Tax Asset Protection Plan


  • 1. What is the Tax Asset Protection Plan?
  • AIG’s Tax Asset Protection Plan (the “Plan”), adopted on March 9, 2011, is designed to protect the long-term value of AIG’s accumulated tax attributes – and to protect shareholder value related to this asset – by deterring an “ownership change” as defined by the Internal Revenue Code.
    • As part of the Plan, the AIG Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of AIG common stock, par value $2.50 per share. The Rights were distributed to shareholders of record as of March 18, 2011 and to holders of AIG common stock issued after that date.
    • The Board of Directors believes AIG’s ability to use its tax attributes may be significantly limited if AIG were to experience an “ownership change” as defined under Section 382 of the Internal Revenue Code and related Internal Revenue Service pronouncements. In general, an ownership change will occur when the percentage of AIG's ownership (by value) of one or more “5-percent shareholders” (as defined in the Internal Revenue Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis).
    • The Plan originally had a three year term but on January 8, 2014, the AIG Board of Directors adopted Amendment No. 1 to the Plan which extends the expiration date of the Plan to January 8, 2017 (subject to other earlier termination events as described in the Plan). The Plan may be further extended so long as the extension is submitted to AIG’s shareholders at the next succeeding annual meeting.
    • Although shareholder approval was not required, the Plan was submitted to shareholders for ratification at the 2011 Annual Meeting, and was ratified, and Amendment No. 1 to the Plan was submitted to shareholders for ratification at the 2014 Annual Meeting, and was ratified.
    • The Plan operates by voiding the Rights of any person acquiring shares resulting in ownership of 4.99 percent or more of AIG common stock and making all other Rights either exercisable for shares of AIG common stock at half price or exchangeable for one free share of AIG common stock.
  • 2. What was the proposed amendment to the AIG Charter?
  • In addition to the Tax Asset Protection Plan, AIG sought approval for the adoption of an amendment to AIG’s charter (the “Charter Amendment”), which would similarly help protect the benefits of the tax attributes.
    • Under the Charter Amendment, if a prohibited transfer occurs (which is the same transfer that would cause Rights to be voided under the Plan), the transfer is voided, and any excess shares of AIG common stock in excess of the limitation are sold, with any profits going to charity.
    • The Charter Amendment required shareholder approval, and was submitted to shareholders for approval at the 2011 Annual Meeting, and was approved.  The Charter Amendment was originally set to expire by its terms on the third anniversary of the 2011 Annual Meeting.
    • A further amendment to AIG’s charter (the “2014 Amendment”) that contains substantially the same terms as the Charter Amendment but expires on the close of business on the third anniversary of the 2014 Annual Meeting required shareholder approval, and was submitted to shareholders for approval at the 2014 Annual Meeting, and was approved.
    • As a result of the 2014 Amendment, the Charter Amendment expires on the close of business on the third anniversary of the 2014 Annual Meeting. 
  • 3. Why does AIG need both the Charter Amendment and the Tax Asset Protection Plan?
  • After careful consideration, the Board of Directors believes the combination of the Charter Amendment and the Tax Asset Protection Plan is the most effective way to protect the benefits of the tax attributes for long-term shareholder value. The Plan deters but doesn’t prevent transfers and the Charter Amendment prevents transfers. At the same time, the Plan applies to all shares of AIG common stock, but shares of AIG common stock that do not vote for the Charter Amendment are not bound by the transfer restriction.
  • 4. How would it work with both in place?
  • It is anticipated that because the Charter Amendment would cause the transfer never to have occurred, there would be no need for the Plan to operate.
  • 5. What happens if the tax attributes are not at risk?
  • The Plan and the Charter Amendment both contemplate termination by the Board of Directors when it is determined that they are no longer necessary.
  • 6. Was a shareholder vote required?
  • The Plan does not require shareholder approval. However, at the 2011 Annual Meeting of Shareholders, AIG asked shareholders to ratify the adoption of the Plan. AIG considered this proposal for shareholders to ratify the adoption of the Plan to be an important opportunity for AIG’s shareholders to provide direct feedback on an important issue of corporate governance. If the Plan had not been ratified by AIG’s shareholders, the Board of Directors would have considered whether or not to terminate the Plan. But, because the Board of Directors owed fiduciary duties to all shareholders, it had to make an independent decision in the exercise of its fiduciary duties whether it was in the best interests of AIG and all of its shareholders to terminate the Plan, and did not rely solely on the shareholder vote in making this decision. Amendment No. 1 to the Plan was also submitted to shareholders for ratification at the 2014 Annual Meeting for the same reasons stated above but shareholder approval was not required. The Charter Amendment and 2014 Amendment, on the other hand, required approval by shareholders.
  • 7. Why do these provisions become operative upon a 4.99 percent or more ownership threshold?
  • An “ownership change,” as defined under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), and related Internal Revenue Service pronouncements will occur when the percentage of AIG's ownership (by value) of one or more “5-percent shareholders” (as defined in the Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis). The 4.99 percent threshold is set to avoid the creation of 5-percent shareholders.
  • 8. How large are AIG’s tax attributes?
  • As of December 31, 2010, AIG had a U.S. federal net operating loss carryforward of approximately $32.3 billion, $27.8 billion in capital loss carryforwards and $4.6 billion in foreign tax credits. As of December 31, 2011, AIG had a U.S. federal net operating loss carry forward of approximately $45.3 billion, $21.3 billion in capital loss carryforwards and $4.6 billion in foreign tax credits. As of December 31, 2012, AIG had a U.S. federal net operating loss carryforward of approximately $40.9 billion, $17.3 billion in capital loss carryforwards and $5.5 billion in foreign tax credits. As of December 31, 2013, AIG had a U.S. federal net operating loss carryforward of approximately $34.2 billion, $ 1.1 billion in capital loss carryforwards and $5.8 billion in foreign tax credits.
  • 9. What is the record date?
  • Rights were distributed to holders of record as of March 18, 2011, and are also distributed with respect to shares of AIG common stock issued after that time.
  • 10. Do the Rights expire?
  • The Rights were originally scheduled to expire on March 9, 2014, unless redeemed or earlier terminated by the Board of Directors. On January 8, 2014, the AIG Board of Directors adopted Amendment No, 1 to the Plan, which extends the expiration date of the Rights to January 8, 2017, unless redeemed or earlier terminated by the Board of Directors. The Plan may be further extended so long as the extension is submitted to AIG’s shareholders at the next succeeding annual meeting.
  • 11. Are the Rights subject to an anti-dilution clause?
  • The exercise price and the number of outstanding Rights are subject to adjustment to prevent dilution in the case of a stock dividend, stock split, reclassification of AIG common stock or other event.
  • 12. Do the Rights trade separately?
  • Prior to the Separation Time, the Rights are evidenced by, and trade with AIG’s common stock.
  • 13. What do the Rights entitle the holder to purchase from AIG?
  • Prior to a triggering event, which is unlikely to occur since the Charter Amendment was adopted, each Right entitles its registered holder to purchase from AIG, at or after the Separation Time, one ten-thousandth of a share of Participating Preferred Stock, par value $5.00 per share, for $185.00 (the “Exercise Price”). The Participating Preferred Stock is designed so that each one ten-thousandth of a share has economic and voting terms similar to those of one share of AIG common stock.
  • 14. When can I exercise my Rights?
  • The Rights are not currently exercisable. The rights would become exercisable on or after the Separation Time.
  • 15. What is the Separation Time?
  • The Separation Time is the time when the Right would separate from AIG’s common stock and become exercisable following the earlier of (i) the date designated by resolution of the Board of Directors after any person commences a tender offer that would result in such person becoming the beneficial owner of a total of 4.99 percent or more of AIG Common Stock or (ii) the date of the Flip-in Trigger. Following the Separation Time, AIG would mail Rights Certificates to shareholders and the Rights would trade independent of AIG common stock.
  • 16. What is the Flip-in Trigger?
  • A public announcement by AIG that any non-exempt person has acquired 4.99 percent or more of AIG common stock.
  • 17. Have the Preferred Shares been issued?
  • The Preferred Shares have been authorized but would only be issued if the Rights ever became exercisable and were exercised by a registered holder of the Rights.

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