<PAGE> 1
Pursuant to Rule 424(b)(3)
Registration No. 33-60827
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
PRELIMINARY PRICING SUPPLEMENT DATED JULY 29, 1997
(To Prospectus dated February 20, 1996 and
Prospectus Supplement dated June 11, 1996)
U.S. [$150,000,000]
AMERICAN INTERNATIONAL GROUP, INC.
Medium Term Notes, Series E
% Cash Exchangeable Equity-Linked Notes Due July , 2004
convertible into the cash value of the Common Stock of AIG
Interest payable January and July
Issue Price: 100% of Principal Amount
Interest will accrue on the Notes at the rate of % per annum and will be
payable on January and July of each year, commencing January , 1998. The
Notes will mature on the earlier of (i) July , 2004 (the "Stated Maturity
Date"), subject to the occurrence of certain Non-Trading Days (defined herein)
but in no event later than August , 2004 (such date of maturity as it may be
extended is hereinafter referred to as the "Maturity Date") and (ii) the
Business Day (defined herein) immediately preceding any Delisting Date (defined
herein). On the Maturity Date or the Delisting Date, a holder will be entitled
to receive an amount equal to the greater of (A) the principal amount of such
Note (the "Principal Amount") (together with the accrued and unpaid interest
thereon, if any) and (B) the product of the Exchange Rate (defined below) and
the average Closing Price (defined herein) per share of the Common Stock of
American International Group, Inc. ("AIG") for the five Trading Days ending on
the second Business Day immediately prior to the Maturity Date or the Delisting
Date, as the case may be. "Exchange Rate" means, with respect to any Note,
shares of AIG Common Stock per $100,000 Principal Amount. The Notes are
redeemable at the option of AIG, as a whole but not in part, at any time on or
after July , 2000 at the greater of (A) the Principal Amount of such Note
(together with the accrued and unpaid interest thereon, if any) and (B) the sum
of (x) the product of the Exchange Rate and the average Closing Price per share
of AIG Common Stock for the five Trading Days ending on the second Business Day
immediately prior to the Redemption Date (as defined), plus (y) an amount equal
to the dividends (regular or extraordinary) that would have been received by a
holder of shares of AIG Common Stock on any record date occurring during the
period commencing on the day that the Notes are called for redemption and ending
on the second Business Day immediately prior to the Redemption Date. At any time
on or after September 1997, up to and including July , 2004, unless previously
redeemed, Notes may be exchanged into an amount (the "Exchange Amount") equal to
the greater of (A) the product of the Exchange Rate and the Closing Price per
share of AIG Common Stock on the Trading Day on or immediately following
(depending on the time of receipt of the Exchange Notice (defined herein) the
Exchange Notice Date and (B) the Discounted Amount (defined herein). The Notes
will be issued in denominations of $100,000 and integral multiples of $10,000 in
excess thereof. The Closing Price of the AIG Common Stock on July , 1997 was
$ per share.
THE NOTES ARE EXCHANGEABLE SOLELY FOR CASH OR PAYABLE IN CASH AT MATURITY OR
UPON REDEMPTION. THE NOTES DO NOT REPRESENT ANY RIGHT TO RECEIVE ANY AIG COMMON
STOCK OR OTHER SECURITIES. THE PRICE OF AIG COMMON STOCK SERVES SOLELY AS THE
INDEX TO DETERMINE THE EXCHANGE AMOUNT, THE REDEMPTION AMOUNT OR THE MATURITY
AMOUNT APPLICABLE TO THE NOTES, WHICH ARE IN EACH CASE PAYABLE IN CASH ONLY.
SEE "RISK FACTORS" HEREIN FOR CERTAIN INFORMATION RELEVANT TO AN INVESTMENT IN
THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PRICING SUPPLEMENT OR
THE PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC (1) DISCOUNTS AND AIG(3)
COMMISSIONS(2)
<S> <C> <C> <C>
PER NOTE.................................................... 100% 2.00% 98.00%
TOTAL (3) .................................................. $150,000,000 $3,000,000 $147,000,000
</TABLE>
(1) PLUS ACCRUED INTEREST, IF ANY, FROM JULY , 1997.
(2) AIG HAS AGREED TO INDEMNIFY THE UNDERWRITER AGAINST CERTAIN LIABILITIES,
INCLUDING LIABILITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SEE
"PLAN OF DISTRIBUTION".
(3) AIG HAS GRANTED THE UNDERWRITER AN OPTION, EXERCISABLE WITHIN 30 DAYS AFTER
THE DATE OF THIS PRICING SUPPLEMENT, TO PURCHASE UP TO $22,500,000
PRINCIPAL AMOUNT OF NOTES, ON THE SAME TERMS AS SET FORTH ABOVE, SOLELY TO
COVER OVER-ALLOTMENTS, IF ANY. IF SUCH OPTION IS EXERCISED IN FULL, THE
PRICE TO PUBLIC, UNDERWRITING DISCOUNTS AND COMMISSIONS AND PROCEEDS TO
COMPANY WILL BE $172,500,000, $3,450,000 AND $169,050,000, RESPECTIVELY.
SEE "PLAN OF DISTRIBUTION".
THE NOTES ARE OFFERED BY THE UNDERWRITER, SUBJECT TO PRIOR SALE, WHEN, AS AND IF
ISSUED TO AND ACCEPTED BY THE UNDERWRITER, SUBJECT TO APPROVAL OF CERTAIN LEGAL
MATTERS BY COUNSEL FOR THE UNDERWRITER AND CERTAIN OTHER CONDITIONS. THE
UNDERWRITER RESERVES THE RIGHT TO WITHDRAW, CANCEL OR MODIFY SUCH OFFER AND TO
REJECT ORDERS IN WHOLE OR IN PART.
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IT IS EXPECTED THAT THE NOTES WILL BE DELIVERED IN BOOK-ENTRY FORM ONLY THROUGH
THE FACILITIES OF DTC ON OR ABOUT AUGUST , 1997, AGAINST PAYMENT THEREFOR IN
IMMEDIATELY AVAILABLE FUNDS.
UBS SECURITIES LLC
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES OR THE AIG
COMMON STOCK. SPECIFICALLY, THE UNDERWRITER MAY OVERALLOT IN CONNECTION WITH THE
OFFERING AND MAY BID FOR, AND PURCHASE, NOTES OR THE AIG COMMON STOCK IN THE
OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "PLAN OF DISTRIBUTION".
THE UNDERWRITER IS NOT REQUIRED TO ENGAGE IN THESE ACTIVITIES, AND MAY END ANY
OF THESE ACTIVITIES AT ANY TIME.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to them in the Prospectus Supplement or the
Prospectus, as the case may be.
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GENERAL
Agent's capacity: / / As Agent
/X/ As Principal (see below)
If as Principal:
/ / The Note is being offered at varying prices related to prevailing
market prices at the time of resale.
/X/ The Note is being offered at a fixed initial public offering price
of 100% of Principal Amount.
Form: /X/ Book Entry / / Certificated
Specified currency: U.S. Dollars
Indexed Notes: /X/ Yes / / No, see Attachment
The terms of the Notes set forth in this Pricing Supplement, dated
July , 1997, supplement, and to the extent inconsistent therewith, replace the
description of the general terms and provisions of the Series E Notes set forth
in the Prospectus Supplement, dated June 11, 1996, to which this Pricing
Supplement relates.
INTEREST
/X/ Fixed Rate Note (other than Amortizing or Zero-Coupon Note):
Interest on the Notes will be calculated on a 30/360 basis and will be
payable semiannually in arrears on each January and July , commencing
January , 1998, through and including the date of Maturity (each, an
"Interest Payment Date"), and the Regular Record Date in respect of each
Interest Payment Date will be the 15th day (whether or not a Business Day)
of the month in which such Interest Payment Date occurs.
EARLY REDEMPTION AND/OR REPAYMENT, AND OPTIONAL EXTENSION OF MATURITY DATE,
RESETS AND PAYMENT CURRENCY
Early redemption at AIG's option:
/ / No /X/ Yes, see Attachment
Early repayment at Holder's option:
/ / No /X/ Yes, see Attachment
Option to extend Maturity Date:
/X/ No / / Yes
Option to reset interest rate:
/X/ No / / Yes
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ATTACHMENT
THE NOTES ARE EXCHANGEABLE SOLELY FOR CASH OR PAYABLE IN CASH AT MATURITY OR
UPON REDEMPTION. THE NOTES DO NOT REPRESENT ANY RIGHT TO RECEIVE ANY AMERICAN
INTERNATIONAL GROUP, INC. ("AIG") COMMON STOCK OR OTHER SECURITIES. THE PRICE OF
AIG COMMON STOCK SERVES SOLELY AS AN INDEX USED TO DETERMINE THE EXCHANGE
AMOUNT, THE REDEMPTION AMOUNT OR THE MATURITY AMOUNT APPLICABLE TO THE NOTES,
WHICH ARE IN EACH CASE PAYABLE IN CASH ONLY.
The __% Cash Exchangeable Equity-Linked Notes Due July __, 2004 (the
"Notes") of AIG will mature on the earlier of (i) July __, 2004 (subject to
extension upon the occurrence of certain Non-Trading Days (as defined below))
and (ii) the Business Day immediately preceding any Delisting Date (as defined
below), but in no event later than August __, 2004. The "Delisting Date" will be
the first date on which the AIG Common Stock (as defined below to include
successor entities) is not listed on any U.S. national securities exchange or
U.S. national market system subject to last sale reporting or is permanently
suspended from trading on each such securities exchange and market system on
which it is then listed.
Accrued interest will be included in the Maturity Amount or Redemption
Amount paid at the Maturity Date, Delisting Date or Redemption Date; provided,
that no accrued interest shall be paid on a Note if the Maturity Amount or
Redemption Amount, as applicable, is calculated in accordance with clause (B) of
the definition thereof. If the Stated Maturity Date is extended, as provided
under "Description of the Notes--Maturity Amount", the Notes will continue to
accrue interest until the principal amount is paid at maturity and the final
Interest Payment Date will be adjusted accordingly.
On the Maturity Date or the Delisting Date, a holder of a Note that has not
previously given a valid Exchange Notice as discussed below under "Description
of the Notes--Exchange Notice" will be entitled to receive an amount (the
"Maturity Amount") equal to the greater of (A) the Principal Amount of such Note
(together with the accrued and unpaid interest thereon, if any) and (B) the
product of the Exchange Rate (as defined herein) and the average Closing Price
per share of AIG Common Stock for the five Trading Days ending on the second
Business Day immediately prior to the Maturity Date or the Delisting Date, as
the case may be.
The Notes will be effectively repayable at the option of the holder
thereof, since they may be exchanged, subject to certain limitations, at any
time on or after September __, 1997, into the cash Exchange Amount (determined
as provided herein under "Description of the Notes--Exchange Amount") at the
option of the holder on any Exchange Notice Date (as
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defined herein) by such holder giving written notice to the Calculation Agent on
behalf of AIG (the "Exchange Notice") in the manner set forth herein.
The Notes may be redeemed, at the option of AIG, as a whole but not in
part, at any time on or after July __, 2000 at the greater of (A) the Principal
Amount of such Note (together with the accrued and unpaid interest thereon, if
any) and (B) the sum of (x) the product of the Exchange Rate and the average
Closing Price per share of AIG Common Stock for the five Trading Days ending on
the second Business Day immediately prior to the Redemption Date, plus (y) an
amount equal to the dividends (regular or extraordinary) that would have been
received by a holder of the shares of AIG Common Stock underlying a Note, who
held such AIG Common Stock on any record date occurring during the period
commencing on the day that the Notes are called for redemption and ending on the
second Business Day immediately prior to the Redemption Date (the "Redemption
Amount").
Notwithstanding anything to the contrary contained in this Pricing
Supplement, in no event will the Maturity Amount payable on the Maturity Date or
the Delisting Date or the Redemption Amount payable on the Redemption Date be
less than the Principal Amount of such Note. The Exchange Amount payable on any
Exchange Payment Date may be less than the Principal Amount of such Note, but in
no event will be less than the Discounted Amount.
For purposes of this Pricing Supplement, (i) the "Redemption Commencement
Date" of the Notes is July __, 2000; (ii) the "Redemption Prices" are as set
forth below under "Description of the Notes--Redemption by AIG"; and (iii) the
"Redemption Period" is the period from July __, 2000 to the Maturity Date.
RECENT DEVELOPMENTS
On July 24, 1997, AIG reported that its net income for the second quarter
of 1997 increased 14.1 percent to $826.5 million, compared to $724.4 million in
the second quarter of 1996. For the first six months of 1997, net income
totalled $1.61 billion, an increase of 15.2 percent compared to $1.40 billion in
the same period of 1996. Adjusted to exclude realized capital gains, net of
taxes, 1997 second quarter and six months net income was $811.4 million and
$1.56 billion, respectively, compared to $712.6 million and $1.36 billion,
respectively, for the same periods in 1996. Reported income per share, after
giving effect to AIG's three-for-two split in the form of a 50 percent stock
dividend, paid July 25, 1997, was $1.18 and $2.29, respectively, for the second
quarter and first six months of 1997, compared to $1.03 and $1.97 for the same
periods in 1996. At June 30, 1997, AIG's consolidated assets and shareholders'
equity approximated $156 billion and $23.0 billion, respectively.
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RISK FACTORS
The Notes to which this Pricing Supplement relates are "Indexed Series E
Notes" as described in the Prospectus Supplement and are subject to various
risks, including, but not limited to, the following:
PAYMENT UPON EXCHANGE
If an Exchange Notice is given on an Exchange Notice Date at or after the
Daily Deadline (as such terms are defined below under "Description of the
Notes--Definitions"), the Exchange Amount will be based upon the Closing Price
per share of AIG Common Stock on the Trading Day immediately following such
Exchange Notice Date. Such Closing Price could be lower than the Closing Price
on the Exchange Notice Date, as a result of which a holder of a Note will be
entitled to receive on the Exchange Payment Date an Exchange Amount which is
less than the amount which would have been received had the Exchange Notice been
given prior to the Daily Deadline on such Exchange Notice Date. No Exchange
Notice may be given after the Daily Deadline on the Final Exchange Notice Date.
See "Description of the Notes--Exchange Notice".
In addition, as described below under "Description of the Notes--Exchange
Amount", the Exchange Amount payable on any Exchange Payment Date will equal the
greater of the "Exchange Value" and the "Discounted Amount", which may in each
case represent an amount less than the Principal Amount of the Notes.
VALIDITY OF AN EXCHANGE NOTICE
To be valid an Exchange Notice in the form attached as Appendix I must be
given precisely as required, and must be given through the facilities of the
Depositary by the beneficial owner of the Notes to be exchanged. Exchange
Notices must be given to the Calculation Agent which will provide copies to AIG
and to the Trustee. Exchange Notices which do not conform to the requirements of
the form of Exchange Notice attached hereto as Appendix I or which are delivered
after the Daily Deadline on the Final Exchange Notice Date (each as defined
below) will not be valid. Accordingly, once the Notes have been called for
redemption, an Exchange Notice may not be given. Any question as to the validity
of an Exchange Notice will be determined by the Calculation Agent in its sole
discretion. See "Description of the Notes--Exchange Notice". Copies of the
Calculation Agency Agreement are available upon request from the Calculation
Agent.
RELATIONSHIP OF NOTES AND AIG COMMON STOCK; HEDGING ARRANGEMENTS
The Notes are exchangeable solely for cash and are payable in cash at
maturity or upon redemption or exchange and do not represent any right to
receive any AIG Common Stock
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<PAGE> 8
or other securities. The price of AIG Common Stock serves solely as an index
used to determine the Exchange Amount, the Redemption Amount or the Maturity
Amount applicable to the Notes, in each case as described in this Pricing
Supplement.
The market price of the Notes may be affected by a variety of factors,
including, without limitation, possible changes in interest rates. In
particular, the market price of the Notes can be expected to be affected
primarily by changes in the price of AIG Common Stock. Certain historical price
information for AIG Common Stock is indicated below under "AIG Historical
Information". As the Exchange Amount, Redemption Amount and Maturity Amount will
in each case be calculated by reference to the Closing Prices of AIG Common
Stock, the Exchange Amount, Redemption Amount and Maturity Amount of the Notes
can be expected to be adversely affected by volatility in the price of AIG
Common Stock.
AIG has entered into hedging arrangements with Union Bank of Switzerland,
London Branch ("UBS"), an affiliate of the Underwriter, in connection with AIG's
obligations under the Notes. In connection therewith, the Underwriter on behalf
of UBS has purchased shares of AIG Common Stock and may purchase or enter into
transactions with respect to AIG Common Stock or other securities of AIG or
listed or over-the-counter options on AIG Common Stock, in secondary market
transactions at or before the time of the pricing of the Notes, and is likely to
sell shares of AIG Common Stock or such other securities or options or liquidate
any related hedge positions at or about the time the Closing Price is determined
for purposes of calculating the Exchange Amount, Redemption Amount or Maturity
Amount. UBS, directly or through its affiliates, is likely to modify its hedge
position throughout the life of the Notes by purchasing and selling shares of
AIG Common Stock or such other securities or options. As in the past, AIG
intends to continue its practice of acquiring AIG Common Stock to satisfy its
obligations under various employee benefit plans and for other purposes.
Therefore, AIG expects to enter into transactions relating to such practice
during the term of the Notes. The effect, if any, of such arrangements and
activities on the market price of AIG Common Stock or the Notes will depend in
part upon market conditions and cannot be ascertained at this time, but any of
these activities could affect the value of the AIG Common Stock and could affect
the value of the Notes, the Exchange Amount payable on the Exchange Payment
Date, the Maturity Amount payable on the Delisting Date or the Maturity Date
and/or the Redemption Amount payable on the Redemption Date.
In addition, during the life of the Notes, the Underwriter and its
affiliates may engage in trading in AIG Common Stock for their proprietary
accounts, for other accounts under their management and to facilitate
transactions (including block transactions) on behalf of customers. The
Underwriter and its affiliates may also issue or underwrite other securities or
financial instruments with returns indexed to changes in the value of the AIG
Common Stock. Such trading, issuance or underwriting could affect the value of
AIG Common Stock and the Notes.
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<PAGE> 9
To the extent that AIG or one or more of its subsidiaries has a position in
arrangements related to AIG Common Stock or AIG continues its past practice of
acquiring AIG Common Stock, AIG or one or more of its subsidiaries may reduce a
portion of these arrangements or AIG may acquire AIG Common Stock at or about
the time that the Exchange Amount, Redemption Amount or Maturity Amount on the
Notes is being determined. Depending on, among other things, future market
conditions, the aggregate amount and the composition of such positions and the
aggregate amount of any such acquisitions are likely to vary over time. The
effect, if any, on the market price of AIG Common Stock of such activities
cannot be ascertained at this time.
It is impossible to predict whether the price of AIG Common Stock will rise
or fall. Trading prices of AIG Common Stock will be influenced by AIG's
financial results and prospects and by complex and interrelated political,
macro-economic, financial and other factors that affect capital markets
generally, as well as the market segment of which AIG Common Stock is a part.
POSSIBLE ILLIQUIDITY OF NOTES; SECONDARY TRADING IN THE NOTES
It is not possible to predict whether a secondary market for the Notes will
develop or how the Notes will trade in any market that does develop. UBS
Securities LLC intends, but is not obligated, to make a market in the Notes. The
spread between bid and asked prices for Notes in any such market may be
different than the spread between bid and asked prices for AIG Common Stock.
DILUTION
The Closing Prices of AIG Common Stock used to calculate the Exchange
Amount payable on the Exchange Payment Date, the Maturity Amount payable on the
Delisting Date or the Maturity Date and the Redemption Amount payable on the
Redemption Date are subject to adjustment for certain events arising from stock
splits and combinations, stock dividends, extraordinary cash dividends and
certain other events that affect AIG's capital structure. See "Description of
the Notes--Anti-Dilution Adjustments" below. Such Closing Prices will not be
adjusted for other events, such as offerings of AIG Common Stock for cash or
other consideration or an issuer tender or exchange offer for some but not all
of the shares of AIG Common Stock outstanding at such time at a premium to the
then current market price, that may adversely affect the price of AIG Common
Stock and, therefore, adversely affect the trading price of the Notes. There can
be no assurance that AIG will not make offerings of AIG Common Stock in the
future or effect an issuer tender or exchange offer or take any other action
which adversely affects the value of the Notes but does not result in an
anti-dilution adjustment.
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<PAGE> 10
DESCRIPTION OF THE NOTES
DEFINITIONS
"AIG Common Stock" means the common stock, par value $2.50 per share,
of AIG.
"Business Day" means any day that is not a Saturday, a Sunday or a day
on which the New York Stock Exchange, Inc. ("NYSE") (or, if different, the
principal securities exchange or national market system on which AIG Common
Stock is then listed) or banking institutions or trust companies in The City of
New York are authorized or obligated by law or executive order to close.
"Calculation Agency Agreement" means the Calculation Agency Agreement
dated as of , 1997 between AIG, the Calculation Agent, and The Bank
of New York, as Floating Rate Calculation Agent.
"Calculation Agent" means UBS Securities LLC.
"Closing Price" means, with respect to any security on any date, the
closing sale price or last reported sale price for the security on the principal
national securities exchange on which such security is listed for trading on
such date or, in the event such security is not listed on any national
securities exchange, on the National Market System of the NASD on any such date
or, in the event such security is not quoted through the National Market System
of the NASD on any such date, on such other U.S. national market system that is
the primary market for the trading of such security, subject to adjustment as
described under "Anti-Dilution Adjustments".
"Daily Deadline" means, for any date, 12:00 noon New York City time on
such date.
"Delisting Date" means the first date on which the AIG Common Stock is
not listed on any U.S. national securities exchange or U.S. national market
system subject to last sale reporting or is permanently suspended from trading
(within the meaning of the Exchange Act, and the rules and regulations
thereunder) on each such securities exchange and market system on which it is
then listed, other than as a result of a Reorganization Event. AIG will promptly
notify each holder (if it is a DTC participant, or the DTC participant on whose
books such Note is carried if the holder is not a DTC participant) of the
occurrence of a Delisting Date.
"Discounted Amount" means, with respect to a Note, the present value, as
determined by the Calculation Agent, of the Principal Amount of such Note
payable at the Maturity Date discounted to the Exchange Notice Date on a
semi-annual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Funding Rate.
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<PAGE> 11
"Exchange Rate" means, with respect to any Note, shares of AIG Common
Stock per $100,000 Principal Amount.
"Funding Rate" means, for any Exchange Notice Date, a rate determined by
the Calculation Agent equal to the arithmetic mean of the implied discount rates
determined from the bid side quotations received by approximately 4:00 p.m. New
York time on such date from three independent dealers for fixed income corporate
debt selected by the Calculation Agent for a hypothetical zero coupon unsecured
and unsubordinated debt security issued by AIG in a principal amount equal to
the original amount of the Notes and having a term equal to the term from and
including the relevant Exchange Notice Date to but excluding the Stated Maturity
Date of the Notes. If at least two quotations are provided, then the rate will
be the arithmetic mean of the quotations provided. If fewer than two quotations
are provided, then the rate shall be determined by the Calculation Agent acting
in good faith in a commercially reasonable manner.
"Original Issue Date" means , 1997.
"Trading Day" means, with respect to any security, a Business Day on which
the security (A) is not suspended from trading on any U.S. national securities
exchange or U.S. national market system during the last half hour of scheduled
trading on such Business Day and (B) has traded at least once during the last
half hour of scheduled trading on such Business Day on the U.S. national
securities exchange or U.S. national market system that is the primary market
for the trading of such security.
CALCULATION AGENT
All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, shall
be conclusive for all purposes and binding on AIG and the holders of Notes, and
the Calculation Agent shall have no liability therefor. All results of any
calculation of the Exchange Amount, the Redemption Amount or the Maturity Amount
will be rounded, if necessary, to the nearest one-one-hundred-thousandth of a
percent (with five one-millionths of a percentage point being rounded downward).
MATURITY AMOUNT
The Notes will mature on the Stated Maturity Date, subject to extension as
hereinafter described (such date of maturity as it may be extended is herein
referred to as the "Maturity Date"). In the event that any of the five
successive Business Days ending on the second Business Day prior to the Stated
Maturity Date is not a Trading Day (a "Non-Trading Day"), the date of maturity
will be extended one Trading Day for each such Non-Trading Day; provided,
however, that in no event will the Maturity Date be later than August , 2004.
The Notes will continue to accrue interest until the Principal Amount of the
Notes is
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<PAGE> 12
paid at maturity, which, in the event that the maturity of the Notes is extended
as a result of a Non-Trading Day, will be payable to the holders of Notes on the
Maturity Date; provided, that no accrued interest shall be paid on a Note if the
Maturity Amount is calculated in accordance with clause (B) of the definition of
Maturity Amount in the next succeeding paragraph. The Calculation Agent shall
notify each holder of a Note through the facilities of the Depositary of such
extension of the date of maturity.
On the Maturity Date, the holder of a Note that has not previously given an
Exchange Notice as discussed below under "Exchange Notice" will be entitled to
receive an amount (the "Maturity Amount") equal to the greater of (A) the
Principal Amount of such Note (together with the accrued and unpaid interest
thereon, if any) and (B) the product of the Exchange Rate and the average
Closing Price per share of AIG Common Stock for the five Trading Days ending on
the second Business Day immediately prior to the Maturity Date (the "Averaging
Period").
Notwithstanding anything to the contrary contained in this Pricing
Supplement, in no event will the Maturity Amount payable on the Maturity Date
with respect to a Note be less than the Principal Amount of such Note.
DELISTING OF AIG COMMON STOCK
If not previously repaid, the Notes will mature on the Business Day
immediately preceding any Delisting Date. The amount to which the holder of a
Note will be entitled if a Delisting Date occurs shall be calculated as
described under "Description of the Notes--Maturity Amount", above, with the
Delisting Date substituted for the Maturity Date. Notice of any Delisting Date
will be given through the facilities of the Depositary by the Calculation Agent.
Any questions relating to the occurrence of a Delisting Date will be resolved by
the Calculation Agent in its sole discretion.
INTEREST
Interest will accrue on the Principal Amount of the Notes at the rate per
annum specified above from and including the Original Issue Date to but
excluding the Maturity Date, Delisting Date or Redemption Date, as the case may
be; provided, however, that, if any Note is exchanged into the Exchange Amount,
no interest shall be deemed to have accrued on such Note from the Interest
Payment Date immediately preceding the Exchange Payment Date to the Exchange
Payment Date, and provided, further, that if the Maturity Amount or Redemption
Amount is calculated in accordance with clause (B) of the definitions thereof,
no interest shall be deemed to have accrued and no interest shall be paid on
such Note from the Interest Payment Date immediately preceding the Maturity
Date, Delisting Date or Redemption Date, as applicable, to such date. Interest
on the Notes will be payable semiannually on January and July in
each year and on the Maturity Date, Delisting Date
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<PAGE> 13
or Redemption Date, commencing on January , 1998, or if any such day is not a
Business Day, the next succeeding Business Day (each, an "Interest Payment
Date").
EXCHANGE NOTICE
Notes may be exchanged into the Exchange Amount (calculated in the manner
set forth below) at the option of the holder thereof as follows: On any Trading
Day (each such Trading Day being an "Exchange Notice Date") on or prior to the
Trading Day prior to the first day of an Averaging Period and prior to the date
on which the Notes have been called for redemption (the "Final Exchange Notice
Date"), the holder of a Note (if it is a DTC participant, or the DTC participant
on whose books such Note is carried if the holder is not a DTC participant) may
give notice to the Calculation Agent, who will provide copies to AIG and the
Trustee, in writing (by hand c/o UBS Securities LLC, 299 Park Avenue, New York,
New York or by facsimile at (212) 223-2815, in each case c/o Gale Herzing) in
the form attached hereto as Appendix I, that such holder elects to exchange such
Note or a specified portion thereof for the Exchange Amount. Notes may only be
exchanged in a minimum amount of $100,000 and integral multiples of $10,000 in
excess thereof. No Exchange Notice will be accepted after the Daily Deadline on
the Final Exchange Notice Date. Accordingly, once the Notes have been called for
redemption, an Exchange Notice may not be given. The Calculation Agent will
provide any holder of a Note, through the facilities of the Depositary, with
information about the current delivery requirements for Exchange Notices upon
request. If the delivery instructions for an Exchange Notice are changed, the
Calculation Agent will notify each holder of a Note, through the facilities of
the Depositary, of such revised delivery instructions. Exchange Notices must be
given by facsimile or by hand delivery to the precise facsimile number or
individuals specified by the Calculation Agent and should be confirmed by
telephone. Once given, an Exchange Notice may not be withdrawn or revoked
without the consent of the Calculation Agent. Any question as to the validity of
an Exchange Notice or as to whether such notice has been properly and timely
given will be resolved by the Calculation Agent in its sole discretion. Copies
of the Calculation Agency Agreement are available upon request from the
Calculation Agent.
BOOK-ENTRY NOTES
Beneficial interests in the global securities will be shown on, and
transfers thereof will be effected only through, records maintained by DTC and
its participants (including the Euroclear System ("Euroclear") and Cedel Bank,
societe anonyme ("Cedel")). Holders of the Notes who hold through Cedel or
Euroclear should consult with their custodians and/or with Cedel or Euroclear to
determine the mechanics of timely exchange notices.
EXCHANGE AMOUNT
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<PAGE> 14
On the Exchange Payment Date, as defined below, the holder of a Note will
be entitled to receive an amount (the "Exchange Amount") equal to the greater of
(A) the Exchange Value, as defined below and (B) the Discounted Amount, as
defined below. The "Exchange Value" will be determined as follows: (1) if the
Exchange Notice is received before the Daily Deadline on any Exchange Notice
Date, the Exchange Value will be equal to the product of the Exchange Rate and
the Closing Price per share of AIG Common Stock on such Exchange Notice Date;
and (2) if the Exchange Notice is received at or after the Daily Deadline on any
Exchange Notice Date, the Exchange Value will be equal to the product of the
Exchange Rate and the Closing Price per share of AIG Common Stock on the Trading
Day immediately following such Exchange Notice Date. An Exchange Notice may not
be given after the Daily Deadline on the Final Exchange Notice Date.
On the third Business Day following the applicable Exchange Notice Date
(the "Exchange Payment Date"), the holder of a Note will be entitled to receive
the Exchange Amount solely in cash. If a valid Exchange Notice has not been
received before the Daily Deadline on the Final Exchange Notice Date, the holder
will be entitled to receive the Maturity Amount on the Maturity Date.
REDEMPTION BY AIG
The Notes are redeemable, at the option of AIG as a whole but not in part,
on any date on or after July , 2000 (the "Redemption Date") at the
Redemption Amount.
In the event that AIG exercises its option to redeem the Notes, AIG will
give written notice through DTC to the holders of the Notes not less than 15
days nor more than 30 days prior to the Redemption Date. All notices of
redemption will be made in the name, and at the expense, of AIG. Once the Notes
have been called for redemption, an Exchange Notice may not be given.
Notwithstanding anything to the contrary contained in this Pricing
Supplement, in no event will the Redemption Amount payable on the Redemption
Date with respect to a Note be less than the Principal Amount of such Note.
ANTI-DILUTION ADJUSTMENTS
The Closing Price of AIG Common Stock on any of the Trading Days used to
calculate the Exchange Amount, Redemption Amount or Maturity Amount shall be
subject to adjustment by the Calculation Agent as described below to the extent
that any of the events requiring such adjustment occurs during the period
commencing on the date of this Pricing Supplement and ending on such Trading
Day. All determinations made by the Calculation Agent shall be at the sole
discretion of the Calculation Agent and, in the absence of manifest error, shall
be conclusive for all purposes and binding on AIG and the holders of Notes, and
the Calculation Agent shall have no liability therefor.
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<PAGE> 15
AIG COMMON STOCK DIVIDENDS AND EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS
In the event that a dividend or other distribution is declared (i) on any
class of AIG capital stock, payable in shares of AIG Common Stock, (ii) on AIG
Common Stock payable in cash in an amount greater than 10% of the Closing Price
of AIG Common Stock on the date fixed for the determination of the shareholders
of AIG entitled to receive such cash dividend (an "Extraordinary Cash
Dividend"), or (iii) on AIG Common Stock of evidences of indebtedness or assets
(including securities, but excluding any dividend or distribution covered by
clause (i) or any AIG Spin-Off described under "--Dissolution of AIG; Mergers,
Consolidations or Sales of Assets; Spin-Offs" below) (an "Extraordinary
Distribution"), any Closing Price of AIG Common Stock used to calculate the
Exchange Amount, the Redemption Amount or the Maturity Amount on any Trading Day
that follows the date (the "AIG Record Date") fixed for the determination of the
shareholders of AIG entitled to receive such dividend or other distribution
shall be increased by multiplying such Closing Price by a fraction of which the
numerator shall be the number of shares of AIG Common Stock outstanding on the
AIG Record Date plus the number of shares constituting such distribution or, in
the case of any Extraordinary Cash Dividend or an Extraordinary Distribution,
plus the number of shares of AIG Common Stock that could be purchased with the
amount of such Extraordinary Cash Dividend or the fair market value (as
determined by the Calculation Agent whose determination shall be conclusive and
binding) of the evidences of indebtedness or assets constituting such
Extraordinary Distribution at the Closing Price on the Trading Day immediately
subsequent to such AIG Record Date, and the denominator shall be the number of
shares of AIG Common Stock outstanding on the AIG Record Date.
SUBDIVISIONS AND COMBINATIONS OF AIG COMMON STOCK
In the event that the outstanding shares of AIG Common Stock are subdivided
into a greater number of shares, the Closing Price of AIG Common Stock used to
calculate the Exchange Amount, the Redemption Amount or the Maturity Amount on
any Trading Day that follows the date on which such subdivision becomes
effective will be proportionately increased, and, conversely, in the event that
the outstanding shares of AIG Common Stock are combined into a smaller number of
shares, such Closing Price of AIG Common Stock will be proportionately reduced.
RECLASSIFICATIONS OF AIG COMMON STOCK
In the event that AIG Common Stock is changed into the same or a different
number of shares of any class or classes of stock, whether by capital
reorganization, reclassification or otherwise (except to the extent otherwise
provided under "--AIG Common Stock Dividends and Extraordinary Dividends and
Distributions" and "--Subdivisions and Combinations of AIG Common Stock" above
or pursuant to a Reorganization Event described under "--Dissolution of AIG;
Mergers, Consolidations or Sales of Assets; Spin-
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<PAGE> 16
offs" below), the Exchange Amount, Redemption Amount or Maturity Amount will be
calculated by using the aggregate Closing Prices of the shares of stock into
which a share of AIG Common Stock was changed on any Trading Day that follows
the effectiveness of such change.
As a result of the foregoing provisions, in the case of a reorganization or
reclassification of AIG Common Stock, the Closing Prices of one or more
securities in addition to or in substitution for AIG Common Stock may be used to
calculate the Exchange Amount, Redemption Amount or Maturity Amount. For
example, if AIG Common Stock was reclassified into one share of AIG Class A
Common Stock and one share of AIG Class B Common Stock, the Exchange Amount,
Redemption Amount or Maturity Amount would be calculated by reference to the
Closing Prices of AIG Class A Common Stock and AIG Class B Common Stock.
DISSOLUTION OF AIG; MERGERS, CONSOLIDATIONS OR SALES OF ASSETS; SPIN-OFFS.
In the event of any (i) consolidation or merger of AIG with or into another
entity (other than a consolidation or merger that does not result in a
reclassification, conversion, exchange or cancellation of outstanding AIG Common
Stock), (ii) sale, transfer, lease or conveyance of all or substantially all of
the assets of AIG, (iii) liquidation, dissolution or winding up of AIG, or (iv)
any declaration of a distribution on AIG Common Stock of the common stock of any
subsidiary of AIG (an "AIG Spin-Off") (any of the events described in (i), (ii),
(iii) or (iv), a "Reorganization Event"), for purposes of determining the
Maturity Amount, Redemption Amount or Exchange Amount, the Closing Price of AIG
Common Stock on any Trading Day subsequent to, in the case of a Reorganization
Event other than an AIG Spin-Off, the effective time of such Reorganization
Event or, in the case of a AIG Spin-Off, the record date fixed for the
determination of the shareholders of AIG entitled to receive the securities
distributed in such AIG Spin-Off (the "Spin-Off Record Date") will be deemed to
be the amount equal to (1) the value of the cash and other property (including
securities) received by a holder of a share of AIG Common Stock (assuming such
holder of AIG Common Stock failed to exercise any rights of election and
received per share the kind and amount received by a plurality of non-electing
shares) in any such Reorganization Event (plus, in the case of an AIG Spin-Off,
the value of a share of AIG Common Stock), and (2) to the extent that such
holder obtains securities in any Reorganization Event, the value of the cash and
other property received by the holder of such securities in any subsequent
Reorganization Event. For purposes of determining any such Closing Prices, the
value of (i) any cash and other property (other than securities) received in any
such Reorganization Event will be an amount equal to the value of such cash and
other property at the effective time of such Reorganization Event (as determined
by the Calculation Agent whose determination shall be conclusive and binding),
and (ii) any property consisting of securities received in any such
Reorganization Event will be an amount equal to the Closing Prices of such
securities on any Trading Day following, in the
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<PAGE> 17
case of a Reorganization Event other than an AIG Spin-Off, the effective time of
such Reorganization Event or, in the case of an AIG Spin-Off, the Spin-Off
Record Date.
As a result of the foregoing provisions, in the case of certain
Reorganization Events, the Closing Prices of the securities of a successor
entity to AIG or the Closing Prices of the securities of another issuer,
including, for example, in the case of an AIG Spin-Off, the Closing Prices of
the distributed security, may determine the Exchange Amount, Redemption Amount
or the Maturity Amount. For example, in the case of a stock for stock merger in
which AIG does not survive, the Maturity Amount payable on the Maturity Date or
the Delisting Date, the Redemption Amount payable on the Redemption Date or the
Exchange Amount would be calculated by reference to the Closing Price of a
successor entity to AIG on the relevant Trading Days.
If any action would require adjustment of the Closing Price pursuant to
more than one of the foregoing provisions an adjustment shall be made that would
replicate the net aggregate economic effect of such action. No adjustment in the
Closing Price shall be required unless such adjustment would require an increase
or decrease of at least 1% of the Closing Price, but any adjustment that would
otherwise be required to be made shall be carried forward and taken into account
in any subsequent adjustment.
The Calculation Agent will promptly notify each holder through the
facilities of the Depositary of any event requiring an adjustment and of the
method of calculation to be used to make any dilution adjustment as described
above.
HISTORICAL INFORMATION
AIG Common Stock is traded on the NYSE under the symbol "AIG". The
following table sets forth the quarterly high and low closing prices for AIG
Common Stock for the four calendar quarters in 1993 through 1996 and for the
first and second quarters of 1997, for the third quarter of 1997 through July
25, 1997 and the closing price at July , 1997, adjusted for stock dividends and
stock splits, all as reported by the NYSE. The historical prices of AIG Common
Stock should not be taken as an indication of future performance. No assurance
can be given that the prices of AIG Common Stock will remain at a level which
will result in the Exchange Amount, the Redemption Amount or the Maturity Amount
exceeding the Principal Amount. See "Risk Factors--Payment upon Exchange".
<TABLE>
<CAPTION>
HIGH LOW
($) ($)
--- ---
<S> <C> <C>
1993
First Quarter 37.83 33.33
</TABLE>
-17-
<PAGE> 18
<TABLE>
<CAPTION>
<S> <C> <C>
Second Quarter 39.11 35.19
Third Quarter 44.44 38.00
Fourth Quarter 43.50 37.17
1994
First Quarter 41.17 36.67
Second Quarter 42.89 37.33
Third Quarter 42.61 39.17
Fourth Quarter 44.33 38.94
1995
First Quarter 47.83 43.11
Second Quarter 52.83 45.94
Third Quarter 57.67 47.78
Fourth Quarter 63.25 55.08
1996
First Quarter 68.50 59.58
Second Quarter 65.75 58.75
Third Quarter 67.25 60.08
Fourth Quarter 76.75 67.67
1997
First Quarter 85.33 71.67
Second Quarter 100.17 76.00
Third Quarter 104.33 98.83
(through July 25 )
Closing price on July ,1997
</TABLE>
Historically, AIG has paid quarterly cash dividends on AIG Common Stock.
AIG makes no representation as to the amount of dividends, if any, that AIG may
pay in the future. In any event, holders of the Notes will not be entitled to
receive any dividends that may be payable by AIG with respect to AIG Common
Stock.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The discussion below supplements, and to the extent inconsistent therewith,
replaces the discussion under "United States Taxation" in the Prospectus
Supplement dated June 11, 1996 (the "Prospectus Supplement").
Although the amounts to be received under the Notes are contingent upon the
value of AIG Common Stock, the Notes will not be subject to the general rules
governing
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<PAGE> 19
contingent payment obligations because such rules do not apply to debt
instruments (such as the Notes) that provide for an option to convert the debt
instrument into cash in an amount equal to the approximate value of the stock of
the issuer. Therefore, a United States Holder (as defined in the Prospectus
Supplement) should include interest payments in income at the time it is
received or accrued, depending upon the holder's method of accounting for tax
purposes, and any amounts received upon the sale or retirement of the Notes
should be treated in the manner described in the Prospectus Supplement under
"Purchase, Sale, and Retirement of the Series E Notes". United States Holders
and United States Alien Holders (as defined in the Prospectus Supplement) should
refer to the Prospectus Supplement for additional United States federal income
tax consequences of ownership of the Notes.
PLAN OF DISTRIBUTION
Under the terms and subject to the conditions contained in the Terms
Agreement, dated , 1997, AIG has agreed to sell, and UBS
Securities LLC (the "Underwriter") has agreed to purchase, the Notes. In the
Terms Agreement, the Underwriter has agreed, subject to the terms and conditions
set forth therein, to purchase all the Notes offered hereby if any Notes are
purchased. AIG has granted to the Underwriter an option, exercisable within 30
days after the date of this Pricing Supplement, to purchase up to $22,500,000
additional Principal Amount of Notes at the public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Pricing Supplement. Such option may be exercised only to cover
over-allotments in the sale of the Notes.
The Terms Agreement provides that AIG will indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act of
1933, as amended, or contribute to payments the Underwriter may be required to
make in respect thereof.
The Underwriter and its affiliates may be customers of, engage in
transactions with, and perform services for, AIG and its subsidiaries in the
ordinary course of business.
The Notes are a new issue of securities with no established trading market.
AIG has been advised by the Underwriter that it intends to act as a market maker
for the Notes. However, the Underwriter is not obligated to do so and may
discontinue any market making at any time without notice. No assurance can be
given as to the liquidity of the trading market for the Notes. The Notes will
not be listed on any stock exchange.
In connection with the offering, the Underwriter may engage in transactions
that stabilize, maintain or otherwise affect the price of the Notes or AIG
Common Stock. Specifically, the Underwriter may overallot the offering, creating
a short position. In addition, the Underwriter may bid for, and purchase, the
Notes or AIG Common Stock in the open market to cover short positions or to
stabilize the price of the Notes or AIG Common Stock. Any of these activities
may stabilize or maintain the market price of the Notes or AIG
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<PAGE> 20
Common Stock above prices that may otherwise prevail in the market. The
Underwriter is not required to engage in these activities, and may end any such
activities at any time.
AIG has entered into hedging arrangements with UBS in connection with AIG's
obligations under the Notes. In connection therewith, the Underwriter on behalf
of UBS has purchased shares of AIG Common Stock and may purchase or enter into
transactions with respect to AIG Common Stock or other securities of AIG or
listed or over-the-counter options on AIG Common Stock, in secondary market
transactions at or before the time of the pricing of the Notes, and is likely to
sell shares of AIG Common Stock or such other securities or options or liquidate
any related hedge positions at or about the time the Closing Price is determined
for purposes of calculating the Exchange Amount, Redemption Amount or Maturity
Amount. UBS, directly or through its affiliates, is likely to modify its hedge
position throughout the life of the Notes by purchasing and selling shares of
AIG Common Stock or such other securities or options. The effect, if any, of
such arrangements and activities on the market price of AIG Common Stock or the
Notes will depend in part upon market conditions and cannot be ascertained at
this time, but any of these activities could affect the value of AIG Common
Stock and could affect the value of the Notes, the Exchange Amount payable on
the Exchange Payment Date, the Maturity Amount payable on the Delisting Date or
the Maturity Date and/or the Redemption Amount payable on the Redemption Date.
The Underwriter and its affiliates may engage in trading in AIG Common
Stock for their proprietary accounts, for other accounts under their management
and to facilitate transactions (including block transactions) on behalf of
customers. The Underwriter and its affiliates may also issue or underwrite other
securities or financial instruments with returns indexed to changes in the value
of AIG Common Stock. Such trading, issuance or underwriting could affect the
value of the Notes.
Amounts payable by AIG as underwriting discounts and commissions and in
connection with the foregoing hedging arrangements are comparable to what AIG
would pay were it to pay underwriting discounts and commissions, and to enter
into hedging arrangements, with separate, independent third parties.
RELATIONSHIP WITH UBS
In the ordinary course of its business, UBS Securities LLC and its
affiliates have engaged, and may in the future engage, in investment banking and
commercial banking transactions with AIG and its subsidiaries and provide other
financial services to AIG and its subsidiaries.
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<PAGE> 21
APPENDIX I
EXCHANGE NOTICE
The undersigned holder of _____% Cash Exchangeable Equity-Linked Notes
due July , 2004 of American International Group, Inc. (CUSIP Number _____)
(the "Notes") hereby gives notice to UBS Securities LLC, as Calculation Agent,
of such holder's intention to exchange the Principal Amount of Notes (or portion
thereof) set forth below for the cash Exchange Amount thereof.
This Exchange Notice is given subject to the provisions of the Pricing
Supplement dated July , 1997. Once given, this Exchange Notice may not be
withdrawn or revoked without the consent of the Calculation Agent.
Name of Holder (must be a DTC participant): ________________________
Principal Amount to be Exchanged:_______________________
Date of Exchange Notice:________________________________
By:_______________________________
Authorized Signature
All Exchange Notices shall be given as follows:
By hand: c/o UBS Securities LLC
299 Park Avenue
New York, New York
Attention: Gale Herzing
Doreen Marino-Pelkonen
or by facsimile at: (212) 223-2815
Attention: Gale Herzing
Doreen Marino-Pelkonen
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