company Subsidiary is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed or to be in good standing is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company. The Company has delivered or made available to Parent
complete and correct copies of the certificate of incorporation and any by-laws
(or comparable organizational documents for each Company Subsidiary).
(c) Joint Ventures. Neither the Company nor any Company Subsidiary is a
party to or member of, or otherwise holds, any Joint Venture. With respect to
the joint ventures of the Company and the Company Subsidiaries that are not
Joint Ventures (A) except as set forth on Schedule 3.1(c) of the Company
Disclosure Letter, neither the Company nor any Company Subsidiary is liable for
any material obligations or material liabilities of any such joint ventures, (B)
except as set forth on Schedule 3.1(c) of the Company Disclosure Letter, neither
the Company nor any Company Subsidiary is obligated to make any loans or capital
contributions to, or to undertake any guarantees or obligations with respect to,
such joint ventures, (C) none of such joint ventures own any assets that are
material to the continued conduct of the business of the Company and the Company
Subsidiaries, taken as a whole, substantially as it is presently conducted, (D)
except as set forth on Schedule 3.1(c) of the Company Disclosure Letter, neither
the Company nor any Company Subsidiary is subject to any material limitation on
its right to compete or any material limitation on its right to otherwise
conduct business by reason of any agreement relating to such joint venture and
(E) to the knowledge of the Responsible Executive Officers after due inquiry,
each joint venture is in material compliance with all Laws of all Governmental
Entities. As used herein, "Joint Venture" shall mean those direct or indirect
joint ventures of the Company or any Company Subsidiary (i) that are not
otherwise a direct or indirect Company Subsidiary and (ii) in which the Company
or any Company Subsidiary as of the date of this Agreement have invested, or
made commitments to invest, $25 million or more, but "Joint Venture" and "joint
venture" shall not include any entities whose securities are held solely for
passive investment purposes by the Company or any Company Subsidiary. Schedule
3.1(c) of the Company Disclosure Letter contains, as of the date of this
Agreement, a correct and complete list of each joint venture of the Company or
any Company Subsidiary that is not a Joint Venture.
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(d) The Company conducts its insurance operations through the subsidiaries
set forth on Schedule 3.1(d) of the Company Disclosure Letter (collectively, the
"Company Insurance Subsidiaries"). Each of the Company Insurance Subsidiaries is
(i) duly licensed or authorized as an insurance company and, where applicable, a
reinsurance company, in its jurisdiction of incorporation, (ii) duly licensed or
authorized as an insurance company and, where applicable, a reinsurance company,
in each other jurisdiction where it is required to be so licensed or authorized
and (iii) duly authorized in its jurisdiction of incorporation and each other
applicable jurisdiction to write each line of business reported as being written
in the Company SAP Statements (as defined in Section 3.7(a)), except, in any
such case, where the failure to be so licensed or authorized is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. The Company has made all required filings under applicable insurance
holding company statutes, except where the failure to file is not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect on the
Company.
3.2 Capitalization. The authorized capital stock of the Company as of the
date hereof consists of 50,000,000 shares of Company Common Stock, of which as
of August 16, 2000, 29,037,767 shares were issued and outstanding; 500,000
shares of preferred stock, no par value per share, of which as of the date
hereof 250,000 shares have been designated as "Series A Junior Participating
Preferred Stock" and 2,000 shares have been designated as "Series B Convertible
Preferred Stock," of which as of August 16, 2000, no shares were issued and
outstanding. The Company has no commitments to issue or deliver Company Common
Stock or any other securities, except that, as of August 16, 2000 there were (i)
4,011,150 shares of Company Common Stock subject to issuance upon exercise of
outstanding Company Options (as defined in Section 5.17(a)) pursuant to the
Company 1985 Stock Option Plan, as amended and restated effective September 21,
1998, and to the Company 1995 Stock Option Plan, as amended and restated
effective September 21, 1998 (together, the "Company Option Plans"); (ii) 69,444
shares of Company Common Stock subject to issuance pursuant to the Company
Directors Stock and Deferred Compensation Plan, as amended and restated
effective September 21, 1998; and (iii) 5,294,118 shares issuable upon
conversion of the 7.0% Convertible Subordinated Deferrable Interest Debentures
due December 31, 2017 ("Capital Securities") or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any securities of the Company. The shares of
Company Common Stock issuable pursuant to the Stock Option Agreement have been
duly reserved for issuance by the Company, and upon any issuance of such shares
in accordance with the terms of the Stock Option Agreement, such shares will be
duly authorized, validly issued, fully paid and nonassessable and free and clear
of any liens, charges, pledges, security interests or other encumbrances. All
outstanding shares of Company Common Stock are, and all shares which may be
issued prior to the Effective Time pursuant to any outstanding Company Options
will be when issued, duly authorized, validly issued, fully paid and
nonassessable and not subject to any preemptive rights. Other than the Company
Options and the Capital Securities, there are no preemptive or other outstanding
options, warrants or rights to purchase or acquire from the Company any capital
stock of the Company, there are no existing registration covenants with the
Company with respect to outstanding shares of the Company Common Stock or other
securities, and there are no convertible securities or other contracts,
commitments, agreements, understandings, arrangements or restrictions by which
the Company is bound to issue or sell any additional shares of its capital stock
or other securities. The Company has provided to Parent a correct and complete
list of each Company Option, including the holder, date of grant, exercise price
and number of shares of Company Common Stock subject thereto.
3.3 Subsidiaries. The only direct or indirect subsidiaries of the Company
and (except for portfolio investments and joint ventures) other ownership
interests held directly or indirectly by the Company in any other Person are
those listed in Schedule 3.3 of the Company Disclosure Letter. The Company owns,
directly or indirectly, all of such outstanding voting securities or other
ownership interests of each Company Subsidiary free and clear of all liens,
charges, pledges, security interests or other encumbrances. All of the capital
stock or other ownership interests of each Company Subsidiary has been duly
authorized, and is validly issued, fully paid and nonassessable. Except as set
forth in Schedule 3.3 of the Company Disclosure Letter, there are no preemptive
or other outstanding options, warrants or rights to subscribe to, or any
contracts or commitments to issue or sell any shares of the capital stock or any
securities or obligations
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convertible into or exchangeable for, or giving any Person any right to acquire,
any shares of the capital stock of any Company Subsidiary to which the Company
or any Company Subsidiary is a party. Except as set forth in Schedule 3.3 of the
Company Disclosure Letter, there are no voting trusts or other agreements or
understandings with respect to the voting of capital stock of the Company or any
Company Subsidiary to which the Company or any Company Subsidiary is a party.
The Company does not own, directly or indirectly, any voting interest that may
require a filing by Parent under the HSR Act.
3.4 Authority; Enforceability. The Company has the corporate power and
authority to enter into this Agreement and, subject to obtaining the required
approval of the stockholders of the Company with respect to the consummation of
the Merger, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the Stock Option Agreement, and the
consummation of the transactions contemplated hereby and thereby, have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement and the Stock Option Agreement have been duly executed and
delivered by the Company and each constitutes the valid and binding obligation
of the Company, enforceable against it in accordance with its terms, (i) except
as may be limited by bankruptcy, insolvency, moratorium or other similar Laws
affecting or relating to enforcement of creditors' rights generally and (ii)
subject to general principles of equity.
3.5 Non-Contravention; Consents.
(a) Except as set forth in Schedule 3.5 of the Company Disclosure Letter,
neither the execution, delivery and performance by the Company of this Agreement
or the Stock Option Agreement, nor the consummation by the Company of the
transactions contemplated hereby or thereby, nor compliance by the Company with
any of the provisions hereof or thereof, will:
(i) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, result in a change in the rights or
obligations of any party under, or result in a right of termination or
acceleration, or the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any
Company Subsidiary, under any of the terms, conditions or provisions of,
(x) the Certificate of Incorporation or By-Laws of the Company or the
comparable charter or organizational documents of any Company Subsidiary,
or (y) any note, bond, mortgage, indenture, deed of trust, licence, lease,
contracts, agreement or other instrument or obligation to which the Company
or any of the Company Subsidiaries is a party, or by which the Company or
any of the Company Subsidiaries may be bound, or to which the Company or
any of the Company Subsidiaries or the properties or assets of any of them
may be subject, and that, in any such event specified in this clause (y),
is reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on the Company or to prevent, materially hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement; or
(ii) violate any valid and enforceable judgment, ruling, order, writ,
injunction, decree, or any statute, rule or regulation applicable to the
Company or any of the Company Subsidiaries or any of their respective
properties or assets where such violation is, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the
Company or to prevent, materially hinder or materially delay the ability of
the Company to consummate the transactions contemplated by this Agreement.
(b) Except for (i) the filing of the applications and notices with
applicable foreign, federal and state regulatory authorities governing insurance
(including the Commissioners of Insurance in Texas and Connecticut, and the
insurance regulatory authorities and other applicable regulatory authorities in
the United Kingdom, Canada, Bermuda, Malaysia, Australia, Spain and Hong Kong)
(the "Insurance Authorities") and the approval of such applications or the grant
of required licenses by such authorities or the expiration of any applicable
waiting periods thereunder, (ii) the filing of notification and report forms
with the United States Federal Trade Commission and the United States Department
of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the expiration or termination of any applicable
waiting period thereunder, (iii) the filing with the Securities and Exchange
Commission (the "SEC") of a proxy statement (the "Proxy Statement") in
definitive form relating to the meeting of the
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Company's stockholders to be held in connection with this Agreement and the
transactions contemplated hereby (the "Stockholders' Meeting") and the filing
and declaration of effectiveness of the registration statement on Form S-4
relating to the shares of Parent Common Stock to be issued in the Merger, (iv)
filings with state securities or "blue sky" laws, (v) the filing of the
Connecticut Certificate of Merger with the Secretary of State of the State of
Connecticut pursuant to the CBCA, (vi) the filing of the Delaware Certificate of
Merger with the Secretary of State of the State of Delaware pursuant to the
DGCL, (vii) the approval of the listing of the Parent Common Stock to be issued
in the Merger on the New York Stock Exchange or (viii) the filing with the SEC
of a Schedule 13D, (the "Schedule 13D"), no notices to, consents or approvals
of, or filings or registrations with, any court, federal, state, local or
foreign governmental or regulatory body (including a self-regulatory body) or
authority (each, a "Governmental Authority") or with any third party are
necessary in connection with the execution and delivery by the Company of this
Agreement or the Stock Option Agreement and the consummation by the Company of
the trans actions contemplated hereby and thereby, except for such notices,
consents, approvals, filings or registrations, the failure of which to be made
or obtained are not, individually or in the aggregate, reasonably likely to have
a Material Adverse Effect on the Company or to prevent, materially hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement.
3.6 SEC Documents; GAAP Financial Statements. The Company has timely filed
all required forms, reports, schedules, statements and other documents
(including exhibits and all other information incorporated therein) with the SEC
since January 1, 1998. The Company has delivered or made available to Parent all
registration statements, proxy statements, annual reports, quarterly reports and
reports on Form 8-K and other forms, reports, schedules and documents, if any,
filed by the Company with the SEC since January 1, 1998 and prior to the date
hereof (as such documents have been amended since the time of their filing,
collectively, the "Company Reports"). As of their respective dates or, if
amended, as of the date of the last such amendment, the Company Reports (i) were
timely filed and complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be, and the rules and regulations of the SEC promulgated thereunder
applicable to such Company Reports, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the Company Reports complied, as
of their respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles (except, in the case of unaudited consolidated
quarterly statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited quarterly
statements, to normal year-end adjustments). Except for those obligations and
liabilities that are reflected or reserved against on the balance sheet included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1999
or in the footnotes to the financial statements included therein, neither the
Company nor any Company Subsidiary has any liabilities or obligations of any
nature whatsoever (whether accrued, absolute, contingent, known, unknown or
otherwise), except for liabilities or obligations incurred since December 31,
1999 in the ordinary course of business consistent with past practice, that are
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company or to prevent, materially hinder or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement.
3.7 Statutory Statements.
(a) The Company has previously furnished or made available to Parent true
and complete copies of the annual statements or other comparable statements for
each of the years ended December 31, 1997, December 31, 1998, and December 31,
1999, and for the quarterly periods ended March 31, 2000 and June 30, 2000,
together with all exhibits and schedules thereto (collectively, the "Company SAP
State-
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ments"), with respect to each of the Company Insurance Subsidiaries, in each
case as filed with the Governmental Authority charged with supervision of
insurance companies of such Company Insurance Subsidiary's jurisdiction of
domicile. The Company SAP Statements were prepared in conformity with statutory
or other applicable accounting practices prescribed or permitted by such
Governmental Authority applied on a consistent basis ("SAP") and present fairly,
to the extent required by and in conformity with SAP in all material respects
the statutory financial condition of such Company Insurance Subsidiary (in the
case of domestic U.S. Company Insurance Subsidiaries) or applicable regulatory
financial condition (in the case of non-U.S. Company Insurance Subsidiaries) at
their respective dates and the results of operations, changes in capital and
surplus and cash flow of such Company Insurance Subsidiary for each of the
periods then ended. No deficiencies or violations material to the financial
condition of any of the Company Insurance Subsidiaries, individually, whether or
not material in the aggregate, have been asserted in writing by any Governmental
Authority which have not been cured or otherwise resolved to the satisfaction of
such Governmental Authority (unless not currently pending). The Company has made
available to Parent true and complete copies of all financial examination and
other reports of Governmental Authorities, including the most recent reports of
state insurance regulatory authorities, relating to each Company Insurance
Subsidiary. The quarterly statements of each Company Insurance Subsidiary for
the quarter ending March 31, 2000 as filed and the quarterly statements of each
Company Insurance Subsidiary thereafter filed prior to the Closing, when filed
with the Governmental Authorities, including insurance regulatory authorities,
of the applicable jurisdictions, presented and will present fairly, to the
extent required by and in conformity with SAP in all material respects the
statutory financial condition of such Company Insurance Subsidiary (in the case
of domestic U.S. Company Insurance Subsidiaries) or applicable regulatory
financial condition (in the case of non-U.S. Company Insurance Subsidiaries) at
their respective dates indicated and the results of operations, changes in
capital and surplus and cash flow of such Company Insurance Subsidiary for each
of the periods therein specified (subject to normal year-end adjustments).
(b) All reserves for claims, losses (including, without limitation,
incurred but not reported losses) and loss adjustment expenses, (whether
allocated or unallocated) as reflected in the Company SAP Statements, were
determined in accordance with SAP, consistently applied, and made reasonable
provision in the aggregate to cover the total amount of liabilities under all
outstanding policies and contracts of insurance, reinsurance and retrocession as
of the dates of such statutory statements except for any deficiency which is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. Each Company Insurance Subsidiary owns assets that qualify as
admitted assets under applicable Insurance Laws in an amount at least equal to
any such required reserves plus its minimum statutory capital and surplus as
required under applicable Insurance Laws. No Company Insurance Subsidiary's
reserves have been discounted on either a tabular or non-tabular basis.
3.8 Absence of Certain Changes or Events. Since December 31, 1999, the
Company and the Company Subsidiaries have conducted their respective businesses
only in, and have not engaged in any material transaction other than according
to, the ordinary course of such business consistent with past practice, and
there has not been (i) any change, event, condition (financial or other) or
state of circumstances or facts which, individually or in the aggregate, has had
or is reasonably likely to have a Material Adverse Effect on the Company, (ii)
any declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of the Company's
outstanding capital stock other than regular quarterly dividends with respect to
the Company Common Stock which do not exceed $0.44 per share per quarter, (iii)
any split, combination or reclassification of any of the Company's outstanding
capital stock or any issuance or the authorization of any issuance of any other
securities in respect of, in lieu of or in substitution for shares of the
Company's outstanding capital stock, (iv) except as set forth in Schedule 3.8 of
the Company Disclosure Letter, (w) any material change to any Company Employee
Plan, (x) any granting by the Company or any Company Subsidiary of any increase
in compensation or benefits or the opportunity to earn compensation or benefits
to any executive officers, except for increases in the ordinary course of
business consistent with prior practice or as was required under employment
agreements in effect as of December 31, 1999, (y) any granting by the Company or
any Company Subsidiary to any such executive officer or other employee of any
increase in severance or termination pay, except as was required under any
employment,
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severance or termination agreements in effect as of December 31, 1999, which
agreements are identified in the Company Disclosure Letter, or (z) any entry by
the Company or any Company Subsidiary into any new severance or termination
agreement with any such executive officer or other employee, (v) any material
addition, or any development involving a prospective material addition, to the
Company's aggregate reserves for policy claims, (vi) any material change in
accounting methods, principles or practices by the Company or any Company
Subsidiary, except insofar as may be appropriate to conform to changes in
statutory accounting rules or generally accepted accounting principles, or (vii)
any material change in the practices, policies, methods, assumptions or
principles of any Company Subsidiary with respect to underwriting, pricing,
reserving, claims administration or investment.
3.9 Taxes and Tax Returns.
(a) As used in this Agreement, "Tax" shall mean any federal, state, county,
local or foreign taxes, charges, fees, levies, or other assessments, including
all net income, gross income, premium, sales and use, ad valorem, transfer,
gains, profits, windfall profits, excise, franchise, real and personal property,
gross receipts, capital stock, production, business and occupation, employment,
disability, payroll, license, estimated, stamp, customs duties, severance or
withholding taxes, other taxes or similar charges of any kind whatsoever imposed
by any Governmental Authority, whether imposed directly on a Person or resulting
under Treasury Regulation Section 1.1502-6 (or any similar Law), as a transferee
or successor, by contract or otherwise and includes any interest and penalties
(civil or criminal) on or additions to any such taxes or in respect of a failure
to comply with any requirement relating to any Tax Return and any expenses
incurred in connection with the determination, settlement or litigation of any
tax liability. "Tax Return" shall mean a report, return or other information
required to be supplied to a Governmental Authority with respect to Taxes
including, where permitted or required, combined or consolidated returns for any
group of entities;
(b) The Company and the Company Subsidiaries have (i) duly filed (or there
has been filed on their behalf) with appropriate Governmental Authorities all
Tax Returns required to be filed by them, on or prior to the date hereof, and
all Tax Returns were in all material respects true, complete and correct and
filed on a timely basis except to the extent that any failure to file is not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company, and (ii) duly paid in full within the time and in the
manner prescribed by Law or made provisions in accordance with generally
accepted accounting principles with respect to Taxes not yet due and payable (or
there has been paid or provision has been made on their behalf) for the payment
of all Taxes for all periods ending on or prior to the date hereof, except to
the extent that any failure to fully pay or make provision for the payment of
such Taxes is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company;
(c) No federal, state, local or foreign audits, investigations or other
administrative proceedings or court proceedings are presently pending or
threatened with regard to any Taxes or Tax Returns of the Company or the Company
Subsidiaries, and no issues have been raised in writing by any taxing authority
in connection with any Tax or Tax Return wherein an adverse determination or
ruling in any one such proceeding or in all such proceedings in the aggregate is
reasonably likely to have a Material Adverse Effect on the Company;
(d) The federal income tax returns of the Company and the Company
Subsidiaries have been examined by the Internal Revenue Service ("IRS") (or the
applicable statutes of limitation for the assessment of federal income taxes for
such periods have expired) for all periods through and including December 31,
1995, and no material deficiencies for any Taxes were proposed, assessed or
asserted as a result of such examinations that have not been resolved and fully
paid. Neither the Company nor any of the Company Subsidiaries has granted any
requests, agreements, consents or waivers to extend the statutory period of
limitations applicable to the assessment of any Taxes with respect to any Tax
Returns of the Company or any of the Company Subsidiaries, which period (after
giving effect to such extension) has not yet expired;
(e) Except as set forth in Schedule 3.9(e) of the Company Disclosure
Letter, neither the Company nor any Company Subsidiary is a party to any
agreement relating to the allocation or sharing of Taxes. Neither the Company
nor any Company Subsidiary (i) has been a member of an affiliated group filing a
U.S. consolidated federal income tax return or an affiliated, consolidated,
combined or unitary group for state income tax return purposes (other than a
group the common parent of which was the Company) or (ii) has
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any liability for Taxes of any Person under Treasury Regulation Section 1.1502-6
(or any provision of state, local or foreign law in respect of an affiliated,
consolidated, combined or unitary group for state income tax return purposes),
as a transferee or successor, by contract or otherwise. Neither the Company nor
any Company Subsidiary is currently under (i) any obligation to pay any amounts
as a result of being party, or having been party, to any Tax sharing agreement
or (ii) any express or implied obligation to indemnify any other Person for
Taxes except for such indemnification obligations which are not, individually or
in the aggregate, reasonably likely to have a Material Adverse Effect on the
Company;
(f) There are no Tax liens upon any asset of the Company or any Company
Subsidiary except liens for Taxes not yet due and payable, liens which are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or liens which otherwise are being contested in good
faith;
(g) Neither the Company nor any Company Subsidiary has received a Tax
Ruling (as defined herein) or entered into a Closing Agreement (as defined
herein) with any taxing authority. "Tax Ruling," as used in this Agreement,
shall mean a written ruling of a taxing authority relating to Taxes. "Closing
Agreement," as used in this Agreement, shall mean a written and legally binding
agreement with a taxing authority relating to Taxes;
(h) All transactions that could give rise to an understatement of federal
income tax have been adequately disclosed on the Tax Returns of the Company and
any Company Subsidiary in accordance with Section 6662(d)(2)(B) of the Code
except for such understatements which are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on the Company;
(i) Except as set forth on Schedule 3.9(i) of the Company Disclosure
Letter, neither the Company nor any Company Subsidiary is required to include in
income any adjustment pursuant to Section 481(a) of the Code by reason of a
voluntary change in accounting method initiated by the Company or any Company
Subsidiary, and the IRS has not proposed any such adjustment or change in
accounting method;
(j) Except as set forth in Schedule 3.9(j) of the Company Disclosure
Letter, any amount that could be received (whether in cash or property or the
vesting of property) as a result of any of the transactions contemplated by this
Agreement by any employee, officer or director of the Company or any Company
Subsidiary who is a "disqualified individual" (as such term is defined in
proposed Treasury Regulation Section 1.280G-1) under any employment, severance
or termination agreement, other compensation arrangement or benefit plan of the
Company or a Company Subsidiary currently in effect would not be characterized
as an "excess parachute payment" (as such term is defined in Section 280G(b)(1)
of the Code). In addition, except as set forth in Schedule 3.9(j) of the Company
Disclosure Letter, Section 162(m) of the Code will not apply to any amount paid
or payable by the Company or any Company Subsidiary under any contract or
Company Employee Plan (as defined in Section 3.13(a)) currently in effect;
(k) Neither the Company nor any Company Subsidiary has taken any action or
failed to take any action which action or failure to take action could
jeopardize the qualification of the Merger as a reorganization within the
meaning of Section 368(a) of the Code; and
(l) The Company is not a "United States real property holding corporation"
as defined in Section 897(b)(2) of the Code.
(m) HSB Engineering Insurance Limited is a party to a gain recognition
agreement dated December 21, 1995, which expires December 31, 2008. A copy of
the agreement is included in Schedule 3.9(m) of the Company Disclosure Letter.
3.10 Litigation. Except as set forth in Schedule 3.10 of the Company
Disclosure Letter, neither the Company nor any Company Subsidiary is a party to
any pending or, to the knowledge of the Responsible Executive Officers after due
inquiry, threatened claim, action, suit, investigation or proceeding which is,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. There is no outstanding order, writ, judgment, stipulation,
injunction, decree, determination, award or other decision against the Company
or any Company Subsidiary which is,
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individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. In the reasonable judgment of the Responsible Executive Officers the
aggregate case reserves maintained by the Company and its Subsidiaries for cases
in litigation are adequate to cover the reasonably likely expenses of the
Company and its subsidiaries with respect to such cases based on the facts
currently known by the Company, provided, however, that this representation
shall not be deemed to be a representation as to the adequacy of reserves under
outstanding policies and contracts of insurance, reinsurance and retrocession in
the aggregate.
3.11 Contracts and Commitments. All of the contracts, agreements or
arrangements of the Company and the Company Subsidiaries that are required to be
described in the Company Reports or to be filed as exhibits thereto (the
"Contracts") are described in the Company Reports or filed as exhibits thereto
and are in full force and effect. True and complete copies of all such Contracts
have been delivered or have been made available by the Company to Parent.
Neither the Company nor any Company Subsidiary has violated, is in breach of any
provision of, or is in default (or, with notice or lapse of time or both, would
be in default) under, or has taken any action resulting in the termination of,
acceleration of performance required by, or resulting in a right of termination
or acceleration under, any of the Contracts, except for such violations,
breaches, defaults, terminations or accelerations which are not reasonably
likely to have, individually or in the aggregate, a Material Adverse Effect on
the Company or to prevent, materially hinder or materially delay the ability of
the Company to consummate the transactions contemplated by this Agreement.
Except as set forth in Schedule 3.11 of the Company Disclosure Letter, neither
the Company nor any of the Company Subsidiaries is party to any contract,
agreement or arrangement containing any provision or covenant limiting in any
manner the ability of the Company or any Company Subsidiary to (a) sell any
products or services of or to any other Person, (b) engage in any line of
business, or (c) compete with or to obtain products or services from any Person
or limiting the ability of any Person to provide products or services to the
Company or any Company Subsidiary. Except as set forth in Schedule 3.11 of the
Company Disclosure Letter, neither the Company nor any of the Company
Subsidiaries is a party to any contract, agreement or arrangement which provides
for payments in the event of a change of control.
3.12 Registration Statement, Etc. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in (i)
the Registration Statement to be filed by Parent with the SEC in connection with
the Parent Common Stock to be issued in the Merger (the "Registration
Statement"), (ii) the Proxy Statement to be mailed to the Company's stockholders
in connection with the Stockholders' Meeting to be called to consider the
Merger, and (iii) any other documents to be filed with the SEC in connection
with the transactions contemplated hereby will, at the respective times such
documents are filed and at the time such documents become effective or at the
time any amendment or supplement thereto be comes effective contain any untrue
statement of a material fact, or omit to state any material fact required or
necessary in order to make the statements therein not misleading; and, in the
case of the Registration Statement, when it becomes effective or at the time any
amendment or supplement thereto becomes effective, cause the Registration
Statement or such supplement or amendment to contain any untrue statement of a
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading; or, in the
case of the Proxy Statement, when first mailed to the stockholders of the
Company, or in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Stockholders' Meeting, cause the Proxy
Statement or any amendment thereof or supplement thereto to contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All documents that
the Company is responsible for filing with the SEC and any other regulatory
agency in connection with the Merger will comply as to substance and form in all
material respects with the provisions of applicable Law, except that no
representation is made by the Company with respect to statements made therein
based on information supplied by or on behalf of Parent expressly for inclusion
therein or with respect to information concerning Parent or Merger Sub which is
included or incorporated by reference in the Registration Statement or the Proxy
Statement.
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3.13 Employee Benefit Plans.
(a) Schedule 3.13(a) of the Company Disclosure Letter contains a list of
each plan, program, arrangement, practice and contract which is maintained by
the Company or any Company Subsidiary under which the Company or any Company
Subsidiary is obligated to make contributions and which provides benefits or
compensation to or on behalf of current or former employees, officers or
directors, including but not limited to (i) all bonus, incentive compensation,
stock option, stock purchase, deferred compensation, retirement, fringe
benefits, commission, severance, golden parachute plans, programs, contracts or
arrangements, (ii) executive compensation plans, programs, contracts or
arrangements and (iii) "employee benefit plans" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). All
such plans, programs, arrangements, practices or contracts are referred to
herein as "Company Employee Plans." The Company has made available to Parent the
plan documents or other writing constituting each Company Employee Plan and, if
applicable, the trust, insurance contract or other funding arrangement, the most
recently prepared ERISA summary plan description, the three most recent Forms
5500, any summary of material modifications, and the most recently prepared
actuarial report, financial statements, and annual reports for each such Plan.
The Company has identified those Company Employee Plans which the Company
intends to satisfy the requirements of Section 401(a) of the Code and has made
available to Parent accurate copies of the most recent favorable determination
letters for such plans.
(b) No liability under Title IV or Section 302 of ERISA that is reasonably
likely, in the aggregate, to have a Material Adverse Effect on the Company has
been incurred by the Company or any entity (each, an "ERISA Affiliate") which
together with the Company would be deemed to be a "single employer" with the
Company within the meaning of Section 4001 of ERISA that has not been satisfied
in full, and no condition exists that presents a material risk to the Company or
any ERISA Affiliate of incurring any such liability.
(c) Neither the Company nor any ERISA Affiliate has at any time within the
last six years contributed or had any obligation to contribute to a
"multiemployer plan," as defined in Section 3(37) of ERISA, and no Company
Employee Plan is a plan described in Section 4063(a) of ERISA. All contributions
required to be made under the terms of any Company Employee Plan have been
timely made or have been reflected on the Company SAP Statements. Under each
Company Employee Plan that is an "employee pension benefit plan" (within the
meaning of Section 3(2) of ERISA, as of the last day of the most recent plan
year ended prior to the date hereof, the actuarially determined present value of
all "benefit liabilities", within the meaning of Section 4001(1)(16) of ERISA
(as determined on the basis of the actuarial assumptions contained in the Plan's
most recent actuarial valuation), did not exceed the then current value of the
assets of such Plan, and there has been no material change in the financial
condition of such Plan since the last day of the most recent plan year. There
has been no amendment to, announcement by the Company or any Company Subsidiary
relating to, or change in employee participation or coverage under, any Company
Employee Plan which would increase materially the expense of maintaining such
Plan above the level of the expense incurred therefor for the most recent fiscal
year.
(d) Except as set forth in Schedule 3.13(d) of the Company Disclosure
Letter, neither the Company nor any Company Subsidiary is obligated to provide
post-employment or retirement medical benefits or any other unfunded welfare
benefits to or on behalf of any Person who is no longer an employee of Company
or any Company Subsidiary, except for health continuation coverage as required
by Section 4980B of the Code or Part 6 of Title I of ERISA. In respect of any
Company Employee Plan set forth on Schedule 3.13(d) of the Company Disclosure
Letter pursuant to the preceding sentence, other than the Employee Agreements
listed therein, the Company or any Company Subsidiary may amend or terminate
such Plan at any time without incurring any liability thereunder except for
benefits incurred through such amendment or termination date.
(e) Neither the Company nor any other "disqualified person" or "party in
interest" (as defined in Section 4975(e)(2) of the Code and Section 3(14) of
ERISA, respectively) has engaged in any transaction in connection with any
Company Employee Plan that could reasonably be expected to result in the
imposition of a penalty pursuant to Section 502(i) of ERISA, damages pursuant to
Section 409 of ERISA or a Tax pursuant to Section 4975 of the Code which are,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect. Each Company Employee Plan subject to the requirements of Section 601 of
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ERISA has been operated in substantial compliance therewith. The Company has not
contributed to a "nonconforming group health plan" (as defined in Section
4000(c) of the Code).
(f) Each Company Employee Plan has at all times been maintained, by its
terms and in operation, in substantial compliance with all applicable Laws, and
each of those Company Employee Plans which is intended to be qualified under
Section 401(a) of the Code is so qualified and has at all times been maintained,
by its terms and in operation, in accordance with Section 401(a) of the Code.
(g) Schedule 3.13(g) of the Company Disclosure Letter contains a true and
complete summary or list of all material employment contracts and other
arrangements or agreements (including Company Employee Plans) that contain
"change in control" arrangements or other provisions pursuant to which benefits
or protections are triggered as a result of transactions affecting the ownership
of the Company or the composition of its Board of Directors.
(h) There are no pending, or, to the knowledge of the Responsible Executive
Officers, threatened or anticipated, claims that are, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect by or on behalf
of any Company Employee Plan, by any employee or beneficiary covered under any
such Plan, or otherwise involving any Company Employee Plan (other than routine
claims for benefits).
(i) Except as set forth in Schedule 3.13(i) of the Company Disclosure
Letter, the execution of or performance of the transactions contemplated by this
Agreement, whether alone or in conjunction with a termination of employment,
will not create, (A) accelerate or increase any obligations under any Company
Employee Plan, (B) accelerate the time of payment or vesting or trigger any
payment or funding (through a grantor trust or otherwise) of compensation or
benefits under, or trigger any other material obligation pursuant to, any of the
Company Employee Plans, (C) result in any breach or violation of, or default
under, any of the Company Employee Plans or (D) require the Company (or after
the Merger, Parent) to recognize any compensation expense, or to change the
basis on which compensation expense is charged, in respect of any outstanding
stock option or other equity-based award.
(j) The trust agreement between the Company and Fleet National Bank dated
January 29, 1988, amended and restated as of May 30, 1997 and further amended as
of October 28, 1998 (the "Trust"), has been amended effective as of August 16,
2000 to provide that the execution of this Agreement shall not constitute a
"Potential Change in Control" (as defined in the Trust) of the Company and the
consummation of any of the transactions contemplated by this agreement shall not
constitute a charge in control of the Company.
3.14 Collective Bargaining; Labor Disputes; Compliance. There are no
collective bargaining agreements to which the Company or any of the Company
Subsidiaries is a party or under which it is bound. The employees of the Company
and the Company Subsidiaries are not represented by any unions. Neither the
Company nor any of the Company Subsidiaries is currently, nor has been during
the past three years, the subject of any union organizing drive. Neither the
Company nor any of the Company Subsidiaries is currently, nor has been during
the past five years, the subject of any strike, dispute, walk-out, work
stoppage, slow down or lockout involving the Company or any of the Company
Subsidiaries nor, to the knowledge of the Responsible Executive Officers after
due inquiry, is any such activity threatened. Each of the Company and each
Company Subsidiary has substantially complied with all Laws relating to the
employment and safety of labor, including the National Labor Relations Act and
other provisions relating to wages, hours, benefits, collective bargaining and
all applicable occupational safety and health acts and Laws. Neither the Company
nor any Company Subsidiary has engaged in any unfair labor practice or
discriminated on the basis of race, age, sex, disability or otherwise in its
employment conditions or practices with respect to its employees in a manner
which is, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company. No action, suit, complaint, charge, grievance,
arbitration, employee proceeding or investigation by or before any court,
governmental entity, administrative agency or commission, brought by or on
behalf of any employee, prospective employee, former employee, retired employee,
labor organization or other representative of the Company's employees is pending
or, to the knowledge of the Responsible Executive Officers after due inquiry,
threatened against the Company except as disclosed in Schedule 3.14 to the
Company Disclosure Letter. The Company is not a party to or otherwise bound by
any consent decree with or
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citation by any government entity relating to the Company's employees or
employment practices relating to the Company's employees. The Company is in
compliance with its obligations with respect to the Company's employees pursuant
to the Worker Adjustment and Retraining Notification Act of 1988, and all other
notification and bargaining obligations arising under any collective bargaining
agreement, statute or otherwise.
3.15 No Violation of Law.
(a) The business and operations of the Company, and the Company Insurance
Subsidiaries, have been conducted in compliance with all applicable domestic and
foreign statutes, regulations and rules regulating the business and products of
insurance and reinsurance and all applicable orders and directives of insurance
regulatory authorities and market conduct recommendations resulting from market
conduct examinations by insurance regulatory authorities (collectively,
"Insurance Laws"), except where the failure to so conduct such business and
operations is not, individually or in the aggregate, reasonably likely to have a
Material Adverse Effect on the Company or to prevent, materially hinder or
materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement. Notwithstanding the generality of the foregoing,
each Company Insurance Subsidiary and its agents (including, to the knowledge of
the Responsible Executive Officers, any fronting company or anyone acting as
agent in selling insurance products on the Company's or any Company Subsidiary's
behalf) have marketed, sold and issued insurance products in compliance in all
material respects with all Laws applicable to the business of such Company
Insurance Subsidiary and in the respective jurisdictions in which such products
have been sold, including, without limitation, in compliance in all material
respects with all applicable prohibitions against "redlining" or withdrawal of
business lines. In addition (i) there is no pending or, to the knowledge of the
Responsible Executive Officers, threatened charge by any insurance regulatory
authority that any of the Company Insurance Subsidiaries has violated, nor any
pending or, to the knowledge of the Responsible Executive Officers, threatened
investigation by any insurance regulatory authority with respect to possible
violations of, any applicable Insurance Laws where such violations are,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement; and (ii) none of the Company Insurance Subsidiaries is subject to any
agreement, order or decree of any insurance regulatory authority relating
specifically to such Company Insurance Subsidiary (as opposed to insurance
companies generally) which are, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on the Company or to prevent,
materially hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement.
(b) In addition to Insurance Laws, the business and operations of the
Company and the Company Subsidiaries have been, and are being, conducted in
compliance with all other applicable federal, state, local or foreign laws,
statutes, ordinances, rules, regulations and orders of all Governmental
Authorities (collectively, with Insurance Laws, "Laws"), except where such
noncompliance, individually or in the aggregate, is not reasonably likely to
have a Material Adverse Effect on the Company or to prevent, materially hinder
or materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement. In addition to Insurance Laws: (i) neither the
Company nor any Company Subsidiary has been charged with or, to the knowledge of
the Responsible Executive Officers is now under investigation with respect to, a
violation of any applicable Law of a Governmental Authority or other regulatory
body, which violations or penalties are reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect on the Company or to prevent,
materially hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement; (ii) neither the Company nor
any Company Subsidiary is a party to or bound by any order, judgment, decree or
award of a Governmental Authority or other regulatory body which has or would
reasonably be likely to have, individually or in the aggregate, a Material
Adverse Effect on the Company or to prevent, materially hinder or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement; (iii) neither the Company nor any Company Subsidiary is a party
to any written agreement, consent agreement or memorandum of understanding with,
or is a party to any commitment letter or similar undertaking to, or is subject
to any order or directive by, or is a recipient of any supervisory letter from
or has adopted any resolutions at the request of any Governmental Authority that
restricts in any material respect the conduct of its business or that in any
manner relates to its
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capital adequacy, its credit policies, its management or its business (each, a
"Regulatory Agreement"), nor has the Company or any of the Company Subsidiaries
been advised in writing or, to the knowledge of the Responsible Executive
Officers, verbally, since January 1, 1998 by any Governmental Authority that it
is considering issuing or requesting any such Regulatory Agreement; and (iv) the
Company and the Company Subsidiaries have filed all reports required to be filed
with any Governmental Authority on or before the date hereof as to which the
failure to file such reports is reasonably likely to result, individually or in
the aggregate, in a Material Adverse Effect on the Company or to prevent,
materially hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement. The Company and the Company
Subsidiaries have all permits, certificates, licenses, approvals and other
authorizations required in connection with the operation of the business of the
Company and the Company Subsidiaries, except for permits, certificates,
licenses, approvals and other authorizations the failure of which to have are
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company or to prevent, materially hinder or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement and except for such permits, certificates, licenses, approvals
and other authorizations required to be obtained in connection with the
consummation of the transactions contemplated hereby.
3.16 Environmental Matters. Except as is not, individually or in the
aggregate, reasonably likely to have a Material Adverse Effect on the Company:
(a) to the knowledge of the Responsible Executive Officers, there are no
past, present or anticipated conditions or circumstances that could
reasonably be expected to interfere with or prevent the conduct of the
business of the Company and each of the Company Subsidiaries from being in
compliance with (i) any Environmental Law (as defined herein), or (ii) the
terms or conditions of any Environmental Permit (as defined herein);
(b) to the knowledge of the Responsible Executive Officers, there are no
past or present conditions or circumstances at, arising out of, or related
to, any current or former business, assets or properties of the Company or
any Company Subsidiary, including but not limited to on-site or off-site
use, generation, storage, treatment, disposal or the release or threatened
release of any Hazardous Material (as defined herein), which are,
individually or in the aggregate, reasonably likely to give rise to (i)
liabilities or obligations for any investigation, cleanup, remediation,
disposal or any other methods of corrective action or any monitoring
requirements under any Environmental Law, or (ii) claims arising for
personal injury, property damage, or damage to natural resources;
(c) neither the Company nor any Company Subsidiary has (i) received any
notice of noncompliance with, violation of, or liability or potential
liability under any Environmental Law from any Governmental Authority or
any other person or entity or (ii) entered into any consent agreement,
decree, settlement or order or is subject to any order of any court or
other Governmental Authority or tribunal under any Environmental Law or
relating to the cleanup of any Hazardous Materials;
(d) there are no Persons whose liability, for any environmental matters
or under any applicable Environmental Law, the Company or any Company
Subsidiary may have retained or assumed contractually or by operation of
law;
(e) neither the Company nor any Company Subsidiary has handled or
directed the management of or participated in any decisions with respect to
or exercised any influence or control over the use, generation, storage,
treatment or disposal of any Hazardous Materials at or related to any of
their business, assets or properties; and
(f) the Company and all Company Subsidiaries have made available to
Parent copies of all environmental inspections, audits, studies, plans,
records, data analyses or reports conducted or prepared by, on behalf of or
related to the Company or any Company Subsidiary and which are in their
possession or control.
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(g) As used in this Agreement, the terms identified in this Section 3.16
shall have the following meanings:
(i) "Environmental Law" means any applicable federal, state, local or
foreign statute, rule, regulation, directive, ordinance or judicial,
administrative or ministerial order, or common law, pertaining to: (v)
the protection of health, safety or the indoor or outdoor environment;
(w) the conservation, management, development, control and/or use of
land, natural resources and wildlife; (x) the protection or use of
surface water or groundwater; (y) the management, manufacture,
possession, presence, use, generation, storage, transportation,
treatment, disposal, release, threatened release, abatement, removal,
remediation, or handling of, or exposure to, any Hazardous Material; or
(z) pollution or contaminants (including any release to air, land or
surface water or ground water);
(ii) "Environmental Permit" means any permit, license, registration,
consent, approval or other authorization of any Governmental Authority
with jurisdiction over any Environmental Law or pertaining to any
environmental matter; and
(iii) "Hazardous Material" means any substance, chemical, compound,
product, solid, liquid, waste, by-product, pollutant, contaminant or
material which is hazardous, toxic or dangerous, and includes without
limitation, asbestos or any substance containing asbestos,
polychlorinated biphenyls, petroleum (including crude oil or any
fraction thereof), lead-based paint, radon and any hazardous, toxic or
dangerous waste, material or substance regulated under any Environmental
Law.
3.17 Fairness Opinion; Board Recommendation.
(a) The Board of Directors of the Company has received an opinion dated
August 17, 2000 from Goldman, Sachs & Co. to the effect that as of such date the
Merger Consideration is fair to the holders of Company Common Stock from a
financial point of view.
(b) The Board of Directors of the Company, at a meeting duly called and
held, has by unanimous vote of those directors present (i) determined that this
Agreement, the Stock Option Agreement and the transactions contemplated hereby
and thereby, including the Merger, are advisable and fair to and in the best
interests of the Company and its stockholders, and (ii) resolved to recommend
that the holders of Company Common Stock approve this Agreement and the
transactions contemplated herein, including the Merger, and directed that the
Merger be submitted for consideration by the Company's stockholders at the
Stockholders' Meeting.
3.18 Brokers and Finders. Neither the Company nor any of the Company
Subsidiaries, nor any of their respective officers, directors or employees, has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions, or finder's fees, and no broker or
finder has acted directly or indirectly for the Company or any of the Company
Subsidiaries, in connection with this Agreement, the Stock Option Agreement or
any of the transactions contemplated hereby or thereby, except that the Company
has retained Goldman, Sachs & Co. as its financial advisor, whose terms of
engagement have been disclosed to Parent and whose fees and expenses will be
paid by the Company.
3.19 Takeover Statutes; Rights Agreement.
(a) The Company has taken all actions necessary and within its authority
such that no restrictive provision of any "fair price," "moratorium," "control
share acquisition," "business combination," "stockholder protection,"
"interested shareholder" or other similar anti-takeover statute or regulation
(including, without limitation, Sections 33-841 and 33-844 of the CBCA) (each a
"Takeover Statute") or restrictive provision of any applicable provision in the
Certificate of Incorporation or By-Laws of the Company is, or at the Effective
Time will be, applicable to the Company, Parent, the Company Common Stock, the
Merger or any other transaction contemplated by this Agreement or the Stock
Option Agreement.
(b) The Company has taken all action required so that the entering into of
this Agreement or the Stock Option Agreement and the consummation of the
transactions contemplated hereby and thereby do not and will not enable or
require the Company Rights to be separated from the shares of Company Common
Stock
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with which the Company Rights are associated, or to be distributed, exercisable,
exercised, or nonredeemable or result in the Company Rights associated with any
Company Common Stock beneficially owned by Parent or any of its Affiliates or
Associates (as such terms are defined in the Rights Agreement) to be void or
voidable. The Company has taken all necessary action with respect to all of the
outstanding Company Rights so that, as of immediately prior to the Effective
Time, the holders of the Company Rights will have no rights under the Company
Rights or the Rights Agreement as a result of the execution and delivery of this
Agreement or the Stock Option Agreement, or the consummation of the Merger or
the other transactions contemplated by this Agreement or the Stock Option
Agreement.
3.20 Voting Requirements. The affirmative vote of the holders of a
majority of the issued and outstanding shares of Company Common Stock with
respect to this Agreement and the Merger is the only vote of the holders of any
class or series of the Company's capital stock necessary to approve this
Agreement and the transactions contemplated by this Agreement.
3.21 Intellectual Property. The Company owns, or possesses valid license
rights to, all Intellectual Property that is material to the conduct of the
businesses of the Company and the Company Subsidiaries own or possess valid
license rights to all Intellectual Property that is material to the conduct of
the business of the Company Subsidiaries taken as a whole. The Company has not
received any notice of any conflict with or violation or infringement of, any
asserted rights of any other Person with respect to any Intellectual Property
owned or licensed by the Company or any Company Subsidiary, which, if determined
adversely, is reasonably likely to have, either individually or in the
aggregate, a Material Adverse Effect on the Company. The Company is not, nor
will it be as a result of the execution and delivery of this Agreement or the
Stock Option Agreement or the performance of its obligations hereunder or
thereunder, in violation of any material licenses, sublicenses and other
agreements as to which the Company is a party and pursuant to which the Company
is authorized to use any third-party's Intellectual Property. The conduct of the
Company's and the Company Subsidiaries' respective businesses as currently
conducted does not conflict with any patents, patent rights, licenses,
trademarks, trademark rights, trade names, trade name rights or copyrights of
others, or any other rights with respect to Intellectual Property, in any way
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement. There is no infringement of any proprietary right owned by or
licensed by or to the Company or any Company Subsidiary which is, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect on the
Company or to prevent, materially hinder or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement. To the
knowledge of the Responsible Executive Officers, there is no unauthorized use,
infringement or misappropriation of any of the Intellectual Property of the
Company by any third party, including any employee or former employee of the
Company or any of its Subsidiaries. As used in this Agreement, the phrase
"Intellectual Property" means all intellectual property or other proprietary
rights of every kind, including, without limitation, all domestic or foreign
patents, patent applications, inventions (whether or not patentable), processes,
products, technologies, discoveries, copyrightable and copyrighted works,
apparatus, trade secrets, trademarks (registered and unregistered) and trademark
applications and registrations, brand names, certification marks, service marks
and service mark applications and registrations, trade names, trade dress,
copyright registrations, design rights, customer lists, marketing and customer
information, mask works, rights, know-how, licenses, technical information
(whether confidential or otherwise), software, and all documentation thereof and
tangible and intangible proprietary information or materials.
3.22 Insurance Matters.
(a) Except as otherwise is not reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on the Company or to prevent,
materially hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement, all policies, binders, slips,
certificates, and other agreements of insurance, in effect as of the date hereof
(including all applications, supplements, endorsements, riders and ancillary
agreements in connection therewith) that are issued by the Company Insurance
Subsidiaries (the "Company Insurance Contracts") and any and all marketing
materials, are, to the extent required under applicable Law, on forms approved
by applicable insurance
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regulatory authorities which have been filed and not objected to by such
authorities within the period provided for objection (the "Forms"). The Forms
comply in all material respects with the Insurance Laws applicable thereto and,
as to premium rates established by the Company or any Company Insurance
Subsidiary which are required to be filed with or approved by insurance
regulatory authorities, the rates have been so filed or approved and the
premiums charged are within the amount permitted by insurance statutes,
regulations and rules applicable thereto, except where the failure to be so
filed or approved is not, individually or in the aggregate, reasonably likely to
have a Material Adverse Effect on the Company.
(b) All reinsurance and coinsurance treaties or agreements, including
retrocessional agreements, to which the Company or any Company Insurance
Subsidiary is a party or under which the Company or any Company Insurance
Subsidiary has any existing rights, obligations or liabilities are in full force
and effect, except for such treaties or agreements the failure to be in full
force and effect of which is not reasonably likely to have, individually or in
the aggregate, a Material Adverse Effect on the Company. Except as set forth on
Schedule 3.22(b) of the Company Disclosure Letter, all material amounts
recoverable under reinsurance, coinsurance or other similar agreements to which
any Company Insurance Subsidiary is a party (including, but not limited to,
amounts based on paid and unpaid losses) are fully collectible. Except as is not
reasonably likely to have, individually or in the aggregate, a Material Adverse
Effect on the Company or to prevent, materially hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement, neither the Company nor any Company Insurance Subsidiary, nor, to the
knowledge of the Responsible Executive Officers after due inquiry, any other
party to a material reinsurance or coinsurance treaty or agreement to which the
Company or any Company Insurance Subsidiary is a party, is in default in any
material respect as to any provision thereof, and no such agreement contains any
provision providing that the other party thereto may terminate such agreement by
reason of the transactions contemplated by this Agreement or the Stock Option
Agreement. The Company has not received any notice to the effect that the
financial condition of any other party to any such agreement is impaired with
the result that a default thereunder may reasonably be anticipated, whether or
not such default may be cured by the operation of any offset clause in such
agreement, that is, individually or in the aggregate, reasonably likely to have
a Material Adverse Effect on the Company. Except as set forth on Schedule
3.22(b) to the Company Disclosure Letter, no insurer or reinsurer or group of
affiliated insurers or reinsurers accounted for the direction to the Company and
the Company Insurance Subsidiaries of insurance or reinsurance business in an
aggregate amount equal to three percent or more of the combined statutory net
written premiums of the Company and the Company Insurance Subsidiaries for the
year ended December 31, 1999. Except as set forth on the Company SAP Statements
or as set forth on Schedule 3.22(b) of the Company Disclosure Letter, as of
December 31, 1999 each of the Company Insurance Subsidiaries was able to obtain
full reserve credit for financial statement purposes under accounting practices
prescribed or permitted by the applicable insurance regulatory authority with
respect to reinsurance. Since December 31, 1999, there has not occurred any
material change in the ability of the Company Insurance Subsidiaries to obtain
reserve credit for financial statement purposes under accounting practices
prescribed or permitted by the applicable insurance regulatory authority with
respect to reinsurance.
(c) Prior to the date hereof, the Company has delivered or made available
to Parent a true and complete copy of any actuarial reports prepared by
actuaries, independent or otherwise, with respect to the Company or any Company
Insurance Subsidiary since January 1, 1998, and all attachments, addenda,
supplements and modifications thereto (the "Company Actuarial Analyses"). The
information and data furnished by the Company or any Company Insurance
Subsidiary to its independent actuaries in connection with the preparation of
the Company Actuarial Analyses were accurate in all material respects.
Furthermore, each Company Actuarial Analysis was based upon an accurate
inventory of policies in force for the Company and the Company Insurance
Subsidiaries, as the case may be, at the relevant time of preparation and
conforms to the requirements of Applicable Law.
(d) None of Standard & Poor's Corporation, Fitch Investors, or A.M. Best
Company has announced that it has under surveillance or review its rating of the
financial strength or claims-paying ability of any Company Insurance Subsidiary
or imposed conditions (financial or otherwise) on retaining any currently held
rating assigned to any Company Insurance Subsidiary which is rated as of the
date of this Agreement, and the
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Company has no reason (other than the entry into the Agreement and the
transactions contemplated hereby) to believe that any rating presently held by
the Company Insurance Subsidiaries is likely to be modified, qualified, lowered
or placed under such surveillance for any reason.
(e) Except as reflected in the financial statements included in the Company
Reports, neither the Company nor any Company Subsidiary has any material accrued
and unreported liability or obligation with respect to assessments by or from
state insurance guaranty funds.
(f) The Company and the Company Insurance Subsidiaries have filed all
reports, statements, documents, registrations, filings or submissions (including
without limitation any sales material) required to be filed with any
Governmental Authority in the manner prescribed by applicable Laws, except for
any such non-compliance or failure to make any such filing or filings which is
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on the Company. All such reports, registrations, filings and
submissions were in compliance with Law when filed or as amended or
supplemented, and no deficiencies have been asserted in writing by any such
Governmental Authority with respect to such reports, registrations, filings or
submissions that have not been remedied, except for any non-compliance or
deficiencies which is not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect on the Company.
(g) The Company has made available to Parent true, correct and complete
copies of each report dated after January 1, 1998 (or the most recent draft
thereof, to the extent any final report is not available) reflecting the results
of any financial examinations or market-conduct examinations of any of the
Company Insurance Subsidiaries conducted by any Governmental Authority.
3.23 Investment Company. Neither the Company nor any Company Subsidiary is
an "investment company" as defined under the Investment Company Act of 1940, as
amended.
3.24 Insurance. The Company and the Company Subsidiaries maintain
insurance coverage adequate for the operation of their respective businesses.
The insurance maintained by the Company and the Company Subsidiaries insures
against risks and liabilities to the extent and in the manner reasonably deemed
appropriate and sufficient by the Company or such Company Subsidiary.
3.25 Transactions with Affiliates.
(a) All transactions, agreements, arrangements or understandings between
the Company or any of the Company's Subsidiaries, on the one hand, and the
Company's affiliates (other than wholly owned subsidiaries of the Company) or
other Persons, on the other hand, that are required to be disclosed in the
Company Reports in accordance with Item 404 of Schedule S-K under the Securities
Act have been so disclosed. Since December 31, 1999, there have been no
transactions, agreements, arrangements or understandings between the Company or
any of its Subsidiaries, on the one hand, and the Company's affiliates (other
than wholly owned subsidiaries of the Company) or other Persons, on the other
hand, that are required to be disclosed under the Exchange Act pursuant to Item
404 of Schedule S- K under the Securities Act which have not already been
disclosed in the Company Reports.
(b) Each Company Insurance Subsidiary has filed any required notices or
amendments to filings with and has received any required approvals or consents
from appropriate Insurance Authorities under applicable holding company system
laws with respect to each transaction, agreement, arrangement or understanding
(an "Affiliate Transaction") between such Company Insurance Subsidiary, on the
one hand, and the Company or any affiliate of such Company Insurance Subsidiary,
on the other hand. The terms and conditions of each such Affiliate Transaction
complied in all material respects with the requirements of the applicable
Insurance Laws. For purposes of this Section, "affiliate" of a Company Insurance
Subsidiary has the meaning provided for under the applicable insurance holding
company system laws of the domiciliary state of such Company Insurance
Subsidiaries.
3.26 Agents and Brokers. Except as set forth in Schedule 3.26 of the
Company Disclosure Letter, no insurance agent, manager, reinsurance
intermediary, broker or distributor, or group of related agents, reinsurance
intermediaries, brokers or distributors singly or in the aggregate, accounted
for more than five
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percent of the consolidated gross written premium income of the Company and the
Company Insurance Subsidiaries for the year ended December 31, 1999.
3.27 Threats of Cancellation. Except as set forth in Schedule 3.27 of the
Company Disclosure Letter, since December 31, 1999 no policyholder, affiliated
group of policyholders, or Persons writing, selling, or producing, either
directly or through reinsurance assumed, insurance business that individually or
in the aggregate for each such policyholder, group or Person, respectively,
accounted for (i) 5% or more of the annual gross written premium income (as
determined in accordance with SAP) of the Company and the Company Insurance
Subsidiaries or (ii) 1% of the unearned premium reserves of the Company and the
Company Insurance Subsidiaries, in each case at or for the twelve-month period
then ended, has terminated or, to the knowledge of the Responsible Executive
Officers after due inquiry, threatened to terminate its relationship with the
Company or any Company Insurance Subsidiary either as a result of the
transactions contemplated by this Agreement, the Stock Option Agreement or
otherwise.
3.28 Risk-Based Capital; IRIS Ratios. Prior to the date hereof, the
Company has included in the data room made available to Parent true and complete
copies, or true and accurate summaries of any analyses, reports and other data
prepared by any Company Subsidiary which is an insurance company or submitted by
any Company Subsidiary which is an insurance company to any insurance regulatory
authority relating to risk-based capital calculations or IRIS ratios as of
December 31, 1999.
3.29 Company Investment Assets. The Company SAP Statements for each
Company Insurance Company for the year ended December 31, 1999, to the extent
required by law, set forth a list, which list is accurate and complete in all
material respects, of all Company Investment Assets owned by such Company
Insurance Company as of December 31, 1999, together with the cost basis book or
amortized value, as the case may be, of such Company Investment Assets as of
December 31, 1999. As used in this Agreement, "Company Investment Assets" means
bonds, stocks, mortgage loans or other investments that are carried on the books
and records of the Company and the Company Insurance Companies.
3.30 Surplus Relief Agreements. Except as set forth on Schedule 3.30 of
the Company Disclosure Letter, other than for reimbursements in the nature of
salvage, subrogation and other similar recoveries, none of the Company Insurance
Subsidiaries has any written or oral agreements, commitments or understandings
other than those provided or otherwise disclosed to Parent prior to the date
hereof, with any of their respective reinsurers which obligate any of them to
reimburse any reinsurer for negative experience under the reinsurance agreements
or otherwise reimburse the reinsurer for liabilities transferred under the
reinsurance agreements.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PARENT AND MERGER SUB
Except as disclosed in Parent's Form 10-K for the year ended December 31,
1999 or Parent's Form 10-Qs and Form 8-Ks filed since December 31, 1999 and
prior to the date hereof, each of Parent and Merger Sub hereby represents and
warrants to the Company as follows:
4.1 Organization, Good Standing and Power.
(a) Parent is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Parent is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties make such qualification
or licensing necessary, except where the failure to be so qualified or licensed
or to be in good standing is not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect on Parent (as defined below). As used
in this Agreement, the phrase "Material Adverse Effect on Parent" means a
material adverse effect on the condition (financial or otherwise), properties,
business, or results of operations of Parent and its subsidiaries taken as a
whole, other than (i) effects caused
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by changes in general economic or securities markets conditions, (ii) changes or
conditions that affect the U.S. property-casualty insurance industry in general,
(iii) changes in GAAP or statutory accounting practices prescribed or permitted
by the applicable insurance regulatory authority and (iv) effects resulting from
the announcement of this Agreement and the transactions contemplated hereby.
Parent has delivered to the Company complete and correct copies of its
certificate of incorporation, by-laws or other organizational documents and all
amendments thereto to the date hereof.
(b) Merger Sub is a corporation, validly existing and in good standing
under the Laws of the State of Delaware.
4.2 Capitalization.
(a) The authorized capital stock of Parent as of June 30, 2000, as adjusted
on a pro forma basis to reflect the Parent Common Stock split in the form of a
50 percent Parent Common Stock dividend paid July 28, 2000 consists of 5 billion
shares of Parent Common Stock, of which 2,313,833,718 were issued and
outstanding and 177,225,831 were held in treasury and 6,000,000 preferred
shares, of which no shares were outstanding. All outstanding shares of Parent
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. All of the shares of Parent Common Stock
to be issued in exchange for Company Common Stock at the Effective Time in
accordance with this Agreement will be, when so issued, duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights. As of June
30, 2000, there were 38,513,647 shares of Parent Common Stock, as adjusted on a
pro forma basis to reflect the Parent Common Stock split in the form of a 50
percent Parent Common Stock dividend paid July 28, 2000, reserved for issuance
pursuant to various Parent employee benefit plans, and there were no other
options, convertible securities, warrants or rights to purchase or acquire from
Parent any capital stock of Parent or other contracts, commitments, agreements,
understandings, arrangements or restrictions by which Parent is bound to issue
any additional shares of its capital stock or other securities.
(b) As of the date hereof, the authorized capital stock of Merger Sub
consists of 100 shares of common stock, par value $0.01 per share, all of which
are issued and outstanding and owned by Parent. All such outstanding shares are
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights.
4.3 Authority; Enforceability. Each of Parent and Merger Sub has the
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of each of Parent and Merger Sub, as applicable,
and this Agreement and the Stock Option Agreement have been duly executed and
delivered by Parent and Merger Sub, as applicable, and constitute the valid and
binding obligation of each such party, enforceable against it in accordance with
its terms, (i) except as may be limited by bankruptcy, insolvency, moratorium or
other similar Laws affecting or relating to enforcement of creditors' rights
generally and (ii) subject to general principles of equity.
4.4 Non-Contravention; Consents.
(a) Neither the execution, delivery and performance by Parent or Merger Sub
of this Agreement or the Stock Option Agreement, nor the consummation by the
Parent or Merger Sub of the transactions contemplated hereby or thereby, nor
compliance by Parent or Merger Sub with any of the provisions hereof, will:
(i) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, result in a change in the rights or
obligations of any party under, or result in a right of termination or
acceleration, or the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Parent or Merger Sub,
under any of the terms, conditions or provisions of (x) its respective
organizational documents, or (y) any note, bond, mortgage, indenture, deed
of trust, license, lease, contract, agreement or other instrument or
obligation to which Parent is a party, or by which Parent may be bound, or
to which Parent or its properties or assets may be
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subject, and that, in any such event specified in this clause (y), is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on Parent; or
(ii) violate any valid and enforceable judgement, ruling, order, writ,
injunction, decree, or any statute, rule or regulation applicable to Parent
or any of its respective properties or assets where such violation is,
individually or in the aggregate, reasonably likely to have a Material
Adverse Effect on Parent or to prevent, hinder or materially delay the
ability of Parent to consummate the transactions contemplated by this
Agreement.
(b) Except for (i) the filing of the applications and notices, with
applicable Insurance Authorities and the approval of such applications or the
grant of required licenses by such authorities or the expiration of any
applicable waiting periods thereunder, (ii) the filing of notification and
report forms under the HSR Act and the expiration or termination of any
applicable waiting period thereunder, (iii) the filing with the SEC of a Proxy
Statement relating to the meeting of the Company's stockholders to be held in
connection with this Agreement and the transactions contemplated hereby and the
filing and declaration of effectiveness of the Registration Statement relating
to the shares of Parent Common Stock to be issued in the Merger, (iv) filings
with state securities or "blue sky" laws, (v) the filing of the Connecticut
Certificate of Merger with the Secretary of State of the State of Connecticut
pursuant to the CBCA, (vi) the filing of the Delaware Certificate of Merger with
the Secretary of State of the State of Delaware pursuant to the DGCL, (vii) the
approval of the listing of the Parent Common Stock to be issued in the Merger on
the New York Stock Exchange and (viii) the filing of the Schedule 13D, no
notices to, consents or approvals of, or filings or registrations with, any
Governmental Authority or with any third party are necessary in connection with
the execution and delivery by Parent of this Agreement or the Stock Option
Agreement and the consummation by Parent of the transactions contemplated hereby
and thereby, except for such notices, consents, approvals, filing or
registrations, the failure of which to be made or obtained is not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect on
Parent.
4.5 SEC Documents; GAAP Financial Statements. Parent has timely filed all
required forms, reports, schedules, statements and other documents (including
exhibits and all other information incorporated therein) with the SEC since
January 1, 1998. Parent has delivered or made available to the Company all
registration statements, proxy statements, annual reports, quarterly reports and
reports on Form 8-K filed by Parent with the SEC since January 1, 1998 and prior
to the date hereof (as such documents have been amended since the time of their
filing, collectively, the "Parent Reports"). As of the respective dates or, if
amended, as of the date of the last such amendment, the Parent Reports (i) were
timely filed and complied in all material respects with the applicable
requirements of the Securities Act and the Exchange Act, as the case may be, and
the rules and regulations of the SEC promulgated thereunder applicable to such
Parent Reports, and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The consolidated financial statements of Parent
included in the Parent Reports complied, as of their respective dates of filing
with the SEC, in all material respects with applicable accounting requirements
and the published ruled and regulations of the SEC with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the SEC) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present in all material respects the consolidated financial position of Parent
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited quarterly statements, to normal year-end adjustments).
4.6 Absence of Certain Changes or Events. Except as disclosed in the
Parent Reports, since December 31, 1999, there has not been any change, event,
condition (financial or otherwise) or state of circumstances or facts which,
individually or in the aggregate, has had or is reasonably likely to have, a
Material Adverse Effect on Parent.
4.7 Registration Statement, Etc. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in (i) the
Registration Statement, (ii) the Proxy Statement and
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(iii) any other documents to be filed with the SEC in connection with the
transactions contemplated hereby will, at the respective times such documents
are filed and at the time such documents become effective or at the time any
amendment or supplement thereto becomes effective contain any untrue statement
of a material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading and,
in the case of the Registration Statement, when it becomes effective or at the
time any amendment or supplement thereto becomes effective, cause the
Registration Statement or such supplement or amendment to contain any untrue
statement of a material fact, or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, or, in the case of the Proxy Statement, when first mailed to the
stockholders of the Company, or in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the Stockholders'
Meeting, cause the Proxy Statement or any amendment thereof or supplement
thereto to contain any untrue statement of a material fact, or omit to state any
material fact required or be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All documents that Parent is responsible for filing with the SEC
and any other regulatory agency in connection with the Merger will comply as to
form in all material respects with the provisions of applicable Law, except that
no representation is made by Parent with respect to statements made therein
based on information supplied by or on behalf of Company expressly for inclusion
therein or with respect to information concerning the Company which is included
or incorporated by reference in the Registration Statement or the Proxy
Statement.
4.8 Brokers and Finders. Neither Parent nor any of its officers, directors
or employees, has employed any broker or finder or incurred any liability for
any financial advisory fees, brokerage fees, commissions, or finder's fees, and
no broker or finder has acted directly or indirectly for Parent, in connection
with this Agreement, the Stock Option Agreement or any of the transactions
contemplated hereby or thereby, except that Parent has retained Morgan Stanley
Dean Witter as its financial advisor, whose fees and expenses will be paid by
Parent.
4.9 Interim Operations of Merger Sub. Merger Sub was formed solely for the
purpose of engaging in the transactions contemplated hereby, has engaged in no
other business activities and has conducted its operations only as contemplated
hereby.
4.10 Tax-Free Reorganization. Neither the Parent, Merger Sub or any other
subsidiary of Parent has taken any action or failed to take any action which
action or failure to take action could jeopardize the qualification of the
Merger within the meaning of Section 368(a) of the Code.
4.11 Headquarters. Parent's current intention is to maintain the
headquarters of the Surviving Corporation at its existing Hartford location for
the foreseeable future.
ARTICLE 5
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; CERTAIN COVENANTS
5.1 Access and Information. Upon reasonable notice to a Responsible
Executive Officer and for any purpose reasonably related to the transactions
contemplated by the Agreement, the Company shall (and shall cause the Company
Subsidiaries to) give to Parent and Parent's accountants, counsel and other
representatives reasonable access during normal business hours throughout the
period prior to the Effective Time to all of its and its Subsidiaries'
properties, books, contracts, information systems, commitments and records
(including Tax Returns, audit work papers and insurance policies) and shall
permit them to consult with its and its Subsidiaries' respective officers,
employees, auditors, actuaries, attorneys and agents; provided, however, that
any such access shall be conducted in such a manner as not to interfere
unreasonably with the business or operations of the Company or the Company
Subsidiaries. All information provided pursuant to this Section 5.1 shall be
deemed "Evaluation Material" subject to the Confidentiality Agreement dated as
of June 23, 2000 (the "Confidentiality Agreement"), between the Company and
Parent. No information
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received pursuant to this Section 5.1 shall affect or be deemed to modify any
representations or warranties of the Company herein.
5.2 Conduct of Business Pending Merger.
(a) The Company agrees that from the date hereof through the Effective
Time, except as expressly contemplated by this Agreement (including the Company
Disclosure Letter) or to the extent that Parent shall otherwise consent in
writing, the Company and the Company Subsidiaries will operate their businesses
only in the ordinary course consistent with past practice (including in respect
of underwriting standards and reserving guidelines); and, consistent with such
operation, will use reasonable best efforts consistent with past practices to
preserve their business organizations intact and maintain their existing
relations and goodwill with their officers, employees, brokers and agents, third
party administrators, policyholders, insureds and reinsurers, borrowers,
customers, client companies, distributors, creditors, lessors and others with
whom business relationships exist and will further exercise reasonable best
efforts to maintain their existing relationships with their employees in
general.
(b) The Company agrees that from the date hereof through the Effective
Time, except as expressly contemplated by this Agreement, the Company Disclosure
Letter or the Stock Option Agreement or as otherwise consented to by Parent in
writing (i) neither it nor any Company Subsidiary will change any provision of
its Certificate of Incorporation or by-laws or similar or comparable governing
or organizational documents or, in the case of the Company, amend, modify or
terminate the Rights Agreement; (ii) it will not make, declare or pay dividend
or make any other distribution with respect to any shares of capital stock,
except regular quarterly cash dividends with respect to the Company Common Stock
(not to exceed $0.44 per share per quarter); (iii) split, combine or reclassify
its outstanding shares of capital stock; and (iv) except in connection with the
issuance of shares of Company Common Stock pursuant to the exercise of presently
outstanding Company Options and except actions taken involving the Capital
Securities pursuant to Section 5.18(a), it will not directly or indirectly sell,
issue, encumber or otherwise dispose or redeem, purchase or otherwise acquire
any shares of its outstanding capital stock, change the number of shares of its
authorized or issued capital stock or issue or grant any option, warrant, call,
commitment, subscription, right to purchase or agreement of any character
relating to its authorized or issued capital stock or any securities convertible
into shares of such stock.
(c) The Company agrees that from the date hereof through the Effective Time
it will not take or permit any Company Subsidiary to take any of the following
actions, except to the extent consented to by Parent in writing:
(i) except in the ordinary course of business consistent with past
practices, enter into any agreement representing an obligation for
indebtedness for borrowed money or increase the principal amount of
indebtedness under any existing agreement or assume, guarantee, endorse or
otherwise become responsible for the obligations of any other individual,
firm or corporation, or take any of the actions specified in this Section
5.2(c)(i) providing for obligations which, individually or in the
aggregate, are in excess of $250,000;
(ii) except in the ordinary course of business consistent with past
practices, mortgage, pledge or encumber any of its properties or assets;
(iii) except as may be required by Law or except in the ordinary course
of business consistent with past practices previously disclosed to Parent,
(x) take any action to amend or terminate any Company Employee Plan or
grant new or additional incentive compensation awards or increase the
compensation (including bonuses) of any of its current or former officers,
employees or directors or (y) adopt any other plan, program, arrangement or
practice providing new or increased benefits or compensation to its current
or former officers, employees or directors;
(iv) materially amend or cancel or agree to the material amendment or
cancellation of any agreement, treaty or arrangement which is material to
the Company and the Company Subsidiaries on a consolidated basis or to the
Company Insurance Subsidiaries on a consolidated basis, or enter into any
new agreement, treaty or arrangement which is material to the Company and
the Company Subsidiaries
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on a consolidated basis or to the Company Insurance Subsidiaries on a
consolidated basis (other than the renewal of any existing agreements,
treaties or arrangements);
(v) enter into any negotiation with respect to, or adopt or amend in any
material respect, any collective bargaining agreement;
(vi) make any material change in any underwriting, investment,
reserving, claims administration, financial reporting or accounting
methods, principles or practices used by the Company or any Company
Subsidiary in connection with the business of the Company or such Company
Subsidiary, including without limitation any change with respect to
establishment of reserves for losses and loss adjustment expenses, except
insofar as may be required by a change in generally accepted accounting
principles, tax accounting principles or statutory accounting practices
prescribed by any applicable Governmental Authority or as may be required
by Law;
(vii) except for transactions between or among the Company and a Company
Subsidiary, pay, loan or advance (other than the payment of compensation,
directors' fees or reimbursements of expenses in the ordinary course of
business and other than as may be required by any agreement in effect as of
the date hereof) any amount to, or sell, transfer or lease any properties
or assets (real, personal or mixed, tangible or intangible) to, or enter
into any material agreement or arrangement with, any of its officers or
directors or any "affiliate" or "associate" of any of its officers or
directors (as such terms are defined in Rule 405 promulgated under the
Securities Act);
(viii) make or rescind any express or deemed election relating to Taxes;
make a request for a Tax Ruling or enter into a Closing Agreement; settle
or compromise any material claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to Taxes; or make
a material change to any of its methods of reporting income, deductions or
accounting for federal income tax purposes from those employed in the
preparation of its federal income tax return for the taxable year ending
December 31, 1998, except as may be required by applicable Law;
(ix) pay, discharge, settle or satisfy any material claims, liabilities
or obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise) other than policy claims in the ordinary course of business;
(x) other than consistent with past practice, materially alter the mix
of investment assets of the Company or any Company Subsidiary or the
duration or credit quality of such assets or alter or amend in any material
respect their existing investment guidelines or policies which have been
previously provided to Parent;
(xi) materially alter the profile of the insurance liabilities of the
Company Insurance Subsidiaries or materially alter the pricing practices or
policies of the Company Insurance Subsidiaries (it being understood and
agreed that nothing contained herein shall permit the Company or any of the
Company Subsidiaries to enter into or engage in (through acquisition,
product extension or otherwise) the business of selling any products or
services materially different from existing products or services of the
Company and its Subsidiaries or to enter into or engage in new lines of
business (as such term is defined in the National Association of Insurance
Commissioner s instructions for the preparation of the annual statement
form) without Parent's prior written approval);
(xii) except in the ordinary course of business, lease or otherwise
dispose of or transfer any of its assets (including capital stock of the
Company Subsidiaries);
(xiii) make, authorize or agree to make any capital expenditure or
expenditures, or enter into any agreement or agreements providing for
payments which, individually are in excess of $50,000, or in the aggregate
are in excess of $1,000,000;
(xiv) except pursuant to contractual commitments in effect on the date
hereof and disclosed in the Company Disclosure Letter, acquire or agree to
acquire by merging or consolidating with, or by purchasing a substantial
equity interest in or a substantial portion of the assets of, or by any
other manner, any business or any corporation, partnership, association or
other business organization or
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division thereof or except in the ordinary course of business consistent
with past practices otherwise acquire or agree to acquire any assets or
securities in each case other than portfolio investments or venture capital
investments;
(xv) take any action or omit to take any action that would, or is
reasonably likely to, result in any of its representations and warranties
in this Agreement becoming untrue, or in any of the conditions to the
Merger set forth in Article 6 not being satisfied;
(xvi) enter into any agreement containing any provision or covenant
limiting in any respect the ability of the Company or any Company
Subsidiary or affiliate to (x) sell any products or services of or to any
other Person, (y) engage in any line of business or (z) compete with or to
obtain products or services from any Person or limiting the ability of any
Person to provide products or services to the Company or any of its
Subsidiaries or Affiliates; and
(xvii) authorize or enter into any agreement, or commit or agree, to
take any of the actions described in Section 5.2(b) or elsewhere in this
Section 5.2(c).
(d) The Company agrees that from the date hereof through the Effective
Time, the Company shall, and shall cause the Company Subsidiaries to:
(i) promptly notify Parent of the occurrence of or any fact or
circumstance reasonably likely to result in the occurrence of any material
change in its condition (financial or other), business, results of
operations or prospects or any Material Adverse Effect on the Company, or
any material litigation or material governmental complaints, investigations
or hearings (or communications in writing indicating that such litigation,
complaints, investigations or hearings may be contemplated), the breach of
any representation or warranty contained herein or any material failure of
it to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, and shall use reasonable best
efforts to prevent or remedy the same; provided, however, that the delivery
of notice pursuant to this Section 5.2 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice;
(ii) promptly deliver to Parent true and correct copies of any report,
statement or schedule filed with the SEC and any public communication
released by the Company or the Company Subsidiaries subsequent to the date
of this Agreement; and
(iii) use reasonable best efforts to maintain insurance with financially
responsible companies in such amounts and against such risks and losses as
are customary for such party.
5.3 No Solicitations. The Company agrees that neither it nor any of the
Company Subsidiaries, nor any of their respective officers or directors shall,
and that it shall direct and use its best efforts to cause its and the Company
Subsidiaries' employees, agents and representatives (including any investment
banker, attorney or accountant) not to, directly or indirectly, (i) solicit,
initiate, encourage or otherwise facilitate any inquiries or the submission of
any Acquisition Proposal (as defined herein) or (ii) participate in any
discussions or negotiations regarding, or furnish to any Person any information
with respect to, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal; provided, however, that nothing contained in this
Section 5.3 shall prohibit the Board of Directors of the Company (and its
authorized representatives) from: (x) furnishing information to, or entering
into discussions or negotiations with, any Person that makes an unsolicited bona
fide written Acquisition Proposal from and after the date of this Agreement
which did not result from a breach of this Section 5.3 if, and only to the
extent that (A) the Board of Directors of the Company after consultation with
and taking into account the advice of outside counsel, determines in good faith
that in order for the Board of Directors of the Company to comply with its
fiduciary duties to stockholders under applicable Law it is necessary to take
such action, (B) prior to taking such action, the Company receives from such
Person an executed confidentiality agreement having substantially the same terms
as the Confidentiality Agreement and (C) the Company determines in good faith
(after consultation with and taking into account the advice of its financial
advisor and after receipt of, and taking into account the advice of, outside
counsel) that such Acquisition Proposal, if accepted, is reasonably likely to be
consummated, taking into account all legal,
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financial and regulatory aspects of the proposal and the Person making the
proposal, and the proposal would, if consummated, result in a more favorable
transaction than the transactions contemplated by this Agreement, taking into
account the long term prospects and interests of the Company and its
stockholders (such more favorable Acquisition Proposal hereinafter referred to
as a "Superior Proposal"); or (y) complying with Rule 14e-2 promulgated under
the Exchange Act with regard to an Acquisition Proposal. The Company will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. The Company agrees that it will take the necessary
steps to promptly inform the individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 5.3 and in the
Confidentiality Agreement (as defined in Section 5.1). The Company agrees that
it will notify Parent immediately if any such inquiries, proposals or offers are
received by, any such information is requested from, or any such discussions or
negotiations are sought to be initiated or continued with any of its
representatives indicating, in connection with such notice, the name of such
Person and the material terms and conditions of any proposals or offers and
thereafter shall keep Parent informed, on a current basis, on the status and
terms of any such proposals or offers and the status of any such discussions or
negotiations. The Company also agrees that it will promptly request each Person
that has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring it or any of its Subsidiaries to return all written
confidential information heretofore furnished to such Person by or on behalf of
it or any of its Subsidiaries. For purposes of this Agreement, "Acquisition
Proposal" means any inquiry, proposal or offer from any Person relating to any
direct or indirect acquisition or purchase of a business that constitutes 15% or
more of the net revenues, net income or the assets of the Company or any of its
significant Subsidiaries (as defined in Rule 1-02(w) of Regulation S-X
promulgated under the Exchange Act) (a "Significant Subsidiary"), or 15% or more
of any class of equity securities of the Company or any of its Significant
Subsidiaries, any tender offer or exchange offer that if consummated would
result in any Person beneficially owning 15% or more of any class of equity
securities of the Company or any of its Significant Subsidiaries, any
reinsurance transaction entered into outside the ordinary course of business
involving more than 15% of any Significant Subsidiary's assets or policyholder
liabilities, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its Significant Subsidiaries; provided that (w) the
transactions contemplated by this Agreement, (x) any activities of Employees'
Reinsurance Corporation taken with respect to its existing interest in the
Company in accordance with the terms of existing arrangements, (y) any
discussions conducted by or on behalf of the Company and Employees' Reinsurance
Corporation with a view to satisfying the condition contained in Section 6.3(l),
or (z) any activities in connection with the proposed disposition of Integrated
Process Technologies LLC, shall not be deemed to be an Acquisition Proposal.
5.4 Fiduciary Duties. Except if the Board of Directors of the Company
determines in good faith, following consultation with and taking into account
the advice of outside counsel and its financial advisor, that it is necessary to
do so in order to comply with its fiduciary duties to stockholders under
applicable law, the Board of Directors of the Company shall not (i) withdraw or
modify in a manner adverse to Parent, the approval or recommendation by such
Board of Directors of this Agreement or the Merger, or (ii) approve, recommend
or cause the Company to enter into any agreement with respect to any Acquisition
Proposal. If the Board of Directors determines in good faith (after consultation
with and taking into account the advice of its financial advisors) that an
Acquisition Proposal is a Superior Proposal, the Board of Directors may (w)
withdraw or modify its approval or recommendation of this Agreement and the
Merger, (x) approve or recommend such Superior Proposal or (y) cause the Company
to enter into a definitive agreement providing for the consummation of a
transaction with respect to such Superior Proposal and terminate this Agreement
in accordance with Section 7.1(b)(iv). Notwithstanding anything contained in
this Agreement to the contrary, any action by or on behalf of the Board of
Directors of the Company permitted by this Section 5.4 shall not constitute a
breach of this Agreement by the Company.
5.5 Certain Fees. In the event that (i) an Acquisition Proposal shall have
been made to the Company or any of its subsidiaries or any of its stockholders
or any Person shall have publicly announced an intention (whether or not
conditional) to make an Acquisition Proposal and thereafter this Agreement is
terminated by either Parent or the Company pursuant to Section 7.1(b)(v) or
Section 7.1(c)(iv) or (ii) this Agreement is terminated (x) by the Company
pursuant to Section 7.1(b)(iv) or (y) by Parent pursuant to Section
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7.1(c)(ii) (only in the case of termination due to willful or intentional
breach), Section 7.1(c)(v) or Section 7.1(c)(vi), then the Company shall
promptly, but in no event later than two days after the date of such
termination, pay Parent a termination fee of $45 million and shall promptly, but
in no event later than two days after being notified of such by Parent, pay or
reimburse all of the reasonable out-of-pocket charges and expenses, including
those of the Exchange Agent, incurred by Parent or Merger Sub in connection with
this Agreement and the Stock Option Agreement and the transactions contemplated
by this Agreement and the Stock Option Agreement up to a maximum amount of $5
million (the "Parent Expenses"), in each case payable by wire transfer of same
day funds or (iii) Parent terminates this Agreement pursuant to Section
7.1(c)(ii) other than due to willful or intentional breaches, then the Company
shall promptly, but in no event later than two days after being notified of such
termination by Parent, pay to Parent the Parent Expenses; provided, however,
that no fee shall be payable to Parent pursuant to clause (i) of this Section
5.5 unless and until (I) any Person (other than Parent) (an "Acquiring Party")
has acquired, by purchase, merger, consolidation, sale, assignment, lease,
transfer or otherwise, in one transaction or any related series of transactions
within 15 months of such termination, a majority of the voting power of the
outstanding securities of the Company or all or substantially all of the assets
of the Company or (II) the Company or one of its subsidiaries and an Acquiring
Party have entered into a definitive agreement with respect to a merger,
consolidation or similar business combination within 15 months of such
termination. The Company acknowledges that the agreements contained in this
Section 5.5 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent and Merger Sub would not
enter into this Agreement; accordingly, if the Company fails to promptly pay the
amount due pursuant to this Section 5.5, and, in order to obtain such payment,
Parent or Merger Sub commences a suit which results in a judgment against the
Company for the fee set forth in this Section 5.5, the Company shall pay to
Parent or Merger Sub its costs and expenses (including reasonable attorneys'
fees) in connection with such suit, together with interest on the amount of the
fee at the prime rate of Citibank N.A. in effect on the date such payment was
required to be made.
5.6 Takeover Statutes. If any "fair price," "moratorium," "control share
acquisition," "business combination," "stockholder protection," "interested
shareholder" or other similar antitakeover statute or regulation enacted under
state or federal Law shall become applicable to the Merger or any of the other
transactions contemplated hereby and the Stock Option Agreement, each of the
Company and Parent and the Board of Directors of each of the Company and Parent
shall grant such approvals and take such actions as are necessary so that the
Merger and the other transactions contemplated hereby and the Stock Option
Agreement may be consummated as promptly as practicable on the terms
contemplated hereby and otherwise use reasonable efforts to eliminate or
minimize the effects of such statute or regulation on the Merger and the other
transactions contemplated hereby.
5.7 Consents. Each of the Company and Parent will cooperate with each
other and use their respective reasonable best efforts to obtain the written
consent or approval of each and every Governmental Authority and other
regulatory body, the consent or approval of which shall be required in order to
permit Parent, Merger Sub and the Company to consummate the transactions
contemplated by this Agreement. The Company will use reasonable best efforts to
obtain the written consent or approval, in form and substance reasonably
satisfactory to Parent, of each Person whose consent or approval shall be
required in order to permit Parent, Merger Sub and the Company to consummate the
transactions contemplated by this Agreement; provided, however, that nothing in
this Section 5.7 shall require, or be construed to require, Parent in connection
with the receipt of any regulatory approval, to proffer to, or agree to any
conditions relating to the Company or Parent, in either case, imposed by or in
connection with such consents on the operations of any asset or businesses of
the parties which is reasonably likely to materially and adversely impact the
economic or business benefits to Parent and its subsidiaries of the transactions
contemplated hereby.
5.8 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties hereto will promptly file and prosecute diligently
the applications and related documents required to be filed by such party with
any third party or applicable Governmental Authority in order to effect the
transactions contemplated hereby and the Stock Option Agreement, including
filings under the HSR Act requesting early termination of the applicable waiting
period and filings with Insurance Authorities. Each party hereto agrees
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to cooperate with each other and to use reasonable best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws and regulations to
consummate and make effective the Merger and other transactions contemplated by
this Agreement and the Stock Option Agreement. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement or the Stock Option Agreement, the proper officers
and directors of each corporation which is a party to this Agreement shall take
all such necessary action. Each of the parties hereto agrees to defend
vigorously against any actions, suits or proceedings in which such party is
named as defendant which seeks to enjoin, restrain or prohibit the transactions
contemplated hereby or seeks damages with respect to such transactions.
The Company and Parent shall promptly advise each other upon receiving any
communication from any third party or Governmental Authority whose consent or
approval is required for consummation of the transactions contemplated by this
Agreement or the Stock Option Agreement. The Company and Parent shall furnish to
the other such necessary information and reasonable assistance as the other may
reasonably request in connection with its preparation of necessary filings or
submissions to any third party or Governmental Authority. The Company and the
Parent shall provide the other with a draft copy before submission and as-filed
copies of all filings and submissions with third parties and Governmental
Authorities and shall provide the other with a reasonable opportunity to comment
upon all such draft copies. The Company and Parent agree that, to the extent
permitted and feasible and reasonable, all meetings with any third party or
Governmental Authority (whether in person, by telephone or other means of
instantaneous communication) regarding the transactions contemplated hereby
shall include representatives of the Company and Parent unless such parties
jointly decide otherwise.
The Company and Parent each shall, upon request by the other, furnish the
other with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with any statement, filing, notice or application
made by or on behalf of Parent, the Company or any of their respective
subsidiaries to any third party and/or any Governmental Entity in connection
with the Merger and the transactions contemplated by this Agreement and the
Stock Option Agreement.
5.9 New York Stock Exchange Listing. Parent will use reasonable best
efforts to cause to be approved for listing on the New York Stock Exchange
subject to official notice of issuance, a sufficient number of shares of Parent
Common Stock to be issued in the Merger.
5.10 Registration Statement; Stockholder Approvals.
(a) As soon as is reasonably practicable after the execution of this
Agreement, Parent shall prepare and file with the SEC the Registration Statement
and Parent and the Company shall prepare and file with the SEC the
Prospectus/Proxy Statement. Parent and the Company shall use reasonable best
efforts to cause the Registration Statement to become effective under the
Securities Act as promptly as practicable after such filing and promptly
thereafter mail the Prospectus/Proxy Statement to the stockholders of the
Company. Parent shall also take all reasonable actions required to be taken
under any applicable state blue sky or securities Laws in connection with the
issuance of the shares of Parent Common Stock pursuant to this Agreement. Each
party hereto shall furnish all information concerning it and the holders of its
capital stock as the other party hereto may reasonably request in connection
with such actions.
(b) The Company shall call a Stockholders' Meeting to be held as soon as
practicable after the date hereof for the purpose of voting upon the Merger and
this Agreement. Subject to Section 5.4, (i) the Company shall mail the Proxy
Statement to its stockholders, (ii) the Board of Directors of the Company shall
recommend to its stockholders the approval of the Merger and this Agreement, and
(iii) the Company shall use reasonable best efforts to obtain such stockholder
approval. Without limiting the generality of the foregoing, the Company agrees
that, subject to its right to terminate this Agreement pursuant to Section
7.1(b)(iv), its obligations pursuant to this Section 5.10(b) shall not be
affected by the commencement, public proposal, public disclosure or
communication to Company of any Acquisition Proposal.
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(c) The Company shall use reasonable best efforts to cause to be delivered
to Parent a letter from PricewaterhouseCoopers LLP, dated a date within two
business days before each of the date of the Registration Statement and the
Closing, and addressed to Parent, in form and substance reasonably satisfactory
to Parent and customary in scope and substance for "cold comfort" letters
delivered by independent public accountants in connection with registration
statements on Form S-4.
(d) Parent shall use reasonable best efforts to cause to be delivered to
the Company a letter of PricewaterhouseCoopers LLP, dated a date within two
business days before each of the date of the Registration Statement and the
Closing, and addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for "cold
comfort" letters delivered by independent public accountants in connection with
registration statements on Form S-4.
5.11 Expenses. Subject to Section 5.5, if this Agreement is terminated for
any reason without breach by any party, each party hereto shall pay its own
expenses incident to preparing for, entering into, and carrying out this
Agreement and the Stock Option Agreement and to consummating the Merger, except
that the Company and Parent shall divide equally the costs incurred in
connection with the printing and mailing of the Registration Statement, the
Prospectus/Proxy Statement and related documents.
5.12 Press Releases. Without the consent of the other parties, prior to
the Effective Time none of the parties shall issue, and shall instruct their
respective officers, directors, employees, investment bankers, attorneys or
other advisers or representatives not to issue, any press release or make any
public announcement or statement with regard to this Agreement and the Stock
Option Agreement or the Merger or any of the transactions contemplated hereby or
thereby; provided, however, that nothing in this Section 5.12 shall be deemed to
(i) prohibit the Company or Parent from making any disclosures, press releases
or announcements relating to their respective businesses or operations, or (ii)
prohibit any party hereto from making any disclosure which its counsel deems
necessary or advisable in order to fulfill such party's disclosure obligations
imposed by Law or the rules of any national securities exchange or automated
quotation system.
5.13 Indemnification of Officers and Directors.
(a) Until such time as the applicable statute of limitations shall have
expired, Parent shall cause the Surviving Corporation to provide with respect to
each present or former director and officer of the Company or any Company
Subsidiary (the "Indemnified Parties"), the indemnification rights (including
any rights to advancement of expenses) which such Indemnified Parties had or was
made available to such Indemnified Parties, from the Company or any Company
Subsidiary, immediately prior to the Merger, whether available under the CBCA,
the corporate laws governing any Company Subsidiary, the Certificate of
Incorporation or the By-Laws of the Company or the comparable organizational
documents of any Company Subsidiary or by any contract, agreement, arrangement
or course of dealing set forth on Schedule 5.13 to the Company Disclosure
Letter, in each case as in effect on the date hereof.
(b) Any Indemnified Party wishing to claim indemnification under paragraph
(a) of this Section 5.13, upon learning of any such claim, action, suit
proceeding or investigation, shall promptly notify Parent thereof. In the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) subject to subsections (i) and (ii)
below, Parent or the Surviving Corporation shall have the right to assume the
defense thereof and neither Parent nor the Surviving Corporation shall be liable
to such Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, unless the defenses available to such Indemnified Party are
different from or in addition to any defenses available to Parent or the
Surviving Corporation, which in such case, Parent or the Surviving Corporation
shall pay the costs and expenses of one counsel and up to one local counsel for
such Indemnified Party, (ii) subject to the last clause of subsection (i) above,
the Indemnified Party shall have the right to maintain a joint defense with the
Indemnified Party paying its own costs and expenses, (iii) the Indemnified
Parties will cooperate in the defense of any such matter and (iv) neither Parent
nor the Surviving Corporation shall be liable for any settlement effected
without its prior written consent; and provided, further, that neither Parent
nor the Surviving Corporation shall have any obligation hereunder to any
Indemnified Party if and when a court of competent jurisdiction shall
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ultimately determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(c) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys all or substantially all of its properties and assets
to any Person, then, and in each such case, proper provision will be made so
that the successors and assigns of the Surviving Corporation assume the
obligations set forth in this Section 5.13.
(d) Immediately following the Effective Time, Parent shall cause the
Surviving Corporation to (i) maintain the Company's current policies of
directors' and officers' liability insurance for a period of six years after the
Effective Time or (ii) maintain a run-off or tail policy or endorsement with
respect to covering claims asserted within six years after the Effective Time
arising from facts or events occurring at or before the Effective Time;
provided, however, that in no event shall Parent be required to expend pursuant
to this Section 5.13(d) on an annual basis more than an amount equal to 150% of
the current annual premiums paid by the Company for such insurance and, in the
event the cost of such coverage shall exceed that amount, Parent shall purchase
as much coverage as possible for such amount.
(e) This Section 5.13 shall survive the Closing and is intended to benefit
the Company, the Surviving Corporation and each of the Indemnified Parties and
his or her heirs and representatives (each of whom shall be entitled to enforce
this Section 5.13 against Parent or the Surviving Corporation to the extent
specified herein) and shall be binding on all successors and assigns of Parent
and the Surviving Corporation.
5.14 Tax Treatment. Parent and the Company agree to treat the Merger as a
reorganization within the meaning of Section 368(a) of the Code. Except as may
result from Parent's determination to pay a portion of the Merger Consideration
in cash in accordance with Section 1.2(c) and subject to the Company's right to
terminate this Agreement pursuant to Section 7.1(d)(vi), during the period from
the date of this Agreement through the Effective Time, none of Parent, the
Company or any of their respective subsidiaries shall knowingly take or fail to
take any action which action or failure to act would be reasonably likely to
jeopardize qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
5.15 Employee Benefits.
(a) (i) Merger Sub hereby agrees to honor and Parent shall cause Merger Sub
to honor, and to make required payments when due under, all contracts,
agreements, arrangements, policies, plans and commitments of the Company or any
Company Subsidiary, in effect immediately prior to the Effective Time which are
applicable with respect to any employee, officer, director or executive or
former employee, officer, director or executive of the Company or any Company
Subsidiary (each a "Company Employee"), including the Company Employee Plans set
forth on Schedule 3.13 of the Company Disclosure Letter.
(ii) Merger Sub hereby agrees to assume and honor and Parent shall cause
Merger Sub to honor, each employment, retention, consulting or severance
agreement or arrangement set forth on Schedule 3.13 of the Disclosure Letter
that was entered into by and between the Company and any Company Employee that
is in effect immediately prior to the Effective Time (each such agreement or
arrangement, an "Employee Agreement").
(b) Merger Sub hereby agrees that for a period of one year immediately
following the Effective Time, it shall continue to provide benefits under
employee benefit, incentive compensation, welfare and fringe benefit plans,
programs and policies for the benefit of Company Employees (other than stock
options or other plans involving the issuance of securities by Parent or Merger
Sub) which in the aggregate provide benefits that are no less favorable than
those provided to them under the Company Employee Plans immediately prior to the
Effective Time.
(c) Merger Sub hereby agrees that following the Effective Time, no Company
Employee shall be entitled to fewer annual vacation days than those to which
such individual was entitled on the date hereof.
(d) Merger Sub hereby agrees that for a period of two years immediately
following the Effective Time, it shall, or shall cause the Surviving Corporation
to, provide severance benefits to employees of the Company
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and any Company Subsidiary who are terminated by Parent or the Surviving
Corporation at any time during such two year period in an amount equal to the
severance payable under the Company's Employees' Severance Plan as in effect on
the Effective Time.
(e) Parent hereby agrees that following the Effective Time, it shall or
shall cause Merger Sub to, continue to maintain the Company's Directors
Charitable Endowment Program as in effect on the Effective Time, without any
amendment thereto which is adverse to the participants therein. Any and all
obligations of the Company under such program may be satisfied by Parent or any
other entity designated by Parent.
(f) For purposes of all employee benefit plans, programs and arrangements
maintained by or contributed to by Parent and its Subsidiaries (including,
without limitation, the Surviving Corporation) and for which Company Employees
become eligible, Parent shall, or shall cause its Subsidiaries to, cause each
such plan, program or arrangement to treat the prior service with the Company or
any Company Subsidiary of each Company Employee (to the same extent such service
is recognized under analogous plans, programs or arrangements of the Company or
any Company Subsidiary prior to the Effective Time) as service rendered to
Parent or its Subsidiaries, as the case may be, for purposes of eligibility to
participate, vesting, benefit accrual (other than benefit accrual under any
defined benefit pension plan) and determination of benefit levels thereunder;
provided, however, that any benefits provided by Parent under any (i) employee
benefit plans, as defined in section 3(3) of ERISA, (ii) nonqualified employee
benefit or deferred compensation plans, stock option, bonus or incentive plans
or (iii) other employee benefit or fringe benefit programs, that may be in
effect generally for employees of Parent or its Subsidiaries from time to time,
shall be reduced by benefits in respect of the same years of service under
analogous plans, programs and arrangements maintained by or contributed to by
the Company, the Surviving Corporation or their Subsidiaries. Parent and Merger
Sub shall (x) waive all limitations as to preexisting conditions exclusions and
waiting periods with respect to participation and coverage requirements
applicable to the Company Employees under any welfare benefit plans that such
Company Employees may be eligible to participate in after the Effective Time,
other than limitations or waiting periods that are already in effect with
respect to such employees and that have not been satisfied as of the Effective
Time under any welfare benefit plan maintained for the Company Employees
immediately prior to the Effective Time and (y) provide each Company Employee
with credit for any co-payments and deductibles paid prior to the Effective Time
in satisfying any applicable deductible or out-of-pocket requirements under any
welfare plans that such employees are eligible to participate in after the
Effective Time.
(g) As soon as practicable following the Effective Time, Parent shall, or
shall cause Merger Sub, to pay each participant in the Company's long term and
short term incentive plans, in accordance with the terms and conditions of such
plans, a lump sum amount in cash with respect to each performance cycle which
includes the Effective Time, calculated based upon the assumption of achievement
of target performance levels under each applicable plan with respect to each
applicable performance cycle. Where the award with respect to the target
performance level is denominated as a range, such payment shall be the amount
(within such range) mutually agreed to by Parent and the Company.
(h) With respect to each Company Employee who, immediately prior to the
Effective Time, is a participant in the Company Employees' Retirement Plan and
Trust, the Company Excess Retirement Plan, or the Company Top Hat Plan
(collectively, the "Company Pension Plans"), the Company Pension Plans shall not
be terminated or amended in any manner which is adverse in more than a de
minimis way to such participant for a period of one year immediately following
the Effective Time. At no time shall any benefits which are accrued by the
participants in the Company Pension Plans prior to such one year anniversary be
reduced. With respect to each Company Employee who, immediately prior to the
Effective Time, has attained at least age 50, the Company Retiree Life and
Health Insurance Program shall not, for a period of one year immediately
following the Effective Time, be terminated or amended in any manner which is
adverse in more than a de minimis way to any such individual.
5.16 Rule 145. The Company shall use reasonable best efforts to cause each
Person who the Company or Parent believes, at the time of the Stockholders
Meeting, is an "affiliate" for purposes of Rule 145 under the Securities Act, to
deliver to Parent on or prior to such date a written agreement in terms
reasonably
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satisfactory to Parent, that such Person will not offer to sell, transfer or
otherwise dispose of any of the shares of Parent Common Stock issued to such
Person pursuant to the Merger, except in accordance with the applicable
provisions of Rule 145, and except in other transactions that are not in
violation of the Securities Act. Schedule 5.16 of the Company Disclosure Letter
sets forth a list of those persons who the Company believes, at the date hereof,
are "affiliates" for purposes of Rule 145 under the Securities Act. The Company
shall provide to Parent such information and documents as Parent shall
reasonably request for purposes of identifying "affiliates". There shall be
added to Section 5.16 of the Company Disclosure Letter the names and addresses
of any other Person subsequently identified by either Parent or the Company as a
Person who may be deemed to be such an affiliate of the Company; provided,
however, that no such Person identified by Parent shall be added to the list of
affiliates of the Company if Parent shall receive from the Company, on or before
the date of the Stockholders' Meeting, an opinion of counsel reasonably
satisfactory to Parent to the effect that such Person is not such an affiliate.
Parent shall not be required to maintain the effectiveness of the Registration
Statement or any other registration statement under the Securities Act for the
purpose of resale of Parent Common Stock by such affiliates received in the
Merger and the certificates representing Parent Common Stock received by such
affiliates shall bear a customary legend regarding applicable Securities Act
restrictions and the provisions of this Section.
5.17 Stock Options and Other Incentive Programs.
(a) Prior to the Effective Time, the Company shall have taken all necessary
actions so that at the Effective Time, each unexpired and unexercised stock
option under the Company Stock Plans, or otherwise granted by the Company
outside of any Company Stock Plan (the "Company Stock Options"), shall become
immediately exercisable and will be assumed by Parent as hereinafter provided.
At the Effective Time, by virtue of the Merger and without any further action on
the part of the Company or the holder thereof, each Company Stock Option will be
automatically converted into an option to purchase Parent Common Stock (the "New
Parent Stock Options"). With respect to each such New Parent Stock Option (i)
the number of shares of Parent Common Stock subject to such New Parent Stock
Option will be determined by multiplying the number of shares of Company Common
Stock that could have been purchased under such Company Stock Option by the
Option Exchange Ratio (as hereinafter defined), and rounding any fractional
share up to the nearest whole share, and (ii) the exercise price per share of
such New Parent Stock Option will be determined by dividing the exercise price
per share specified in the Company Stock Option by the Option Exchange Ratio,
and rounding the exercise price thus determined up to the nearest whole cent.
Such New Parent Stock Option shall otherwise be subject to the same terms and
conditions as such Company Stock Option. At the Effective Time, (i) all
references in the Company Stock Plans, the applicable stock option or other
awards agreements issued thereunder and in any other Company Stock Options to
the Company shall be deemed to refer to Parent; and (ii) Parent shall assume the
Company Stock Plans and all of the Company's obligations with respect to the
Company Stock Options. The Option Exchange Ratio shall mean $41.00 divided by
the Base Period Stock Price.
(b) As soon as practicable after the Effective Time, to the extent
necessary to provide for the registration of shares of Parent Common Stock
subject to such substituted New Parent Stock Options, Parent shall file a
registration statement on Form S-8 (or any successor form) with respect to such
shares of Parent Common Stock and shall use its best efforts to maintain such
registration statement on Form S-8 (or any successor form), including the
current status of any related prospectus or prospectuses, for so long as New
Parent Stock Options remain outstanding.
(c) Parent and the Company shall take all such steps as may be required to
cause the transactions contemplated by this Section 5.17(c) and any other
dispositions of equity securities of the Company (including derivative
securities) or acquisitions of Parent equity securities (including derivative
securities) in connection with this Agreement by each individual who (i) is a
director or officer of Company or (ii) at the Effective Time, will become a
director or officer of Parent, to be exempt under Rule 16b-3 promulgated under
the Exchange Act, such steps to be taken in accordance with the No-Action Letter
dated January 12, 1999, issued by the SEC to Skadden, Arps, Slate, Meagher &
Flom LLP.
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(d) The restrictions with respect to all Company restricted stock awards
shall lapse immediately prior to the Effective Time and the shares of previously
restricted stock shall be converted in accordance with the provisions of Section
1.2(c).
5.18 Other Actions by the Company and Parent.
(a) Prior to the Effective Time, the board of directors of the Company
shall take all necessary action to redeem, or the Company shall use its best
efforts to take such other steps as Parent reasonably requests with respect to,
all of the outstanding Capital Securities. Any actions taken by the Company in
order to effect the intent of this Section 5.18(a) shall not be deemed to
violate any other provision of this Agreement.
(b) The Company shall coordinate with Parent the declaration, setting of
record dates and payment dates of dividends on Company Common Stock so that
holders of Company Common Stock do not receive dividends on both Company Common
Stock and Parent Common Stock received in the Merger in respect of any calendar
quarter or fail to receive a dividend on either Company Common Stock or Parent
Common Stock received in the Merger in respect of any calendar quarter.
(c) Within five (5) days of the date hereof, the Company shall deliver to
Parent a list of its unadmitted reinsurance recoverables as of December 31,
1999.
(d) Notwithstanding any provision of this Agreement to the contrary, the
Company may take such actions as are necessary to donate (or to irrevocably
commit to donate) the Company's collection of art to an organization recognized
under Section 501(c)(3) of the Code that is not a private foundation under
Section 509 of the Code, such contribution not to be covered by Section
170(e)(1)(B)(i) of the Code.
ARTICLE 6
CONDITIONS PRECEDENT TO MERGER
6.1 Conditions to Each Party's Obligations. The respective obligations of
each party to effect the Merger shall be subject to the satisfaction on or prior
to the Closing Date of each of the following conditions:
(a) This Agreement and the Merger shall have been approved and adopted
by the affirmative vote of the holders of at least a majority of the
outstanding shares of Company Common Stock.
(b) No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is in effect and has the effect of making illegal, materially
restricting or in any way preventing or prohibiting the Merger or the
transactions contemplated by this Agreement.
(c) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect and no proceedings for such
purpose, or under the proxy rules of the SEC pursuant to the Exchange Act
and with respect to the transactions contemplated hereby, shall be pending
before or threatened by the SEC. At the effective date of the Registration
Statement, the Registration Statement shall not contain any untrue
statement of a material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading, and, at the mailing
date of the Prospectus/Proxy Statement and the date of the Stockholders'
Meeting, the Prospectus/Proxy Statement (as amended or supplemented to that
date) shall not contain any untrue statement of a material fact, or omit to
state any material fact necessary in order to make the statements therein
not misleading.
(d) The shares of Parent Common Stock to be issued in the Merger shall
have been authorized for listing on the New York Stock Exchange upon
official notice of issuance.
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6.2 Conditions to Obligations of the Company. The obligations of the
Company to effect the Merger shall be subject to the satisfaction on or prior to
the Closing Date of each of the following conditions unless waived by the
Company:
(a) (i) The representations and warranties of Parent and Merger Sub set
forth in Sections 4.1, 4.2, 4.3 and 4.8 of this Agreement which are not
qualified by "Material Adverse Effect on Parent" shall each be true and
correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to
the extent any such representation or warranty expressly speaks as of an
earlier date) and (ii) the representations and warranties of Parent and
Merger Sub set forth in this Agreement other than those contemplated by
clause (i) hereof (without giving effect to any qualifications as to
"Material Adverse Effect," "materiality" or other similar qualifications)
shall be true and correct as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an
earlier date), except where the failure of such representations and
warranties to be true and correct (without giving effect to any
qualifications as to "Material Adverse Effect," "materiality" or other
similar qualifications) are not, individually or in the aggregate,
reasonably likely to have a Material Adverse Effect on Parent.
(b) Parent and Merger Sub each shall have performed in all material
respects all covenants and agreements required to be performed by them
under this Agreement at or prior to the Closing Date.
(c) Parent shall furnish the Company with a certificate of its
authorized officers as to compliance with the conditions set forth in
Sections 6.2(a) and (b).
(d) The waiting period applicable to the consummation of the Merger
under the HSR Act and applicable Insurance Laws shall have expired or been
terminated. All consents, authorizations, orders and approvals of (or
filings, reports, registrations with or notifications to) any Insurance
Authority or other Governmental Authority required in connection with the
execution, delivery and performance of this Agreement, the failure to
obtain which would prevent the consummation of the Merger or would be
reasonably likely, individually or in the aggregate, to have a Material
Adverse Effect on Parent, shall have been obtained and shall be in full
force and effect.
(e) The Company shall have received the opinion of Skadden, Arps, Slate,
Meagher & Flom LLP, counsel to the Company, in form and substance
reasonably satisfactory to the Company, a copy of which shall be furnished
to Parent, to the effect that (i) the Merger will be treated for federal
income tax purposes as a reorganization within the meaning of Section
368(a) of the Code and (ii) no gain or loss will be recognized by the
stockholders of the Company with respect to the Parent Common Stock
received in exchange for Company Common Stock pursuant to the Merger
(except with respect to cash received as part of the Merger Consideration
and received in lieu of fractional shares of Parent Common Stock). In
rendering such opinion, such counsel shall be entitled to receive and rely
upon representations of officers of the Company and Parent as to such
matters as such counsel may reasonably request.
6.3 Conditions to Obligations of Parent. The obligations of Parent to
effect the Merger shall be subject to the satisfaction on or prior to the
Closing Date of each of the following conditions unless waived by Parent:
(a) (i) The representations and warranties of the Company set forth in
Sections 3.1, 3.2, 3.3, 3.4, 3.18 and 3.19 of this Agreement which are not
qualified by "Material Adverse Effect" shall each be true and correct in
all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an
earlier date) and (ii) the representations and warranties of the Company
set forth in this Agreement other than those contemplated by clause (i)
hereof (without giving effect to any qualification as to "Material Adverse
Effect," "materiality" or other similar qualifications) shall be true and
correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (except to the extent any such
representation or warranty expressly speaks as of an earlier date), except
where the failure of such representations and warranties to be true and
correct (without giving effect to any qualifications as to "Material
Adverse Effect," "materiality" or other similar
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qualifications) are not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect.
(b) The Company shall have performed in all material respects all
covenants and agreements required to be performed by it under this
Agreement and the Stock Option Agreement at or prior to the Closing Date.
(c) There shall not have occurred or arisen after December 31, 1999, and
prior to the Effective Time, any change, event, condition (financial or
otherwise), or state of circumstances or facts with respect to the Company
or any of the Company Subsidiaries which are, individually or in the
aggregate, is reasonably likely to have a Material Adverse Effect on the
Company.
(d) The Company shall furnish Parent with a certificate of its
authorized officers as to compliance with the conditions set forth in
Sections 6.3(a), (b) and (c).
(e) Parent shall have received the opinion of Sullivan & Cromwell,
counsel to Parent, in form and substance reasonably satisfactory to Parent,
a copy of which shall be furnished to the Company, to the effect that (i)
the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code and (ii) no
gain or loss will be recognized by Parent, Merger Sub or the Company as a
result of the Merger. In rendering such opinion, such counsel shall be
entitled to receive and rely upon representations of officers of the
Company and Parent as to such matters as such counsel may reasonably
request.
(f) The waiting period applicable to the consummation of the Merger
under the HSR Act and applicable Insurance Laws shall have expired or been
terminated. All consents, authorizations, orders and approvals of (or
filings, reports, registrations with or notifications to) any Insurance
Authority required in connection with the execution, delivery and
performance of this Agreement shall have been obtained and shall be in full
force and effect. All consents, authorizations, orders and approvals of (or
filings, reports, registrations with or notifications to) any other
Governmental Authority required in connection with the execution, delivery
and performance of this Agreement, the failure to obtain which would
prevent the consummation of the Merger or would be reasonably likely,
individually or in the aggregate, (A) to have a Material Adverse Effect on
the Company, (B) to have a Material Adverse Effect on Parent, (C) to
materially and adversely impact the economic or business benefits to Parent
and its subsidiaries of the transactions contemplated hereby, (D) to result
in criminal liability or a more than de minimis civil fine or other penalty
against Parent or any of its subsidiaries, affiliates or employees, or (E)
to result in Parent and its subsidiaries being prohibited from conducting,
or materially limited in their ability to conduct, business in any
jurisdiction, shall have been obtained and shall be in full force and
effect; and no such consent or approval shall impose any condition or
conditions relating to, or requiring changes or restrictions in, the
operations of any asset or business of the Company, Parent or their
respective subsidiaries which is reasonably likely to have a Material
Adverse Effect on the Company, to have a Material Adverse Effect on Parent
or to materially and adversely impact the economic or business benefits to
Parent and its subsidiaries of the transactions contemplated by this
Agreement.
(g) All authorizations, consents, waivers and approvals from parties to
any contracts or agreements to which the Company or any Company Subsidiary
is a party, or by which either is bound, as may be required to be obtained
by them in connection with the performance of this Agreement, the failure
to obtain which would prevent the consummation of the Merger or is
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect on the Company, shall have been obtained.
(h) The aggregate amount of Dissenting Shares shall be less than 5% of
the total outstanding shares of Company Common Stock at the Effective Time.
(i) Parent and/or Merger Sub shall have entered into an Employment
Agreement with Messrs. Booth and Mercier and at least eight of the other
persons identified on Exhibit 6.3(i), in substantially the form attached as
Annex 6.3(i).
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(j) Parent shall have received an Affiliates Letter from each Person
identified as an affiliate of the Company pursuant to Section 5.16.
(k) There shall be no pending or threatened claim, action, suit or
proceeding challenging, seeking to prohibit or restrain, or seeking damages
in connection with the Merger or the transactions contemplated by this
Agreement or the Stock Option Agreement (i) by a Governmental Entity, or by
a third party or parties whose claim, action, suit or proceeding is
reasonably likely to result in damages or other remedies material,
individually or in the aggregate, to the results of operation of the
Company and its subsidiaries for the year ended December 31, 2000.
(l) The Company shall have redeemed, or taken such other steps to
Parent's satisfaction with respect to, all of the outstanding Capital
Securities.
ARTICLE 7
TERMINATION AND ABANDONMENT OF THE MERGER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the approval by the stockholders of the
Company:
(a) by the mutual written consent of Parent and the Company;
(b) by the Company if:
(i) the Merger is not consummated on or before the close of business
on March 31, 2001 (the "Termination Date"), unless the failure of such
occurrence shall be due to the failure of the Company to perform or
observe any covenant, agreement and condition hereof to be performed or
observed by it at or before the Effective Time; provided, however, that
the Company shall not be prohibited from terminating the Agreement
pursuant to this Section 7.1(b)(i) as a result of the Company's failure
to satisfy the condition contained in Section 6.3(l) if the Company has
performed its agreement under Section 5.18(b);
(ii) there has been a breach of any representation, warranty,
covenant or agreement made by Parent or Merger Sub in this Agreement, or
any such representation and warranty shall have become untrue after the
date of this Agreement, such that Sections 6.1 or 6.2 would not be
satisfied and such breach or condition is not curable or, if curable, is
not cured within 30 days after written notice thereof is given by the
Company to Parent;
(iii) any order permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and
non-appealable (whether before or after the approval by the stockholders
of the Company);
(iv) (i) the Company is not in material breach of any of the terms of
this Agreement, (ii) the Board of Directors of the Company authorizes
the Company, subject to complying with the terms of this Agreement, to
enter into a binding written agreement concerning a transaction that
constitutes a Superior Proposal and the Company notifies Parent in
writing that it intends to enter into such an agreement, attaching the
most current version of such agreement to such notice, (iii) Parent does
not make, within five business days of receipt of the Company's written
notification of its intention to enter into a binding agreement for a
Superior Proposal, an offer that the Board of Directors of the Company
determines, in good faith after consultation with its outside counsel
and financial advisors, is at least as favorable, from a financial point
of view, to the stockholders of the Company as the Superior Proposal and
(iv) the Company prior to such termination pays to Parent in immediately
available funds any fees required to be paid pursuant to Section 5.5
(which funds may be provided by or to the Company by the person making
the Superior Proposal). The Company agrees (i) that it will not enter
into a binding agreement referred to in clause (x) above until at least
the sixth business day after it has provided the notice to Parent
required thereby and (y) to notify Parent
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promptly if its intention to enter into a written agreement referred to
in its notification shall change at any time after giving such
notification;
(v) the stockholders of the Company do not approve this Agreement and
the Merger at the Stockholders' Meeting;
(vi) as a result of Parent's determination to pay a portion of the
Merger Consideration in cash in accordance with Section 1.2(c), the
Merger fails to qualify as a reorganization within the meaning of
Section 368(a) of the Code; or
(c) by Parent if:
(i) the Merger is not consummated on or before the Termination Date,
unless the failure of such occurrence shall be due to the failure of
Parent or Merger Sub to perform or observe the covenants, agreements and
conditions hereof to be performed or observed by them at or before the
Effective Time;
(ii) there has been a breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement, or any such
representation and warranty shall have become untrue after the date of
this Agreement, such that Section 6.1 or 6.3 would not be satisfied and
such breach or condition is not curable or, if curable, is not cured
within 30 days after written notice thereof is given by Parent to the
Company;
(iii) any order permanently restraining, enjoining or otherwise
prohibiting consummation of the Merger shall become final and
non-appealable (whether before or after the approval by the stockholders
of the Company);
(iv) the stockholders of the Company do not approve this Agreement
and the Merger at the Stockholders' Meeting;
(v) the Board of Directors of the Company shall have approved or
recommended another Acquisition Proposal or the Company shall have
entered into an agreement with respect to another Acquisition Proposal;
or
(vi) the Board of Directors of the Company shall have withdrawn or
adversely modified its recommendation of this Agreement and the Merger
or failed to reconfirm its recommendation of this Agreement and the
Merger within five business days after a written request by Parent to do
so; provided, that such time period shall be stayed during the period
from when the Company first gives notice pursuant to Section 7.1(b)(iv)
until three (3) business days after the earlier of Parent's response to
such notice and the fifth business day after Parent's receipt of such
notice.
7.2 Effect of Termination and Abandonment. In the event of the termination
of this Agreement under Section 7.1, this Agreement shall become void and have
no effect, without any liability on the part of any party or its directors,
officers or stockholders except (a) as provided in Sections 5.1, 5.5 and 5.11
and (b) to the extent that such termination results from the willful or
intentional breach by any party hereto of any representation, warranty or
covenant hereunder.
ARTICLE 8
GENERAL PROVISIONS
8.1 Non-Survival. No representations or warranties in this Agreement shall
survive the Effective Time. This Section 8.1 shall not limit any covenant or
agreement of the parties which by its terms contemplates performance after the
Effective Time.
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8.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given if delivered personally,
by facsimile (which is confirmed) or sent by overnight courier (providing proof
of delivery), to the parties at the following address:
(a) If to Parent or Merger Sub:
American International Group, Inc.
70 Pine Street
New York, New York
Attention: Ernest Patrikis, Esq.
Facsimile: 212-425-2175
With a concurrent copy (which shall not
serve as notice to the Parent) to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Michael M. Wiseman
Stephen M. Kotran
Facsimile: 212-558-3588
(b) If to Company:
HSB Group, Inc.
P.O. Box 5024
One State Street
Hartford, CT 06102-5024
Attention: Robert Walker, Esq.
Facsimile: 860-722-5710
With a concurrent copy (which shall not
serve as notice to the Company) to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
Attention: Thomas H. Kennedy
Facsimile: 917-777-2526
Any party may, by notice given in accordance with this Section 8.2 to the
other parties, designate another address or person for receipt of notices
hereunder; provided that notice of such a change shall be effective upon
receipt.
8.3 Entire Agreement. This Agreement, the Company Disclosure Letter, the
Stock Option Agreement, together with the other agreements contemplated hereby,
and the Exhibits and the Schedules hereto, contain the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, written or oral, with respect thereto; provided,
however, that the Confidentiality Agreement shall remain in full force and
effect in accordance with its terms except as contemplated by Section 5.1.
Without limiting the foregoing, the parties agree that this Agreement, the other
agreements contemplated hereby and the Schedules and Exhibits hereto shall be
kept confidential to the extent required by and in accordance with the
Confidentiality Agreement.
8.4 Waivers and Amendments; Non-Contractual Remedies; Preservation of
Remedies. This Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written instrument
signed by each of the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege, nor any single or
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partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity.
8.5 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF; PROVIDED, HOWEVER, THAT THE CORPORATION
AND INSURANCE LAWS OF THE STATES OF CONNECTICUT AND DELAWARE AND OTHER
APPLICABLE STATES SHALL GOVERN AS APPLICABLE.
8.6 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT OR THE STOCK OPTION AGREEMENT IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF
OR RELATING TO THIS AGREEMENT OR THE STOCK OPTION AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (i)
NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH SUCH PARTY HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.6.
8.7 Binding Effect; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors, permitted
assigns and legal representatives. Neither this Agreement or the other
agreements contemplated hereby, nor any of the rights, interests or obligations
hereunder or thereunder, may be assigned, in whole or in part, by operation of
law or otherwise by any party hereto without the prior written consent of the
other parties hereto and any such assignment that is not consented to shall be
null and void; provided, however, that Parent may transfer and assign, by
written notice to the Company, the rights and obligations of Merger Sub
hereunder to another wholly owned direct or indirect subsidiary of Parent.
8.8 Interpretation.
(a) The parties acknowledge and agree that they may pursue judicial
remedies at law or equity in the event of a dispute with respect to the
interpretation or construction of this Agreement. In the event that an
alternative dispute resolution procedure is provided for in any other agreement
contemplated hereby, and there is a dispute with respect to the construction or
interpretation of such agreement, the dispute resolution procedure provided for
in such agreement shall be the procedure that shall apply with respect to the
resolution of such dispute.
(b) The table of contents and headings herein are for convenience of
reference only, do not constitute part of this Agreement and shall not be deemed
to limit or otherwise affect any of the provisions hereof. Where a reference in
this Agreement is made to a Section, Exhibit or Schedule, such reference shall
be to a Section of or Exhibit or Schedule to this Agreement unless otherwise
indicated. For purposes of this Agreement, the words "hereof," "herein,"
"hereby" and other words of similar import refer to this Agreement as a whole
unless otherwise indicated. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation." Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
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(c) No provision of this Agreement will be interpreted in favor of, or
against, either party hereto by reason of the extent to which any such party or
its counsel participated in the drafting thereof or by reason of the extent to
which any such provision is inconsistent with any prior draft hereof or thereof.
8.9 No Third-Party Beneficiaries. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and, except for rights of
Indemnified Parties as set forth in Section 5.13, nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
8.10 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
8.11 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, Parent and Company direct that such court interpret and apply the
remainder of this Agreement in the manner that it determines most closely
effectuates their intent in entering into this Agreement, and in doing so
particularly take into account the relative importance of the term, provision,
covenant or restriction being held invalid, void or unenforceable. The parties
hereto agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties hereto shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed and delivered by its respective duly authorized officers, all as of
the date first above written.
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ EDWARD E. MATTHEWS
------------------------------------
Name: Edward E. Matthews
Title: Vice Chairman
ENGINE ACQUISITION CORPORATION
By: /s/ LOUIS F. ZEARO
------------------------------------
Name: Louis F. Zearo
Title: President
HSB GROUP, INC.
By: /s/ ROBERT C. WALKER
------------------------------------
Name: Robert C. Walker
Title: Senior Vice President and
General Counsel
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APPENDIX B
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of August 17, 2000 (this
"Agreement"), is between HSB Group, Inc., a Connecticut corporation ("Issuer")
and American International Group, Inc., a Delaware corporation ("Grantee").
RECITALS
A. The Merger Agreement. Prior to the entry into this Agreement and prior
to the grant of the Option, Issuer, Grantee and Engine Acquisition Corporation,
a wholly-owned subsidiary of Grantee ("Merger Sub"), have entered into an
Agreement and Plan of Merger, dated as of the date of this Agreement (the
"Merger Agreement"; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement), pursuant to which Grantee and
Issuer intend to effect a merger of Issuer with and into Merger Sub (the
"Merger").
B. The Stock Option Agreement. As an inducement and condition to Grantee's
and Merger Sub's willingness to enter into the Merger Agreement, and in
consideration thereof, the board of directors of Issuer has approved the grant
to Grantee of the Option pursuant to this Agreement and the acquisition of
shares of common stock, without par value ("Shares"), of Issuer by Grantee
pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth in this Agreement and in the Merger Agreement, the
parties agree as follows:
1. The Option. (a) Grant. Issuer hereby grants to Grantee an
unconditional, irrevocable option (the "Option") to purchase, subject to the
terms of this Agreement, up to 5,777,272 fully paid and nonassessable Shares at
a price per share in cash equal to $41 (the "Option Price"); provided, however,
that in no event shall the number of shares for which the Option is exercisable
exceed 19.9% of the Shares issued and outstanding at the time of exercise
(without giving effect to the Shares issued or issuable under the Option) (the
"Maximum Applicable Percentage"). The number of Shares purchasable upon exercise
of the Option and the Option Price are subject to adjustment as set forth in
this Agreement.
(b) Additional Shares. In the event that any additional Shares are issued
or otherwise become outstanding after the date of this Agreement (other than
pursuant to an event described in Section 7 of this Agreement), the aggregate
number of Shares purchasable upon exercise of the Option (inclusive of Shares,
if any, previously purchased upon exercise of the Option) shall automatically be
increased (without any further action on the part of Issuer or Grantee being
necessary) so that, after such issuance, it equals the Maximum Applicable
Percentage. Any such increase shall not effect the Option Price.
2. Exercise; Closing. (a) Conditions to Exercise; Termination. Grantee or
any other person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person being referred to
in this Agreement as the "Holder") may exercise the Option, in whole or in part,
by delivering a written notice thereof as provided in Section 2(d) at any time
following the occurrence of a Triggering Event unless prior to such Triggering
Event the Effective Time shall have occurred. If no notice pursuant to the
preceding sentence has been delivered prior thereto, the Option shall terminate
upon either (i) the occurrence of the Effective Time, (ii) the close of business
on the day 180 days after the date that the Merger Agreement is terminated if in
connection with such termination Grantee is entitled to or has a possible
entitlement to receive a termination fee in accordance with Section 5.5 of the
Merger Agreement (or if, at the expiration of such 180 days, the Option cannot
be exercised by reason of any applicable judgment, decree, order, law,
regulation, notice, report, filing or application for approval, 10 business days
after such impediment to exercise shall have been removed), or (iii) the close
of business on the date that the Merger
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Agreement is terminated if in connection with such termination Grantee is not
entitled to and has no possible entitlement to receive a termination fee in
accordance with Section 5.5 of the Merger Agreement.
(b) Triggering Event. A "Triggering Event" shall have occurred if: (i) any
person (other than Grantee or any of its subsidiaries) shall have commenced (as
such term is defined in Rule 14d-2 under the Securities Exchange Act of 1934
(the "Exchange Act")) a tender offer, or shall have filed a registration
statement under the Securities Act of 1933 (the "Securities Act") with respect
to an exchange offer, to purchase any Shares such that, upon consummation of
such offer, such person or a "group" (as such term is defined under the Exchange
Act) of which such person is a member shall have acquired beneficial ownership
(as such term is defined in Rule 13d-3 of the Exchange Act), or the right to
acquire beneficial ownership, of 15 percent or more of the then outstanding
Shares; (ii) any person (other than Grantee or any of its subsidiaries) shall
have publicly announced or delivered to Issuer a proposal, or disclosed publicly
or to Issuer an intention to make a proposal, to purchase 15% or more of the
assets or any equity securities of, or to engage in a merger, reorganization,
tender offer, share exchange, consolidation or similar transaction involving the
Issuer or any of its subsidiaries and the Issuer shall not have rejected such
proposal within 10 business days thereafter (an "Acquisition Transaction");
(iii) Issuer or any of its subsidiaries shall have authorized, recommended,
proposed or publicly announced an intention to authorize, recommend or propose,
or entered into, an agreement, including without limitation, an agreement in
principle, with any person (other than Grantee or any of its subsidiaries) to
effect or provide for an Acquisition Transaction; (iv) any person (other than
Grantee or any of its subsidiaries) shall have acquired beneficial ownership (as
such term is defined in Rule 13d-3 under the Exchange Act) or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
the Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of, Shares (other than trust account
shares) aggregating 20 percent or more of the then outstanding Shares; or (v)
the Merger Agreement is terminated and Grantee thereby becomes entitled to
receive a termination fee pursuant to Section 5.5 of the Merger Agreement. As
used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d) of the Exchange Act.
(c) Notice of Triggering Event by Issuer. Issuer shall notify Grantee
promptly in writing of the occurrence of any Triggering Event, it being
understood that the giving of such notice by Issuer shall not be a condition to
the right of the Holder to exercise the Option.
(d) Notice of Exercise by Grantee. If a Holder shall be entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
date of which is referred to in this Agreement as the "Notice Date") specifying
(i) the total number of Shares that the Holder will purchase pursuant to such
exercise and (ii) a place and date (a "Closing Date") not earlier than three
business days nor later than 60 business days from the Notice Date for the
closing of such purchase (a "Closing").
(e) Regulatory Restrictions on Exercise. In the event that any full or
partial exercise of the Option would require (i) prior approval by or notice to
the insurance regulatory authorities of the jurisdictions in which the Company
Insurance Subsidiaries (as defined in the Merger Agreement) are domiciled, or
(ii) any filing under the Hart-Scott-Rodino Antitrust Improvement Act of 1976,
as amended, the Holder shall not exercise the Option without obtaining any such
approval or effecting any such notice or filing.
(f) Payment of Purchase Price. At each Closing, the Holder shall pay to
Issuer the aggregate purchase price for the Shares purchased pursuant to the
exercise of the Option in immediately available funds by a wire transfer to a
bank account designated by Issuer, provided, that failure or refusal of Issuer
to designate such a bank account shall not preclude the Holder from exercising
the Option, in whole or in part.
(g) Delivery of Common Stock. At such Closing, simultaneously with the
payment of the purchase price by the Holder, Issuer shall deliver to the Holder
a certificate or certificates representing the number of Shares purchased by the
Holder, which Shares shall be free and clear of all liens, charges,
encumbrances, security interests ("Liens") or preemptive rights and, if the
Option shall be exercised in part only, a new Option evidencing the rights of
the Holder to purchase the balance (as adjusted pursuant to Section 1(b)) of the
Shares then purchasable under this Agreement.
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(h) Restrictive Legend. Certificates for Shares delivered at a Closing may
be endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject
to resale restrictions arising under the Securities Act of 1933, as
amended."
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the Holder shall have
delivered to Issuer a copy of a letter from the staff of the Securities and
Exchange Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act. In addition, such certificates
shall bear any other legend as may be required by applicable law.
(i) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by the Holder to Issuer of a written notice of exercise referred to in
Section 2(d) and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
Shares issuable upon such exercise, notwithstanding that the stock transfer
books of Issuer shall then be closed or that certificates representing such
Shares shall not have been delivered to the Holder. Issuer shall pay all
expenses, and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issue and
delivery of stock certificates under this Section 2 in the name of the Holder or
its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants
in this Agreement, Issuer agrees:
(a) Shares Reserved for Issuance. It will maintain, free from preemptive
rights, sufficient authorized but unissued or treasury Shares to issue the
appropriate number of Shares pursuant to the terms of this Agreement so
that the Option may be fully exercised without additional authorization of
Shares after giving effect to all other options, warrants, convertible
securities and other rights of third parties to purchase Shares from
Issuer.
(b) No Avoidance. It will not avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of
rights, dissolution or sale of assets, or by any other voluntary act) the
observance or performance of any of the covenants, agreements or conditions
to be observed or performed under this Agreement by Issuer.
(c) Further Assurances. Promptly after the date of this Agreement it
will take all actions as may from time to time be required (including (i)
complying with all applicable premerger notification, reporting and waiting
period requirements under the HSR Act and (ii) in the event that prior
notice, report, filing or approval with respect to any foreign or state
insurance regulator or other governmental entity is necessary under any
applicable foreign or United States federal, state or local law before the
Option may be exercised, cooperating fully with the Holder in preparing and
processing the required applications or notices) in order to permit each
Holder to exercise the Option and purchase Shares pursuant to such exercise
and to take all action necessary to protect the rights of the Holder
against dilution.
(d) Stock Exchange Listing. It will use its reasonable best efforts to
cause the Shares to be issued pursuant to the Option to be approved for
listing (to the extent they are not already listed) on the New York Stock
Exchange ("NYSE") and on all other stock exchanges on which Shares of the
Issuer are then listed, subject to official notice of issuance.
4. Representations and Warranties of Issuer. Issuer represents and
warrants to Grantee as follows:
(a) Merger Agreement. Issuer hereby makes each of the representations
and warranties contained in Sections 3.1(a), 3.2, 3.4, 3.5, 3.17, 3.18 and
3.19 of the Merger Agreement as they relate to Issuer and this Agreement,
as if such representations were set forth in this Agreement.
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(b) Shares Reserved for Issuance; Capital Stock. Issuer has taken all
necessary corporate action to authorize and reserve, free from preemptive
rights, and permit it to issue, at all times from the date hereof until the
obligation to deliver Shares upon the exercise of the Option terminates,
sufficient authorized but unissued or treasury Shares so that the Option
may be fully exercised without additional authorization of Shares after
giving effect to all other options, warrants, convertible securities and
other rights of third parties to purchase Shares from Issuer, and all such
Shares, upon issuance pursuant to the Option, will be duly authorized,
validly issued, fully paid and nonassessable, and will be delivered free
and clear of all claims and Liens (other than those created by this
Agreement) and will not be subject to any preemptive rights.
5. Representations and Warranties of Grantee. Grantee represents and
warrants to Issuer that Grantee has all requisite corporate power and authority
and has taken all corporate action necessary in order to execute, deliver and
perform its obligations under and to consummate the transactions contemplated by
this Agreement. This Agreement has been duly and validly executed and delivered
by Grantee and constitutes a valid and binding agreement of Grantee enforceable
against Grantee in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
6. Exchange; Replacement. This Agreement and the Option granted by this
Agreement are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase in the aggregate the same number of Shares
purchasable at such time under this Agreement, subject to corresponding
adjustments in the number of Shares purchasable upon exercise so that the
aggregate number of such Shares under all stock option agreements issued in
respect of this Agreement shall not exceed the Maximum Applicable Percentage.
Unless the context shall require otherwise, the terms "Agreement" and "Option"
as used in this Agreement include any stock option agreements and related
Options for which this Agreement (and the Option granted by this Agreement) may
be exchanged. Upon (i) receipt by Issuer of evidence reasonably satisfactory to
it of the loss, theft, destruction of this Agreement, or mutilation of this
Agreement, (ii) receipt by Issuer of reasonably satisfactory indemnification in
the case of loss, theft or destruction of this Agreement and (iii) surrender and
cancellation of this Agreement in the case of mutilation, Issuer will execute
and deliver a new Agreement of like tenor and date. Any such new Agreement
executed and delivered shall constitute an additional contractual obligation on
the part of Issuer to Holder, whether or not the Agreement so lost, stolen,
destroyed or mutilated shall at any time be enforceable by any person other than
Holder.
7. Adjustments. In addition to the adjustment to the total number of
Shares purchasable upon exercise of the Option pursuant to Section 1(b), the
total number of Shares purchasable upon the exercise of the Option and the
Option Price shall be subject to adjustment from time to time as follows:
(a) Number of Shares. In the event of any change in the outstanding
Shares by reason of stock dividends, stock splits, split-ups, mergers,
recapitalizations, reclassifications, combinations, subdivisions,
conversions, exchanges of shares or the like, the type and number of Shares
purchasable upon exercise of the Option shall be appropriately adjusted,
and proper provision shall be made in the agreements governing any such
transaction, so that (i) any Holder shall receive upon exercise of the
Option the number and class of shares, other securities, property or cash
that such Holder would have received in respect of the Shares purchasable
upon exercise of the Option if the Option had been exercised and such
Shares had been issued to such Holder immediately prior to such event or
the record date therefor, as applicable, and (ii) in the event any
additional Shares are to be issued or otherwise become outstanding as a
result of any such change (other than pursuant to an exercise of the
Option), the number of Shares purchasable upon exercise of the Option shall
be increased so that, after such issuance and together with Shares
previously issued pursuant to the exercise of the Option (as adjusted on
account of any of the foregoing changes in the Shares), the number of
Shares so purchasable equals the Maximum Applicable Percentage of the
number of Shares issued and outstanding immediately after the consummation
of such change.
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(b) Option Price. Whenever the number of Shares purchasable upon
exercise of the Option is adjusted as provided in this Section 7, the
Option Price shall be adjusted by multiplying the Option Price by a
fraction, the numerator of which is equal to the number of Shares
purchasable prior to the adjustment and the denominator of which is equal
to the number of Shares purchasable after the adjustment.
8. Registration. Upon the occurrence of a Triggering Event, Issuer shall,
at the request of Grantee delivered in the written notice of exercise of the
Option provided for in Section 2(d), as promptly as practicable prepare, file
and keep current a shelf registration statement under the Securities Act
covering any or all Shares issued and issuable pursuant to the Option and shall
use its best efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of any
Shares issued upon total or partial exercise of the Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee; provided, however,
that Issuer may postpone filing a registration statement relating to a
registration request by Grantee under this Section 8 for a period of time (not
in excess of 30 days) if in its reasonable judgment such filing would require
the disclosure of material information that Issuer has a bona fide business
purpose for preserving as confidential. Issuer will use its best efforts to
cause such registration statement first to become effective as soon as
practicable and then to remain effective for one year from the day such
registration statement first becomes effective or until such earlier date as all
Shares registered shall have been sold by Grantee. Issuer may request Grantee to
suspend use of the Registration Statement for no more than 30 consecutive days
(or, for no more than 90 days in any year) if Issuer is in possession of
material non-public information which it has a bona fide reason not to publicly
disclose. In connection with any such registration, Issuer and Grantee shall
provide each other with representations, warranties, indemnities and other
agreements customarily given in connection with such registrations. If requested
by Grantee in connection with such registration, Issuer shall become a party to
any underwriting agreement relating to the sale of such Shares, but only to the
extent of obligating Issuer in respect of representations warranties,
indemnities, contribution and other agreements customarily made by issuers in
such underwriting agreements. In the event that Grantee so requests, the closing
of the sale or other disposition of the Shares or other securities pursuant to a
registration statement filed pursuant to Section 8(a) shall occur substantially
simultaneously with the exercise of the Option. Any registration statement
prepared and filed under this Section 8, and any sale covered thereby, shall be
at Issuer's expense, except for underwriting discounts or commissions and
brokers fees.
9. Repurchase of Option and/or Shares. (a) Repurchase; Repurchase Price.
Upon the occurrence of a Triggering Event, (i) at the request of a Holder,
delivered in writing within 180 days of such occurrence (or such later period as
provided in Section 2(d) with respect to any required notice or application or
in Section 10), Issuer shall repurchase the Option from the Holder, in whole or
in part, at a price (the"Option Repurchase Price") equal to the number of Shares
then purchasable upon exercise of the Option (or such lesser number of Shares as
may be designated in the Repurchase Notice) multiplied by the amount by which
the market/offer price exceeds the Option Price and (ii) at the request of a
Holder or any person who has been a Holder (for purposes of this Section 9 only,
each such person being referred to as a "Holder"), delivered in writing within
180 days of such occurrence (or such later period as provided in Section 2(d)
with respect to any required notice or application or in Section 10), Issuer
shall repurchase such number of Option Shares from such Holder as the Holder
shall designate in the Repurchase Notice at a price (the "Option Share
Repurchase Price") equal to the number of Shares designated multiplied by the
market/offer price. The term "market/offer price" shall mean the highest of (x)
the price per Share to be paid by any third party pursuant to an agreement
relating to an Acquisition Proposal with Issuer and (y) the highest trading
price for Shares on the NYSE (or, if the Shares are not then listed on the NYSE,
any other national securities or automated quotation system on which the Shares
are then listed or quoted) within the 120-day period immediately preceding the
delivery of the Repurchase Notice. In the event that an Acquisition Proposal is
made for the Shares or an agreement is entered into relating to an Acquisition
Proposal involving consideration other than cash, the value of the securities or
other property issuable or deliverable in exchange for the Shares shall (I) if
such consideration is in securities and such securities are listed on a national
securities exchange, be determined to be the highest trading price for such
securities on such national
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securities exchange within the 120-day period immediately preceding the delivery
of the Repurchase Notice or (II) if such consideration is not securities, or if
in securities and such securities are not traded on a national securities
exchange, be determined in good faith by a nationally recognized investment
banking firm selected by an investment banking firm designated by Grantee and an
investment banking firm designated by Issuer.
(b) Method of Repurchase. A Holder may exercise its right to require
Issuer to repurchase the Option, in whole or in part, and/or any Option Shares
then owned by such Holder pursuant to this Section 9 by surrendering for such
purpose to Issuer, at its principal office, this Agreement or certificates for
Option Shares, as applicable, accompanied by a written notice or notices stating
that the Holder elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each such
notice, a "Repurchase Notice"). As promptly as practicable, and in any event
within two business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of the Repurchase Notice relating
thereto, Issuer shall deliver or cause to be delivered to the Holder the
applicable Option Repurchase Price and/or the Option Share Repurchase Price. Any
Holder shall have the right to require that the repurchase of Option Shares
shall occur immediately after the exercise of all or part of the Option. In the
event that the Repurchase Notice shall request the repurchase of the Option in
part, Issuer shall deliver with the Option Repurchase Price a new Stock Option
Agreement evidencing the right of the Holder to purchase that number of Shares
purchasable pursuant to the Option at the time of delivery of the Repurchase
Notice minus the number of Shares represented by that portion of the Option then
being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Issuer is
prohibited under applicable law or regulation (including, without limitation,
Section 33-684 of the Connecticut Business Corporation Act) from repurchasing
the Option (or portion thereof) and/or any Option Shares subject to such
Repurchase Notice (and Issuer will undertake to use its reasonable best efforts
to obtain all required regulatory and legal approvals and to file any required
notices as promptly as practicable in order to accomplish such repurchase),
Issuer shall immediately so notify the Holder in writing and thereafter deliver
or cause to be delivered, from time to time, to the Holder the portion of the
Option Repurchase Price and the Option Share Repurchase Price that Issuer is no
longer prohibited from delivering, within two business days after the date on
which it is no longer so prohibited; provided, however, that upon notification
by Issuer in writing of such prohibition, the Holder may, within five days of
receipt of such notification from Issuer, revoke in writing its Repurchase
Notice, whether in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to the Holder that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver to the Holder, as appropriate,
(A) with respect to the Option, a new stock option agreement evidencing the
right of the Holder to purchase that number of Shares for which the surrendered
stock option agreement was exercisable at the time of delivery of the Repurchase
Notice less the number of shares as to which the Option Repurchase Price has
theretofore been delivered to the Holder, and/or (B) with respect to Option
Shares, a certificate for the Option Shares as to which the Option Share
Repurchase Price has not theretofore been delivered to the Holder.
Notwithstanding anything to the contrary in this Agreement, including, without
limitation, the time limitations on the exercise of the Option, the Holder may
give notice of exercise of the Option for 180 days after a notice of revocation
has been issued pursuant to this Section 9(c) and thereafter exercise the Option
in accordance with the applicable provisions of this Agreement.
(d) Acquisition Transactions. In addition to any other restrictions or
covenants, Issuer agrees that, in the event that a Holder delivers a Repurchase
Notice, Issuer shall not enter or agree to enter into an agreement or series of
agreements relating to a merger with or into or the consolidation with any other
person or entity, the sale of all or substantially all of the assets of Issuer
or any similar disposition unless the other party or parties to such agreement
or agreements agree in writing not to interfere with Issuer's obligations under
Section 9(a).
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10. Extension of Exercise Periods. The 180-day periods for exercise of
certain rights under Sections 2 and 9 shall be extended in each such case at the
request of the Holder to the extent necessary to avoid liability by the Holder
under Section 16(b) of the Exchange Act, by reason of such exercise.
11. Assignment. Neither party may assign any of its rights or obligations
under this Agreement or the Option to any other person without the express
written consent of the other party except that Grantee may, without the prior
written consent of Issuer assign the Option, in whole or in part, to any
affiliate of Grantee. Any attempted assignment in contravention of the preceding
sentence shall be null and void.
12. Filings; Other Actions. Issuer and Grantee each will use its best
efforts to make all filings with, and to obtain consents of, all third parties
and foreign and state insurance regulators and other governmental entities
necessary for the consummation of the transactions contemplated by this
Agreement.
13. Specific Performance. The parties acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party and that the
obligations of the parties shall be specifically enforceable through injunctive
or other equitable relief.
14. Severability. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 9, the full number of Shares
provided in Section 1(a) of this Agreement (as adjusted pursuant to Sections
1(b) and 7 of this Agreement), it is the express intention of Issuer to allow
the Holder to acquire or to require Issuer to repurchase such lesser number of
Shares as may be permissible, without any amendment or modification of this
Agreement.
15. Notices. Notices, requests, instructions, or other documents to be
given under this Agreement shall be in writing and shall be deemed given (i)
three business days following sending by registered or certified mail, postage
prepaid, (ii) when sent, if sent by facsimile, provided that a copy of the fax
is promptly sent by U.S. mail, (iii) when delivered, if delivered personally to
the intended recipient, and (iv) one business day later, if sent by overnight
delivery via a national courier service, in each case at the respective
addresses of the parties set forth in the Merger Agreement.
16. Expenses. Except as otherwise expressly provided in this Agreement or
in the Merger Agreement, all costs and expenses, incurred in connection with
this Agreement and the transactions contemplated by this Agreement shall be paid
by the party incurring such expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
17. Entire Agreement. This Agreement and the Merger Agreement constitute
the entire agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties, with
respect to the subject matter of this Agreement. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties and
their respective successors and permitted assigns. Nothing in this Agreement is
intended to confer upon any person or entity, other than the parties to this
Agreement, and their respective successors and permitted assigns, any rights or
remedies under this Agreement.
18. Governing Law and Venue; Waiver of Jury Trial.
(a) Governing Law. This Agreement shall be deemed to be made in and in all
respects shall be interpreted, construed and governed by and in accordance with
the laws of the State of New York without regard to the conflict of law
principles thereof; provided, however, that the corporation and insurance laws
of the States of Connecticut and Delaware and other applicable States shall
govern as applicable. The parties irrevocably and unconditionally consent to
submit to the exclusive jurisdiction of the courts of the State of Delaware and
of the United States of America located in Wilmington, Delaware (the "Delaware
Courts") for
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any litigation arising out of or relating to this Agreement and the transactions
contemplated by this Agreement (and agree not to commence any litigation
relating thereto except in such Delaware Courts), waive any objection to the
laying of venue of any such litigation in the Delaware Courts and agree not to
plead or claim in any Delaware Court that such litigation brought therein has
been brought in an inconvenient forum.
(b) Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY
CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE
OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE OTHER PARTY WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH
PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 18.
19. Captions. The Section and paragraph captions in this Agreement are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions of this
Agreement.
20. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as defined herein)
exceed in the aggregate $50 million (the "Maximum Amount") and, if it otherwise
would exceed such amount, the Grantee, at its sole election, shall either: (i)
reduce the number of Shares subject to this Option; (ii) deliver to the Issuer
for cancellation Option Shares previously purchased by Grantee; (iii) pay cash
to the Issuer, or (iv) any combination thereof, so that Grantee's actually
realized Total Profit shall not exceed the Maximum Amount taking into account
the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined below) which would exceed the
Maximum Amount and, if exercise of the Option otherwise would result in the
Notional Total Profit exceeding such amount, Grantee, at its discretion, may (in
addition to any of the actions specified in Section 20(a) above) (i) reduce the
number of Shares subject to the Option or (ii) increase the Option Price for
that number of Shares set forth in the exercise notice so that the Notional
Total Profit shall not exceed the Maximum Profit; provided, that nothing in this
sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee pursuant to Issuer's repurchase of the Option (or any portion thereof)
or any Option Shares pursuant to Section 9, less, in the case of any repurchase
of Option Shares, (y) the Grantee's purchase price for such Option Shares, as
the case may be, plus (ii)(x) the net cash amounts received by Grantee pursuant
to the sale of Option Shares (or any other securities into which such Option
Shares are converted or exchanged) to any unaffiliated party, less (y) the
Grantee's purchase price of such Option Shares plus (iii) any termination fee
paid by the Issuer and received by the Grantee pursuant to Section 5.5 of the
Merger Agreement minus (iv)(x) the amounts of any cash previously paid by
Grantee to Issuer pursuant to this Section 20 plus (y) the value of the Option
Shares (or other securities) previously delivered by Grantee to Issuer for
cancellation pursuant to this Section 20.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of Shares as to which Grantee may propose to exercise this
Option shall be the Total Profit determined as of the date of
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such proposal assuming that this Option were exercised on such date for such
number of Shares and assuming that such Shares, together with all other Option
Shares held by Grantee and its affiliates as of such date, were sold for cash at
the closing market price for the Shares as of the close of business on the
preceding trading day (less customary brokerage commissions).
(e) Notwithstanding any other provision of this Agreement, nothing in this
Agreement shall affect the ability of Grantee to receive, nor relieve Issuer's
obligation to pay, any termination fee provided for in Section 5.5 of the Merger
Agreement; provided that if and to the extent the Total Profit received by
Grantee would exceed the Maximum Profit following receipt of such payment,
Grantee shall be obligated to promptly comply with the terms of Section 20(a).
(f) For purposes of Section 20(a) and clause (iv) of Section 20(c), the
value of any Option Shares delivered by Grantee to Issuer shall be the
market/offer price of such Option Shares.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
duly authorized officers of the parties as of the day and year first written
above.
AMERICAN INTERNATIONAL GROUP, INC.
By: /s/ KATHLEEN E. SHANNON
------------------------------------
Name: Kathleen E. Shannon
Title: Vice President and
Secretary
HSB GROUP, INC.
By: /s/ ROBERT C. WALKER
------------------------------------
Name: Robert C. Walker
Title: Senior Vice President and
General Counsel
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APPENDIX C
AMENDMENT NO. 1
Amendment No. 1, dated August 17, 2000, to the Rights Agreement, dated as
of November 28, 1998 (the "Rights Agreement"), between HSB Group, Inc. (the
"Company") and Fleet National Bank (previously known as BankBoston, N.A.), as
Rights Agent.
Reference is made to an Agreement and Plan of Merger, dated as of August
17, 2000 (the "Merger Agreement"), by and among the Company, American
International Group, Inc. ("AIG") and Engine Acquisition Corporation and to the
stock option agreement, dated as of August 17, 2000, between the Company and AIG
(the "Stock Option Agreement"). Terms used herein without definition shall have
such meanings as ascribed to them in the Rights Agreement.
The Rights Agreement is hereby amended to provide that notwithstanding any
other provision of the Rights Agreement, neither the execution nor the
consummation of the merger agreement or the stock option agreement in accordance
with their respective terms shall be deemed to (i) cause AIG to become an
"Acquiring Person" or (ii) constitute a "Triggering Event".
This Amendment to the Rights Agreement was duly adopted by the Board of
Directors of the Company as of the date hereof and shall be effective pursuant
to Section 27 of the Rights Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
the Rights Agreement to be duly executed, and their respective corporate seals
to be hereunto duly affixed and attested, all as of the day and year first above
written.
<TABLE>
<S> <C>
Attest: HSB GROUP, INC.
By: /s/ ROBERTA A. O'BRIEN By: /s/ ROBERT C. WALKER
--------------------------------------------------
-------------------------------------------------- Name: Robert C. Walker
Name: Roberta A. O'Brien Title: Senior Vice President and
Title: Vice President General Counsel
</TABLE>
<TABLE>
<S> <C>
Attest: FLEET NATIONAL BANK
By: /s/ DONNIE AMADO By: /s/ JOSHUA MCGINN
--------------------------------------------------
-------------------------------------------------- Name: Joshua McGinn
Name: Donnie Amado Title: Senior Account Manager
Title: Account Administrator
</TABLE>
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APPENDIX D
GOLDMAN SACHS LETTERHEAD
PERSONAL AND CONFIDENTIAL
August 17, 2000
Board of Directors
HSB Group, Inc.
One State Street
Hartford, CT 06102-5024
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders (other than American International Group, Inc. ("AIG") or
any of its subsidiaries) of the outstanding shares of Common Stock, no par value
(the "Shares"), of HSB Group, Inc. (the "Company") of the consideration to be
received in exchange for each Share (the "Consideration"), pursuant to the
Agreement and Plan of Merger (the "Agreement"), dated as of August 17, 2000,
among AIG, Engine Acquisition Corporation, a wholly-owned subsidiary of AIG, and
the Company. Pursuant to the Agreement, the Consideration will consist of either
(at the option of AIG) (i) a number of shares of Common Stock, par value $2.50
per share ("AIG Common Stock"), of AIG equal to $41.00 divided by the average
market price of a share of AIG Common Stock during a specified period prior to
the closing of the transaction contemplated by the Agreement (the "Average AIG
Stock Price"), or (ii) in the event that the number of shares of AIG Common
Stock described in the foregoing clause (i) exceeds 0.4683, a lesser number of
shares of AIG Common Stock (which shall be determined by AIG, but may not be
less than 0.4683), together with a cash payment which, when added to the market
value of such shares of AIG Common Stock (based on the Average AIG Stock Price),
equals $41.00.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having provided certain investment banking services to
the Company from time to time, including having acted as sole lead placement
agent for the Company's Rule 144A private placement of $110 million floating
rate capital securities in July 1997, having acted as an exclusive placement
agent for the placement of securities of Integrated Process Technologies LLC, a
51% owned subsidiary of the Company, from March 2000 through July 2000, and
having acted as the Company's financial advisor in connection with, and having
participated in certain of the negotiations leading to, the Agreement. We also
have provided certain investment banking services to AIG from time to time,
including having acted as its financial advisor in connection with the sale of
its 25% equity interest in Alexander & Alexander Services Inc. to AON
Corporation in February 1997, having acted as its financial adviser in its bid
for American Bankers, Inc. in 1997 and having acted as its financial advisor in
the sale of aircraft portfolio assets for $1.0 billion in July 1999. We may also
provide other investment banking services to AIG in the future. Goldman, Sachs &
Co. provides a full range of financial advisory and securities services and, in
the course of its normal trading activities, does from time to time effect
transactions and hold securities including derivative securities of the Company
and/or AIG for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things: the
Agreement; Annual Reports to Shareholders and Annual Reports on Form 10-K of the
Company and AIG for the five years ended December 31, 1999; the budget of AIG
for the year ending December 31, 2000 (the "2000 Budget"); certain interim
reports to stockholders of AIG and certain interim reports to shareholders of
the Company; Quarterly Reports on Form 10-Q of the Company and AIG; Statutory
Annual Statements filed by the insurance subsidiaries of the Company with the
insurance departments of the states under the laws of which they are
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organized for the five years ended December 31, 1999; and certain internal
financial analyses and forecasts for the Company prepared by its management. We
also have held discussions with members of the senior management of the Company
and AIG regarding their assessment of the strategic rationale for, and the
potential benefits of, the transaction contemplated by the Agreement and the
past and current business operations, financial condition and future prospects
of their respective companies. In addition, we have reviewed the reported price
and trading activity for the Shares and AIG Common Stock, compared certain
financial and stock market information for the Company and AIG with similar
information for certain other companies the securities of which are publicly
traded, reviewed the financial terms of certain recent business combinations in
the insurance industry specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. As you are
aware, AIG did not make available to us its projections of expected future
financial performance (other than the 2000 Budget). Accordingly, our review of
such future performance was limited to discussions with members of the senior
management of AIG regarding publicly available research analyst estimates. We
are not actuaries and our services did not include actuarial determinations or
evaluations by us or any attempt to evaluate actuarial assumptions. In addition,
we have not made an independent evaluation or appraisal of the assets and
liabilities (including the loss and loss adjustment expense reserves) of each of
the Company and AIG or any of their respective subsidiaries and we have not been
furnished with any such evaluation or appraisal. In that regard, we have made no
analysis of, and express no opinion as to, the adequacy of the loss and loss
adjustment expense reserves of AIG. Our advisory services and the opinion
expressed herein are provided for the information and assistance of the Board of
Directors of the Company in connection with its consideration of the transaction
contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any holder of Shares should vote with respect to such
transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Consideration to be received by holders of Shares pursuant to the Agreement is
fair from a financial point of view to the holders of Shares (other than AIG or
any of its subsidiaries).
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
----------------------------------
(GOLDMAN, SACHS & CO.)
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APPENDIX E
PART XIII DISSENTERS' RIGHTS
(A) RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Section 33-855. DEFINITIONS. As used in sections 33-855 to 33-872,
inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and
in the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value," with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation
in anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
Section 33-856. RIGHT TO DISSENT. (a) A shareholder is entitled to dissent
from, and obtain payment of the fair market value of his shares in the event of,
any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a party
(A) if shareholder approval is required for the merger by section 33-817 or
the certificate of incorporation and the shareholder is entitled to vote on
the merger or (B)if the corporation is a subsidiary that is merged with its
parent under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(4) An amendment of the certificate of incorporation that materially and
adversely affects rights in respect to a dissenter's shares because it: (A)
alters or abolishes a preferential right of the shares; (B) creates, alters
or abolishes a right in respect of redemption, including a provision
respecting a sinking fund for the redemption or repurchase of the shares;
(C) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; (D) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, other than a limitation
by dilution through issuance of shares or other securities with similar
voting rights; or (E) reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is to be
acquired for cash under section 33-668; or
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(5) Any corporate action taken pursuant to a shareholder vote to the
extent the certificate of incorporation, by-laws or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to
a shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not the proceeds as provided in sections 33-855 to
33-872, inclusive.
Section 33-875. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) he submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
(B) PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Section 33-860. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate
action creating dissenters' rights under section 33-856 is submitted to a vote
at a shareholders' meeting, the meeting notice shall state that shareholders are
or may be entitled to assert dissenters' rights under sections 33-855 to 33-872,
inclusive, and be accompanied by a copy of said sections.
(b) If corporate action creating dissenters' rights under section 33-856 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 33-862.
Section 33-861. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed
corporate action creating dissenters' rights under section 33-856 is submitted
to a vote at a shareholders' meeting, a shareholder who wishes to assert
dissenters' rights (1) shall deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the proposed
action is effectuated and (2) shall not vote his shares in favor of the proposed
action and (b) a shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under sections
33-855 to 33-872, inclusive.
Section 33-862. DISSENTERS' NOTICE. (a) If proposed corporate action
creating dissenters' rights under section 33-856 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date;
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(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than thirty nor more than sixty days after the
date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 and 33-872, inclusive.
Section 33-863. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a
dissenters' notice described in section 33-862 must demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters' notice pursuant to subdivision (3) of
subsection (b) of said section and deposit his certificates in accordance with
the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
Section 33-864. SHARE RESTRICTIONS. (a) The corporation may restrict the
transfer of uncertified shares from the date the demand for their payment is
received until the proposed corporate action is taken or the restrictions
released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
Section 33-865. PAYMENT. (a) Except as provided in section 33-867, as soon
as the proposed corporate action is taken, or upon receipt of a payment demand,
the corporation shall pay each dissenter who complied with section 33-863 the
amount the corporation estimates to be the fair value of his shares, plus
accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-868; and
(5) a copy of sections 33-855 to 33-872, inclusive.
Section 33-866. FAILURE TO TAKE ACTION. (a) If the corporation does not
take the proposed action with in sixty days after the date set for demanding
payment and depositing share certificates, the corporation shall return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
Section 33-867. AFTER-ACQUIRED SHARES. (a) A corporation may elect to
withhold payment required by section 33-865 from a dissenter unless he was the
beneficial owner of the shares before the date set forth in the dissenter's
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
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Section 33.868. PROCEDURE IF SHAREHOLDER IS DISSATISFIED WITH PAYMENT OR
OFFER. (a) A dissenter may notify the corporation in writing to his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or
offered under section 33-867 is less than the fair value of his shares or
that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within
sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
for his shares.
(C) JUDICIAL APPRAISAL OF SHARES
Section 33-871. COURT ACTION. (a) If a demand for payment under section
33-868 remains unsettled, the corporation shall commence a proceeding within
sixty days after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the superior court for
the judicial district where a corporation's principal office or, if none in this
state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend a
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
(1) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation, or (2) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under section 33-867.
Section 33-872. COURT COSTS AND COUNSEL FEES. (a) The court in an appraisal
proceeding commenced under section 33-871 shall determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment under section 33-868.
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(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable: (1) against
the corporation and in favor of any or all dissenters if the court finds the
corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
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APPENDIX F
FORM OF PROXY CARD
HSB GROUP, INC.
ONE STATE STREET, P.O. BOX 5024, HARTFORD, CONNECTICUT 06102-5024
SPECIAL MEETING OF SHAREHOLDERS ON NOVEMBER 6, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF HSB GROUP, INC.
The undersigned appoints Colin G. Campbell, Richard G. Dooley and William
B. Ellis each with the power to appoint his substitute, and hereby authorizes
them to represent and to vote, as designated on the reverse side, all the shares
of common stock of HSB Group, Inc. held of record by the undersigned at the
close of business on September 28, 2000 at the special meeting of HSB
shareholders to be held on November 6, 2000, at 10:00 am, local time, at the
office of HSB, One State Street, Hartford, Connecticut 06102-5024, and any
adjournment or postponement of the special meeting, with all powers the
undersigned would possess if personally present upon all matters properly coming
before the special meeting, including but not limited to the matters set forth
on the reverse side, hereby revoking any proxy previously given.
IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSAL.
SEE REVERSE SIDE -- CONTINUED AND TO BE SIGNED ON REVERSE SIDE
VOTE BY TELEPHONE
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps:
1. Read the accompanying shareholder letter, proxy statement/prospectus and
this proxy card.
2. Call the toll-free number at any time before Midnight on November 5,
2000.
1-877-PRX-VOTE (1-877-779-8683)
3. Enter your 14-digit control number located on this proxy card above your
name.
4. Follow the recorded instructions.
Your vote is important!
Call 1-877-PRX-VOTE anytime!
VOTE BY INTERNET
It's fast, convenient, and your vote is immediately confirmed and posted.
Follow these four easy steps:
1. Read the accompanying shareholder letter, proxy statement/prospectus and
this proxy card.
2. Go to the Website at any time before Midnight on November 5, 2000.
http://www.eproxyvote.com/hsb
3. Enter your 14-digit control number located on this proxy card above your
name.
4. Follow the instructions provided.
Your vote is important!
Go to http://www.eproxyvote.com/hsb anytime!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR THE INTERNET.
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DETACH HERE
[X] Please mark
votes as in
this example.
The Board of Directors of HSB Group, Inc. recommends a vote FOR the
following proposal:
To approve and adopt the Agreement and Plan of Merger, dated as of August
17, 2000, among HSB Group, Inc., American International Group, Inc. and Engine
Acquisition Corporation, a wholly owned subsidiary of AIG, and the transactions
contemplated by the merger agreement, including the merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
MARK HERE IF YOU HAVE MADE COMMENTS [ ]
THE BOARD OF DIRECTORS OF HSB GROUP, INC.
RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL.
The special meeting will be held at the office of HSB, One State Street,
Hartford, Connecticut 06102-5024, on November 6, 2000, at 10:00 a.m., local
time, for the purpose of voting on and approving the proposal.
The proxy holders will vote the shares represented by your proxy in the
manner indicated above. If no direction is given, the proxy holders will vote
for approval of the proposal.
The undersigned acknowledge(s) notification of the special meeting and
receipt of the proxy statement/ prospectus, dated September 29, 2000, relating
to the special meeting.
PLEASE SIGN EXACTLY AS YOUR NAME APPEARS ON THIS PROXY CARD, JOINT OWNERS SHOULD
EACH SIGN. IF ACTING AS ATTORNEY, EXECUTOR, TRUSTEE OR IN ANOTHER REPRESENTATIVE
CAPACITY, SIGN NAME AND PRINT TITLE OPPOSITE YOUR NAME. PLEASE DATE YOUR PROXY
AND RETURN IT IN THE ENCLOSED POST-PAID RETURN ENVELOPE. NO POSTAGE IS REQUIRED
IF MAILED IN THE UNITED STATES.
Signature:------------------ Title:------------------------- Date:-------------
Signature:------------------ Title:------------------------- Date:-------------
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