AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 24, 1998.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
AMERICAN BANKERS INSURANCE GROUP, INC.
(Name of Registrant as Specified in its Charter)
AMERICAN INTERNATIONAL GROUP, INC.
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11:
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which the 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.
[ ] 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
On February 23, 1998, American International Group, Inc. and AIGF, Inc. filed
the following Reply Memorandum In Support of Their Motion for an Emergency
Hearing and for Expedited Discovery in the U.S. District Court for the Southern
District of Florida.
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
AMERICAN INTERNATIONAL GROUP, INC.; Case No. 98-0247-CIV-MOORE
AND AIGF, INC., Magistrate Judge Johnson
CENDANT CORPORATION; and
SEASON ACQUISITION CORP.,
PLAINTIFFS' REPLY MEMORANDUM IN SUPPORT OF THEIR MOTION
FOR AN EMERGENCY HEARING AND FOR EXPEDITED DISCOVERY
Plaintiffs American International Group, Inc. and AIGF, Inc.
(collectively "AIG") submit this reply memorandum in further support of their
Motion for an Emergency Hearing and for Expedited Discovery ("Def. Mem.").
On March 4 and March 6, 1998 -- nine and eleven days from now -- the
shareholders of American Bankers Insurance Group, Inc. ("American Bankers") will
decide whether to vote in favor of a merger (the "AIG Merger") between American
Bankers and AIG. Defendants Cendant Corporation and Season Acquisition Corp.
oppose the AIG Merger, and are actively soliciting American Bankers'
shareholders for proxies to vote against the AIG Merger. Cendant has based its
aggressive proxy campaign on the alleged superiority of Cendant's own offer to
acquire American Bankers, and in so doing has illegally disseminated false and
misleading statements in violation of the federal securities laws.
AIG brought this action to stop Cendant's campaign of
misrepresentations and sought preliminary injunctive relief before the
shareholder meetings. AIG seeks limited expedited discovery sufficiently prior
to the injunction hearing so that it can make its application for injunctive
relief on a full record. As shown below, failure to permit AIG to take limited
discovery on narrow issues prior to an injunction hearing will unduly prejudice
AIG. Moreover, Cendant has
failed to demonstrate that it will be burdened or prejudiced by the extremely
limited and narrow discovery that AIG seeks.
The key issues on which AIG seeks injunctive relief and expedited
- Cendant has touted its stock as a key element of its competing
offer for American Bankers, without filing and circulating to
American Bankers' shareholders a registration statement and
prospectus for its stock. In response to this action and, we
believe, demands of the Staff of the SEC, Cendant filed a
preliminary registration statement late on Friday, February
20. If Cendant promptly circulates that registration statement
to American Bankers' shareholders and if it discloses relevant
and material financial information about Cendant, its plans
for American Bankers, appropriate risk disclosures and
disclosures about the compensation of Mr. Silverman and other
executive officers -- that is, information that American
Bankers' shareholders need to make an informed decision on
March 4 and March 6, then AIG's claims premised on Cendant's
failure to file a registration statement (Amended Complaint
Paragraphs 68-75) are moot.
- Cendant has intentionally failed to disclose to American
Bankers' shareholders that under the laws of five of the six
states in which American Bankers' U.S. insurance subsidiaries
are domiciled --Arizona, Georgia, New York, South Carolina and
Texas -- Cendant cannot hold or vote the proxies it is
soliciting from American Bankers' shareholders if those
proxies represent more than 9.2% of American Bankers' common
shares. Under state law, holding proxies in excess of 10% of a
domestic insurer's voting securities is presumed to be
"control" of any insurer which requires prior regulatory
Although Cendant denigrates AIG's claims, labeling them as "absurd" and
an eleventh hour "concoction,"(1) Cendant has already conceded the correctness
of AIG's Section 5 claim by filing a preliminary registration statement.
Moreover, on February 19, 1998 the office of the Attorney
(1) Just last week, Henry Silverman, President and CEO of Cendant, publicly
admitted the truth of some of the key allegations in AIG's Amended Complaint
(see Amended Complaint, P. 26):
"I was an employee of Reliance. Yes, we issued high-yield bonds through
Drexel as did half the Fortune 500. Basically, what [AIG] says is
true," he said. "Companies where I worked did go into bankruptcy
several years after I left. Is it a stretch to say it has anything to
do with me? No, but so what? . . ."
(See Exhibit A, Henry Silverman interview with National Underwriter, dated
February 16, 1998).
General of the State of Arizona squarely agreed with AIG's position on the proxy
issue and issued an opinion (attached as Exhibit B) confirming that Cendant
cannot hold or vote proxies in excess of 10% of American Bankers' shares without
violating state law:
We believe [Cendant's] proxy solicitation [of American Bankers'
shareholders to vote against the AIG Merger] will constitute an
agreement to acquire control of an insurer, within the meaning of
A.R.S. Sections 20-481(3) and 20-481.02(a), in the event Cendant
obtains proxies which provide it with the power to vote 10% or more of
ABIG's voting stock. At that time, if Cendant's voting power meets or
exceeds the 10% threshold, the proxy solicitation will be deemed to be
an agreement to acquire control of a domestic insurer or a person who
controls a domestic insurer, and the filing and approval of a Form A
from Cendant will be required prior to effectuation of the agreement
(i.e. voting of the proxies).
To the extent of its impact upon the acquisition of control of the
Arizona domiciled subsidiaries of ABIG, there are significant
ramifications for Cendant if the proxy solicitation ultimately
constitutes an agreement and Cendant proceeds to vote the proxies
without Form A approval. The proxies will not be effective as a matter
of law, pursuant to A.R.S. Section 20-481.02(D). The proxies may not be
counted for quorum purposes at the shareholders' meetings nor may they
be voted pursuant to A.R.S. Section 20-481.29(B). The failure to obtain
Form A approval will be deemed a violation of A.R.S. Section 20-481 et.
seq. and will constitute a Class I misdemeanor. A.R.S. Section
20-481.33(1) and 20-481.26(D). Additionally, there are provisions for
injunctive and equitable relief, sequestration of the affected
securities, monetary penalties, and administrative disciplinary action
and special action relief. A.R.S. Sections 20-481.26, 20-481.28,
A. AIG Has Demonstrated "Exceptional Circumstances" Justifying Relief from
the Automatic Stay.
Congress enacted the stay of discovery provisions of the Litigation
Reform Act, 15 U.S.C. Section 78u-4(b)(3)(B), in response to burdensome
discovery sought by plaintiffs in meritless strike suits that had
flooded the court. See Statement of Managers -- The Private Securities
Litigation Reform Act of 1995, 141 Cong. Rec. H13699, H13701, H. Rep.
104-369 at 59. Here, AIG's claims obviously have merit: Cendant has
filed a preliminary registration statement and the office of the
Attorney General of Arizona has stated that Cendant would violate
Arizona law by voting proxies representing more than 10% of American
Bankers' voting securities.
The Litigation Reform Act provides for relief from the automatic stay
of discovery "where particularised discovery is necessary. . . to prevent undue
prejudice." 15 U.S.C. Section 780 - 4(b)(3)(B). Case law supports AIG's claim
for limited discovery under this standard. AIG's request for documents contains
three limited categories of documents. Cendant has failed to show how it will be
burdened by such limited and particularized discovery. Request No. 3 seeks
documents concerning communications with the six relevant state insurance
departments regarding Cendant's proposed acquisition or its solicitation of
proxies. The letter from the Arizona Attorney General is an example of the
documents AIG seeks. Documents responsive to AIG's request for communications
with the SEC and drafts of the registration statement (Requests Nos. 1 and 2)
are similarly narrow. Cendant can comply with these requests with no burden
Even the court in Medical Imaging Centers of America, Inc., 917 F.
Supp. 717 (S.D. Cal. 1996) (Def. Mem. at 5-6), recognized that if the plaintiff
"had shown that the discovery stay would prejudice it because [defendant] would
be shielded from eventual liability for any material violations of the
securities laws, the Court would find that an "undue prejudice" exception to the
statutory stay had been shown." 917 F. Supp. at 720 n.3. Here, absent expedited
discovery and preliminary injunctive relief prior to March 4 and March 6, 1998,
American Bankers' shareholders will receive a prospectus circulated an adequate
time before the vote, and shareholders will be disenfranchised because without
regulatory approval (which Cendant has not obtained) "[t]he proxies will not be
effective as a matter of law" and "may not be counted for quorum purposes at the
shareholders' meetings nor may they be voted." (Arizona Attorney Gen. Letter at
B. AIG Has Satisfied the Standard for Expedited Discovery.
Cendant, citing case law from outside this district, repeatedly asserts
that AIG must demonstrate "irreparable injury" before a request for expedited
discovery can be granted. No case in this district imposes such a requirement.
Under governing law, only "unusual" circumstances need be shown.
Fimab-Finanziaria Maglificio Biellese Fratelli Fila S.p.A. v. Helio
Import/Export, Inc., 601 F.Supp. 1, 3 (S.D. Fla. 1983) ("Expedited discovery
should be granted when some unusual circumstances or conditions exist that would
likely prejudice the party if he were required to wait the normal time."). Here,
unusual circumstances clearly exist.
Cendant seeks to corrupt the March 4 and 6 votes of American Bankers
shareholders, and to disenfranchise shareholders from whom it obtains proxies.
The Supreme Court has recognized the threat of irreparable injury and need for
injunctive relief prior to a shareholder vote if the vote will be affected by
false and misleading statements or if the shareholders will be disenfranchised.
Piper v. Chris-Craft Indus., 430 U.S. 1, 41-42 (1976) ("[I]n corporate control
contests the stage of preliminary injunctive relief, rather than post-context
lawsuits 'is the time when relief can best be given.'") (citations omitted). See
also Onbancorp, Inc. v. Holtzman, 956 F.Supp. 250, 254 (N.D.N.Y. 1997) ("In the
proxy solicitation context, '[i]rreparable injury results from the use of false
and misleading proxies when the free exercise of shareholders' voting rights
will be frustrated.") (citing Krauth v. Executive Telecard, Ltd., 890 F.Supp.
269, 287 (S.D.N.Y. 1995) (citations omitted); International Banknote Co., Inc.
v. Muller, 713 F. Supp. 612, 623 (S.D.N.Y. 1989) ("Courts have consistently
found that corporate management subjects shareholders to irreparable harm by
denying them the right to vote their shares or unnecessarily frustrating them in
their attempt to obtain representation on the board of directors.") (citations
omitted); Bank of New York v. Irving Bank Corp., 528 N.Y.S.2d 482, 484 (N .Y.
Sup. Ct. 1988) (irreparable harm if corporate electoral process is tainted).
Cendant asserts that there can be no irreparable injury because the
Court can always nullify the vote later if the Court finds that Cendant violated
the federal securities laws. This is not the course followed by most courts,
including the Supreme Court, and for good reason. Indeed, Cendant conspicuously
fails to address Lewis v. General Employment Services, 1991 WL 11383 at *3 (N.D.
Ill. Jan. 21, 1991) (see AIG Mem. at 10, Exhibit D):
Defendants suggest, however, that the Court should refrain from acting
at this point because they claim the Court could later undo the damage
caused by an illegal proxy. . . . The Court sees no reason to permit
the shareholder vote to be taken on potentially misleading and
incomplete information when the Court can enjoin the vote today to
protect the integrity of corporate suffrage based upon complete and
Defendants' heavy reliance on Judge Spellman's two-page decision 15
years ago in Pearce v. Southeast Banking Corp., 97 F.R.D. 535, 537 (S.D. Fla.
1983), is misplaced. (2) In Pearce, Judge Spellman denied a request for
expedited discovery by a stockholder of Southeast Banking Corporation who
threatened to file (but had not actually filed) a motion for preliminary
injunction seeking to enjoin the bank's annual shareholder meeting. Here, in
contrast, AIG has filed a motion for a preliminary injunction and seeks narrow
discovery and preliminary relief unlike the far broader and more burdensome
discovery and relief subject in Pierce. Id. at 537 ("expedited discovery might
work a great hardship on Defendants, requiring them to present themselves for
deposition on very short notice. This is particularly true in this case, as the
officers and directors of the Bank are persons of considerable stature in the
C. AIG Has Established Actual Success on the Merits.
Cendant argues in essence that AIG must establish that it is entitled
to a preliminary injunction before it can obtain discovery clearly relevant to
the determination whether an injunction should issue. The Court need not decide
this self-evidently circular proposition, because AIG can prove that it will
prevail on the merits.
(2) Defendants' reliance on Delaware authorities is equally surprising. The
court In re Western National Corp. Shareholders Litig., 1998 WL 51733 at *2
(Del. Ch. Feb. 3, 1998) (Def. Mem. at 9) recognized that injunctive relief and
expedited discovery would be appropriate where, as here, the claims involved
"the importance of ensuring that the shareholder vote was a valid expression of
shareholder choice" and that the "shareholders' vote will not be an accurate
expression of shareholders' knowing choice." Defendants' other authorities (Def.
Mem. at 11) are similarly distinguishable. In Notaro v. Koch, 95 F.R.D. 403,
404-05 (S.D.N.Y. 1982), the court denied a request for expedited discovery from
members of a political party who sought to take the deposition of New York
City's Mayor and gubernatorial candidate Ed Koch on an expedited basis to
support legal claims that the court found had "gaps." In Crown Crafts, Inc. v.
Aldrich, 148 F.R.D. 151, 152-53 (E.D.N.C. 1993), the court denied a request to
depose corporate officers on 5 days' notice where the only injury could be
remedied by money damages and the defendant had represented that it intended to
apply for a statutorily-authorized stay of the entire proceedings. In Irish
Lesbian and Gay Organization v. Giuliani, 918 F. Supp. 728, 731 (S.D.N.Y. 1996),
the court denied a request for expedited discovery, where the request sought
documents going back over a 10 year period and was a "broadside not reasonably
tailored to the time constraints under which both parties must proceed or to the
specific issues that will have to be determined at the preliminary injunction
hearing." In Gibson v. Bagas Restaurants, Inc., 87 F.R.D. 60, 61 (W.D. Mo.
1986), the plaintiff simply stated that he wished to be "better prepared" for an
upcoming hearing and presented no "unusual" circumstances justifying expedited
1. AIG's Claims Are Not Moot. Cendant argues that by filing AIG's
Amended Complaint with the Securities and Exchange Commission as an exhibit to
Cendant's Schedule 14D-1, it has rendered the Amended Complaint "moot." Cendant
in effect argues that it can freely violate the federal securities laws and,
upon being sued, simply file the complaint with the SEC and argue that any
disclosure claims are moot. On its face, this argument is absurd. Nothing in
Cendant's Schedule 14D-1 filing prevents Cendant from soliciting, acquiring and
voting proxies representing over 10% of American Bankers' voting securities in
violation of state law -- conduct that will disenfranchise American Bankers'
shareholders unless promptly enjoined. Moreover, nothing in the 14D-1 amendment
admits that Cendant has in fact violated the federal securities laws or provides
disclosure as to how Cendant intends to remedy the situation. Furthermore,
Cendant did not distribute its Schedule 14D-1 amendment to American Bankers'
shareholders. Thus, Cendant's assertion that its Schedule 14D-1 is the
equivalent of appropriate "corrective disclosure" is without merit. United
Paperworkers Int'l. Union v. Int'l Paper Co., 985 F.2d 1190, 1199 (2d Cir. 1993)
("Corporate documents that have not been distributed to shareholders entitled to
vote on the proposal should rarely be considered part of the total mix of
information reasonably available to those shareholders.")
2. Cendant will Continue to Violate Section 14(a) Until It Circulates a
Prospectus to American Bankers' Shareholders. Although, in response to pressure
from the SEC and AIG, Cendant has finally filed a preliminary registration
statement, it has not yet filed a final registration statement or circulated a
prospectus to American Bankers' shareholders. Until Cendant does so, it has
failed to comply with the securities laws, and AIG's claims are not moot.
3. Cendant Has Violated Section 14(a) by Failing to Disclose that it
Cannot Hold Proxies to Vote More than 10% of American Bankers' Outstanding
Shares Without Prior Regulatory Approval. Five of the six states in which
American Bankers' insurance subsidiaries are domiciled -- Arizona, Georgia,
South Carolina, New York and Texas -- presume "control" if a person holds
proxies representing more than 10% of an insurance company's voting securities,
and require approval from state insurance regulators before a person can
exercise such control. Cendant has failed to disclose this material fact to
American Bankers' shareholders. Thus, shareholders who gave proxies to Cendant
after the 10% threshold has been passed will be disenfranchised.
Despite Cendant's characterization of AIG's position as "strange" and
"desperate" (Def. Mem. at 14), Cendant cannot avoid the plain language of the
statutes, which presume control by anyone controlling proxies for 10% or more of
an insurance company's shares. (For the Court's convenience, we have reproduced
in Exhibit C hereto each definition of control under the relevant state
statutes.) Cendant's argument that its solicitation of revocable proxies against
the AIG Merger will not result in a change of control of American Bankers and is
"only for the limited purpose of voting for or against the AIG Merger Proposal
- -- not in favor of any transaction with Cendant" (Def. Mem. at 15) is also
wrong. The only reason Cendant is soliciting American Bankers' shareholders to
vote against the AIG Merger is so that Cendant can itself acquire American
The Office of the Attorney General of the State of Arizona has declared
that Cendant's acquisition or voting of proxies representing more than 10% of
American Bankers' common shares will violate Arizona law unless Cendant obtains
prior regulatory approval. AIG's request for any documents reflecting
communications with state regulators on this point is obviously relevant to
whether other regulators have sent similar communications to Cendant.
4. The Williams Act Does Not Pre-empt State Regulation of Persons
Seeking to Control Insurers. Cendant's assertion that enjoining Cendant from
soliciting or voting proxies would "impermissibly interfere with interstate
commerce and run afoul of federal pre-emption of the Williams Act" is incorrect.
First, this argument is inapplicable to AIG's disclosure claim under Section
14(a) of the Exchange Act -- shareholders obviously would find it material to
know that their proxies will be null and void and violate state law once Cendant
crosses the 10% threshold. J.I. Case Co. v. Borak, 377 U.S. 426, 431 (1964)
(Congress passed Section 14(a) to ensure shareholders voted on a fully informed
Second, federal law explicitly grants to the States power to "broadly
...give support to the existing and future state systems for regulating and
taxing the business of insurance." Prudential Ins. Co. v. Benjamin, 328 U.S.
408, 429 (1946); see also McCarran-Ferguson Act, 15 U.S.C.
Section 1011 et seq.(3) The power to approve or disapprove changes in control is
clearly a vital part of the regulation of insurance. Indeed, "state authority in
the area of insurance regulation should enjoy a presumption of validity."
Professional Investors Life Ins. Co. v. Roussel, 528 F. Supp. 391, 402 (D. Kan.
The Williams Act, which regulates the process of tender offers, was
enacted in order to "protect the investor not only by furnishing him with the
necessary information but also by withholding from management on the bidder any
undue advantage that could frustrate the exercise of an informed choice." Edgar
v. MITE Corp., 457 U.S. 624, 634 (1982); see also WLR Foods, Inc. v. Tyson
Foods, Inc., 65 F.3d 1172, 1179 ("[w]hile the Williams Act governs the process
of tender offers, it leaves to the states the power to regulate substantive
matters of corporate governance."); Amanda Acquisition Corp. v. Universal Foods
Corp., 877 F.2d 496, 502 (7th Cir. 1989) (federal courts reluctant to infer
preemption of "state law in areas traditionally regulated by the States" and
observing that "States have regulated corporate affairs including mergers and
sales of assets, since before the beginning of the nation.") (citations
omitted). An order enjoining Cendant from soliciting proxies in violation of
state insurance law will do no violence to the commerce clause or the Williams
(3) Cendant's disagreement with the definition of control by state regulators is
irrelevant: "[w]hether the statutory plan of a state's regulation of insurance
'embodies the wisest and most effective type of regulation' is not for the
courts to decide." Holly Springs Funeral Home, Inc. v. United Funeral Service,
Inc., 303 F. Supp. 128 (N.D. Miss. 1969) (citations omitted).
(4) Cendant's reliance on the two-page unreported memorandum opinion granting a
temporary restraining order in Liberty National is misplaced. In Liberty
National, the court restrained the Tennessee insurance commissioner from
enforcing a cease and desist order that prevented Torchmark Corporation from
soliciting proxies to get representation on American General's board of
directors. Without any analysis, the Liberty National court stated that the
Tennessee insurance commissioner did not "possess the right to tell shareholders
how they may vote, or whether they may vote their shares, in person or by
proxy." The court did not mention or analyze the basis under Tennessee law for
the insurance commissioner to prohibit the solicitation, or explain why
regulation of controlling persons by Tennessee conflicted with the Williams Act.
Indeed, Tennessee's assistant commissioner for insurance, David Kumantz,
persuasively explained in an affidavit in Liberty National, how and why "the
State must exercise careful supervision over who may control insurance
companies", that "[t]he appropriate time for initial application of strict
regulatory measures is prior to the time control is obtained" and that "once
control has passed, it
For all the foregoing reasons, the Court should grant AIG's
motion for expedited discovery and motion for a hearing on AIG's motion for a
Dated: February 23, 1998
STEEL HECTOR & DAVIS LLP
200 South Biscayne
Boulevard, Suite 4000
Miami, Florida 33131-2398
Of Counsel: (305) 577-7000
(305) 577-7001 Facsimile
Richard H. Klapper
Stephanie G. Wheeler
SULLIVAN & CROMWELL By: /s/ Alison S. Bieler, for
125 Broad Street Florida Bar No. 093263
New York, New York Lewis F. Murphy, P.A.
Florida Bar No. 308455
(212) 558-3588 Facsimile Attorneys for Defendants
American International Group, Inc.
and AIGF, Inc.
may be too late for effective state regulation to prevent harm to
policyholders." (Exhibit C hereto, Affidavit of David J. Kumatz, Tennessee
Assistant Commissioner of Insurance, dated May 1, 1990, at 4-6.) To the extent
Liberty National is inconsistent with this reasoning, it is wrong. The
unreported order by a judge of the Court of Appeals for the Sixth Circuit
denying a motion to stay the district court's order is of little precedential
value because its principal focus was whether the district court should have
abstained from exercising its jurisdiction.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing document
was served on the 23rd day of February 1998 via facsimile on the following:
Robert T. Wright
Shutts & Bowen LLP
1500 Miami Center
201 South Biscayne Boulevard
Miami, Florida 33131
and by facsimile and by hand on the following:
Jonathan J. Lerner
Seth M. Schwartz
Skadden, Arps, Slate
Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
/s/ Stephanie G. Wheeler
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14A-6(e)(2))
[ ] Definitive Proxy Statement
[X] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12