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Filed Pursuant to Rule 424(b)(3)

Registration No. 333-157052

				SMITH INVESTMENT COMPANY

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

Dear Stockholders:

The boards of directors of A. O. Smith Corporation, or “A. O. Smith,” and Smith Investment Company, or “SICO,” approved an Agreement and Plan of Merger dated as of December 9, 2008 (the “Merger Agreement”) providing for the merger of SICO with and into SICO Acquisition, LLC, or “MergerCo,” a newly formed subsidiary of A. O. Smith. As of March 4, 2009, SICO owned approximately 97.9% of the outstanding shares of A. O. Smith Class A common stock and 7.1% of the outstanding shares of A. O. Smith common stock, representing a control position in A. O. Smith. A majority of the outstanding shares of SICO common stock is owned by members of the Smith Family, which is the founding family of A. O. Smith.

If the proposed merger is completed, stockholders of SICO will own shares of A. O. Smith directly, rather than through SICO. Stockholders of SICO will be entitled to receive (a) 2.396 shares of A. O. Smith Class A common stock and (b) 0.463 shares of A. O. Smith common stock for each outstanding share of SICO common stock that they hold immediately prior to the effective time of the merger, subject to the treatment of shares required to be placed into escrow, dissenting shares and fractional shares described in this joint proxy statement/prospectus. The calculation of the number of shares of A. O. Smith Class A common stock and A. O. Smith common stock the stockholders of SICO will be entitled to receive assumes that all of the shares of A. O. Smith common stock deposited into escrow are subsequently released to the former SICO stockholders. The consideration that SICO stockholders will be entitled to receive in the merger is more fully described in this joint proxy statement/prospectus under the heading “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 88.

The closing of the merger is conditioned upon, among other things, the affirmative vote of:

 

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the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing at least 66-2/3% of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, in favor of the proposal to adopt the Merger Agreement;

 

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the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, in favor of the proposal to adopt the Amended and Restated Certificate of Incorporation of A. O. Smith (the “A. O. Smith Amended Charter”);

 

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the holders of A. O. Smith Class A common stock, voting as a separate class, representing a majority of the outstanding shares of A. O. Smith Class A common stock, in favor of the proposal to adopt the A. O. Smith Amended Charter;

 

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the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes cast by such holders at the A. O. Smith special meeting, in favor of the proposal to approve the issuance of A. O. Smith Class A common stock and A. O. Smith common stock to SICO stockholders pursuant to the Merger Agreement (the “Stock Issuance”); and

 

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the holders of a majority of the outstanding shares of SICO common stock in favor of the proposal to approve the Merger Agreement.

SICO, which holds shares representing 78.8% of the voting power of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, and 97.9% of the voting power of the total outstanding shares of A. O. Smith Class A common stock, voting as a separate class, has agreed to vote in favor of the merger and the other related proposals to be considered at the special meeting of A. O. Smith stockholders. In addition, holders of 52.7% of the voting power of the total outstanding shares of SICO common stock have agreed to vote in favor of the merger at the special meeting of SICO stockholders. Therefore, stockholders of

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A. O. Smith and SICO holding voting power sufficient to adopt and approve the merger and the related proposals have agreed to vote in favor of the merger and the related proposals.

The obligations of A. O. Smith and SICO to complete the merger also are subject to the satisfaction or waiver of several other conditions to the merger. More information about A. O. Smith, SICO and the merger is contained in this joint proxy statement/prospectus. We encourage you to read carefully this joint proxy statement/prospectus before voting, including the section entitled “Risk Factors” beginning on page 30.

A. O. Smith will hold a special meeting of its stockholders to consider and vote on the adoption of the Merger Agreement, the adoption of the A. O. Smith Amended Charter and the approval of the Stock Issuance.

SICO will hold a special meeting of its stockholders to consider and vote on the approval of the Merger Agreement.

The respective places, dates and times of the special meetings of A. O. Smith and SICO stockholders are as follows:

 

For A. O. Smith stockholders:		For SICO stockholders:
A. O. Smith Corporation 855 North Third Street Tipp City, Ohio 45371 April 14, 2009 11:30 a.m., Eastern Daylight Saving Time		Smith Investment Company 11270 West Park Place Milwaukee, Wisconsin 53224 April 16, 2009 9:30 a.m. Central Daylight Saving Time

The A. O. Smith board of directors recommends that A. O. Smith stockholders vote “FOR” the proposal to adopt the Merger Agreement, “FOR” the proposal to adopt the A. O. Smith Amended Charter and “FOR” the proposal to approve the Stock Issuance.

The SICO board of directors unanimously recommends that SICO stockholders vote “FOR” the proposal to approve the Merger Agreement.

Your vote is very important. Whether or not you plan to attend your company’s special meeting, please take the time to vote by following the instructions on the enclosed proxy card or in the case of A. O. Smith stockholders, by granting your proxy electronically over the Internet or by telephone.

We enthusiastically support this merger and join with our boards of directors in recommending that our stockholders vote “FOR” the proposals necessary to complete the merger.

 

Sincerely,		Sincerely,
Paul W. Jones		Bruce M. Smith
Chairman, President and Chief Executive Officer A. O. Smith Corporation		Chairman, President and Chief Executive Officer Smith Investment Company

A. O. Smith common stock trades on the New York Stock Exchange LLC under the symbol “AOS.” A. O. Smith Class A common stock is quoted on the Over-the-Counter Bulletin Board under the symbol “SAOSA.”

SICO common stock is quoted on the Pink OTC Markets, Inc. under the symbol “SMIC.”

Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of the merger and the other transactions described in this joint proxy statement/prospectus nor have they approved or disapproved of the issuance of the A. O. Smith common stock or A. O. Smith Class A common stock to be issued in connection with the merger, or determined if this joint proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated March 12, 2009, and is being first mailed to A. O. Smith stockholders and SICO stockholders on or about March 13, 2009.

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CERTAIN FREQUENTLY USED TERMS

This joint proxy statement/prospectus constitutes a prospectus of A. O. Smith Corporation for the shares of A. O. Smith Class A common stock and A. O. Smith common stock that it will issue to Smith Investment Company stockholders in the merger, and a joint proxy statement for stockholders of A. O. Smith Corporation and Smith Investment Company. Unless otherwise specified or the context so requires:

 

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“A. O. Smith” means A. O. Smith Corporation, a Delaware corporation.

 

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“A. O. Smith Amended Charter” means the Amended and Restated Certificate of Incorporation of A. O. Smith to be submitted for approval by A. O. Smith stockholders pursuant to the Merger Agreement, which is described more fully under the heading “A. O. Smith Amended Charter” beginning on page 103.

 

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“A. O. Smith Class A common stock” means the Class A common stock, par value $5.00 per share, of A. O. Smith.

 

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“A. O. Smith common stock” means the common stock, par value $1.00 per share, of A. O. Smith.

 

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“A. O. Smith Existing Charter” means the Restated Certificate of Incorporation of A. O. Smith, restated as of October 10, 2000.

 

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“A. O. Smith Special Committee” means the Special Committee of the Board of Directors of A. O. Smith.

 

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“A. O. Smith Unaffiliated Stockholders” means the holders of A. O. Smith Class A common stock and A. O. Smith common stock other than SICO.

 

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“Berlin Industries” means Berlin Industries, Inc., a Delaware corporation, and its successor Berlin Industries LLC, a Delaware limited liability company, that was a wholly-owned subsidiary of SICO prior to the Spin-Off.

 

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“Central States” means Central States Distribution Service, Inc., an Illinois corporation, and its successor Central States Distribution Service LLC, a Delaware limited liability company, that was a wholly-owned subsidiary of SICO prior to the Spin-Off.

 

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“Class A Exchange Ratio” has the meaning set forth under the heading “The Merger Agreement—Consideration to be Received in the Merger—A. O. Smith Class A Common Stock” beginning on page 89.

 

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“Closing Common Exchange Ratio” has the meaning set forth under the heading “The Merger Agreement—Consideration to be Received in the Merger—A. O. Smith Common Stock” beginning on page 89.

 

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“Code” means the Internal Revenue Code of 1986, as amended.

 

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“DGCL” means the Delaware General Corporation Law.

 

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“Duff & Phelps” means, as applicable, Duff & Phelps Securities, LLC, financial advisor to the SICO Special Committee, and its affiliate, Duff & Phelps, LLC.

 

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“Escrow Shares” has the meaning set forth under the heading “The Merger Agreement—A. O. Smith Common Stock in Escrow.”

 

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“IRS” means the Internal Revenue Service.

 

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“IRS Letter Ruling” means a private letter ruling from the IRS ruling that, among other things, the merger will qualify as a reorganization under Section 368(a) of the Code.

 

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“Latham” means Latham & Watkins LLP, legal advisor to SICO.

 

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“Merger Agreement” means the Agreement and Plan of Merger, dated as of December 9, 2008, among A. O. Smith, MergerCo, SICO and SpinCo, as the same may be amended, supplemented or otherwise modified from time to time.

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“MergerCo” means SICO Acquisition, LLC, a Delaware limited liability company.

 

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“Merger Consideration” means the consideration to be received by the SICO stockholders in the merger as described under the heading “The Merger Agreement—Consideration to be Received in the Merger,” beginning on page 88.

 

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“Morgan Stanley” means Morgan Stanley & Co. Incorporated, financial advisor to the A. O. Smith Special Committee.

 

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“NRS” means the Nevada Revised Statutes.

 

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“Per Share Escrow Release Number” has the meaning set forth under the heading “The Merger—Agreement—Consideration to be Received in the Merger—A. O. Smith Common Stock in Escrow” beginning on page 90.

 

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“Quarles” means Quarles & Brady LLP, legal advisor to certain members of the Smith Family.

 

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“Reinhart” means Reinhart Boerner Van Deuren s.c., legal advisor to the SICO Special Committee.

 

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“Shareholders’ Representative” means SpinCo, in its capacity as shareholders’ representative for the stockholders of SICO as described under the heading “The Merger Agreement—Indemnification—Shareholders’ Representative” beginning on page 100.

 

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“SICO” means Smith Investment Company, a Nevada corporation.

 

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“SICO common stock” means the common stock, par value $0.10 per share, of SICO.

 

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“SICO Special Committee” means the Special Committee of the Board of Directors of SICO.

 

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“SICO Unaffiliated Stockholders” means the holders of SICO common stock other than (a) the members of the Smith Family who filed a Schedule 13D/A with the SEC on August 19, 2008 and (b) any other person or entity who becomes a party to the voting trust agreement in the form attached as Annex G to this joint proxy statement/prospectus before the effective time of the merger, together with, in each case, any affiliates of any such person or entity.

 

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“Smith Family” means the founding family of A. O. Smith and certain trusts for their benefit.

 

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“SpinCo” means Smith Investment Company LLC, a Delaware limited liability company.

 

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“Spin-Off” has the meaning set forth under the heading “The Companies—SICO,” beginning on page 120.

 

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“Stock Issuance” refers to the issuance of shares of A. O. Smith common stock and A. O. Smith Class A common stock by A. O. Smith to SICO stockholders in the merger.

 

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“Winston” means Winston & Strawn LLP, legal advisor to the A. O. Smith Special Committee.

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REFERENCES TO ADDITIONAL INFORMATION

This joint proxy statement/prospectus incorporates important business and financial information about A. O. Smith from other documents that are not included in or delivered with this joint proxy statement/prospectus. This information is available for you to review at the public reference room of the United States Securities and Exchange Commission, or the “SEC,” located at 100 F Street, N.E., Room 1580, Washington, DC 20549, and through the SEC’s website, www.sec.gov. You also can obtain those documents incorporated by reference in this joint proxy statement/prospectus, excluding exhibits to those documents, without charge, by requesting them from A. O. Smith in writing at A. O. Smith Corporation, 11270 West Park Place, Milwaukee, Wisconsin 53224-9508, Attention: Corporate Secretary, or by telephone at (414) 359-4000. Additionally, you may obtain certain of those documents at A. O. Smith’s website, www.aosmith.com.

If you would like to request documents, please do so by April 4, 2009 in order to receive them before A. O. Smith’s special meeting and SICO’s special meeting.

Information contained in or otherwise accessible through the A. O. Smith website listed above is not a part of this joint proxy statement/prospectus. All references in this joint proxy statement/prospectus to this website are inactive textual references and are for your information only.

No person is authorized to give any information or to make any representation with respect to the matters this joint proxy statement/prospectus describes other than those contained in this joint proxy statement/prospectus, and, if given or made, the information or representation must not be relied upon as having been authorized by A. O. Smith or SICO. This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, securities or a solicitation of a proxy in any jurisdiction where, or to any person to whom, it is unlawful to make such an offer or a solicitation. Neither the delivery of this joint proxy statement/prospectus nor any distribution of securities made under this joint proxy statement/prospectus shall, under any circumstances, create an implication that there has been no change in the affairs of A. O. Smith or SICO since the date of this joint proxy statement/prospectus or that the information contained herein is correct as of any time subsequent to the date of this joint proxy statement/prospectus.

See “Where You Can Find More Information” beginning on page 139.

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VOTING BY INTERNET, TELEPHONE OR MAIL

Voting by A. O. Smith Stockholders

In addition to voting in person at the A. O. Smith special meeting, there are three ways for A. O. Smith stockholders of record as of the record date for the A. O. Smith special meeting to vote:

Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card.

VOTE BY TELEPHONE—TOLL FREE—1-800-560-1965—QUICK *** EASY *** IMMEDIATE

 

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Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. Central Daylight Saving Time on April 13, 2009.

 

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Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions the voice provides you.

VOTE BY INTERNET—http://www.eproxy.com/aos/—QUICK *** EASY *** IMMEDIATE

 

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Use the Internet to vote your proxy 24 hours a day, 7 days a week, until 12:00 p.m. Central Daylight Saving Time on April 13, 2009.

 

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Please have your proxy card and the last four digits of your Social Security Number or Tax Identification Number available. Follow the simple instructions to obtain your records and create an electronic ballot.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to A. O. Smith Corporation, c/o Shareowner Services^SM, P.O. Box 64873, St. Paul, Minnesota 55164-0873.

If you vote by Telephone or Internet, please do not mail your Proxy Card.

Voting by SICO Stockholders

In addition to voting in person at the SICO special meeting, SICO stockholders of record as of the record date for the SICO special meeting may also vote by mail. SICO stockholders of record cannot vote by telephone or Internet.

VOTE BY MAIL

Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Smith Investment Company, c/o Shareowner Services^SM , P.O. Box 64873, St. Paul, Minnesota 55164-0873.

Voting Shares of A. O. Smith or SICO Held in Street Name

If you hold your shares through a bank, broker, custodian or other record holder (that is, in street name), please refer to your proxy card or the information forwarded by your bank, broker, custodian or other record holder to see what options are available to you.

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11270 West Park Place

Milwaukee, WI 53224

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON TUESDAY, APRIL 14, 2009

To the Stockholders of A. O. Smith Corporation:

The board of directors of A. O. Smith has called for a special meeting of A. O. Smith stockholders to be held on Tuesday, April 14, 2009, at 11:30 a.m., Eastern Daylight Saving Time, at A. O. Smith Corporation, 855 North Third Street, Tipp City, Ohio, for the following purposes:

 

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To consider and vote upon a proposal to adopt the Merger Agreement, pursuant to which SICO will merge with and into MergerCo;

 

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To consider and vote on a proposal to adopt the A. O. Smith Amended Charter which provides for:

 

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an increase, solely for purposes of completing the merger, in the total number of authorized shares of A. O. Smith Class A common stock that A. O. Smith can issue;

 

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an increase in the percentage of members of the A. O. Smith board of directors that holders of A. O. Smith common stock elect;

 

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shares of A. O. Smith Class A common stock to convert automatically into A. O. Smith common stock, subject to certain exceptions, upon transfer to unaffiliated third parties; and

 

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all shares of A. O. Smith Class A common stock to convert automatically into A. O. Smith common stock once the number of outstanding shares of A. O. Smith Class A common stock fall below 2,397,976 shares, which is approximately 8% of the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock as of the date of the Merger Agreement.

 

3.

To consider and vote on a proposal to approve the Stock Issuance to SICO stockholders pursuant to the merger contemplated by the Merger Agreement; and

 

4.

To transact such other business as may properly be brought before the special meeting of A. O. Smith stockholders.

The foregoing proposals are conditioned on each other and approval of each is required for completion of the merger. The obligations of A. O. Smith and SICO to complete the merger also are subject to the satisfaction or waiver of several other conditions to the merger.

Holders of record of A. O. Smith Class A common stock and A. O. Smith common stock as of March 4, 2009, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting of A. O. Smith stockholders or any adjournments or postponements of the special meeting. No business other than the proposals described in this notice will be considered at the special meeting or any adjournment or postponement thereof. A complete list of A. O. Smith stockholders of record entitled to vote at the special meeting will be available at A. O. Smith’s offices at 11270 West Park Place, Milwaukee, Wisconsin 53224-9508, as of April 4, 2009, for examination by stockholders during ordinary business hours for purposes related to the special meeting.

A. O. Smith cannot complete the merger without the affirmative vote of:

 

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the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing at least 66-2/3% of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, in favor of the proposal to adopt the Merger Agreement;

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the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, in favor of the proposal to adopt the A. O. Smith Amended Charter;

 

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the holders of A. O. Smith Class A common stock, voting as a separate class, representing a majority of the outstanding shares of A. O. Smith Class A common stock, in favor of the proposal to adopt the A. O. Smith Amended Charter; and

 

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the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes cast by such holders at the A. O. Smith special meeting, in favor of the proposal to approve the Stock Issuance.

SICO, which holds shares representing 78.8% of the voting power of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, and 97.9% of the voting power of the total outstanding shares of A. O. Smith Class A common stock, voting as a separate class, has agreed to vote in favor of the proposal to adopt the Merger Agreement and the other proposals to be considered at the special meeting of A. O. Smith stockholders. Therefore, stockholders of A. O. Smith holding voting power sufficient to approve the foregoing proposals have agreed to vote in favor of such proposals.

For more information about the proposals described above and the other transactions contemplated by the Merger Agreement, please review the accompanying joint proxy statement/prospectus, the Merger Agreement attached to it as Annex A, the A. O. Smith Amended Charter attached to it as Annex B and the other annexes to the joint proxy statement/prospectus.

The A. O. Smith board of directors recommends that A. O. Smith stockholders vote “FOR” the proposal to adopt the Merger Agreement, “FOR” the proposal to adopt the A. O. Smith Amended Charter and “FOR” the proposal to approve the Stock Issuance.

Whether or not you plan to attend the special meeting, we urge you to vote your shares over the Internet or via the toll-free telephone number, as we describe in the instructions included with your proxy card. As an alternative, you may sign, date and mail the proxy card in the envelope provided. No postage is necessary if mailed in the United States. Voting over the Internet, via the toll-free number or mailing a proxy card will not limit your right to vote in person or to attend the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct them on how to vote your shares. Your failure to vote on the proposals to adopt the Merger Agreement or to adopt the A. O. Smith Amended Charter will have the same effect as voting “AGAINST” the proposals. Your failure to vote on the proposal to approve the Stock Issuance will have no effect on the result of the votes.

By Order of the Board of Directors,

James F. Stern

Executive Vice President, General Counsel

and Secretary

A. O. Smith Corporation

11270 West Park Place

Milwaukee, Wisconsin 53224

PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARDS. IF YOU HAVE QUESTIONS ABOUT THE PROPOSALS OR ABOUT VOTING YOUR SHARES, PLEASE CALL A. O. SMITH’S CORPORATE SECRETARY

AT (414) 359-4000.

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SMITH INVESTMENT COMPANY

11270 West Park Place

Milwaukee, Wisconsin 53224-9508

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON THURSDAY, APRIL 16, 2009

To the Stockholders of Smith Investment Company:

The board of directors of SICO has called for a special meeting of SICO stockholders to be held on Thursday, April 16, 2009 at 9:30 a.m., Central Daylight Saving Time, at Smith Investment Company, 11270 West Park Place, Milwaukee, Wisconsin, for the following purposes:

 

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To consider and vote on a proposal to approve the Merger Agreement pursuant to which SICO will merge with and into MergerCo; and

 

2.

To transact such other business as may properly be brought before the special meeting of SICO stockholders.

Holders of record of SICO common stock as of March 4, 2009, the record date for the special meeting, are entitled to notice of, and to vote at, the special meeting of SICO stockholders or any adjournments or postponements of the special meeting. No business other than the proposal described in this notice will be considered at the special meeting or any adjournment or postponement thereof. A complete list of SICO’s stockholders of record entitled to vote at the special meeting will be available for inspection at the special meeting.

SICO cannot complete the merger without the affirmative vote of a majority of the voting power of the total outstanding shares of SICO common stock in favor of the proposal to approve the Merger Agreement. Holders of shares representing 52.7% of the voting power of the total outstanding shares of SICO common stock have agreed to vote in favor of the proposal to approve the Merger Agreement. Therefore, stockholders of SICO holding voting power sufficient to approve the Merger Agreement have agreed to vote in favor of the proposal to approve the Merger Agreement.

The obligations of A. O. Smith and SICO to complete the merger also are subject to the satisfaction or waiver of several other conditions to the merger.

For more information about the proposal described above and the other transactions contemplated by the Merger Agreement, please review the accompanying joint proxy statement/prospectus, the Merger Agreement attached to it as Annex A, and the other annexes to the joint proxy statement/prospectus.

The SICO board of directors unanimously recommends that SICO stockholders vote “FOR” the proposal to approve the Merger Agreement.

Whether or not you plan to attend the special meeting, we urge you to sign, date and mail the proxy card in the envelope provided. No postage is necessary if mailed in the United States. Mailing the proxy card will not limit your right to vote in person or attend the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct them on how to vote your shares. Your failure to vote on the proposal to approve the Merger Agreement will have the same effect as voting “AGAINST” the proposal.

You are or may be entitled to assert dissenter’s rights under Nevada Revised Statutes 92A.300 to 92A.500, inclusive, as described under “—Appraisal Rights; Dissenter’s Rights.” A copy of Nevada Revised Statutes 92A.300 to 92A.500 is included as Annex J to this joint proxy statement/prospectus and a summary of these sections can be found under “—Appraisal Rights; Dissenter’s Rights.”

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Please do not send your stock certificates at this time. If the merger is completed, you will be sent instructions regarding the surrender of your stock certificates.

By Order of the Board of Directors,

Wesley A. Ulrich

Vice President, Chief Financial Officer,

Secretary and Treasurer

Smith Investment Company

11270 West Park Place

Milwaukee, Wisconsin 53224

PLEASE VOTE YOUR SHARES PROMPTLY. YOU CAN FIND INSTRUCTIONS FOR VOTING ON THE ENCLOSED PROXY CARD. IF YOU HAVE QUESTIONS ABOUT THE PROPOSAL OR ABOUT VOTING YOUR SHARES, PLEASE CALL SICO’S CORPORATE SECRETARY AT (414) 359-4030.

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TABLE OF CONTENTS

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER		1
General Questions and Answers about the Merger and Related Transactions		1
Questions and Answers for A. O. Smith Stockholders		6
Questions and Answers for SICO Stockholders		8
SUMMARY		12
The Parties to the Merger Agreement		12
The Merger and the Merger Agreement		13
A. O. Smith Amended Charter		14
Agreements Relating to the Merger		14
Recommendations of the A. O. Smith Special Committee and A. O. Smith Board of Directors		16
Recommendations of the SICO Special Committee and SICO Board of Directors		17
Opinion of Morgan Stanley, Financial Advisor to the A. O. Smith Special Committee		18
Opinion of Duff & Phelps, Financial Advisor to the SICO Special Committee		18
Interests of Executive Officers and Directors of A. O. Smith and SICO in the Merger		19
Regulatory Approvals Required for the Merger		19
Material United States Federal Income Tax Consequences of the Merger		20
Legal Proceedings Regarding the Merger		20
Appraisal Rights; Dissenter’s Rights		21
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF A. O. SMITH		22
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF SICO		23
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR SICO		24
COMPARATIVE PER SHARE DATA		26
COMPARATIVE MARKET PRICE AND DIVIDEND DATA		27
Recent Share Prices and Dividends		27
Stockholder Information		29
RISK FACTORS		30
Risks Relating to the Merger		30
Risks Relating to the Merger for A. O. Smith Stockholders		32
Risks Relating to the Merger for SICO Stockholders		35
Risks Relating to A. O. Smith		36
FORWARD-LOOKING STATEMENTS		37
THE SPECIAL MEETING OF A. O. SMITH STOCKHOLDERS		38
General		38
Purpose of the Special Meeting of A. O. Smith Stockholders		38
Record Date and Voting		38
Vote Required		39
Recommendations of the A. O. Smith Special Committee and A. O. Smith Board of Directors		40
Attending the Special Meeting		40
Voting by Proxy		41
Revocation of Proxies		41
Solicitation of Proxies		42
Other Matters to Come Before the Special Meeting of A. O. Smith Stockholders		42
A. O. SMITH PROPOSAL 1—ADOPTION OF THE MERGER AGREEMENT		43
A. O. SMITH PROPOSAL 2—ADOPTION OF THE A. O. SMITH AMENDED CHARTER		44

 

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A. O. SMITH PROPOSAL 3—APPROVAL OF THE STOCK ISSUANCE		45
THE SPECIAL MEETING OF SICO STOCKHOLDERS		46
General		46
Purpose of the Special Meeting of SICO Stockholders		46
Record Date and Voting		46
Vote Required		46
Recommendations of the SICO Special Committee and SICO Board of Directors		47
Attending the Special Meeting		47
Voting by Proxy		48
Revocation of Proxies		48
Solicitation of Proxies		48
Other Matters to Come Before the Special Meeting of SICO Stockholders		49
SICO PROPOSAL 1—APPROVAL OF THE MERGER AGREEMENT		50
THE MERGER		51
Background of the Merger		51
A. O. Smith’s Reasons for the Merger; Recommendations of the A. O. Smith Special Committee and A. O. Smith Board of Directors		62
SICO’s Reasons for the Merger; Recommendations of the SICO Special Committee and SICO Board of Directors		66
Opinion of Morgan Stanley, Financial Advisor to the A. O. Smith Special Committee		69
Opinion of Duff & Phelps, Financial Advisor to the SICO Special Committee		73
Interests of A. O. Smith Executive Officers and Directors in the Merger		79
Interests of SICO Executive Officers and Directors in the Merger		80
Material Agreements Between the Parties		83
A. O. Smith Board of Directors after Completion of the Merger		83
Management of MergerCo after Completion of the Merger		83
Legal Proceedings Regarding the Merger		84
Appraisal Rights; Dissenter’s Rights		84
THE MERGER AGREEMENT		88
The Merger		88
Effective Time		88
Consideration to be Received in the Merger		88
Fractional Shares		90
Exchange of Certificates; Letter of Transmittal		91
Representations and Warranties		91
Conduct of Business Pending the Merger		93
Reasonable Best Efforts		94
Fees and Expenses		94
Spin-Off		94
Obligations of each of the A. O. Smith and SICO Boards of Directors with Respect to its Recommendation and Holding a Meeting of its Stockholders		94
Employee Benefit Matters		94
Belvidere Environmental Matters		95
Directors and Officers Exculpation and Insurance		96
A. O. Smith Insiders		96
Notice of Breach		96
Litigation		96
Cancellation of Stock		97

 

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		Page
Restrictions on SpinCo		97
Resignation of Officers and Directors		97
Taxes		97
Conditions to Obligations to Complete the Merger		97
Indemnification		98
Payment for Tax Benefit Items		101
Termination		101
A. O. SMITH AMENDED CHARTER		103
General		103
Increase in the Number of Authorized Shares of A. O. Smith Class A Common Stock		103
Increase in the Number of Directors the Holders of A. O. Smith Common Stock are Entitled to Elect		103
Conversion of A. O. Smith Class A Common Stock Upon Transfer		104
Automatic Class A Common Stock Conversion Trigger		105
Mechanics of Conversion		105
AGREEMENTS RELATING TO THE MERGER		106
SICO Support Agreement		106
Smith Family Support Agreement		106
Stockholder Agreement		107
Escrow Agreement		108
Voting Trust Agreement		109
ACCOUNTING TREATMENT		112
REGULATORY APPROVALS		112
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER		113
A. O. Smith Stockholders		113
SICO Stockholders		113
THE COMPANIES		116
A. O. Smith		116
MergerCo		120
SICO		120
SpinCo		120
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF SICO		122
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF A. O. SMITH		123
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF SICO		126
COMPARATIVE RIGHTS OF A. O. SMITH AND SICO STOCKHOLDERS PRIOR TO AND AFTER THE MERGER		128
COMPARATIVE RIGHTS OF HOLDERS OF A. O. SMITH CLASS A COMMON STOCK PRIOR TO AND AFTER THE MERGER		135
LEGAL MATTERS		139
EXPERTS		139
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS		139
A. O. Smith		139
SICO		139
WHERE YOU CAN FIND MORE INFORMATION		139

 

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		Page
HISTORICAL CONSOLIDATED FINANCIAL INFORMATION FOR SICO		F-1
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR SICO		PF-1
ANNEXES
Annex A—Agreement and Plan of Merger, dated as of December 9, 2008		A-1
Annex B—Form of Amended and Restated Certificate of Incorporation of A. O. Smith		B-1
Annex C—SICO Support Agreement		C-1
Annex D—Smith Family Support Agreement		D-1
Annex E—Stockholder Agreement		E-1
Annex F—Form of Escrow Agreement		F-1
Annex G—Form of Voting Trust Agreement		G-1
Annex H—Opinion of Morgan Stanley & Co. Incorporated, dated as of December 9, 2008		H-1
Annex I—Opinion of Duff & Phelps, LLC, dated as of December 9, 2008		I-1
Annex J—Nevada “Rights of Dissenting Owners” Statutes (NRS 92A.300 to 92A.500)		J-1

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

General Questions and Answers about the Merger and Related Transactions

Below are frequently asked questions and answers regarding the merger.

 

Q.	Why am I receiving this joint proxy statement/prospectus?

 

A.

We are delivering this document to you because it is a joint proxy statement used by the A. O. Smith and SICO boards of directors to solicit proxies of A. O. Smith and SICO stockholders in connection with the Merger Agreement. This document also is a prospectus being delivered to SICO stockholders because A. O. Smith is offering shares of its Class A common stock and common stock as consideration to SICO stockholders for their shares of SICO common stock in the merger.

 

Q.	Why is A. O. Smith proposing this merger?

 

A.	A. O. Smith believes that substantial benefits to its stockholders can be obtained as a result of the merger. A. O. Smith and its stockholders will benefit from this transaction because its terms provide for:

 

•

an exchange ratio in the Merger Agreement reflecting a discount of 1.5%, such that the merger will result in a reduction in the number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock by issuing to the SICO stockholders 98.5% of the total number of A. O. Smith shares that SICO holds immediately before the merger;

 

•

an increase in the public float for A. O. Smith Class A common stock and A. O. Smith common stock, as the A. O. Smith shares currently held by SICO will be distributed more broadly among SICO stockholders; and

 

•

enhancement of A. O. Smith’s corporate governance structure by:

 

–

providing that shares of A. O. Smith Class A common stock automatically convert into A. O. Smith common stock, subject to certain exceptions, upon transfer to unaffiliated third parties;

 

–

providing that all shares of A. O. Smith Class A common stock convert automatically into A. O. Smith common stock once the outstanding shares of A. O. Smith Class A common stock fall below 2,397,976 shares, which is approximately 8% of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock as of the date of the Merger Agreement; and

 

–

increasing from 25% to 33- 1/3% the percentage of directors that the holders of A. O. Smith common stock have the right to elect to the A. O. Smith board of directors.

For additional information, see “The Merger—A. O. Smith’s Reasons for the Merger; Recommendations of the A. O. Smith Special Committee and the A. O. Smith Board of Directors” beginning on page 62.

 

Q.	Why is SICO proposing this merger?

 

A.	SICO believes that substantial benefits to its stockholders can be obtained as a result of the merger.

As of March 4, 2009, SICO owned approximately 97.9% of the outstanding shares of A. O. Smith Class A common stock and 7.1% of the outstanding shares of A. O. Smith common stock, representing a control position in A. O. Smith. A majority of the outstanding shares of SICO common stock is owned by members of the Smith Family, which is the founding family of A. O. Smith.

Historically, SICO’s common stock has traded at a significant discount to the underlying value of its A. O. Smith shares. On February 1, 2008, the last full trading day preceding public announcement of SICO’s proposal for the merger, the aggregate market value of the outstanding shares of SICO common stock traded at a 39% discount to the aggregate value of the A. O. Smith shares held by SICO (assuming a one-for-one

 

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conversion of the A. O. Smith Class A common stock into A. O. Smith common stock). The merger will allow for direct ownership by the SICO stockholders of A. O. Smith shares, which will eliminate the discount to the value of the A. O. Smith shares caused by SICO’s holding company structure and the tax inefficiencies associated therewith, and allow the SICO stockholders to realize the underlying value of the A. O. Smith shares held by SICO. In addition, direct ownership by the SICO stockholders of the A. O. Smith shares will provide enhanced liquidity for SICO stockholders due to the greater public float and trading volumes for the shares of A. O. Smith common stock and its NYSE listing, as compared to the SICO common stock, which has been thinly traded on the Pink OTC Markets, Inc. (the “Pink Sheets”).

For additional information, see “The Merger—SICO’s Reasons for the Merger; Recommendations of the SICO Special Committee and the SICO Board of Directors” beginning on page 66.

 

Q.	What will happen in the proposed transaction?

 

A.	Under the terms of the Merger Agreement, SICO will merge with and into MergerCo, with MergerCo continuing as the surviving corporation in the merger.

Upon the completion of the merger, which we also refer to as the “effective time” of the merger, MergerCo will be a direct, wholly-owned subsidiary of A. O. Smith. SICO stockholders will receive, pursuant to an exchange ratio set forth in the Merger Agreement, shares of A. O. Smith Class A common stock and shares of A. O. Smith common stock in exchange for their shares of SICO common stock. All other stockholders of A. O. Smith will continue to be stockholders of A. O. Smith following the merger and their shares will not be exchanged.

The closing of the merger is conditioned upon, among other things, the affirmative vote of:

 

•

the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing at least 66- 2/3% of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, in favor of the proposal to adopt the Merger Agreement;

 

•

the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, in favor of the proposal to adopt the A. O. Smith Amended Charter;

 

•

the holders of A. O. Smith Class A common stock, voting as a separate class, representing a majority of the outstanding shares of A. O. Smith Class A common stock, in favor of the proposal to adopt the A. O. Smith Amended Charter;

 

•

the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes cast by such holders at the A. O. Smith special meeting, in favor of the proposal to approve the Stock Issuance; and

 

•

the holders of a majority of the outstanding shares of SICO common stock, in favor of the proposal to approve the Merger Agreement.

SICO, which holds shares representing 78.8% of the voting power of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, and 97.9% of the voting power of the total outstanding shares of A. O. Smith Class A common stock, voting as a separate class, has agreed to vote in favor of the merger and the other related proposals to be considered at the special meeting of A. O. Smith stockholders. In addition, holders of 52.7% of the voting power of the total outstanding shares of SICO common stock have agreed to vote in favor of the merger at the special meeting of SICO stockholders. Therefore, stockholders of A. O. Smith and SICO holding voting power sufficient to adopt and approve the merger and the related proposals have agreed to vote in favor of the merger and the related proposals.

 

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If adopted, the A. O. Smith Amended Charter provides for:

 

•

an increase, solely for purposes of completing the merger, in the total number of authorized shares of A. O. Smith Class A common stock that A. O. Smith can issue from 14,000,000 shares to 22,067,252 shares;

 

•

an increase in the percentage of members of the A. O. Smith board of directors that holders of A. O. Smith common stock, voting as a separate class, elect from 25% to 33- 1/3% of the members of the board of directors (if the 33- 1/3% is not a whole number, then rounding up to the nearest whole number of directors (or four of the ten current directors));

 

•

the automatic conversion of shares of A. O. Smith Class A common stock into A. O. Smith common stock, subject to certain exceptions, upon transfer to unaffiliated third parties; and

 

•

the automatic conversion of all shares of A. O. Smith Class A common stock into A. O. Smith common stock once the outstanding shares of A. O. Smith Class A common stock fall below 2,397,976 shares, which is approximately 8% of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock as of the date of the Merger Agreement.

Following the effective time of the merger, A. O. Smith will cancel the shares of A. O. Smith Class A common stock and A. O. Smith common stock currently held by SICO. Under the A. O. Smith Amended Charter, A. O. Smith will be prohibited from reissuing such shares of Class A common stock after they are cancelled. Following the merger and the cancellation of the shares of A. O. Smith Class A common stock held by SICO, the number of shares of A. O. Smith Class A common stock that A. O. Smith is authorized to issue under the A. O. Smith Amended Charter will be the same number as A. O. Smith is currently authorized to issue under the A. O. Smith Existing Charter. In addition, as of the effective time of the merger, trading of A. O. Smith Class A common stock on the Over-the-Counter Bulletin Board (the “OBB”) will cease.

You are urged to read the summary of the proposed changes to the A. O. Smith Existing Charter, as well as the proposed A. O. Smith Amended Charter, contained elsewhere in this joint proxy statement/prospectus.

For additional information regarding the merger, see “The Merger Agreement” beginning on page 88. For additional information regarding the A. O. Smith Amended Charter, see “A. O. Smith Amended Charter” beginning on page 103. For additional information regarding other conditions of the merger, see “The Merger Agreement—Conditions to Obligations to Complete the Merger” beginning on page 97.

 

Q.	When do A. O. Smith and SICO expect to complete the merger?

 

A.

A. O. Smith and SICO currently intend to complete the merger promptly following the special meetings of the A. O. Smith and SICO stockholders. However, neither A. O. Smith nor SICO can predict the exact timing of the completion of the merger because the merger is subject to A. O. Smith and SICO satisfying certain conditions. See “The Merger Agreement—Conditions to Obligations to Complete the Merger” beginning on page 97 and “Regulatory Approvals” beginning on page 112.

 

Q.	Are there risks associated with the merger and the related transactions that I should consider in deciding how to vote?

 

A.

Yes. There are a number of risks related to the merger and the other transactions contemplated by the Merger Agreement that are discussed in this joint proxy statement/prospectus and in other documents incorporated by reference or referred to in this joint proxy statement/prospectus. Please read with particular care the detailed description of the risks described in “Risk Factors” beginning on page 30 and, with respect to A. O. Smith, in A. O. Smith’s filings with the SEC referred to in “Where You Can Find More Information” beginning on page 139.

 

Q.	Who will pay the expenses associated with the merger and the related transactions?

 

A.

SICO will pay for all of its transaction expenses, as well as all reasonable out of pocket fees, costs and expenses in excess of $200,000 incurred by A. O. Smith in connection with the merger and the related transactions. As of the date of this joint proxy statement/prospectus, it is estimated that the fees and

 

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expenses that SICO is responsible to pay in connection with the transactions contemplated by the Merger Agreement will be approximately $6.75 million in total.

 

Q.	What are the United States federal income tax consequences of the merger to the stockholders of A. O. Smith and SICO?

 

A.	There are no United States federal income tax consequences of the merger to A. O. Smith stockholders with respect to their shares of A. O. Smith Class A common stock or A. O. Smith common stock.

The merger is intended to constitute a tax-free reorganization within the meaning of Section 368(a) of the Code, and the completion of the merger is conditioned upon receiving the IRS Letter Ruling to that effect. Accordingly, a SICO stockholder generally will not recognize gain or loss for United States federal income tax purposes upon the exchange of the stockholder’s shares of SICO common stock for shares of A. O. Smith Class A common stock or A. O. Smith common stock pursuant to the merger, except for any gain or loss recognized in connection with any cash received instead of a fractional share of A. O. Smith Class A common stock or A. O. Smith common stock. Payments, if any, to the SICO stockholders by A. O. Smith for certain tax benefits, refunds and credits of SICO actually realized by A. O. Smith will be taxable when paid to the SICO stockholders.

For more information regarding tax consequences to the SICO stockholders and other tax matters, see “Material United States Federal Income Tax Consequences of the Merger” beginning on page 113. Tax matters can be complicated and the tax consequences of the merger to you will depend on your particular tax situation. You should consult your tax advisor to determine the tax consequences of the merger to you.

 

Q.	How do the boards of directors of A. O. Smith and SICO recommend that I vote?

 

A.

The A. O. Smith board of directors, after careful consideration of a variety of factors, including the unanimous recommendation of the A. O. Smith Special Committee, recommends that A. O. Smith stockholders vote “FOR” the proposal to adopt the Merger Agreement, “FOR” the proposal to adopt the A. O. Smith Amended Charter and “FOR” the proposal to approve the Stock Issuance. See “The Merger—A. O. Smith’s Reasons for the Merger; Recommendations of the A. O. Smith Special Committee and the A. O. Smith Board of Directors” beginning on page 62.

The A. O. Smith Special Committee is a committee of three members of A. O. Smith’s board of directors, each of whom the board has found to be independent and disinterested, that was formed for the purpose of evaluating the proposed merger and related transactions on behalf of the A. O. Smith Unaffiliated Stockholders.

The SICO board of directors, after careful consideration of a variety of factors, including the unanimous recommendation of the SICO Special Committee, recommends that SICO stockholders vote “FOR” the proposal to approve the Merger Agreement. See “The Merger—SICO’s Reasons for the Merger; Recommendations of the SICO Special Committee and SICO Board of Directors” beginning on page 66.

The SICO Special Committee is a committee of two members of SICO’s board of directors, each of whom the board has found to be independent and disinterested, that was formed for the purpose of evaluating the proposed merger and related transactions on behalf of the SICO Unaffiliated Stockholders.

 

Q.	What do I need to do now in order to vote?

 

A.	After you have carefully read this joint proxy statement/prospectus, please respond as soon as possible so that your shares will be represented and voted at your special meeting.

If you are an A. O. Smith stockholder, you may vote by:

 

•

submitting your proxy by Internet or telephone as described elsewhere in this joint proxy statement/prospectus and the proxy card; or

 

•

by completing, signing and dating your proxy card and returning it in the postage-paid envelope.

A. O. Smith stockholders of record may also attend the A. O. Smith special meeting and vote in person.

 

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If you are a SICO stockholder you may vote by completing, signing and dating your proxy card and returning it in the postage-paid envelope. SICO stockholders of record will not be permitted to submit proxies by Internet or by telephone.

SICO stockholders of record may also attend the SICO special meeting and vote in person.

If you are a SICO stockholder as well as an A. O. Smith stockholder, you must vote separately at the special meeting of SICO stockholders in your capacity as a SICO stockholder and at the special meeting of A. O. Smith stockholders in your capacity as an A. O. Smith stockholder.

For additional information on voting procedures, see “The Special Meeting of A. O. Smith Stockholders” beginning on page 38 and “The Special Meeting of SICO Stockholders” beginning on page 46, as applicable.

 

Q.	How do I vote my shares if my shares are held in “street name”?

 

A.

You should contact your broker or bank. Your broker or bank can give you directions on how to vote your shares. Your broker or bank will not vote your shares unless the broker or bank receives appropriate instructions from you. You should therefore provide your broker or bank with instructions as to how to vote your shares. For additional information on voting procedures, see “The Special Meeting of A. O. Smith Stockholders” beginning on page 38 and “The Special Meeting of SICO Stockholders” beginning on page 46, as applicable.

 

Q.	How will my shares be voted at the special meeting?

 

A.

If you vote by completing, signing, dating and returning your signed proxy card, your shares will be voted in accordance with your instructions. If you are an A. O. Smith stockholder, you may also vote by Internet or telephone. If your proxy is properly executed and received (or, in the case of an A. O. Smith stockholder, properly submitted by Internet or telephone) in time to be voted at the special meeting, your shares represented by your proxy will be voted in accordance with your instructions. If you properly submit your proxy and do not indicate how you want to vote, your shares will be voted “FOR” adoption and approval of the applicable proposals. For additional information on voting procedures, see “The Special Meeting of A. O. Smith Stockholders” beginning on page 38 and “The Special Meeting of SICO Stockholders” beginning on page 46, as applicable.

 

Q.	Are any A. O. Smith stockholders already committed to vote in favor of the Merger Agreement, the A. O. Smith Amended Charter and the Stock Issuance?

 

A.

Yes. In connection with the merger, A. O. Smith entered into a support agreement with SICO. Pursuant to this support agreement, SICO has agreed to vote its shares of A. O. Smith Class A common stock and A. O. Smith common stock in favor of the proposals to adopt the Merger Agreement, to adopt the A. O. Smith Amended Charter and to approve the Stock Issuance. SICO is the single largest stockholder of A. O. Smith, with beneficial ownership of approximately 8,067,052 shares (or approximately 97.9%) of outstanding A. O. Smith Class A common stock and 1,559,076 shares (or approximately 7.1%) of outstanding A. O. Smith common stock.

Because the shares of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO represent approximately 78.8% of the voting power of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, and 97.9% of the voting power of the total outstanding shares of A. O. Smith Class A common stock, voting as a separate class, stockholders of A. O. Smith holding voting power sufficient to approve the proposals to adopt the Merger Agreement, to adopt the A. O. Smith Amended Charter and to approve the Stock Issuance have agreed to vote in favor of these proposals at the A. O. Smith special meeting.

 

Q.	Are any SICO stockholders already committed to vote in favor of the Merger Agreement?

 

A.	Yes. In connection with the merger, SICO and A. O. Smith entered into a support agreement with certain members of the Smith Family who are holders of SICO common stock. Pursuant to this support agreement,

 

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these members of the Smith Family have agreed to vote their shares of SICO common stock in favor of the proposal to approve the Merger Agreement. These members of the Smith Family, collectively, have beneficial ownership of approximately 1,748,044 shares (or approximately 52.7%) of the outstanding SICO common stock.

Because the shares of SICO common stock held by the members of the Smith Family who signed the Smith Family support agreement represent approximately 52.7% of the voting power of the outstanding shares of SICO common stock, stockholders of SICO holding voting power sufficient to approve the proposal to approve the Merger Agreement have agreed to vote in favor of the proposal to approve the Merger Agreement at the SICO special meeting.

Questions and Answers for A. O. Smith Stockholders

 

Q.	When and where is the A. O. Smith special meeting?

 

A.	The special meeting of the A. O. Smith stockholders will be held on Tuesday, April 14, 2009, at 11:30 a.m. Eastern Daylight Saving Time, at A. O. Smith Corporation, 855 North Third Street, Tipp City, Ohio. Please allow ample time for the check-in procedures.

 

Q.	Who is entitled to vote at the A. O. Smith special meeting?

 

A.	Holders of shares of A. O. Smith Class A common stock and A. O. Smith common stock at the close of business on March 4, 2009 are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement of that meeting.

 

Q.	How can I attend the A. O. Smith special meeting?

 

A.

A. O. Smith stockholders as of the close of business on March 4, 2009, and those who hold a valid proxy for the special meeting are entitled to attend the A. O. Smith special meeting. A. O. Smith stockholders should be prepared to present photo identification for admittance. In addition, names of record holders will be verified against the list of record holders on the record date prior to being admitted to the meeting. A. O. Smith stockholders who are not record holders but who hold shares through a broker or nominee (i.e., in street name) should provide proof of beneficial ownership on the record date, such as their most recent account statement prior to March 4, 2009, or other similar evidence of ownership. If A. O. Smith stockholders do not provide photo identification or comply with the other procedures outlined above upon request, they will not be admitted to the A. O. Smith special meeting.

 

Q.	What matters will be voted on, and what vote is required by A. O. Smith stockholders?

 

A.	A. O. Smith stockholders will vote on the three A. O. Smith proposals described in this joint proxy statement/prospectus. We cannot complete the merger unless A. O. Smith obtains the affirmative vote of:

 

•

the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing at least 66- 2/3% of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, in favor of the proposal to adopt the Merger Agreement;

 

•

the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, in favor of the proposal to adopt the A. O. Smith Amended Charter;

 

•

the holders of A. O. Smith Class A common stock, voting as a separate class, representing a majority of the votes represented by the outstanding shares of A. O. Smith Class A common stock, in favor of the proposal to adopt the A. O. Smith Amended Charter; and

 

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•

the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes cast by such holders at the A. O. Smith special meeting, in favor of the proposal to approve the Stock Issuance.

Each holder of shares of A. O. Smith Class A common stock on the record date will be entitled to one vote for each share held of record upon each matter properly submitted at the special meeting of A. O. Smith stockholders and at any adjournment or postponement of that meeting. Each holder of shares of A. O. Smith common stock outstanding on the record date will be entitled to 1/10th of a vote for each share held of record upon each matter properly submitted at the special meeting of A. O. Smith stockholders and at any adjournment or postponement of that meeting.

 

Q.	If I am a holder of A. O. Smith Class A common stock who also owns A. O. Smith common stock, how do I vote?

 

A.

If you hold A. O. Smith Class A common stock as well as A. O. Smith common stock, you must vote each class of shares separately for each proposal, in person or by proxy, at the special meeting of A. O. Smith stockholders. The separate vote of the holders of A. O. Smith Class A common stock is required in order to approve the A. O. Smith Amended Charter. Separate proxy cards for your shares of A. O. Smith Class A common stock and A. O. Smith common stock have been provided with this joint proxy statement/prospectus. For additional information, see “The Special Meeting of A. O. Smith Stockholders” beginning on page 38.

 

Q.	What if I want to change my vote after I have delivered my proxy card?

 

A.	You may change your vote at any time before your proxy is voted at the A. O. Smith special meeting. If you are the record holder of your shares of A. O. Smith common stock or A. O. Smith Class A common stock, you may change your vote in one of four ways:

 

•

first, you can send a written notice to A. O. Smith stating that you would like to revoke your proxy;

 

•

second, you can complete and submit a new valid proxy bearing a later date by mail or by Internet or telephone;

 

•

third, you can attend the A. O. Smith special meeting and vote in person; or

 

•

fourth, you can follow the instructions on the form you receive from your broker or bank with respect to changing or revoking your proxy if your shares of A. O. Smith Class A common stock and/or A. O. Smith common stock are held by a broker or bank.

Attendance at the A. O. Smith special meeting will not in and of itself constitute revocation of a proxy. If you hold shares of A. O. Smith common stock or A. O. Smith Class A common stock in “street name,” you should contact your broker or bank to give it instructions to change your vote.

If you are an A. O. Smith stockholder and you choose to send a written notice of revocation or mail a new proxy (rather than submitting any new proxy by Internet or telephone), you must submit your notice of revocation or new proxy to A. O. Smith Corporation, Attention: Corporate Secretary, 11270 West Park Place, Milwaukee, Wisconsin 53224-9508, and it must be received prior to the A. O. Smith special meeting.

 

Q.	Can I require appraisal of my shares of A. O. Smith Class A common stock or A. O. Smith common stock?

 

A.	No. A. O. Smith stockholders do not have appraisal rights in connection with the merger.

 

Q.	Will a proxy solicitor be used?

 

A.	No. A. O. Smith has not retained a proxy soliciting firm in connection with the solicitation of proxies. Proxies may be solicited by mail or facsimile, or by A. O. Smith’s directors, officers or employees, without additional compensation, in person or by telephone.

 

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Q.	As an A. O. Smith stockholder, who can answer my questions about the A. O. Smith special meeting, the merger or the related matters?

 

A.

A. O. Smith stockholders who have questions about the A. O. Smith special meeting or the merger, need additional copies of this joint proxy statement/prospectus or have questions about the process for voting or need a replacement proxy card, should contact A. O. Smith’s Corporate Secretary at (414) 359-4000.

Questions and Answers for SICO Stockholders

 

Q.	What will SICO stockholders receive in the merger?

 

A.

Upon completion of the merger, each issued and outstanding share of SICO common stock will be converted into the right to receive consideration in the form of shares of A. O. Smith Class A common stock and A. O. Smith common stock. For each issued and outstanding share of SICO common stock owned by a SICO stockholder, such stockholder will be entitled to receive:

 

•

the number of shares of A. O. Smith Class A common stock equal to the Class A Exchange Ratio;

 

•

the number of shares of A. O. Smith common stock equal to the Closing Common Exchange Ratio;

 

•

the number of shares of A. O. Smith common stock released from the escrow account, pursuant to the terms of the Merger Agreement and the escrow agreement, equal to the Per Share Escrow Release Number, if any; and

 

•

cash with respect to fractional shares, if any.

Assuming all of the shares of A. O. Smith common stock deposited into the escrow account are subsequently released to the former SICO stockholders, SICO stockholders will be entitled to receive (a) 2.396 shares of A. O. Smith Class A common stock and (b) 0.463 shares of A. O. Smith common stock for each share of SICO common stock that they hold, subject to the treatment of dissenting shares and fractional shares, if any.

The exchange ratio in the Merger Agreement reflects a discount of 1.5%, such that the merger will result in a reduction in the number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock by issuing to the SICO stockholders 98.5% of the total number of A. O. Smith shares that SICO holds immediately before the merger. Based on the closing price of $21.29 of the A. O. Smith common stock on the NYSE on March 9, 2009, the last full trading day for which closing prices were available at the time of the printing of this joint proxy statement/prospectus, the value of the shares of A. O. Smith Class A common stock and A. O. Smith common stock reflected in this discount (assuming a one for one conversion of the A. O. Smith Class A common stock into A. O. Smith common stock) was $3.1 million.

The Merger Agreement provides that shares of A. O. Smith common stock having a fair market value of $15,000,000 (calculated in accordance with the Merger Agreement) will be deposited into the escrow account to provide a source of indemnification for A. O. Smith and its subsidiaries under the Merger Agreement. The number of Escrow Shares will vary based upon the average of the volume-weighted average price of trades for A. O. Smith common stock on the New York Stock Exchange for the ten trading days ending on the last trading day immediately preceding the effective time of the merger. Set forth below is a table showing a range of hypothetical volume-weighted average prices of A. O. Smith common stock along with the corresponding number of shares of A. O. Smith Class A common stock and A. O. Smith common stock that would be issued at the effective time of the merger and Escrow Shares per share of SICO common stock outstanding immediately prior to the effective time of the merger. For every $1.00 that the applicable volume-weighted average price of A. O. Smith common stock increases, the number of Escrow Shares decreases by approximately 0.005 of a share of A. O. Smith common stock for each share of SICO common stock, and the number of shares of A. O. Smith common stock issued at the effective time of the merger increases by approximately 0.005 of a share of A. O. Smith common stock for each share of SICO common stock. This table is for illustrative purposes only. The actual prices at which shares of A. O. Smith

 

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common stock trade during the ten trading days immediately preceding the effective time of the merger will determine the actual number of Escrow Shares, which may differ from the examples below. The actual number of Escrow Shares will not be determined until the last trading day immediately preceding the effective time of the merger.

 

Hypothetical Average Volume-Weighted Prices of A. O. Smith Common Stock		Shares of A. O. Smith Class A Common Stock Issued Per Share of SICO Common Stock		Shares of A. O. Smith Common Stock Issued Per Share of SICO Common Stock		Escrow Shares Issued Per Share of SICO Common Stock
$15.50		2.396		0.171		0.292
$16.00		2.396		0.180		0.283
$16.50		2.396		0.189		0.274
$17.00		2.396		0.197		0.266
$17.50		2.396		0.205		0.258
$18.00		2.396		0.212		0.251
$18.50		2.396		0.219		0.244
$19.00		2.396		0.225		0.238
$19.50		2.396		0.231		0.232
$20.00		2.396		0.237		0.226
$20.50		2.396		0.242		0.221
$21.00		2.396		0.248		0.215
$21.50		2.396		0.253		0.210
$22.00		2.396		0.257		0.206
$22.50		2.396		0.262		0.201
$23.00		2.396		0.266		0.197
$23.50		2.396		0.271		0.192
$24.00		2.396		0.275		0.188
$24.50		2.396		0.278		0.185
$25.00		2.396		0.282		0.181
$25.50		2.396		0.286		0.177
$26.00		2.396		0.289		0.174
$26.50		2.396		0.292		0.171
$27.00		2.396		0.295		0.167
$27.50		2.396		0.299		0.164
$28.00		2.396		0.301		0.162
$28.50		2.396		0.304		0.159

The consideration that SICO stockholders will be entitled to receive in the merger is more fully described in this joint proxy statement/prospectus under the headings “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 88 and “Agreements Relating to the Merger—Escrow Agreement—Establishment of Escrow Fund” beginning on page 108.

 

Q.	How will I receive my Merger Consideration?

 

A.

Promptly after completion of the merger, SICO stockholders will receive a letter of transmittal with instructions on how to obtain A. O. Smith Class A common stock and A. O. Smith common stock in exchange for their shares of SICO common stock. You must return the completed letter of transmittal and your SICO common stock certificates as described in the instructions, and you will receive the Merger Consideration payable at closing as soon as practicable after Wells Fargo Bank Minnesota, N.A., the exchange agent, receives your completed letter of transmittal and SICO common stock certificates. If you hold shares through a brokerage account, your broker will handle the surrender of stock certificates to Wells Fargo Bank Minnesota, N.A. The procedures for exchange of stock certificates are more fully described in this joint proxy statement/prospectus under the heading “The Merger Agreement – Exchange of Certificates; Letter of Transmittal” beginning on page 91.

 

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Q.	Will there be restrictions on the transfer of the shares of A. O. Smith Class A common stock and A. O. Smith common stock I receive in the merger?

 

A.

Under the A. O. Smith Amended Charter, the transfer of A. O. Smith Class A common stock to transferees who are not “Permitted Transferees” will result in the automatic conversion of the A. O. Smith Class A common stock to A. O. Smith common stock. The A. O. Smith common stock generally carries the same right as the A. O. Smith Class A common stock to receive dividends and payments in a liquidation, and is publicly traded on the NYSE, but the A. O. Smith common stock only has 1/10th vote per share on all matters other than the election of directors, as compared to one vote per share for the A. O. Smith Class A common stock. Under the A. O. Smith Amended Charter, holders of A. O. Smith common stock, voting as a class, will be entitled to elect the number of directors which constitutes 33-1/3% of the A. O. Smith board of directors, rounded up (or four of the ten directors). The provisions governing the automatic conversion of shares of A. O. Smith Class A common stock upon any transfer to transferees who are not Permitted Transferees, including the definition of Permitted Transferees, are more fully described in this joint proxy statement/prospectus under the heading “A. O. Smith Amended Charter” beginning on page 103.

Shares of A. O. Smith common stock will not contain transfer restrictions and will be freely tradable following receipt.

 

Q.	When and where is the SICO special meeting?

 

A.	The special meeting of the SICO stockholders will be held on Thursday, April 16, 2009 at 9:30 a.m., Central Daylight Saving Time, at Smith Investment Company, 11270 West Park Place, Milwaukee, Wisconsin. Please allow ample time for the check-in procedures.

 

Q.	Who is entitled to vote at the SICO special meeting?

 

A.	Holders of shares of SICO common stock as of the close of business on March 4, 2009 are entitled to notice of, and to vote at, the special meeting or any adjournment or postponement of the special meeting.

 

Q.	How can I attend the SICO special meeting?

 

A.

SICO stockholders as of the close of business on March 4, 2009, and those who hold a valid proxy for the special meeting are entitled to attend the SICO special meeting. SICO stockholders should be prepared to present photo identification for admittance. In addition, names of record holders will be verified against the list of record holders on the record date prior to being admitted to the meeting. SICO stockholders who are not record holders but who hold shares through a broker or nominee (i.e., in street name) should provide proof of beneficial ownership on the record date, such as their most recent account statement prior to March 4, 2009, or other similar evidence of ownership. If SICO stockholders do not provide photo identification or comply with the other procedures outlined above upon request, they will not be admitted to the SICO special meeting.

 

Q.	What matters will be voted on and what vote is required by SICO stockholders?

 

A.

SICO stockholders will vote on a proposal to approve the Merger Agreement. We cannot complete the merger unless SICO obtains the approval of the holders of a majority of the outstanding shares of SICO common stock in favor of the proposal to approve the Merger Agreement. Each holder of shares of SICO common stock on the record date will be entitled to one vote for each share held of record upon each matter properly submitted at the SICO special meeting and at any adjournment or postponement of that meeting.

 

Q.	What if I sell my shares of SICO common stock before the special meeting?

 

A.

The record date for the special meeting is March 4, 2009. If you transfer your shares of SICO common stock after the record date but before the special meeting, you will retain your right to vote at the special meeting but will transfer the right (if the merger is completed) to receive shares of A. O. Smith Class A common stock and A. O. Smith common stock in exchange for the shares of SICO common stock you hold to the person to whom you transfer your shares.

 

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Q.	What if I want to change my vote after I have delivered my proxy card?

 

A.	You may change your vote at any time before your proxy is voted at the SICO special meeting. If you are the record holder of your shares of SICO common stock, you may change your vote in one of three ways:

 

•

first, you can send a written notice to SICO stating that you would like to revoke your proxy;

 

•

second, you can complete and submit a new valid proxy bearing a later date by mail; or

 

•

third, you can attend the SICO special meeting and vote in person.

Attendance at the SICO special meeting will not in and of itself constitute revocation of a proxy. If you hold shares of SICO common stock in “street name,” you should contact your broker or bank to give it instructions to change your vote.

If you are a SICO stockholder and you choose to send a written notice of revocation or mail a new proxy, you must submit your notice of revocation or new proxy to Smith Investment Company, Attention: Corporate Secretary, 11270 West Park Place, Milwaukee, Wisconsin 53224-9508, and it must be received prior to the SICO special meeting.

 

Q.	Should I send in my SICO common stock certificates with my proxy card?

 

A.

No. Please DO NOT send any stock certificates with your proxy card. A letter of transmittal with instructions on how to surrender your stock certificates for SICO common stock will be mailed to you promptly after completion of the merger. You should carefully review and follow the instructions regarding the surrender of your stock certificates set forth in the letter of transmittal.

 

Q.	Can I dissent and seek to obtain the fair value of my shares of SICO common stock?

 

A.

Yes. Under NRS Chapter 92A, SICO stockholders will have dissenters’ rights in connection with the merger. SICO stockholders who properly demand and perfect their dissenters’ rights are entitled to obtain payment of the fair value of their shares of SICO common stock immediately before the effective time of the merger, excluding any appreciation or depreciation in anticipation of the merger. A copy of NRS 92A.300 to 92A.500 is included as Annex J to this joint proxy statement/prospectus and a summary of these sections can be found under “Appraisal Rights; Dissenter’s Rights” beginning on page 84 of this joint proxy statement/prospectus.

 

Q.	Will a proxy solicitor be used?

 

A.	No. SICO has not retained a proxy soliciting firm in connection with the solicitation of proxies. Proxies may be solicited by mail or facsimile, or by SICO’s directors, officers or employees, without additional compensation, in person or by telephone.

 

Q.	As a SICO stockholder, who can answer my questions about the SICO special meeting, the merger or the related matters?

 

A.	SICO stockholders who have questions about the SICO special meeting or the merger, need additional copies of this joint proxy statement/prospectus or have questions about the process for voting or need a replacement proxy card, should contact SICO’s Corporate Secretary at (414) 359-4030.

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF A. O. SMITH

The summary historical consolidated financial data set forth below should be read in conjunction with the historical consolidated financial statements of A. O. Smith and the related notes contained in the annual reports and other information that A. O. Smith has previously filed with the SEC and which are incorporated herein by reference. See “Where You Can Find More Information” beginning on page 139.

The summary historical consolidated financial data as of and for each of the five years ended December 31, 2008 have been derived from A. O. Smith’s audited consolidated financial statements.

(dollars in millions, except per share amounts)

SUMMARY STATEMENTS OF OPERATIONS DATA

 

		Years ended December 31
		2008			2007			2006 (1)			2005 (2)			2004
Net sales		$	2,304.9		$	2,312.1		$	2,161.3		$	1,689.2		$	1,653.1
Earnings
Continuing operations			81.9			88.2			76.2			46.5			35.4
Discontinued operations			—			—			0.3			—			—
Net earnings		$	81.9		$	88.2		$	76.5		$	46.5		$	35.4
Basic earnings per share of common stock:
Continuing operations		$	2.72		$	2.89		$	2.51		$	1.57		$	1.21
Discontinued operations			—			—			0.01			—			—
Net earnings per share—basic		$	2.72		$	2.89		$	2.52		$	1.57		$	1.21
Diluted earnings per share of common stock:
Continuing operations		$	2.70		$	2.85		$	2.46		$	1.54		$	1.18
Discontinued operations			—			—			0.01			—			—
Net earnings per share—diluted		$	2.70		$	2.85		$	2.47		$	1.54		$	1.18
Cash dividends per common share		$	0.74		$	0.70		$	0.66		$	0.64		$	0.62

SELECTED BALANCE SHEET DATA

 

		As of December 31
		2008			2007			2006			2005			2004
Total assets		$	1,883.9		$	1,854.4		$	1,839.9		$	1,292.7		$	1,314.0
Long term debt (3)			317.3			379.6			432.1			162.4			272.5
Total stockholders’ equity			641.1			757.8			684.6			612.9			590.6

 

(1)

In April 2006, A. O. Smith acquired GSW Inc., a publicly traded Canadian based manufacturer of water heaters and building products. In December 2006, A. O. Smith sold the building products segment of this business which was treated as a discontinued operation. See Note 2 of Notes to Consolidated Financial Statements in the A. O. Smith Annual Report on Form 10-K for the year ended December 31, 2008, which Notes are incorporated herein by reference.

 

(2)	In November 2005, A. O. Smith acquired Yueyang Zhongmin Special Electrical Machinery Co., Ltd.

 

(3)	Excludes the current portion of long-term debt.

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF SICO

The summary historical consolidated financial data set forth below should be read in conjunction with the consolidated financial statements of SICO and the related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SICO” appearing elsewhere in this joint proxy statement/prospectus. The summary historical consolidated financial data for SICO include the operations of Berlin Industries and SICO’s controlled subsidiary, A. O. Smith.

The summary statements of operations data for 2008, 2007 and 2006 and the summary balance sheet data as of December 31, 2008 and 2007 have been derived from audited financial statements included elsewhere in this joint proxy statement/prospectus. The summary statements of operations data for 2005 and 2004 and the balance sheet data as of December 31, 2006, 2005 and 2004 have been derived from audited financial statements not included in this joint proxy statement/prospectus.

(dollars in millions, except per share amounts)

SUMMARY STATEMENTS OF OPERATIONS DATA

 

		Years ended December 31
		2008				2007				2006 (1)				2005 (2)				2004
Net sales		$	2,358.1			$	2,386.5			$	2,232.4			$	1,769.6			$	1,739.6
Earnings:
Continuing operations before minority interest			76.9				90.3				74.2				41.0				26.5
Minority interest in continuing earnings			(55.6	)			(60.4	)			(52.1	)			(31.5	)			(23.8	)
Continuing operations			21.3				29.9				22.1				9.5				2.7
Discontinued operations			0.4				0.5				0.5				0.2				(0.5	)
Net earnings		$	21.7			$	30.4			$	22.6			$	9.7			$	2.2
Basic and diluted earnings per share of common stock:
Continuing operations		$	6.43			$	9.02			$	6.68			$	2.87			$	0.79
Discontinued operations			0.12				0.14				0.14				0.06				(0.14	)
Net earnings per share		$	6.55			$	9.16			$	6.82			$	2.93			$	0.65
Cash dividends per common share		$	1.16			$	1.02			$	0.86			$	0.80			$	0.80

SUMMARY BALANCE SHEET DATA

 

		As of December 31
		2008			2007			2006			2005			2004
Total assets		$	1,928.7		$	1,910.4		$	1,893.0		$	1,356.2		$	1,390.2
Long term debt (3)			317.3			387.6			442.1			174.4			286.5
Total stockholders’ equity			226.6			278.7			244.7			222.0			221.4

 

(1)

In April 2006, A. O. Smith acquired GSW Inc., a publicly traded Canadian based manufacturer of water heaters and building products. In December 2006, A. O. Smith sold the building products segment of this business which was treated as a discontinued operation. See Note 2 of Notes to Audited Consolidated Financial Statements of SICO included elsewhere herein.

 

(2)	In November 2005, A. O. Smith acquired Yueyang Zhongmin Special Electrical Machinery Co., Ltd.

 

(3)	Excludes the current portion of long-term debt.

 

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SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION FOR SICO

The summary unaudited pro forma financial information set forth below should be read in conjunction with the unaudited pro forma condensed consolidated financial information, the consolidated financial statements and the related notes of SICO, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of SICO” appearing elsewhere in this joint proxy statement/prospectus. The summary unaudited pro forma financial information of SICO has been prepared giving effect to the Spin-Off and the merger as if these transactions occurred as of January 1, 2008 for the summary unaudited pro forma statements of operations data for the year ended December 31, 2008; and as of December 31, 2008 for the summary unaudited pro forma balance sheet data as of December 31, 2008.

The summary unaudited pro forma condensed consolidated statements of operations data and the summary unaudited pro forma condensed consolidated balance sheet data have been derived from the unaudited pro forma condensed consolidated financial information and the audited consolidated financial statements of SICO included elsewhere in this joint proxy statement/prospectus and do not purport to represent what SICO’s financial position and results of operations actually would have been had the Spin-Off, the merger and related transactions occurred on the dates indicated or to project SICO’s financial performance for any future period.

The transaction between A. O. Smith and SICO is considered a reverse acquisition under SFAS 141 (R) Business Combinations (“SFAS 141 (R)”). A reverse acquisition occurs when the legal acquirer, or the entity that issues the securities in the merger, is identified as the acquiree for accounting purposes. In the proposed merger, A. O. Smith is the legal acquirer because SICO will be a wholly owned subsidiary of A. O. Smith after the merger, and A. O. Smith will be issuing shares of A. O. Smith Class A common stock and A. O. Smith common stock as consideration in the merger. SICO is the legal acquiree in the merger. Even though A. O. Smith is the legal acquirer, SFAS 141(R) requires that A. O. Smith be treated as the acquiree for accounting purposes and SICO be treated as the acquirer for accounting purposes.

As the legal acquirer, however, A. O. Smith will survive as a publicly listed company after completion of the merger and will be required to present financial statement information in accordance with U.S. GAAP and SEC reporting requirements. SICO will have been merged with MergerCo, will cease to exist as an independent legal entity, and will be a wholly owned subsidiary of A. O. Smith after completion of the merger. Due to the reverse acquisition accounting treatment under SFAS 141(R), A. O. Smith’s financial statement information going forward will be presented as if SICO were the successor to the reporting obligation of A. O. Smith as of the date of the merger. As a result, prior period financial statement information presented in the A. O. Smith financial statements will reflect the historical activity of SICO.

In addition to being a reverse acquisition under SFAS 141(R), the merger is a common control transaction according to SFAS 160 Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51 (“SFAS 160”). As a result, the merger will be accounted for as an equity transaction and therefore will not require purchase accounting adjustments to reflect fair value. Because A. O. Smith is the legal acquirer, the SICO shares are treated as having been converted to SICO’s ownership of A. O. Smith stock via a stock split to reflect SICO’s ownership of A. O. Smith Class A common stock and A. O. Smith common stock. Prior to the merger, SICO consolidated the financial results of A. O. Smith and presented a minority interest (referred to as a “noncontrolling interest” under SFAS 160). The noncontrolling interest represented the portion of A. O. Smith that SICO did not own. Under a reverse acquisition, the noncontrolling interest is eliminated from the financial statement presentation in future periods as A. O. Smith is the legal acquirer and the accounting acquiree. Although the non-SICO stockholders of A. O. Smith are not exchanging their shares in the merger, the reverse acquisition accounting requires the transaction to be presented as if an acquisition of the noncontrolling interest occurred since there is no remaining noncontrolling interest once the two companies are combined into one reporting entity.

 

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(dollars in millions, except per share amounts)

SUMMARY UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS DATA

 

		Year Ended December 31
		2008
Net sales		$	2,304.9
Net earnings		$	81.9
Net earnings per share:
Basic		$	2.74
Diluted		$	2.72
Cash dividend per share		$	0.74

SUMMARY UNAUDITED PRO FORMA BALANCE SHEET DATA

 

		As of December 31
		2008
Total assets		$	1,883.9
Long term debt			317.3
Total stockholders’ equity			641.1

 

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COMPARATIVE PER SHARE DATA

The following table sets forth (a) certain historical per share information of A. O. Smith, (b) certain historical per share information of SICO and (c) unaudited pro forma per share information after giving effect to the merger as a reverse acquisition under SFAS 141(R) and a common control transaction in accordance with SFAS 160 Noncontrolling Interests in Consolidated Financial Statements and amendment of ARB No. 51 (SFAS 160). The unaudited pro forma condensed consolidated per share data assumes that, to give effect to the merger, each share of SICO common stock outstanding as of December 31, 2008 was converted into (a) 2.396 shares of A. O. Smith Class A common stock and (b) 0.463 shares of A. O. Smith common stock, without regard to the treatment of Escrow Shares, dissenting shares and fractional shares described in this joint proxy statement/prospectus. The calculation of these exchange ratios assumes that all of the shares of A. O. Smith common stock deposited into the escrow account have been released to the former SICO stockholders. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that A. O. Smith or MergerCo will experience after the effective time of the merger. The unaudited pro forma condensed consolidated per share data have been derived from and should be read in conjunction with the “Unaudited Pro Forma Condensed Consolidated Financial Information for SICO” beginning on page PF-1. The historical per share data have been derived from the historical consolidated financial statements as of and for the periods indicated of A. O. Smith, as incorporated by reference in this joint proxy statement/prospectus, and of SICO, as set forth in this joint statement/prospectus beginning on page F-1.

 

		For the Year Ended December 31, 2008
A. O. Smith Historical Per Share Data:
Net Earnings:
Basic		$	2.72
Diluted			2.70
Cash dividends declared			.74
Book value			21.24
SICO Historical Per Share Data:
Net Income:
Basic and Diluted		$	6.55
Cash dividends declared			1.16
Book value			68.31
Pro Forma Consolidated Per Share Data (unaudited):
Net Income:
Basic		$	2.74
Diluted			2.72
Cash dividends declared			.74
Book value			21.35

 

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COMPARATIVE MARKET PRICE AND DIVIDEND DATA

Recent Share Prices and Dividends

A. O. Smith common stock is listed on the NYSE under the symbol “AOS.” A. O. Smith Class A common stock is quoted on the OBB under the symbol “SAOSA.”

SICO common stock is quoted on the Pink Sheets under the symbol “SMIC.”

The table below sets forth, for each of the fiscal quarters indicated, the high and low sales prices of A. O. Smith common stock, as reported by the NYSE, the high and low bid quotations for A. O. Smith Class A common stock, as reported by the OBB, the high and low bid quotations for SICO common stock, as reported by the Pink Sheets, and the quarterly cash dividends declared per share of A. O. Smith common stock, A. O. Smith Class A common stock and SICO common stock. The over-the-counter market quotations reported below reflect inter-dealer prices, without mark-up, mark-down or commissions and may not represent actual transactions.

 

				A. O. Smith
				Common Stock						Class A Common Stock									SICO
				High			Low			High			Low			Dividend (1)			High			Low			Dividend
2007		First Quarter		$	40.74		$	35.50		$	40.00		$	36.00		$	.17		$	65.00		$	60.50		$	.23
		Second Quarter			41.35			37.53		$	41.00		$	37.60			.17			68.00			62.50			.23
		Third Quarter			52.48			40.03		$	51.00		$	42.00			.18			74.00			66.00			.28
		Fourth Quarter			47.52			32.09		$	43.65		$	34.55			.18			70.00			62.00			.28
2008		First Quarter		$	39.02		$	29.25		$	37.00		$	31.99		$	.18		$	106.53		$	62.25		$	.28
		Second Quarter			36.73			30.05			35.00			30.00			.18			104.00			88.00			.28
		Third Quarter			51.09			30.70			47.00			31.00			.19			102.75			88.00			.30
		Fourth Quarter			39.41			23.08			35.00			24.50			.19			88.00			60.00			.30
2009		First Quarter			32.75			23.40			30.00			24.50			.19			84.00			65.00			—
		(through March 4, 2009)

 

(1)	Dividends paid per share of A. O. Smith Class A common stock and A. O. Smith common stock.

The above table shows only historical comparisons and may not provide meaningful information to A. O. Smith or SICO stockholders in determining whether to approve or adopt the Merger Agreement. The shares of A. O. Smith Class A common stock and SICO common stock are thinly traded in over-the-counter markets that are relatively illiquid, and on certain trading days may not trade at all, which may affect the quoted market prices for those shares. You are urged to obtain current market quotations for A. O. Smith common stock, A. O. Smith Class A common stock and SICO common stock and to carefully review the other information contained in this joint proxy statement/prospectus in considering whether to approve or adopt the Merger Agreement. Please refer to the section of this joint proxy statement/prospectus entitled “Where You Can Find More Information” beginning on page 139.

Additional Share Information

A. O. Smith

The closing price per share of A. O. Smith common stock, as reported by the NYSE, was (a) $36.28 on February 1, 2008, the last full trading day preceding public announcement of SICO’s proposal for the merger, (b) $31.81 on December 8, 2008, the last full trading day preceding public announcement that A. O. Smith and SICO had entered into the Merger Agreement, and (c) $21.29 on March 9, 2009, the last full trading day for which closing prices were available at the time of the printing of this joint proxy statement/prospectus.

 

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The closing price per share of A. O. Smith Class A common stock, as quoted by the OBB, was (a) $33.00 on February 1, 2008, the last full trading day preceding public announcement of SICO’s proposal for the merger, (b) $32.00 on December 8, 2008, the last full trading day preceding public announcement that A. O. Smith and SICO had entered into the Merger Agreement, and (c) $22.50 on March 9, 2009, the last full trading day for which closing prices were available at the time of the printing of this joint proxy statement/prospectus. The shares of A. O. Smith Class A common stock are thinly traded in an over-the-counter market that is relatively illiquid, and on certain trading days may not trade at all, which may affect the quoted market prices for shares of A. O. Smith Class A common stock.

No assurance can be given as to the market price of A. O. Smith common stock or A. O. Smith Class A common stock at any time after the merger. In the event that the market price of A. O. Smith common stock or A. O. Smith Class A common stock decreases or increases prior to the consummation of the merger, the value of A. O. Smith common stock and/or A. O. Smith Class A common stock to be received in the merger in exchange for SICO common stock may correspondingly decrease or increase. In addition, under the A. O. Smith Amended Charter, which will be in effect after the merger, the transfer of A. O. Smith Class A common stock to any transferee who is not a “Permitted Transferee” will result in the automatic conversion to A. O. Smith common stock of the shares of A. O. Smith Class A common stock so transferred. As a result of this automatic conversion upon transfer, there is not expected to be any public trading market for the shares of A. O. Smith Class A common stock after the merger, and price quotations for the shares of A. O. Smith Class A common stock will no longer be available on the OBB. This could affect the value of the shares of A. O. Smith Class A common stock after completion of the merger.

SICO

The closing price per share of SICO common stock, as quoted by the Pink Sheets, was (a) $64.00 on February 1, 2008, the last full trading day preceding public announcement of SICO’s proposal for the merger, (b) $60.00 on December 8, 2008, the last full trading day preceding public announcement that A. O. Smith and SICO had entered into the Merger Agreement, and (c) $61.00 on March 9, 2009, the last full trading day for which closing prices were available at the time of the printing of this joint proxy statement/prospectus. The shares of SICO common stock are thinly traded in an over-the-counter market that is relatively illiquid, and on certain trading days may not trade at all, which may affect the quoted market prices for shares of SICO common stock.

Additional Dividend Information

A. O. Smith

A. O. Smith has paid dividends for 69 consecutive years. While A. O. Smith has paid dividends on its Class A common stock and its common stock, there is no assurance that it will continue to pay dividends in the future. The decision to pay dividends is within the discretion of the A. O. Smith board of directors and may be affected by various factors, including A. O. Smith’s earnings, financial condition, capital requirements, level of indebtedness and other considerations that the A. O. Smith board of directors deems relevant. A. O. Smith’s existing credit facility, as well as future credit facilities, other future debt obligations and statutory provisions may limit its ability to pay dividends.

SICO

SICO has paid dividends for 69 consecutive years. Dividends are generally paid by SICO on a quarterly basis after receipt by SICO of dividends on the shares of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO. The SICO board of directors has determined that SICO will not pay a dividend in the first quarter of 2009. In reaching its determination, the SICO board of directors considered the costs expected to be incurred to complete the merger and the desire of the SICO board of directors to preserve financial flexibility in light of current uncertainty in economic and financial conditions. The Merger Agreement does not

 

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limit the payment of dividends by SICO prior to the effective time as long as such dividends are made by SICO in the ordinary course consistent with past practices. The decision to pay dividends is within the discretion of the SICO board of directors. In determining whether to pay the second quarter 2009 dividend, if the merger has not been completed prior to such time, the SICO board of directors likely will take into account the financial condition of SICO and SpinCo, the costs incurred for the merger and the expectations of SICO stockholders, among other considerations.

Stockholder Information

A. O. Smith

As of March 4, 2009, A. O. Smith had 8,239,267 shares of A. O. Smith Class A common stock and 21,949,691 shares of A. O. Smith common stock outstanding and approximately 283 stockholders of record of A. O. Smith Class A common stock and 1,283 stockholders of record of A. O. Smith common stock. The numbers of stockholders of record do not reflect the number of persons or entities who may hold their stock in nominee or “street name” through brokerage firms.

SICO

As of March 4, 2009, SICO had 3,317,066 shares of SICO common stock outstanding and approximately 40 stockholders of record of SICO common stock. The number of stockholders of record does not reflect the number of persons or entities who may hold their stock in nominee or “street name” through brokerage firms.

 

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RISK FACTORS

In addition to the other information contained in or incorporated by reference in this joint proxy statement/prospectus, including A. O. Smith’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008 and the matters addressed under the heading “Forward-Looking Statements” beginning on page 37 of this joint proxy statement/prospectus, you should carefully consider the following risk factors in deciding whether to vote in favor of the proposals described in this joint proxy statement/prospectus.

Risks Relating to the Merger

Completion of the merger is subject to the receipt of consents and approvals from, or the making of filings with, certain government entities that could delay completion of the merger or impose conditions that could have a material adverse effect on SICO or A. O. Smith, or significantly reduce the benefits expected to be obtained from the merger.

The merger is subject to the receipt of approvals or consent from, or the making of filings with, certain regulatory authorities, including the IRS, in connection with the request for the IRS Letter Ruling described in this joint proxy statement/prospectus. While we do not currently expect a delay in receiving the necessary approvals from such regulatory authorities, we cannot assure you that a delay will not occur. In addition to the required regulatory clearances and approvals, the merger is subject to a number of other conditions beyond our control that may prevent, delay or otherwise negatively affect its completion. See “The Merger Agreement—Conditions to Obligations to Complete the Merger” beginning on page 97. We cannot predict whether and when these other conditions will be satisfied. Any delay in completing the merger or the imposition of any additional material conditions on or changes to the terms of the merger may significantly reduce the benefits that we expect to achieve if we successfully complete the merger within the expected timeframe. See “Regulatory Approvals” beginning on page 112.

If the merger does not constitute a tax-free reorganization under Section 368(a) of the Code, then both SICO stockholders and A. O. Smith or MergerCo may be responsible for payment of income taxes.

The merger is conditioned upon the receipt by A. O. Smith and SICO of the IRS Letter Ruling to the effect that the merger will be treated as a tax-free reorganization within the meaning of Section 368(a) of the Code. Although a private letter ruling from the IRS generally is binding on the IRS, if the factual representations or assumptions made in the letter ruling request are untrue or incomplete, then the ruling may not be relied upon. If the merger were determined to be taxable, then both SICO stockholders and A. O. Smith or MergerCo (as successors to SICO) may be responsible for the payment of income taxes in connection with the merger.

The parties to the merger may fail to realize all of the expected benefits of the merger.

The parties to the merger may fail to realize some or all of the expected benefits of the transaction in the amounts and times projected for a number of reasons, including that the transaction may be more costly than expected or have unexpected adverse results.

The Merger Agreement limits the ability of A. O. Smith and SICO to pursue alternatives to the merger.

The Merger Agreement provides that neither of the boards of directors of SICO nor A. O. Smith, nor the A. O. Smith Special Committee nor the SICO Special Committee may withdraw or modify its recommendation regarding the merger. Notwithstanding the foregoing, at any time prior to the adoption of the Merger Agreement by its stockholders, the board of directors of either A. O. Smith or SICO, or duly constituted committees thereof, may withdraw or modify its recommendation regarding the merger in response to a material event relating to its business which is unknown to the board of directors as of the date of the Merger Agreement and which becomes known prior to the approval or adoption of the Merger Agreement by its stockholders, if the board of directors

 

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(or committee thereof) determines in good faith, after consultation with its legal counsel and financial advisors, that the withdrawal or modification of the recommendation is required in order for the board of directors (or committee thereof) to comply with its fiduciary duties to its stockholders under applicable law. Regardless of whether the board of directors of A. O. Smith withdraws its recommendation regarding the merger as described in the sentence above, the board of directors of A. O. Smith may not cancel the special meeting of the A. O. Smith stockholders and is required to submit consideration of the merger and the related proposals to the A. O. Smith stockholders for a vote. The board of directors of SICO may withdraw its recommendation regarding the merger in accordance with the sentence above without any obligation to hold the special meeting of the SICO stockholders or submit consideration of the merger to the SICO stockholders for a vote. Certain members of the Smith Family who hold a majority of the outstanding shares of SICO common stock have agreed in a support agreement with SICO and A. O. Smith, for a period of one year after the termination of the Merger Agreement, not to vote in favor of any proposal that results in or is related to the withdrawal or modification of the SICO board recommendation. This agreement by the members of the Smith Family, along with the limitations in the Merger Agreement on withdrawing or modifying recommendations, may discourage third-parties from proposing alternative transactions to A. O. Smith or SICO. For a discussion of the limits on the ability of the board of directors of each of A. O. Smith and SICO to withdraw or modify its recommendation, see “The Merger Agreement—Obligations of each of the A. O. Smith and SICO Boards of Directors with Respect to its Recommendation and Holding a Meeting of its Stockholders” beginning on page 94. For a discussion of the Smith Family support agreement with SICO and A. O. Smith, see “Agreements Relating to the Merger—Smith Family Support Agreement” beginning on page 106.

Failure to complete the merger could negatively affect the stock price, future business and/or operations of SICO and the stock price of A. O. Smith.

The Merger Agreement contains a number of conditions to the obligations of the parties to complete the merger. In addition, the Merger Agreement may be terminated under certain circumstances. If the merger is not completed for any reason, SICO and A. O. Smith may be subject to a number of material risks. These risks include the following:

 

•

the market price of SICO common stock, A. O. Smith Class A common stock or A. O. Smith common stock may decline to the extent that the current market prices of SICO common stock, A. O. Smith Class A common stock or A. O. Smith common stock reflect a market assumption that the merger will be completed;

 

•

fees, costs and expenses incurred by SICO and A. O. Smith in connection with the merger, such as legal, accounting and certain financial advisor fees, costs and expenses, must be paid by SICO even if the merger is not completed; and

 

•

the Spin-Off has been completed and was not conditioned on the merger, and if the merger is not completed, SICO and SpinCo would continue as separate companies holding different portions of the assets and liabilities previously held by SICO, which could result in greater aggregate expenses and a greater administrative burden in managing the companies’ businesses, assets and liabilities.

If the Merger Agreement is terminated and SICO is required to pay the foregoing fees and expenses without realizing any of the benefits of the merger, it could have a material adverse effect on SICO’s business, financial condition and results of operations, which could ultimately affect the market price of SICO common stock.

Certain of A. O. Smith’s directors and SICO’s executive officers and directors have interests in the merger that are different from, or in addition to, the interests of A. O. Smith stockholders and SICO stockholders.

The A. O. Smith Special Committee and the SICO Special Committee negotiated the terms of the Merger Agreement. A. O. Smith’s board of directors approved and recommended that its stockholders vote to adopt the Merger Agreement, adopt the A. O. Smith Amended Charter and approve the Stock Issuance. SICO’s board of

 

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directors approved and recommended that its stockholders vote to approve the Merger Agreement. Certain directors and/or executive officers may have interests in the merger that are different from, or in addition to, those of A. O. Smith and SICO stockholders generally. For additional information regarding such interests, see “The Merger—Interests of A. O. Smith Executive Officers and Directors in the Merger” beginning on page 79 and “The Merger—Interests of SICO Executive Officers and Directors in the Merger” beginning on page 80.

A. O. Smith and SICO are defendants in a pending lawsuit in connection with the merger.

On February 26, 2008 Buttonwood Tree Value Partners, LP filed a purported class action complaint against SICO, A. O. Smith and certain directors and officers of SICO and A. O. Smith in the Milwaukee County Circuit Court in Wisconsin. The initial complaint alleged that the defendants breached their fiduciary duties to plaintiffs in connection with SICO’s proposed transaction. The lawsuit sought, among other things, an injunction requiring that defendants provide plaintiff with all documents relevant to the terms and conditions of the proposed transaction and permit the plaintiff to participate in negotiations regarding the potential transaction between SICO and A. O. Smith.

On February 19, 2009, Buttonwood Tree Value Partners, LP filed an amended complaint alleging, among other things, that the individual defendants breached their fiduciary duties in connection with the proposed transaction, and that A. O. Smith, through its officers and directors, aided and abetted this purported breach of fiduciary duty. The amended complaint added certain members of the Smith family and the CEO of A. O. Smith. The amended complaint seeks, among other things, an injunction enjoining the proposed transaction and requiring defendants to make certain disclosures to SICO’s stockholders.

Counsel for the parties have agreed in principle to settle the lawsuit and have executed a Memorandum of Understanding dated March 10, 2009. A stipulation of settlement is expected to follow. As part of the settlement, and in exchange for a dismissal of the lawsuit and release, A. O. Smith has agreed to add certain corporate governance measures to its policies and SICO and A. O. Smith have agreed to make certain additional disclosures (that plaintiffs’ counsel has reviewed) to its stockholders in this joint proxy statement/prospectus.

The corporate governance measures would include the following: (1) A. O. Smith’s Nominating and Governance Committee would need to approve any transaction or arrangement with A. O. Smith reportable under Item 404 of Regulation S-K under the Securities Exchange Act of 1934, involving a potential conflict of interest of an A. O. Smith director, CEO or any of their respective family members; (2) A. O. Smith’s Nominating and Governance Committee would evaluate the independence of A. O. Smith directors under previously established and publicly available guidelines; (3) A. O. Smith’s Nominating and Corporate Governance Committee would review on an annual basis and report to the board compliance with A. O. Smith’s publicly available policy regarding conflicts of interest/affiliations involving directors and their immediate family members.

The settlement would resolve the claims in the currently pending lawsuit. It is subject to customary conditions, including preliminary and final approval by the Court, after appropriate notice and a hearing to consider the fairness of the settlement. The settlement is also subject to completion of the merger. The defendants continue to deny any liability or responsibility for the claims made in the pending lawsuit and make no admission of any wrongdoing. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Court will approve the settlement even if the parties enter into a stipulation. If the Court approves the settlement, SICO stockholders from February 2, 2008 through the completion of the merger (other than the SICO directors, SICO and A. O. Smith) will release all claims, excluding valid exercises of dissenters’ rights, relating to the merger that were or could be brought against SICO, A. O. Smith, the other defendants and in each case, their respective directors, officers, affiliates and agents.

Risks Relating to the Merger for A. O. Smith Stockholders

MergerCo, as successor by merger to SICO, may remain liable to third parties after the merger.

Under the Merger Agreement, SpinCo has agreed to assume, and to indemnify A. O. Smith and its subsidiaries, including MergerCo, for all liabilities arising out of any events, conditions, circumstances, facts,

 

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activities, practices, actions or omissions with respect to SICO or its subsidiaries or SpinCo or any of their respective business operations which occurred prior to the merger. A. O. Smith and its subsidiaries, including MergerCo, also are indemnified for these liabilities from the escrow of shares of A. O. Smith common stock that otherwise would be issued to the SICO stockholders in the merger. See “Agreements Relating to the Merger—Escrow Agreement” beginning on page 108. SICO historically has been involved in multicolor printing and related services conducted through Berlin Industries, and commercial warehousing, trucking and packaging conducted through Central States. In addition, prior to 1998, SICO through its Belvedere division was engaged in the business of manufacturing and distributing equipment and fixtures for beauty and styling salons and barber shops. On January 19, 2009, SICO completed the Spin-Off. The Spin-Off is described in more detail in “The Companies—SICO—Recent Developments,” beginning on page 120. Notwithstanding the completion of the Spin-Off, MergerCo, as successor by merger to SICO, could continue to face possible liabilities with respect to the operations of Central States, Berlin Industries and the Belvedere division for actions, events or circumstances arising or occurring before the Spin-Off and the merger. The areas of potential liability include:

 

•

environmental cleanup costs and liabilities for claims made under federal, state or foreign environmental laws;

 

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tax liabilities;

 

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obligations under federal and state pension and retirement benefit laws; and

 

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existing and future litigation, including litigation initiated in connection with the merger.

If SpinCo fails to indemnify A. O. Smith or MergerCo, as required under the Merger Agreement, for any of these liabilities and the value of the escrow fund is insufficient to satisfy these liabilities, A. O. Smith or MergerCo could incur material liabilities that may adversely affect A. O. Smith’s business and financial performance.

In the event SpinCo is unable to satisfy its indemnification obligations under the Merger Agreement, A. O. Smith’s and MergerCo’s right to indemnification under the Merger Agreement is limited to the escrow fund, which is limited in duration and may be insufficient to satisfy their claims.

In pursuing claims for indemnification under the Merger Agreement, A. O. Smith and MergerCo have agreed to proceed first against SpinCo and then, in the event SpinCo does not satisfy its indemnification obligations, against the escrow fund pursuant to the terms of the Escrow Agreement. Although SICO has represented to A. O. Smith that SpinCo will be solvent at the time of the merger, SpinCo has substantially smaller net assets than SICO did prior to the Spin-Off, because SICO retained its shares of A. O. Smith Class A common stock and A. O. Smith common stock. If A. O. Smith or MergerCo makes a claim for indemnification under the Merger Agreement, there is a risk that SpinCo may not have the financial capability to satisfy its indemnification obligations. The escrow fund initially will be funded with shares of A. O. Smith common stock with a market value of $15,000,000 as of the effective time of the merger. A. O. Smith cannot give any assurance that the value of the escrow fund will be sufficient to satisfy any potential indemnification claims of A. O. Smith or MergerCo under the Merger Agreement. The escrow agreement provides for the release of a substantial portion of the shares once certain legal proceedings relating to the transactions contemplated by the Merger Agreement have been resolved. In addition, the escrow fund terminates two years after the effective time, but the indemnification obligations of SpinCo under the Merger Agreement survive for five years after the effective time of the merger. As a result, A. O. Smith and MergerCo will not be able to look to the escrow fund for indemnification with respect to any claim that arises more than two years after the effective time of the merger.

If the market price of A. O. Smith common stock declines, the value of the escrow fund will also decline.

Under the terms of the Merger Agreement, shares of A. O. Smith common stock with a market value of $15,000,000 as of the effective time of the merger will be deposited with the escrow agent to provide a source of payment for the indemnification rights of A. O. Smith and MergerCo. The escrow agreement provides for the

 

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release of a substantial portion of the shares once certain legal proceedings relating to the transactions contemplated by the Merger Agreement have been resolved. The specific dollar value of the escrow fund, and therefore the amount of security provided to MergerCo and A. O. Smith, will depend on the market value of A. O. Smith common stock, which may decrease after the effective time of the merger. As a publicly traded company, the market price of A. O. Smith common stock is subject to fluctuations based on numerous factors. There is no requirement that additional shares or funds be placed in the escrow fund in the event the market price of A. O. Smith common stock decreases.

In addition, pursuant to the Escrow Agreement, SpinCo will have the right to substitute cash for all or a portion of the Escrow Shares on up to five separate occasions. The market value of any Escrow Shares that are released pursuant to any such cash substitution will be determined as of the effective time of the merger. Therefore, SpinCo will have the ability to substitute cash for the Escrow Shares if the market price of the A. O. Smith common stock increases in order to permit the former SICO stockholders to realize the benefit of the increased value of the shares, with no corresponding obligation to increase the escrow if the share price decreases.

If SICO stockholders who receive A. O. Smith Class A common stock and A. O. Smith common stock in the merger sell their shares, it could cause a decline in the market price of A. O. Smith common stock.

All of the shares of A. O. Smith Class A common stock and A. O. Smith common stock to be issued in the merger are being registered with the SEC under the registration statement of which this joint proxy statement/prospectus is a part, and therefore will be immediately available for resale in the public market, except with respect to shares issued in the merger to certain affiliates of A. O. Smith (as that term is defined in Rule 405 of the Securities Act of 1933, as amended (the “Securities Act”)). SICO has not sold any of its shares of A. O. Smith Class A common stock or A. O. Smith common stock during the past 16 years. After the merger is completed, each SICO stockholder will have the ability to determine if and when to sell the shares of A. O. Smith Class A common stock and A. O. Smith common stock that the stockholder receives in the merger. If a large number of SICO stockholders elect to sell the shares they receive in connection with the merger, the market price of the A. O. Smith common stock may decline. As a result of future sales of shares, or the perception that these sales could occur, the market price of A. O. Smith common stock may decline before or at the time the merger is completed, or thereafter.

Under the A. O. Smith Amended Charter, which will be in effect after the merger, the transfer of A. O. Smith Class A common stock to any transferee who is not a “Permitted Transferee” will result in the automatic conversion to A. O. Smith common stock of the shares of A. O. Smith Class A common stock so transferred. As a result of this automatic conversion upon transfer, there is not expected to be any public trading market for the shares of A. O. Smith Class A common stock after the merger, and price quotations for the shares of A. O. Smith Class A common stock will no longer be available on the OBB. This could affect the value of the shares of A. O. Smith Class A common stock after completion of the merger.

Certain Smith Family members will have the ability to influence all matters requiring A. O. Smith stockholder approval.

The Merger Agreement contemplates that certain members of the Smith Family may enter into a voting trust agreement following the completion of the merger with respect to the A. O. Smith Class A common stock and A. O. Smith common stock they receive in the merger. After giving effect to the merger, these members of the Smith Family are expected to own approximately 41.4% of the total voting power of the outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, taken together as a single class, and approximately 51.6% of the voting power of the outstanding shares of A. O. Smith Class A common stock, as a separate class. This ownership position may increase if other members of the Smith Family enter into the voting trust agreement, and the voting power relating to this ownership position may increase if shares of A. O. Smith Class A common stock held by stockholders who are not parties to the voting trust agreement are converted into

 

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shares of A. O. Smith common stock. Accordingly, after the merger, the Smith Family members who enter into the voting trust agreement will collectively have the ability to influence the election of the Class A directors of A. O. Smith and other matters requiring A. O. Smith stockholder approval. The voting trust agreement provides that in the event one of the parties to the voting trust agreement desires to withdraw from the trust or transfer any of its shares of A. O. Smith Class A common stock, such shares of A. O. Smith Class A common stock are automatically exchanged for shares of A. O. Smith common stock held by the trust to the extent available in the trust. In addition, the trust will have the right to purchase the shares of A. O. Smith Class A common stock and A. O. Smith common stock proposed to be withdrawn or transferred from the trust. As a result, the Smith Family members that are parties to the voting trust agreement may have the ability to maintain their collective voting rights in A. O. Smith even if certain members of the Smith Family decide to transfer their shares.

The A. O. Smith Amended Charter will affect the rights of the stockholders of A. O. Smith Class A common stock.

The consummation of the merger is conditioned on, among other things, the adoption of the A. O. Smith Amended Charter, which will affect certain rights of the holders of A. O. Smith Class A common stock. The proposed A. O. Smith Amended Charter will provide, among other things, for

 

•

an increase in the percentage of members of the A. O. Smith board of directors that holders of A. O. Smith common stock elect;

 

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shares of A. O. Smith Class A common stock to convert automatically into A. O. Smith common stock, subject to certain exceptions, upon transfer to unaffiliated third parties; and

 

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all shares of A. O. Smith Class A common stock to convert automatically into A. O. Smith common stock once the outstanding shares of A. O. Smith Class A common stock falls below 2,397,976 shares, which is approximately 8% of the number of total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock as of the date of the Merger Agreement.

For additional information regarding the proposed changes to the A. O. Smith Existing Charter in connection with the merger, see the section entitled “A. O. Smith Amended Charter” beginning on page 103.

Risks Relating to the Merger for SICO Stockholders

SICO stockholders will receive a smaller number of shares in the merger than the total number of shares of A. O. Smith held by SICO.

The exchange ratio in the Merger Agreement reflects a discount of 1.5% such that the merger will result in the SICO stockholders receiving, in the aggregate, 98.5% of the total number of shares of each of the A. O. Smith Class A common stock and A. O. Smith common stock held by SICO prior to the effective time of the merger, subject to the treatment of Escrow Shares, fractional shares and dissenting shares described in this joint proxy statement/prospectus. Based on the closing price of $21.29 of the A. O. Smith common stock on the NYSE on March 9, 2009, the last full trading day for which closing prices were available at the time of the printing of this joint proxy statement/prospectus, and valuing the A. O. Smith Class A common stock at such value as if it had been converted into A. O. Smith common stock, the aggregate value of the shares reflected in this 1.5% discount was $3.1 million.

Shares of A. O. Smith common stock deposited in escrow in connection with the merger will be at risk for post-closing indemnification claims by A. O. Smith or the other A. O. Smith indemnified parties.

At the effective time of the merger, A. O. Smith will deposit with the escrow agent a number of shares of A. O. Smith common stock that would otherwise be deliverable to the holders of SICO common stock pursuant to the Merger Agreement with a market value of $15,000,000 as of the effective time of the merger. These shares of A. O. Smith common stock may not be transferred as long as they remain in escrow and will be subject to

 

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release to A. O. Smith or the other A. O. Smith indemnified parties to the extent any of them has a right to indemnification for damages that are not satisfied by SpinCo for a period of two years after the effective time of the merger. For a description of the escrow, please refer to “Agreements Relating to the Merger—Escrow Agreement” beginning on page 108.

If the market price of A. O. Smith common stock declines, SICO and A. O. Smith may be unable to terminate the Merger Agreement and SICO stockholders will receive shares with a lower market value in connection with the merger.

The consideration to be issued to SICO stockholders in connection with the merger, for each issued and outstanding share of SICO common stock that they own, will consist of a fixed number of shares of A. O. Smith Class A common stock and A. O. Smith common stock calculated in accordance with the Merger Agreement based upon the number of shares of SICO common stock outstanding and the number of shares of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO immediately prior to the effective time of the merger. See “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 87. There will be no adjustment to the number of shares of A. O. Smith Class A common stock or A. O. Smith common stock issued to the SICO stockholders in connection with the merger based upon changes in the market price of A. O. Smith Class A common stock or A. O. Smith common stock prior to the effective time of the merger. In addition, neither SICO nor A. O. Smith may terminate the Merger Agreement or “walk away” from the merger due to changes in the market price of A. O. Smith common stock. As a result, the specific dollar value of the consideration that the SICO stockholders will receive in connection with the merger will depend on the market value of A. O. Smith Class A common stock and A. O. Smith common stock, and may decrease from the date the SICO stockholders submit their proxies. As a publicly traded company, the market price of A. O. Smith Class A common stock and A. O. Smith common stock is subject to fluctuations based on numerous factors. See “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 88 and “Agreements Relating to the Merger—Escrow Agreement” beginning on page 108.

A. O. Smith cannot predict or give any assurances as to the market price of the A. O. Smith Class A common stock or the A. O. Smith common stock at any time before or after the completion of the merger. SICO stockholders should obtain recent market quotations for A. O. Smith Class A common stock and A. O. Smith common stock in making a determination on whether to vote in favor of the adoption or approval of the Merger Agreement. In addition, under the A. O. Smith Amended Charter, which will be in effect after the merger, the transfer of A. O. Smith Class A common stock to any transferee who is not a “Permitted Transferee” will result in the automatic conversion to A. O. Smith common stock of the shares of A. O. Smith Class A common stock so transferred. As a result of this automatic conversion upon transfer, there is not expected to be any public trading market for the shares of A. O. Smith Class A common stock after the merger, and price quotations for the shares of A. O. Smith Class A common stock will no longer be available on the OBB. This could affect the value of the shares of A. O. Smith Class A common stock after completion of the merger.

The rights of SICO stockholders who become A. O. Smith stockholders in the merger will be governed by the A. O. Smith Amended Charter and A. O. Smith’s bylaws.

SICO stockholders who receive shares of A. O. Smith Class A common stock and A. O. Smith common stock in the merger will become A. O. Smith stockholders. Following the merger, their rights as stockholders will be subject to the Delaware General Corporation Law (“DGCL”), and they will be governed by the A. O. Smith Amended Charter and A. O. Smith’s bylaws, rather than SICO’s articles of incorporation and bylaws. There may be material differences between the current rights of SICO stockholders, as compared to the rights they will have as A. O. Smith stockholders. For more information, see “Comparative Rights of A. O. Smith and SICO Stockholders Prior to and After the Merger” beginning on page 128 of this joint proxy statement/prospectus.

Risks Relating to A. O. Smith

Risks relating to A. O. Smith and its business and operations are described in A. O. Smith’s Annual Report on Form 10-K for the year ended December 31, 2008 under Item 1A, “Risk Factors” and are incorporated herein by reference.

 

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FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus contains or incorporates by reference a number of forward-looking statements regarding the financial condition, results of operations, earnings outlook and business prospects of A. O. Smith and SICO and may include statements for the period following the completion of the merger. You can find many of these statements by looking for words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “project,” “strategy,” “plan,” “potential,” “possible” and other similar expressions.

These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this joint proxy statement/prospectus. The ability of either A. O. Smith or SICO to predict results or actual effects of its plans and strategies, or those of the combined company after the merger, is inherently uncertain. Accordingly, actual results may differ materially from those expressed in, or implied by, the forward-looking statements. Some of the factors that may cause actual results or earnings to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those discussed under “Risk Factors” and those discussed in the filings of A. O. Smith that are incorporated herein by reference, as well as the following:

 

•

changes in A. O. Smith’s businesses during the period between now and the completion of the merger may have an adverse impact on A. O. Smith;

 

•

our ability to obtain regulatory approvals of the merger on the proposed terms and schedule;

 

•

the risk of an unfavorable judgment or ruling in any transaction-related litigation;

 

•

significant volatility in raw material prices;

 

•

competitive pressures on A. O. Smith’s business;

 

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the inability of A. O. Smith to implement pricing actions;

 

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the negative impact of future pension contributions on A. O. Smith’s ability to generate cash flow;

 

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instability in A. O. Smith’s electric motor and water products markets;

 

•

further weakening in housing construction;

 

•

further weakening in commercial construction;

 

•

a further slowdown in the Chinese economy;

 

•

expected restructuring costs and savings realized;

 

•

further adverse changes in customer liquidity and general economic and capital market conditions; and

 

•

other risks detailed in A. O. Smith’s filings with the SEC.

Because these forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. You are cautioned not to place undue reliance on these statements, which speak only as of the date of this joint proxy statement/prospectus or the date of any document incorporated by reference in this joint proxy statement/prospectus.

All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this joint proxy statement/prospectus and attributable to A. O. Smith or SICO or any person acting on their behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, A. O. Smith and SICO undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this joint proxy statement/prospectus or to reflect the occurrence of unanticipated events.

 

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THE SPECIAL MEETING OF A. O. SMITH STOCKHOLDERS

General

This joint proxy statement/prospectus is being furnished to A. O. Smith stockholders in connection with the solicitation of proxies by the A. O. Smith board of directors to be used at the special meeting of A. O. Smith stockholders to be held on Tuesday, April 14, 2009 at 11:30 a.m., Eastern Daylight Saving Time, at A. O. Smith Corporation, 855 North Third Street, Tipp City, Ohio, and at any adjournment or postponement of that meeting. This joint proxy statement/prospectus and the enclosed proxy cards are being mailed to A. O. Smith stockholders on or about March 13, 2009.

Purpose of the Special Meeting of A. O. Smith Stockholders

At the special meeting of A. O. Smith stockholders, holders of A. O. Smith Class A common stock and A. O. Smith common stock will be asked to consider and vote on the following proposals to:

 

•

adopt the Merger Agreement and thereby approve the merger;

 

•

adopt the A. O. Smith Amended Charter;

 

•

approve the Stock Issuance; and

 

•

transact any other business as may properly be brought before the special meeting of A. O. Smith stockholders.

The approval of each of the first three proposals listed above is required for completion of the merger. The A. O. Smith Amended Charter and the Stock Issuance will become effective only if each proposal is approved by the A. O. Smith stockholders, all of the other conditions to the merger are satisfied, in the case of the A. O. Smith Amended Charter, and the merger is completed, in the case of the Stock Issuance. See “A. O. Smith Proposal 1—Adoption of the Merger Agreement” on page 43, “A. O. Smith Proposal 2—Adoption of the A. O. Smith Amended Charter” on page 44 and “A. O. Smith Proposal 3—Approval of the Stock Issuance” on page 45. A copy of the Merger Agreement is attached to this joint proxy statement/prospectus as Annex A and is made part of this joint proxy statement/prospectus.

Record Date and Voting

The A. O. Smith board of directors has fixed March 4, 2009 as the record date for determining the holders of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock entitled to receive notice of and to vote at the special meeting of A. O. Smith stockholders or any adjournment or postponement of the special meeting. Only holders of record of A. O. Smith Class A common stock and A. O. Smith common stock as of the close of business on that date will be entitled to vote at the special meeting of A. O. Smith stockholders and at any adjournment or postponement of that meeting. As of the close of business on March 4, 2009, there were 8,239,267 shares of A. O. Smith Class A common stock and 21,949,691 shares of A. O. Smith common stock outstanding, held by approximately 283 and 1,283 holders of record, respectively.

Each holder of shares of A. O. Smith Class A common stock will be entitled to one vote for each share held of record upon each matter properly submitted at the special meeting of A. O. Smith stockholders and at any adjournment or postponement of that meeting. Each holder of shares of A. O. Smith common stock outstanding on the record date will be entitled to 1/10th of a vote for each share held of record upon each matter properly submitted at the special meeting of A. O. Smith stockholders and at any adjournment or postponement of that meeting. In order for A. O. Smith to satisfy its quorum requirements, the holders of at least a majority of the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock entitled to vote at the special meeting of A. O. Smith stockholders must be present. You will be deemed to be present at the special meeting of A. O. Smith stockholders if you attend the meeting or if you submit a proxy (including through the Internet or telephone) that is received at or prior to the special meeting of A. O. Smith stockholders

 

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(and not revoked as described below). IF YOU ARE A SICO STOCKHOLDER AS WELL AS AN A. O. SMITH STOCKHOLDER, YOU MUST VOTE SEPARATELY AT THE SPECIAL MEETING OF SICO STOCKHOLDERS IN YOUR CAPACITY AS A SICO STOCKHOLDER AND AT THE SPECIAL MEETING OF A. O. SMITH STOCKHOLDERS IN YOUR CAPACITY AS AN A. O. SMITH STOCKHOLDER.

If your proxy is properly executed and received by A. O. Smith in time to be voted at the special meeting of A. O. Smith stockholders, the shares represented by your proxy (including those given through the Internet or by telephone) will be voted in accordance with the instructions that you mark on your proxy. If you execute your proxy but do not provide A. O. Smith with any instructions, your shares will be voted “FOR” the adoption of the Merger Agreement, “FOR” the adoption of the A. O. Smith Amended Charter and “FOR” the approval of the Stock Issuance.

Vote Required

Adoption of the Merger Agreement requires the affirmative vote of the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing at least 66²/₃% of the votes represented by the total number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock.

Adoption of the A. O. Smith Amended Charter requires the affirmative vote of the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes represented by the total number of the outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock.

Adoption of the A. O. Smith Amended Charter also requires the affirmative vote of the holders of a majority of the outstanding shares of A. O. Smith Class A common stock voting as a separate class.

Approval of the Stock Issuance requires the affirmative vote of the holders of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, representing a majority of the votes cast by such holders at the special meeting.

Shares of A. O. Smith common stock as to which the “abstain” box is selected on a proxy card will be counted as present for purposes of determining whether a quorum is present.

The required vote of A. O. Smith stockholders to adopt the Merger Agreement is based upon the votes represented by the number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, and not the number of shares that are actually voted. Accordingly, the failure to submit a proxy card or to vote by Internet, telephone or in person at the special meeting of A. O. Smith stockholders or the abstention from voting by A. O. Smith stockholders, or the failure of any A. O. Smith stockholder who holds shares in “street name” through a bank or broker to give voting instructions to such bank or broker, will have the same effect as a vote “AGAINST” the proposal to adopt the Merger Agreement.

The required vote of A. O. Smith stockholders to adopt the A. O. Smith Amended Charter is based upon the votes represented by the number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, and not the number of shares that are actually voted. Accordingly, the failure to submit a proxy card or to vote by Internet, telephone or in person at the special meeting of A. O. Smith stockholders or the abstention from voting by A. O. Smith stockholders, or the failure of any A. O. Smith stockholder who holds shares in “street name” through a bank or broker to give voting instructions to such bank or broker, will have the same effect as a vote “AGAINST” the proposal to adopt the A. O. Smith Amended Charter.

 

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The required vote of A. O. Smith stockholders to approve the Stock Issuance is based on the number of shares that are actually voted, not on the number of outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock. Accordingly, the failure to submit a proxy card or to vote by Internet, telephone or in person at the special meeting of A. O. Smith stockholders or the abstention from voting by A. O. Smith stockholders, or the failure of any A. O. Smith stockholder who holds shares in “street name” through a bank or broker to give voting instructions to such bank or broker, will have no effect on the result of the vote to approve the Stock Issuance.

As of the record date, A. O. Smith directors and executive officers and their affiliates, other than Bruce M. Smith and Mark D. Smith, had or shared the power to vote in the aggregate approximately 520,796 shares of A. O. Smith common stock, representing approximately 2.37%, of the outstanding shares of A. O. Smith common stock, and no shares of outstanding A. O. Smith Class A common stock.

We have been advised that A. O. Smith’s directors and executive officers will vote their shares of A. O. Smith common stock “FOR” the adoption of the Merger Agreement, “FOR” the adoption of the A. O. Smith Amended Charter and “FOR” the approval of the Stock Issuance.

Because the shares of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO represent approximately 78.8% of the voting power of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, and approximately 97.9% of the voting power of the total outstanding shares of A. O. Smith Class A common stock, voting as a separate class, stockholders of A. O. Smith holding voting power sufficient to approve the proposals to adopt the Merger Agreement, to adopt the A. O. Smith Amended Charter and to approve the Stock Issuance have agreed to vote in favor of these proposals at the A. O. Smith special meeting.

Recommendations of the A. O. Smith Special Committee and A. O. Smith Board of Directors

As discussed elsewhere in this joint proxy statement/prospectus, the A. O. Smith Special Committee unanimously determined that the Merger Agreement is advisable and substantively and procedurally fair to, and in the best interests of, A. O. Smith and the A. O. Smith Unaffiliated Stockholders and the A. O. Smith board of directors has determined that the merger, the Merger Agreement and the transactions contemplated thereby are advisable and substantively and procedurally fair to, and in the best interests of, A. O. Smith and the A. O. Smith stockholders, including the A. O. Smith Unaffiliated Stockholders, and has adopted and approved the merger, the Merger Agreement and the transactions contemplated thereby, the A. O. Smith Amended Charter and the Stock Issuance. The A. O. Smith Special Committee recommends that the A. O. Smith Unaffiliated Stockholders vote “FOR” the adoption of the Merger Agreement. The A. O. Smith board of directors recommends that A. O. Smith stockholders vote “FOR” the adoption of the Merger Agreement, “FOR” the adoption of the A. O. Smith Amended Charter and “FOR” the approval of the Stock Issuance.

The matters to be considered at the special meeting are of great importance to the stockholders of A. O. Smith. Accordingly, you are urged to read and carefully consider the information presented in this joint proxy statement/prospectus, and to promptly respond. In particular, A. O. Smith stockholders are directed to the Merger Agreement and the A. O. Smith Amended Charter, which are attached as Annex A and Annex B, respectively, to this joint proxy statement/prospectus.

Attending the Special Meeting

All holders of A. O. Smith Class A common stock and A. O. Smith common stock at the close of business on March 4, 2009, the record date for the A. O. Smith special meeting, are invited to attend the special meeting. If you attend, you will be asked to present valid picture identification, such as a driver’s license or passport, and, if

 

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you are not a stockholder of record, evidence from your broker or bank that you are a stockholder and are eligible to attend the meeting, such as a letter or account statement from your broker or bank. Stockholders will not be allowed to use cameras, recording devices and other electronic devices at the meeting.

Voting by Proxy

Stockholders who elect to vote by submitting a proxy card are asked to mark the box on the proxy card, following the instructions on your proxy card, to indicate how to vote your shares. You must also sign, date and return the enclosed proxy card using the postage-paid envelope provided. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” the adoption of the Merger Agreement, “FOR” the adoption of the A. O. Smith Amended Charter and “FOR” the approval of the Stock Issuance.

In addition to voting by submitting your proxy card by mail, A. O. Smith stockholders of record and many stockholders who hold their shares of A. O. Smith common stock through a broker or bank will have the option to submit their proxy electronically through the Internet or by telephone. Please note that there are separate arrangements for using the Internet and telephone depending on whether your shares are registered in A. O. Smith’s stock records in your name or in the name of a broker, bank or other holder of record. If you hold your shares through a broker, bank or other holder of record, you should check the A. O. Smith proxy card and voting instructions forwarded by your broker, bank or other holder of record to see which options are available.

A. O. Smith stockholders of record may submit their proxies:

 

•

through the Internet by visiting http://www.eproxy.com/aos/ and following the instructions; or

 

•

by telephone by calling the toll-free number 1-800-560-1965 on a touch-tone phone and following the recorded instructions.

If you vote your proxy over the Internet or by telephone, you must do so before 12:00 p.m., Central Daylight Saving Time, on April 13, 2009. If you hold your shares through a bank, broker, custodian or other record holder, you may be subject to additional timing requirements. Please refer to the information forwarded by your bank, broker, custodian or other record holder.

Revocation of Proxies

The presence of an A. O. Smith stockholder at the special meeting of A. O. Smith stockholders will not automatically revoke such A. O. Smith stockholder’s proxy. However, an A. O. Smith stockholder may revoke his or her proxy at any time prior to its exercise by:

 

•

delivering a written notice of revocation to the Corporate Secretary of A. O. Smith that is received prior to the A. O. Smith special meeting;

 

•

submitting another proxy via the Internet, by telephone or by mail that is dated later than the original proxy and that is received prior to the A. O. Smith special meeting;

 

•

attending the special meeting of A. O. Smith stockholders and voting in person if your shares of A. O. Smith common stock and/or A. O. Smith Class A common stock are registered in your name rather than in the name of a broker, bank or other nominee; or

 

•

following the instructions on the form you receive from your broker or bank with respect to changing or revoking your proxy if your shares of A. O. Smith common stock and/or A. O. Smith Class A common stock are held by a broker or bank.

In the absence of a revocation, shares represented by proxies submitted in response to this solicitation will be voted at the special meeting in accordance with the instructions indicated on such proxies.

 

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Solicitation of Proxies

In addition to solicitation by mail, directors, officers and employees of A. O. Smith may solicit proxies for the special meeting of A. O. Smith stockholders from A. O. Smith stockholders personally or by telephone and other electronic means. However, they will not be paid for soliciting such proxies. A. O. Smith also will provide persons, firms, banks and corporations holding shares in their names or in the names of nominees, which in either case are beneficially owned by others, proxy material for transmittal to such beneficial owners and will reimburse such record owners for their expenses in taking such actions. A. O. Smith has not retained a proxy soliciting firm in connection with the solicitation of proxies. SICO will pay all fees, costs and expenses, including A. O. Smith’s fees, costs and expenses, incurred in connection with the printing and mailing of this joint proxy statement/prospectus.

Questions concerning the proposals to be acted upon at the special meeting and requests for additional copies of this joint proxy statement/prospectus or the proxy cards should be directed to A. O. Smith’s Corporate Secretary in writing at A. O. Smith Corporation, Attention: Corporate Secretary, 11270 West Park Place, Milwaukee, Wisconsin 53224-9508 or by telephone at (414) 359-4000. For a period of at least ten days prior to the special meeting, a complete list of stockholders entitled to vote at the special meeting will be available for inspection during ordinary business hours at A. O. Smith Corporation, 11270 West Park Place, Milwaukee, Wisconsin 53224-9508 by stockholders of record for proper purposes and will be on file at a registered office and subject to inspection by any stockholder for a proper purpose.

Other Matters to Come Before the Special Meeting of A. O. Smith Stockholders

The A. O. Smith board of directors does not intend to bring any other business before the special meeting and, so far as is known to the A. O. Smith board of directors, no other matters are to be brought before the special meeting. As to any business that may properly come before the special meeting, however, it is intended that proxies, in the form enclosed, will be voted in respect of such business in accordance with the judgment of the persons voting such proxies.

 

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A. O. SMITH PROPOSAL 1—ADOPTION OF THE MERGER AGREEMENT

As discussed elsewhere in this joint proxy statement/prospectus, A. O. Smith is asking its stockholders to approve the proposal to adopt the Merger Agreement. A. O. Smith stockholders should read carefully this joint proxy statement/prospectus in its entirety for more detailed information concerning the Merger Agreement. In particular, A. O. Smith stockholders are directed to the Merger Agreement, which is attached as Annex A to this joint proxy statement/prospectus. Additionally, please refer to the section entitled “The Merger Agreement” beginning on page 88 for a summary of the material terms of the Merger Agreement.

THE A. O. SMITH BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”

THE ADOPTION OF THE MERGER AGREEMENT.

 

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A. O. SMITH PROPOSAL 2—ADOPTION OF THE A. O. SMITH AMENDED CHARTER

It is a condition to completion of the merger that the A. O. Smith Existing Charter be amended and restated in the form of the A. O. Smith Amended Charter attached to this joint proxy statement/prospectus as Annex B to this joint proxy statement/prospectus.

The A. O. Smith Amended Charter amends and restates the A. O. Smith Existing Charter to provide for:

 

•

an increase, solely for purposes of completing the merger, in the total number of authorized shares of A. O. Smith Class A common stock that A. O. Smith can issue from 14,000,000 shares to 22,067,252 shares;

 

•

an increase in the percentage of members of the A. O. Smith board of directors that holders of A. O. Smith common stock, voting as a separate class, elect from 25% to 33-1/3% of the members of the board of directors (if the 33-1/3 % is not a whole number, then rounding up to the nearest higher whole number of directors (or four of the ten directors));

 

•

shares of A. O. Smith Class A common stock to convert automatically into A. O. Smith common stock, subject to certain exceptions, upon transfer to transferees that are not designated Permitted Transferees (as defined in the section entitled “A. O. Smith Amended Charter” on page 102); and

 

•

all shares of A. O. Smith Class A common stock to convert automatically into A. O. Smith common stock once the outstanding shares of A. O. Smith Class A common stock fall below 2,397,976 shares, which is approximately 8% of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock as of the date of the Merger Agreement.

Please refer to the section entitled “A. O. Smith Amended Charter” beginning on page 103 for additional information about the A. O. Smith Amended Charter. You are urged to read the proposed A. O. Smith Amended Charter included as Annex B to this joint proxy statement/prospectus carefully before voting on this proposal.

THE A. O. SMITH BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”

THE ADOPTION OF THE A. O. SMITH AMENDED CHARTER.

 

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A. O. SMITH PROPOSAL 3—APPROVAL OF THE STOCK ISSUANCE

It is a condition to completion of the merger that the stockholders of A. O. Smith approve the issuance of A. O. Smith Class A common stock and A. O. Smith common stock, which will be issued to holders of SICO common stock as consideration for the merger. If the merger is completed, assuming SICO holds 8,067,252 shares of A. O. Smith Class A common stock and 1,559,076 shares of A. O. Smith common stock at the completion of the merger, A. O. Smith will issue to holders of SICO common stock approximately (subject to the treatment of Escrow Shares, fractional shares and dissenting shares):

 

•

7,947,690 shares of A. O. Smith Class A common stock; and

 

•

1,535,801 shares of A. O. Smith common stock.

Please refer to the sections entitled “The Merger—Appraisal Rights; Dissenter’s Rights,” “The Merger Agreement—Consideration to be Received in the Merger,” “The Merger Agreement—Fractional Shares” and “The Merger Agreement—A. O. Smith Common Stock in Escrow” beginning on pages 84, 88, 90 and 90, respectively, for additional information. A copy of the Merger Agreement is also attached as Annex A to this joint proxy statement/prospectus. You are urged to read the entire Merger Agreement included as Annex A carefully before voting on this proposal.

THE A. O. SMITH BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”

THE APPROVAL OF THE STOCK ISSUANCE.

 

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THE SPECIAL MEETING OF SICO STOCKHOLDERS

General

This joint proxy statement/prospectus is being furnished to SICO stockholders in connection with the solicitation of proxies by the SICO board of directors to be used at the special meeting of SICO stockholders to be held on Thursday, April 16, 2009 at 9:30 a.m., Central Daylight Saving Time, at Smith Investment Company, 11270 West Park Place, Milwaukee, Wisconsin, and at any adjournment or postponement of that meeting. This joint proxy statement/prospectus and the enclosed proxy card are being mailed to SICO’s stockholders on or about March 13, 2009.

Purpose of the Special Meeting of SICO Stockholders

At the special meeting of SICO stockholders, holders of SICO common stock will be asked to consider and vote on the following proposals to:

 

•

approve the Merger Agreement; and

 

•

transact any other business as may be properly brought before the special meeting of SICO stockholders.

The approval of the first proposal listed above is required for completion of the merger. See “SICO Proposal 1—Approval of the Merger Agreement” on page 50. A copy of the Merger Agreement is attached as Annex A to this joint proxy statement/prospectus and made part of this joint proxy statement/prospectus.

Record Date and Voting

The SICO board of directors has fixed March 4, 2009 as the record date for determining holders of outstanding shares of SICO common stock entitled to receive notice of and to vote at the special meeting of SICO stockholders or any adjournment or postponement of the special meeting. Only holders of record of SICO common stock as of the close of business on that date will be entitled to vote at the special meeting of SICO stockholders and at any adjournment or postponement of that meeting. As of the close of business on March 4, 2009, there were 3,317,066 shares of SICO common stock outstanding, held by approximately 40 holders of record. SICO’s common stock is the only class of outstanding securities entitled to notice of, and to vote at, the SICO special meeting.

Each holder of shares of SICO common stock will be entitled to one vote for each share held of record upon any matter properly submitted at the special meeting of SICO stockholders and at any adjournment or postponement of that meeting. In order for SICO to satisfy its quorum requirements, the holders of at least a majority of the total number of outstanding shares of SICO common stock entitled to vote at the special meeting of SICO stockholders must be present. You will be deemed to be present at the special meeting of SICO stockholders if you attend the meeting or if you submit a proxy card that is received at or prior to the special meeting of SICO stockholders (and not revoked as described below). IF YOU ARE AN A. O. SMITH STOCKHOLDER AS WELL AS A SICO STOCKHOLDER, YOU MUST VOTE SEPARATELY AT THE SPECIAL MEETING OF A. O. SMITH STOCKHOLDERS IN YOUR CAPACITY AS AN A. O. SMITH STOCKHOLDER AND AT THE SPECIAL MEETING OF SICO STOCKHOLDERS IN YOUR CAPACITY AS A SICO STOCKHOLDER.

If your proxy card is properly executed and received by SICO in time to be voted at the special meeting of SICO stockholders, the shares represented by your proxy card will be voted in accordance with the instructions that you mark on your proxy card. If you execute your proxy card but do not provide SICO with any instructions, your shares will be voted “FOR” the approval of the Merger Agreement.

Vote Required

Approval of the Merger Agreement requires the affirmative vote of the holders of a majority of the shares of SICO common stock outstanding on the record date and entitled to vote at the special meeting.

 

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Shares of SICO common stock as to which the “abstain” box is selected in a proxy card will be counted as present for purposes of determining whether a quorum is present. The required vote of SICO stockholders to approve the Merger Agreement is based upon the number of outstanding shares of SICO common stock, and not the number of shares that are actually voted. Accordingly, the failure to submit a proxy card or to vote in person at the special meeting of SICO stockholders or the abstention from voting by SICO stockholders, or the failure of any SICO stockholder who holds shares in “street name” through a bank or broker to give voting instructions to such bank or broker, will have the same effect as a vote “AGAINST” the proposal to approve the Merger Agreement.

As of the record date, SICO directors and executive officers and their affiliates had or shared the power to vote in the aggregate approximately 1,500 shares of SICO common stock, which is less than 0.1% of the aggregate outstanding shares of SICO common stock. This calculation excludes shares that may be deemed to be beneficially owned by Bruce M. Smith, Arthur O. Smith and Arthur O. Smith, III, which are subject to the Smith Family support agreement and included below.

We have been advised that SICO’s directors and executive officers will vote their shares of SICO common stock “FOR” the approval of the Merger Agreement.

Because the shares of SICO common stock held by the Smith Family stockholders who signed the Smith Family support agreement represent approximately 52.7% of the voting power of the total outstanding shares of SICO common stock, stockholders of SICO holding voting power sufficient to approve the Merger Agreement have agreed to vote in favor of the proposal to approve the Merger Agreement at the SICO special meeting.

Recommendations of the SICO Special Committee and SICO Board of Directors

The SICO Special Committee unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and substantively and procedurally fair to, and in the best interests of, SICO and the SICO Unaffiliated Stockholders and recommended that the SICO board of directors authorize, adopt and approve the Merger Agreement and the transactions contemplated thereby, including the merger. The SICO Special Committee unanimously recommends that the SICO Unaffiliated Stockholders vote “FOR” the approval of the Merger Agreement at the special meeting of the SICO stockholders.

The SICO board of directors approved the Merger Agreement and determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and substantively and procedurally fair to, and in the best interests of, SICO and the SICO stockholders, including the SICO Unaffiliated Stockholders. The SICO board of directors unanimously recommends that SICO’s stockholders vote “FOR” the approval of the Merger Agreement at the special meeting of the SICO stockholders.

The matters to be considered at the SICO special meeting are of great importance to the stockholders of SICO. Accordingly, you are urged to read and carefully consider the information presented in this joint proxy statement/prospectus, and to complete, date, sign and promptly return the enclosed proxy in the enclosed postage-paid envelope. In particular, SICO stockholders are directed to the Merger Agreement, which is attached as Annex A to this joint proxy statement/prospectus.

Stockholders should not send any stock certificates at this time. A transmittal form with instructions for the surrender of stock certificates for SICO common stock will be mailed to you promptly after completion of the merger.

Attending the Special Meeting

All holders of SICO common stock at the close of business on March 4, 2009, the record date for the SICO special meeting, are invited to attend the special meeting. If you attend, you will be asked to present valid picture

 

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identification, such as a driver’s license or passport, and, if you are not a stockholder of record, evidence from your broker or bank that you are a stockholder and are eligible to attend the meeting, such as a letter or account statement from your broker or bank. Stockholders will not be allowed to use cameras, recording devices and other electronic devices at the meeting.

Voting by Proxy

Stockholders who elect to vote by proxy are asked to mark the box on the proxy card, following the instructions on your proxy card, to indicate how to vote your shares. You must also sign, date and return the enclosed proxy card using the postage-paid envelope provided. All shares represented by properly executed proxies received in time for the special meeting will be voted at the special meeting in the manner specified by the stockholders giving those proxies. Properly executed proxies that do not contain voting instructions will be voted “FOR” the approval of the Merger Agreement.

Stockholders of record will not be permitted to submit proxies electronically or by telephone. If your shares are held in the name of a bank or broker, the availability of electronic or telephone voting will depend upon the voting processes of the bank or broker. Accordingly, stockholders should follow the voting instructions on the form they receive from their bank or broker.

Revocation of Proxies

The presence of a SICO stockholder at the special meeting of SICO stockholders will not automatically revoke the SICO stockholder’s proxy. However, a SICO stockholder may revoke his or her proxy at any time prior to its exercise by:

 

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delivering a written notice of revocation to SICO’s Corporate Secretary that is received prior to the SICO special meeting;

 

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submitting another proxy that is dated later than the original proxy and that is received prior to the SICO special meeting;

 

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attending the special meeting of SICO stockholders and voting in person if your shares of SICO common stock are registered in your name rather than in the name of a broker or bank; or

 

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following the instructions on the form you receive from your broker or bank with respect to changing or revoking your proxy if your shares of SICO common stock are held by a broker or bank.

In the absence of a revocation, shares represented by proxies submitted in response to this solicitation will be voted at the special meeting in accordance with the instructions indicated on such proxies.

Solicitation of Proxies

In addition to solicitation by mail, directors, officers and employees of SICO may solicit proxies for the special meeting of SICO stockholders from SICO stockholders personally or by telephone and other electronic means. However, they will not be paid for soliciting proxies. SICO also will provide persons, firms, banks and corporations holding shares in their names or in the names of nominees, which in either case are beneficially owned by others, proxy material for transmittal to beneficial owners and will reimburse the record owners for their expenses in taking such actions. SICO has not retained any proxy soliciting firm in connection with the solicitation of proxies.

Questions concerning the proposal to be acted upon at the special meeting and requests for additional copies of this joint proxy statement/prospectus or the proxy card should be directed to SICO’s Corporate Secretary in writing at Smith Investment Company, Attention: Corporate Secretary, 11270 West Park Place, Milwaukee, Wisconsin 53224-9508 or by telephone at (414) 359-4030. For a period of at least ten days prior to the special

 

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meeting, a complete list of stockholders entitled to vote at the special meeting will be available for inspection during ordinary business hours at Smith Investment Company, 11270 West Park Place, Milwaukee, Wisconsin 53224-9508 by stockholders of record for proper purposes and will be on file at a registered office and subject to inspection by any stockholder for a proper purpose.

Other Matters to Come Before the Special Meeting of SICO Stockholders

The SICO board of directors does not intend to bring any other business before the special meeting and, so far as is known to the SICO board of directors, no other matters are to be brought before the special meeting. As to any business that may properly come before the special meeting, however, it is intended that proxies, in the form enclosed, will be voted in respect of such business in accordance with the judgment of the persons voting such proxies.

 

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SICO PROPOSAL 1—APPROVAL OF THE MERGER AGREEMENT

As discussed elsewhere in this joint proxy statement/prospectus, SICO is asking its stockholders to approve the Merger Agreement. SICO stockholders should read carefully this joint proxy statement/prospectus in its entirety for more detailed information concerning the Merger Agreement. In particular, SICO stockholders are directed to the Merger Agreement, which is attached as Annex A to this joint proxy statement/prospectus. Additionally, please refer to the section entitled “The Merger Agreement” beginning on page 88 for a summary of the material terms of the Merger Agreement.

THE SICO BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR”

THE APPROVAL OF THE MERGER AGREEMENT.

 

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THE MERGER

Background of the Merger

From time to time, SICO has reviewed alternatives to address its concern that the SICO common stock historically has traded at a significant discount to the underlying value of SICO’s most significant asset – the shares of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO.

In August 2007, SICO engaged Latham as its outside legal advisor to assist SICO and the SICO board of directors in a review of possible transactions involving SICO’s holdings in A. O. Smith. SICO articulated the following objectives for a possible transaction:

 

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providing the stockholders of SICO with direct ownership of A. O. Smith shares, which would allow SICO’s stockholders to realize more fully the underlying value of SICO’s holdings in A. O. Smith, provide enhanced liquidity to SICO’s stockholders and provide SICO’s stockholders with direct payment of the full amount of any dividends paid by A. O. Smith;

 

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utilizing a transaction structure that would constitute a tax-free reorganization under the Code; and

 

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providing flexibility for SICO to enhance the value of its other businesses.

During the fall of 2007, SICO’s management and representatives of Latham reviewed and evaluated various possible transactions, in light of these stated objectives.

On October 30, 2007, the SICO board of directors met with members of SICO’s management to discuss the status of SICO’s review of possible transactions. The SICO board of directors discussed the potential interests of the SICO directors who are trustees or beneficiaries of certain trusts for members of the Smith Family, or who otherwise have relationships with A. O. Smith or members of the Smith Family, that could be deemed to conflict with the interests of the SICO Unaffiliated Stockholders. Because of these interests, Latham recommended that the SICO board of directors form a special committee to act in the interests of the SICO Unaffiliated Stockholders with respect to any potential transaction. Edward E. Barr and Harold M. Stratton II were discussed as possible members of the SICO Special Committee. The SICO board of directors determined to continue the review process, and SICO’s management was instructed to work with Latham to evaluate further the potential mandate and scope of authority for the SICO Special Committee, and to confirm the eligibility of Messrs. Barr and Stratton to serve on the SICO Special Committee.

On December 18, 2007, the SICO board of directors met to consider transaction alternatives. Latham reviewed two transaction alternatives with the SICO board of directors: a merger of SICO into a newly formed limited liability company subsidiary of A. O. Smith and a transfer of assets of SICO to A. O. Smith. Both of these transaction alternatives could qualify as a tax-free reorganization, although the asset transfer structure had additional restrictions to qualify as a tax-free reorganization. The SICO board of directors established the SICO Special Committee and designated Messrs. Barr and Stratton as the members of the SICO Special Committee. Mr. Barr was later designated as the Chairman of the SICO Special Committee. The SICO Special Committee was delegated the authority to (a) determine the advisability of a potential transaction, (b) consider alternatives to a potential transaction, including not pursuing any transaction, (c) review, evaluate and establish the terms and conditions of a potential transaction or any alternative, (d) negotiate with members of the Smith Family, A. O. Smith and any other party regarding the terms and conditions of a potential transaction or any alternative, and (e) determine whether a potential transaction or any alternative was advisable, fair to and in the best interests of the SICO Unaffiliated Stockholders. The SICO board of directors further provided that it would not recommend any potential transaction or alternative for approval by SICO’s stockholders without a prior favorable recommendation of the SICO Special Committee. The SICO Special Committee determined to engage Reinhart as its independent legal counsel.

The SICO Special Committee held a telephonic meeting with Reinhart on December 21, 2007, to discuss various alternatives for a potential transaction and related issues. The SICO Special Committee also discussed

 

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potential candidates to serve as independent financial advisor to the committee and the criteria for the selection of an investment banking firm to serve as independent financial advisor to the committee. On January 4, 2008, the SICO Special Committee and its legal counsel interviewed candidates to serve as independent financial advisor to the committee, and the SICO Special Committee determined to engage Duff & Phelps.

On January 21, 2008, the SICO Special Committee met at Reinhart’s offices with representatives of Duff & Phelps and Reinhart. Reinhart made a presentation to the SICO Special Committee addressing the role and authority of the committee, the two potential transaction structures that had been identified and the considerations and objectives for a potential transaction. The SICO Special Committee discussed the issues and risks with satisfying the test for an asset transfer to qualify as a tax-free reorganization, and decided against further consideration of an asset transfer given the additional restrictions for that transaction structure. The SICO Special Committee also discussed alternatives for SICO’s two operating subsidiaries, including distributing them to the SICO stockholders in a spin-off transaction.

Duff & Phelps next made a presentation to the SICO Special Committee. Duff & Phelps addressed two possible alternative transactions: (a) a recapitalization of A. O. Smith that would eliminate the A. O. Smith Class A common stock and (b) a sale of SICO to a third party. During the ensuing discussion, the SICO Special Committee recognized that, if members of the Smith Family did not support either of these transaction alternatives, pursuing one or both of these alternatives would be futile because members of the Smith Family control a majority of the outstanding shares of SICO common stock. The SICO Special Committee instructed its legal and financial advisors to continue to explore these alternatives.

On January 22, 2008, the SICO Special Committee reported on its progress during a meeting of the full SICO board of directors. The SICO Special Committee indicated that it believed it would be in a position to make a recommendation by February 1, 2008.

Between January 22, 2008 and February 1, 2008, the SICO Special Committee’s legal and financial advisors continued to explore transaction alternatives and related issues. During this period, it was decided that the members of the SICO Special Committee would consult with members of the Smith Family holding a majority of the outstanding shares of SICO common stock to determine which transaction alternatives they would support. Separate meetings with these members of the Smith Family were scheduled for February 1, 2008. On January 30, 2008, the SICO Special Committee held a telephonic meeting with its legal counsel to discuss the process and objectives for the meetings with members of the Smith Family.

On February 1, 2008, the SICO Special Committee and its legal counsel held separate meetings with certain members of the Smith Family, including the trustees of various trusts. These members of the Smith Family collectively owned and continue to own more than 50% of the outstanding shares of SICO common stock. During these meetings, these members of the Smith Family separately indicated that they would support the proposed transaction with A. O. Smith and also separately indicated that they would not support any alternative transaction that resulted in a sale of SICO or eliminated or limited the dual class voting structure of A. O. Smith.

After the meetings with members of the Smith Family, the SICO Special Committee met on February 1, 2008, to discuss its recommendation with respect to a potential transaction. The SICO Special Committee recognized that a merger transaction with A. O. Smith resulting in the issuance directly to the SICO stockholders of the same aggregate number and type of shares of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO would provide significant benefits to the SICO Unaffiliated Stockholders, including increased liquidity, the expected elimination of the discount between the market capitalization of SICO and the value of its holdings of A. O. Smith Class A common stock and A. O. Smith common stock and qualification as a tax-free reorganization under the Code. The members of the SICO Special Committee unanimously resolved to recommend to the SICO board of directors a proposal for a merger transaction with A. O. Smith, in which SICO’s stockholders would receive the same type and number of A. O. Smith shares held by SICO.

 

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After the meeting of the SICO Special Committee, the SICO board of directors held a telephonic meeting on February 1, 2008. The SICO Special Committee presented its recommendation to the SICO board of directors, after which the SICO board of directors unanimously approved making a proposal to A. O. Smith for a merger transaction, with SICO’s stockholders receiving the same type and number of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO.

On February 2, 2008, Bruce M. Smith, SICO’s President and Chief Executive Officer, and Mr. Barr met with Paul W. Jones, Chairman of the board of directors and Chief Executive Officer of A. O. Smith, to present SICO’s proposal. SICO proposed that SICO be merged into a newly formed subsidiary of A. O. Smith and that, in the merger, SICO’s outstanding common stock be exchanged for newly issued shares of A. O. Smith Class A common stock and A. O. Smith common stock. The proposed total number and type of A. O. Smith shares to be issued in the proposed transaction equaled the number and type of A. O. Smith shares held by SICO, so that there would be no net change in the total number and type of shares of A. O. Smith stock. The merger was intended to qualify as a tax-free reorganization under Section 368(a) of the Code. Prior to the merger, SICO would distribute in a taxable transaction substantially all of its assets, other than its holdings of A. O. Smith shares, to SICO’s stockholders. SICO’s liabilities would be discharged or otherwise assumed by the entity or entities in which the other SICO assets were to be held.

On the following Monday, February 4, 2008, before the markets opened, SICO and A. O. Smith each issued a press release to announce that A. O. Smith had received the proposal from SICO and to provide details of the proposal. SICO also filed an amendment to its Schedule 13D.

At a meeting held on February 10, 2008, the A. O. Smith board of directors (other than Bruce M. Smith and Mark D. Smith who recused themselves) discussed the proposal received from SICO. At this meeting, James F. Stern, Executive Vice President, General Counsel and Secretary of A. O. Smith, recommended that the A. O. Smith board of directors appoint a special committee of independent and disinterested directors to consider the SICO proposal, among other reasons, because SICO is the controlling stockholder of A. O. Smith and certain members of the A. O. Smith board of directors are affiliated with SICO. At a meeting of the A. O. Smith board of directors (other than Bruce M. Smith and Mark D. Smith who recused themselves) on February 12, 2008, the A. O. Smith board of directors determined that it was appropriate to form and authorized the creation of a special committee of independent and disinterested directors, consisting of William Greubel, Idelle Wolf and Ronald Brown. Mr. Stern confirmed the eligibility of Messrs. Greubel and Brown and Ms. Wolf to serve on the A. O. Smith Special Committee. The A. O. Smith Special Committee was authorized to, among other things, review and evaluate SICO’s proposed transaction, negotiate the terms and conditions of any transaction, determine whether the proposed transaction (as it may be amended or modified by the A. O. Smith Special Committee) was fair to, and in the best interests of, A. O. Smith and the A. O. Smith Unaffiliated Stockholders and provide a recommendation to the A. O. Smith board of directors as to whether it should approve the proposed transaction. The A. O. Smith board of directors also authorized the A. O. Smith Special Committee to retain independent legal and financial advisors selected by the A. O. Smith Special Committee. At a subsequent meeting of the A. O. Smith board of directors held on April 15, 2008, the A. O. Smith board of directors affirmed that it would not recommend any potential transaction with SICO without a prior favorable recommendation of the A. O. Smith Special Committee.

On February 12, 2008, the A. O. Smith Special Committee held its initial meeting following a meeting of the A. O. Smith board of directors. At this meeting, the A. O. Smith Special Committee discussed the proposed transaction in general terms and the retention of legal counsel. Mr. Greubel was designated as Chairman of the A. O. Smith Special Committee.

On February 20, 2008, the A. O. Smith Special Committee interviewed potential legal advisors, and at a meeting held on February 24, 2008, selected Winston as its independent legal advisor. The A. O. Smith Special Committee subsequently engaged Abrams & Laster LLP as its Delaware counsel.

 

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On February 26, 2008 a purported class action was filed against SICO, certain SICO officers and directors, and A. O. Smith in the Milwaukee County Circuit Court in the State of Wisconsin, alleging, among other things, that those officers and directors breached their fiduciary duties in connection with the proposed transaction. The complaint further alleges that A. O. Smith and SICO aided and abetted those alleged breaches of fiduciary duties.

On March 5, 2008, the A. O. Smith Special Committee met with Winston to discuss the proposed transaction with SICO. The A. O. Smith Special Committee expressed its belief that SICO should be responsible for any costs A. O. Smith incurs in considering the proposed transaction. At the meeting, Winston also discussed with the members of the A. O. Smith Special Committee their fiduciary duties as members thereof. Winston subsequently contacted Reinhart, on behalf of the A. O. Smith Special Committee, to request that SICO reimburse A. O. Smith for its expenses in connection with the transaction.

On March 13, 2008, after discussion among the SICO Special Committee and Reinhart, as well as SICO’s management, Reinhart contacted Winston on behalf of the SICO Special Committee and indicated that SICO would be willing to reimburse A. O. Smith for its expenses incurred in connection with the transaction up to $250,000.

On March 18, 2008, the A. O. Smith Special Committee met with and interviewed potential financial advisors to the A. O. Smith Special Committee, and at a meeting held on March 21, 2008, the A. O. Smith Special Committee decided to engage Morgan Stanley as its financial advisor with respect to the proposed transaction, subject to the negotiation of satisfactory engagement terms. After a period of negotiation, the A. O. Smith Special Committee entered into an engagement letter with Morgan Stanley on April 14, 2008.

On March 20, 2008, the A. O. Smith Special Committee proposed that SICO fully reimburse A. O. Smith for all of its reasonable expenses in connection with the transaction proposed by SICO. After a period of negotiation, SICO and A. O. Smith entered into a reimbursement agreement on April 11, 2008, whereby SICO agreed to reimburse A. O. Smith for all of its reasonable out-of-pocket fees, costs and expenses incurred in connection with the proposed transaction up to the time of the execution of a definitive agreement (with any reimbursement of expenses after the execution of a definitive agreement to be addressed in the definitive agreement).

On April 3, 2008, the A. O. Smith Special Committee met with Winston and Morgan Stanley to discuss the proposed transaction process. During the meeting, the A. O. Smith Special Committee reviewed and discussed a proposed timeline for the transaction. The A. O. Smith Special Committee also agreed that Mr. Greubel should set up an initial meeting with Bruce M. Smith, in his capacity as an individual stockholder of SICO, to discuss Mr. Smith’s perspective on the proposed transaction. During the meeting, the A. O. Smith Special Committee discussed with Winston and Morgan Stanley the legal, financial and accounting due diligence to be conducted by A. O. Smith on SICO, including the importance of understanding the potential liabilities of SICO and insulating A. O. Smith both structurally and contractually from such liabilities in any transaction.

Also at this meeting, Morgan Stanley discussed potential improvements in deal terms for A. O. Smith that the A. O. Smith Special Committee could pursue when negotiating with the SICO Special Committee the terms of the proposed transaction. The A. O. Smith Special Committee discussed in detail with Morgan Stanley and Winston these proposed transaction terms. The A. O. Smith Special Committee concluded that it would not adopt any formal position or negotiate with SICO at that time. Instead, the A. O. Smith Special Committee concluded that it should determine its negotiating position once additional due diligence had been conducted.

On April 10, 2008, Winston and Morgan Stanley participated in a conference call with Mr. Stern to discuss SICO and the legal due diligence process.

On April 15, 2008, at a meeting of the A. O. Smith board of directors (other than Bruce M. Smith and Mark D. Smith who recused themselves), Mr. Greubel provided a report to the board on the activities of the A. O. Smith Special Committee.

 

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On April 15, 2008, Mr. Greubel, Winston and Morgan Stanley met with Bruce M. Smith and Latham to discuss the proposed transaction. Mr. Smith attended this meeting solely in his capacity as an individual stockholder of SICO to provide background for his views on the proposed transaction.

On April 23, 2008, SICO and the SICO Special Committee requested that the A. O. Smith Special Committee pass resolutions regarding DGCL Section 203 and the proposed transaction.

On April 24, 2008, A. O. Smith and SICO entered into a confidentiality agreement to facilitate A. O. Smith’s due diligence review of SICO. Shortly thereafter, A. O. Smith, in consultation with the advisors to the A. O. Smith Special Committee began conducting a due diligence review of SICO.

On May 5, 2008, as part of the due diligence process, Winston and Morgan Stanley met with Messrs. Jones and Stern and Terry M. Murphy, Executive Vice President and Chief Financial Officer of A. O. Smith, to discuss the perspective of A. O. Smith management on the proposed transaction and A. O. Smith’s business strategy.

On May 8, 2008, the A. O. Smith Special Committee engaged Crowe Chizek and Company LLC, which we refer to as “Crowe Chizek,” to conduct tax and financial due diligence on SICO and its subsidiaries.

Mr. Greubel and advisors to the A. O. Smith Special Committee met with Mr. Barr and advisors to the SICO Special Committee on May 20, 2008. The parties discussed the status of the due diligence review of SICO and the timing of a potential transaction. The parties did not negotiate the terms of any potential transaction at this time.

On May 30, 2008, the A. O. Smith Special Committee held a telephonic meeting to discuss the status of the due diligence process. Winston summarized the status of its legal due diligence review of SICO and Crowe Chizek’s tax and financial due diligence review of SICO. Winston also summarized for the A. O. Smith Special Committee the request by SICO and certain members of the Smith Family regarding the DGCL Section 203 resolutions. The A. O. Smith Special Committee agreed to consider the resolutions at its next meeting. The A. O. Smith Special Committee discussed with Morgan Stanley and Winston the timing for formulating a response to SICO’s proposal. The A. O. Smith Special Committee concluded that it would not respond to the SICO proposal until A. O. Smith had substantially completed its due diligence review of SICO. The A. O. Smith Special Committee instructed Morgan Stanley and Winston to further refine their analysis of potential improvements in deal terms for A. O. Smith discussed at the April 3,^, 2008 meeting.

On June 10, 2008, Winston and Morgan Stanley met with Bruce M. Smith and Wesley A. Ulrich, Vice President, Chief Financial Officer, Secretary and Treasurer of SICO, as part of the due diligence process to discuss the business operations of SICO and its subsidiaries.

On June 13, 2008, the A. O. Smith Special Committee held a telephonic meeting to discuss the due diligence status and findings, the DGCL Section 203 resolutions and a proposed response to SICO’s proposal. Winston summarized the status of its legal due diligence review of SICO and gave a brief summary of potential issues that were a focus of the due diligence. The A. O. Smith Special Committee approved the DGCL Section 203 resolutions. The A. O. Smith Special Committee discussed with its advisors potential deal term improvements for A. O. Smith and a proposed response to SICO’s proposal.

On July 14, 2008, at a meeting of the A. O. Smith board of directors (other than Bruce M. Smith and Mark D. Smith, who recused themselves), Mr. Greubel provided a report to the board on the activities of the A. O. Smith Special Committee.

On July 18, 2008, the A. O Smith Special Committee held a telephonic meeting. At the meeting, Winston discussed with the A. O. Smith Special Committee its fiduciary duties in connection with the proposed transaction with SICO. Winston then discussed with the A. O. Smith Special Committee the legal due diligence

 

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review of SICO, which included a detailed explanation of the scope of the due diligence conducted and potential liabilities of SICO and its subsidiaries, including liabilities related to potential litigation and environmental issues. Crowe Chizek also reported its tax and financial due diligence findings to the A. O. Smith Special Committee. Next, Winston and Morgan Stanley discussed with the A. O. Smith Special Committee a proposed response to SICO’s proposal, including the potential improvements for A. O. Smith in deal terms that the A. O. Smith Special Committee could pursue based on the due diligence completed to date. The A. O. Smith Special Committee instructed Morgan Stanley and Winston to finalize the proposed response to SICO, consistent with the discussions at the meeting, which Mr. Greubel would deliver to the SICO Special Committee.

On July 23, 2008, Mr. Greubel, Winston and Morgan Stanley met with the SICO Special Committee and Reinhart in Milwaukee, Wisconsin to present the response of the A. O. Smith Special Committee to the SICO proposal made on February 2, 2008. The response of the A. O. Smith Special Committee included, among other things, that the transaction terms provide for the following:

 

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a 5% discount to reduce the exchange ratio in the merger to 0.95 new shares of A. O. Smith Class A common stock and A. O. Smith common stock for each share of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO;

 

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an amendment to the A. O. Smith Existing Charter to provide for the automatic conversion to A. O. Smith common stock of any shares of A. O. Smith Class A common stock that are transferred to an unaffiliated third party;

 

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an amendment to the A. O. Smith Existing Charter to add a provision for all of the outstanding A. O. Smith Class A common stock to convert automatically to A. O. Smith common stock if the outstanding A. O. Smith Class A common stock represents less than 15% of the total outstanding A. O. Smith Class A common stock and A. O. Smith common stock;

 

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an amendment to the A. O. Smith Existing Charter to provide the holders of A. O. Smith common stock with the right to elect one additional member of the A. O. Smith board of directors;

 

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a right of first refusal to A. O. Smith if members of the Smith Family propose to transfer 33% or more of their A. O. Smith Class A common stock in a single transaction;

 

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a requirement that members of the Smith Family agree for a period of five-years not to enter into agreements or arrangements relating to the shares of A. O. Smith Class A common stock and A. O. Smith common stock to be issued in the merger to such members of the Smith Family without the advance approval of the independent members of the A. O. Smith board of directors;

 

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indemnification of A. O. Smith for liabilities related to the historical operation of SICO and any litigation or transaction expenses, with such indemnification to be supported by an escrow of 10% of the new shares of A. O. Smith Class A common stock and A. O. Smith common stock to be issued to SICO’s stockholders in the merger and by personal indemnification from certain members of the Smith Family; and

 

•

that the merger be approved by a majority of the A. O. Smith Unaffiliated Stockholders, voting separately on the merger.

During the presentation, the parties discussed each issue raised in the A. O. Smith Special Committee’s response. The meeting concluded with Mr. Barr indicating that the SICO Special Committee would need to further review and discuss the A. O. Smith Special Committee’s requests before providing a response.

In the morning of July 24, 2008, Morgan Stanley and Mr. Barr held a conference call to further discuss the A. O. Smith Special Committee’s response to the SICO proposal. Later that day, the A. O. Smith Special Committee met telephonically with representatives of Winston, Morgan Stanley and Abrams & Laster to discuss the previous day’s meeting with the SICO Special Committee.

 

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On August 19, 2008, certain members of the Smith Family filed a Schedule 13D with the SEC to report that they had determined to jointly engage in discussions with other stockholders of SICO, the SICO Special Committee and potentially A. O. Smith and the A. O. Smith Special Committee regarding the proposed transaction. These members of the Smith Family appointed Arthur O. Smith and Bruce M. Smith as their representatives and Quarles as their legal counsel.

During the period from July 24, 2008 through September 3, 2008, Reinhart consulted with the members of the SICO Special Committee regarding the A. O. Smith Special Committee’s July 23, 2008 requests and the terms of a response to the A. O. Smith Special Committee. Reinhart also consulted with Quarles to discuss the position of the representatives of the members of the Smith Family represented by Quarles, particularly with respect to the requests made by the A. O. Smith Special Committee that were directed to the Smith Family.

On September 3, 2008, the SICO Special Committee provided the following response to the A. O. Smith Special Committee’s July 23, 2008 requests:

 

•

the SICO Special Committee was unwilling to accept a discount in the exchange ratio;

 

•

the SICO Special Committee was willing to accept an amendment to the A. O. Smith Existing Charter to provide for the automatic conversion to A. O. Smith common stock of any shares of A. O. Smith Class A common stock that are transferred to an unaffiliated third party;

 

•

the SICO Special Committee was willing to accept an amendment to the A. O. Smith Existing Charter to add a provision for all of the outstanding A. O. Smith Class A common stock to convert automatically to A. O. Smith common stock provided that the threshold was 7% of the total outstanding A. O. Smith Class A common stock and A. O. Smith common stock rather than the 15% requested by the A. O. Smith Special Committee;

 

•

the SICO Special Committee was willing to accept an amendment to the A. O. Smith Existing Charter to provide the holders of the A. O. Smith common stock with the right to elect one additional member of the A. O. Smith board of directors;

 

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representatives of certain members of the Smith Family were unwilling to accept granting a right of first refusal to A. O. Smith if members of the Smith Family propose to transfer 33% or more of their A. O. Smith Class A common stock in a single transaction;

 

•

representatives of certain members of the Smith Family were unwilling to agree for a period of five-years not to enter into agreements or arrangements relating to shares of A. O. Smith stock to be issued in the merger to members of the Smith Family, but they may be willing to discuss more limited restrictions on arrangements with third parties unrelated to SICO stockholders;

 

•

the SICO Special Committee was willing to provide for indemnification of A. O. Smith for liabilities related to the historical operation of SICO and any litigation or transaction expenses, with such indemnification to be limited to a two year survival period and a $10 million cap, but with no escrow of shares;

 

•

representatives of members of the Smith Family holding a majority of the outstanding shares of SICO common stock were unwilling to accept the request for personal indemnification from members of the Smith Family; and

 

•

the SICO Special Committee believed the requirement that the merger be approved by a majority of the A. O. Smith Unaffiliated Stockholders, voting separately on the merger, was unnecessary.

At a telephonic meeting of the A. O. Smith Special Committee held on September 4, 2008, Winston and Morgan Stanley summarized the response received on September 3, 2008 from the SICO Special Committee. The A. O. Smith Special Committee expressed its general acceptance of the provisions regarding the conversion of A. O. Smith Class A common stock into A. O. Smith common stock upon transfer to unaffiliated third parties

 

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and agreed that it would not continue to insist that certain SICO stockholders grant A. O. Smith a right of first refusal with respect to certain transfers of their shares of A. O. Smith. The A. O. Smith Special Committee and its advisors then discussed the SICO Special Committee’s response that a discount in the exchange ratio was not acceptable. The A. O. Smith Special Committee and its advisors articulated numerous reasons why they believed a discount in the exchange ratio was appropriate and the A. O. Smith Special Committee concluded that it was not willing to recommend a transaction that did not include a discount in the exchange ratio. However, the A. O. Smith Special Committee indicated that it was willing to consider a discount of less than 5%. The A. O. Smith Special Committee also continued to believe that the merger should be approved by a majority of the A. O. Smith Unaffiliated Stockholders, voting separately on the merger.

The A. O. Smith Special Committee also stated that it believed the threshold at which all A. O. Smith Class A common stock should automatically convert into A. O. Smith common stock should be increased from SICO’s proposed 7% of the total outstanding A. O. Smith Class A common stock and A. O. Smith common stock to somewhere in the range of 10% and 12%. Finally, the A. O. Smith Special Committee concluded that it was important to have an escrow of shares to provide a source of recourse for any indemnification claims. The A. O. Smith Special Committee determined that it would not continue to insist upon direct indemnification from certain members of the Smith Family.

On September 15, 2008, the A. O. Smith Special Committee held a telephonic meeting with Winston and Morgan Stanley to discuss a response to the SICO Special Committee. The A. O. Smith Special Committee authorized Winston and Morgan and Stanley to negotiate open transaction issues with the advisors to SICO and the SICO Special Committee consistent with the positions articulated at the September 4th meeting.

The advisors to the A. O. Smith Special Committee, including representatives from Winston, Morgan Stanley and Abrams & Laster, and advisors to SICO and the SICO Special Committee, including representatives from Reinhart and Latham, met at the offices of Winston on October 2, 2008 to discuss the open transaction issues. The parties discussed the exchange ratio discount and Reinhart indicated that the SICO Special Committee would be willing to consider a discount in the exchange ratio of approximately 1%, but not a 5% discount, and that the SICO Special Committee would not be willing to accept a separate vote on the merger by the A. O. Smith Unaffiliated Stockholders. The advisors to the A. O. Smith Special Committee, as authorized by the A. O. Smith Special Committee, responded that a 3% discount would be acceptable to the A. O. Smith Special Committee. However, the advisors to the A. O. Smith Special Committee did not agree to withdraw its request for a separate vote on the merger by the A. O. Smith Unaffiliated Stockholders. Reinhart agreed to take this response to the SICO Special Committee for its review. Latham then conveyed its understanding that certain members of the Smith Family were willing to consider certain restrictions relating to the shares of A. O. Smith Class A common stock and A. O. Smith common stock that they would receive in the merger, and Winston conveyed that the A. O. Smith Special Committee was withdrawing its proposals for members of the Smith Family to be subject to a right of first refusal and to provide personal indemnification for liabilities relating to SICO’s historical operations. After discussing the other remaining issues, the advisors to SICO and the SICO Special Committee agreed to an escrow of shares with a value of $15,000,000 to provide a source of recourse for any indemnification claims, including for any liabilities associated with SICO’s spun-off operating subsidiaries. The advisors to SICO and the SICO Special Committee also agreed that SpinCo would provide indemnification from any such liabilities. The advisors to the A. O. Smith Special Committee agreed that a portion of the A. O. Smith shares would be released from escrow upon the resolution of any transaction litigation. Reinhart informed Winston and Morgan Stanley that the SICO Special Committee was willing to accept a threshold for the automatic conversion of all A. O. Smith Class A common stock of 7.5%.

The A. O. Smith Special Committee held a telephonic meeting on October 7, 2008 to discuss the October 2nd meeting. Morgan Stanley reported that the advisors had made progress on the outstanding issues but they were still unable to reach agreement on a number of key issues, including the exchange ratio discount, the percentage threshold below which all A. O. Smith Class A common stock would convert into A. O Smith common stock and the separate vote on the merger by the A. O. Smith Unaffiliated Stockholders.

 

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On October 8, 2008, the members of the SICO Special Committee participated in a teleconference with Reinhart, Latham and Quarles to review the October 2nd meeting and the status of the outstanding issues. The members of the SICO Special Committee subsequently authorized Reinhart to offer a 1% exchange ratio discount and to continue to request a threshold of 7.5% for the conversion of the A. O. Smith Class A common stock and that the A. O. Smith Special Committee withdraw its request for a separate vote of the A. O. Smith Unaffiliated Stockholders.

On October 13, 2008, at a meeting of the A. O. Smith board of directors (other than Bruce M. Smith and Mark D. Smith who recused themselves), Mr. Greubel provided a report to the board on the activities of the A. O. Smith Special Committee regarding the ongoing negotiations with SICO.

During the next week, the advisors to the A. O. Smith Special Committee and the SICO Special Committee participated in a series of telephone calls regarding the remaining issues. Following these discussions, Winston and Morgan Stanley participated in a telephonic meeting with the A. O. Smith Special Committee on October 15, 2008, to update the A. O. Smith Special Committee on the status of their discussions with the advisors to the SICO Special Committee. Morgan Stanley reported that the SICO Special Committee had offered an exchange ratio discount of 1%, continued to request an A. O. Smith Class A common stock conversion threshold of 7.5% and continued to ask that the A. O. Smith Special Committee withdraw its request for a separate vote of the A. O. Smith Unaffiliated Stockholders. The A. O. Smith Special Committee discussed the terms in detail with its advisors and stressed the importance to A. O. Smith of obtaining a larger exchange ratio discount. The A. O. Smith Special Committee then authorized Winston and Morgan Stanley to contact the advisors to the SICO Special Committee and offer an exchange ratio discount of 2.25% and a conversion threshold of 8%. This offer was conveyed to the SICO Special Committee on October 22, 2008.

On October 22, 2008 and again on October 27, 2008, Reinhart consulted with the members of the SICO Special Committee regarding the A O. Smith Special Committee’s October 22, 2008 offer.

On October 27, 2008, Reinhart called Winston to inform them that the SICO Special Committee was willing to accept an exchange ratio discount of 1.25% provided that A. O. Smith withdraw its request for a separate vote on the merger by a majority of the A. O. Smith Unaffiliated Stockholders. Reinhart also conveyed that the SICO Special Committee was agreeable to an A. O. Smith Class A common stock conversion threshold of 8%. The A. O. Smith Special Committee met telephonically on October 30, 2008 to discuss the status of the negotiations, including the suggested exchange ratio discount of 1.25%. The A. O. Smith Special Committee did not agree to the SICO Special Committee’s offer of a 1.25% exchange ratio discount. However, the A. O. Smith Special Committee authorized Winston to begin negotiating the Merger Agreement and related transaction documents with Reinhart and Latham, in order to assess any other issues that might exist.

The parties held a meeting at the offices of A. O. Smith on November 5, 2008 to discuss a proposed timetable for negotiating the Merger Agreement and related transaction documents. On November 7, 2008, Reinhart distributed a draft of the Merger Agreement and Winston, Latham and Quarles distributed drafts of other transaction documents, including the support agreements, the escrow agreement, the A. O. Smith Amended Charter and the stockholder agreement for certain members of the Smith Family. Between November 7, 2008 and December 8, 2008, the parties negotiated the terms of the definitive agreements for the transaction.

On November 21, 2008, the A. O. Smith Special Committee held a telephonic meeting with Winston and Morgan Stanley to discuss the status of the transaction and the remaining open issues and to review the transaction documents.

On November 26, 2008, Winston distributed drafts of the Merger Agreement and the related transaction documents to the A. O. Smith board of directors.

On December 1, 2008, Winston and Morgan Stanley met with Messrs. Jones, Murphy and Stern in Milwaukee, Wisconsin to discuss their due diligence findings and the status of the negotiations with SICO and the SICO Special Committee.

 

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On December 1, 2008, the SICO Special Committee held a telephonic meeting with Reinhart and Duff & Phelps to discuss the status of the transaction and the remaining open issues.

On December 5, 2008, the SICO Special Committee held a meeting at Reinhart’s offices with its legal and financial advisors. The SICO Special Committee reviewed the open issues in the Merger Agreement and other transaction documents. Reinhart reviewed with the SICO Special Committee its role and authority in connection with the proposed transaction. Duff & Phelps made a presentation regarding its analysis and form of opinion regarding the fairness, from a financial point of view, of the merger consideration to the SICO Unaffiliated Stockholders, assuming an exchange ratio discount of 1.25%, and responded to questions from members of the SICO Special Committee with respect to the information reviewed and the transaction. After the conclusion of the SICO Special Committee meeting, the SICO board of directors held a meeting at Reinhart’s offices to review the terms of the proposed transaction and the Merger Agreement and other transaction documents. Latham also reviewed with the SICO board of directors its fiduciary duties in connection with the transaction, the terms and structure of the proposed transaction and the Merger Agreement and other transaction documents.

On December 5, 2008, representatives from Winston and Reinhart discussed telephonically a possible resolution to the issues of the exchange ratio discount and the separate vote of the A. O. Smith Unaffiliated Stockholders. Winston and Reinhart each agreed to discuss a possible compromise with the respective special committees that in exchange for an exchange ratio discount of 1.5%, the A. O. Smith Special Committee would not require that the merger be approved by a separate vote of the A. O. Smith Unaffiliated Stockholders.

Later that day, the A. O. Smith Special Committee held a telephonic meeting with its legal and financial advisors to discuss and review in detail the negotiated terms of the Merger Agreement and other transaction documents. Winston described to the A. O. Smith Special Committee the suggested compromise on the exchange ratio discount and the separate vote of the A. O. Smith Unaffiliated Stockholders. After discussion the A. O. Smith Special Committee concluded that it was in the best interests of the A. O. Smith Unaffiliated Stockholders to forego a separate vote on the merger by the A. O. Smith Unaffiliated Stockholders in exchange for a 1.5% discount in the exchange ratio.

At this meeting, Morgan Stanley made a presentation regarding its preliminary analysis of the merger and responded to questions from members of the A. O. Smith Special Committee with respect to its presentation. During this discussion Morgan Stanley communicated that, assuming a 1.5% discount in the exchange ratio and the other financial terms of the merger that were discussed by the A. O. Smith Special Committee, Morgan Stanley would expect to be able to deliver an opinion that the exchange ratio was fair from a financial point of view to A. O. Smith.

After considering, among other things, the factors described below under “A. O. Smith’s Reasons for the Merger; Recommendations of the A. O. Smith Special Committee and the A. O. Smith Board of Directors,” and the financial analyses and presentation of Morgan Stanley, the A. O. Smith Special Committee determined that the Merger Agreement, reflecting a 1.5% discount in the exchange ratio, and the other transaction documents are advisable, substantively and procedurally fair to, and in the best interests of A. O. Smith and the A. O. Smith Unaffiliated Stockholders and unanimously recommended that the board of directors of A. O. Smith adopt, authorize and declare advisable the Merger Agreement, the merger and the transactions contemplated thereby.

On December 5, 2008, Winston and Morgan Stanley had a call with Mr. Ulrich and Reinhart to update due diligence regarding the operations of SICO and its subsidiaries since July 2008.

Between December 5, 2008 and December 8, 2008, the advisors to the A. O. Smith Special Committee, the SICO Special Committee and SICO finalized the Merger Agreement and other transaction documents.

On December 8, 2008, Reinhart held a teleconference with Bruce M. Smith and Arthur O. Smith, the representatives of the members of the Smith Family, who collectively own more than 50% of the outstanding shares of SICO common stock, and Quarles. During this call, the representatives confirmed on behalf of these

 

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members of the Smith Family that they would support the proposed transaction with A. O. Smith and that they would not support any alternative transaction that resulted in a sale of SICO or eliminated or limited A. O. Smith’s dual class voting structure.

In the afternoon of December 8, 2008, the A. O. Smith board of directors held a meeting in Milwaukee, Wisconsin. Directors Bruce M. Smith and Mark D. Smith, being members of the Smith Family, recused themselves and did not attend the meeting. Mr. Jones requested that Mr. Greubel, Chairman of the A. O. Smith Special Committee, provide the report of the A. O. Smith Special Committee to the board for its consideration. Mr. Greubel discussed the objectives of the negotiations and the extensive process that the A. O. Smith Special Committee went through. He also provided the A. O. Smith board of directors with a history of the negotiations. Mr. Greubel then discussed the reasons for the transaction from the perspective of A. O. Smith. Mr. Greubel stated that he would provide the recommendation of the A. O. Smith Special Committee after a representative from Winston summarized the proposed transaction and reviewed the agreements with the board.

Winston discussed with the A. O. Smith board of directors the legal standards for the transaction under Delaware law and the fiduciary duties of the directors in considering the proposed transaction. Winston also discussed with the A. O. Smith board of directors the lawsuit that had been filed against SICO and its directors and officers, and A. O. Smith. Winston reviewed in detail the terms of the Merger Agreement and related documents and responded to questions from the directors. Winston also discussed its due diligence findings with the A. O. Smith board of directors and responded to questions about potential liabilities of SICO.

Morgan Stanley next made a presentation regarding its analysis of the transaction and responded to questions from directors with respect to its presentation. Morgan Stanley then subsequently rendered its oral opinion to the A. O. Smith Special Committee and the A. O. Smith board of directors, which opinion subsequently was confirmed in a written opinion dated December 9, 2008, to the effect that as of such date and based upon and subject to the various considerations set forth in the written opinion, the exchange ratio pursuant to the Merger Agreement was fair from a financial point of view to A. O. Smith. Following Morgan Stanley’s presentation, the A. O. Smith board of directors discussed the proposed transaction. Mr. Greubel then reported to the board of directors that the A. O. Smith Special Committee unanimously (a) determined that the Merger Agreement, the ancillary agreements and the transactions contemplated by those agreements, including the merger, are advisable and substantively and procedurally fair to, and in the best interests of, A. O. Smith and the A. O. Smith Unaffiliated Stockholders, (b) recommended that the A. O. Smith board of directors approve and adopt the Merger Agreement, the ancillary agreements and the related transactions, including the merger and (c) recommended that the A. O. Smith Unaffiliated Stockholders approve the Merger Agreement. The A. O. Smith Special Committee then reaffirmed these recommendations. Mr. Jones then requested that the A. O. Smith board of directors consider the proposed transaction and reflect on the presentations, and he adjourned the meeting until the morning of December 9, 2008.

On the morning of December 9, 2008, the A. O. Smith board of directors held a meeting in Milwaukee, Wisconsin. Bruce M. Smith and Mark D. Smith recused themselves and did not attend the portion of the meeting dealing with the SICO proposal. After considering, among other things, the factors described below under “—Reasons for the Merger; Recommendation of the A. O. Smith Special Committee and the A. O. Smith Board of Directors,” the advice of their legal advisor, Winston, the financial analyses and opinion of Morgan Stanley to the A. O. Smith Special Committee and the A. O. Smith board of directors to the effect that as of December 9, 2008 and based upon and subject to the various considerations set forth in its written opinion, the exchange ratio pursuant to the Merger Agreement was fair from a financial point of view to A. O. Smith, and the recommendation of the A. O. Smith Special Committee, the A. O. Smith directors (other than Bruce M. Smith and Mark D. Smith who recused themselves and did not attend the meeting) determined that the Merger Agreement and merger are advisable and substantively and procedurally fair to, and in the best interests of, A. O. Smith and its stockholders (including the A. O. Smith Unaffiliated Stockholders) and adopted resolutions approving the Merger Agreement and the transactions contemplated thereby and recommending that the A. O. Smith stockholders adopt the Merger Agreement, adopt the A. O. Smith Amended Charter and approve the Stock Issuance.

 

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On December 9, 2008, the SICO Special Committee held a meeting by teleconference with representatives of Reinhart and Duff & Phelps attending. Reinhart updated the SICO Special Committee on the proposed resolution of the open issues on the transaction, including the compromise for a discount of 1.5% in the exchange ratio. Representatives from Duff & Phelps made a presentation to the SICO Special Committee to cover the changes from its December 5 presentation, including the effect of the discount of 1.5% in the exchange ratio. At the conclusion of its presentation, Duff & Phelps delivered an oral opinion, confirmed in writing by an opinion dated December 9, 2008, that the consideration to be received by the SICO Unaffiliated Stockholders pursuant to the Merger Agreement, as of the date of the opinion and based upon and subject to the assumptions, limitations, qualifications and factors contained therein, is fair, from a financial point of view, to the SICO Unaffiliated Stockholders. The full text of this written opinion, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with this opinion, is attached as Annex I to this joint proxy statement/prospectus. After further discussion and evaluation of the terms and conditions of the Merger Agreement, and after considering, among other things, the factors described below under “—SICO’s Reasons for the Merger; Recommendations of the SICO Special Committee and the SICO Board of Directors,” the SICO Special Committee unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and procedurally and substantively fair to, and in the best interests of, SICO and the SICO Unaffiliated Stockholders, and unanimously recommended that SICO board of directors authorize, adopt and approve the Merger Agreement and the transactions contemplated thereby, including the merger.

Following the meeting of the SICO Special Committee, the SICO board of directors held a meeting on December 9, 2008 by teleconference with representatives of Duff & Phelps, Latham and Reinhart attending. Latham updated the SICO board of directors on the resolution of the open issues on the transaction and corresponding changes to the Merger Agreement. Representatives from Duff & Phelps made a presentation to the SICO board of directors, and responded to questions from members of the SICO board of directors with respect to the information reviewed and the transaction. Duff & Phelps informed the SICO board of directors that it had previously delivered its opinion to the SICO Special Committee and that the members of the SICO board of directors are entitled to rely on that opinion. The SICO Special Committee then reported to the SICO board of directors as to the SICO Special Committee’s recommendation in favor of the Merger Agreement and the transactions contemplated thereby, including the merger. After further discussion and evaluation of the terms and conditions of the Merger Agreement, and after considering, among other things, the factors described below under “—SICO’s Reasons for the Merger; Recommendations of the SICO Special Committee and the SICO Board of Directors,” the SICO board of directors unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and procedurally and substantively fair to, and in the best interests of, the stockholders of SICO, and unanimously approved the Merger Agreement and the transactions contemplated thereby, including the merger.

Later in the day on December 9, 2008, A. O. Smith, MergerCo, SICO and SpinCo executed and delivered the Merger Agreement, SICO and A. O. Smith executed a support agreement, and SICO, A. O. Smith and certain members of the Smith Family executed a support agreement. A. O. Smith and certain members of the Smith Family also executed the stockholder agreement. On December 9, 2008, A. O. Smith and SICO issued a joint press release publicly announcing the signing of the Merger Agreement and related transaction documents.

A. O. Smith’s Reasons for the Merger; Recommendations of the A. O. Smith Special Committee and A. O. Smith Board of Directors

The A. O. Smith Special Committee, consisting solely of independent and disinterested directors, and acting with the advice and assistance of its independent financial and legal advisors, evaluated and negotiated the terms of the merger, including the terms and conditions of the Merger Agreement. On December 5, 2008, the A. O. Smith Special Committee unanimously determined that the merger, the terms of the Merger Agreement and the transactions contemplated thereby are advisable and substantively and procedurally fair to, and in the best interests of A. O. Smith and the A. O. Smith Unaffiliated Stockholders, recommended that the A. O. Smith board

 

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of directors adopt, authorize and declare advisable the merger, Merger Agreement and the other transactions contemplated by the Merger Agreement and recommended that the A. O. Smith Unaffiliated Stockholders adopt the Merger Agreement. The A. O. Smith Special Committee reaffirmed its recommendations on December 8, 2008. On December 9, 2008, at a meeting of the A. O. Smith board of directors, after hearing and considering the A. O. Smith Special Committee’s recommendation, the A. O. Smith board of directors (other than Mr. Bruce M. Smith and Mr. Mark D. Smith who recused themselves and did not attend the meeting) determined that the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement are advisable and substantively and procedurally fair to, and in the best interests of, A. O. Smith and its stockholders (including the A. O. Smith Unaffiliated Stockholders) and approved the Merger Agreement, the merger and the other transactions contemplated by the Merger Agreement.

The A. O. Smith Special Committee recommends that the A. O. Smith Unaffiliated Stockholders vote “FOR” the proposal to adopt the Merger Agreement. The A. O. Smith board of directors recommends that A. O. Smith stockholders vote “FOR” the proposal to adopt the Merger Agreement, “FOR” the proposal to adopt the A. O. Smith Amended Charter and “FOR” the proposal to approve the Stock Issuance.

In the course of reaching their determination, the A. O. Smith Special Committee and the A. O. Smith board of directors considered the following factors and potential benefits of the merger, each of which they believed supported their decision and provided assurance of the substantive fairness of the merger to A. O. Smith’s stockholders (including the A. O. Smith Unaffiliated Stockholders):

 

•

the fact that the exchange ratio in the Merger Agreement reflects a discount of 1.5%, such that the merger will result in the SICO stockholders receiving, in the aggregate, 98.5% of the total number of shares of each of the A. O. Smith Class A common stock and A. O. Smith common stock held by SICO prior to the effective time of the merger, subject to the treatment of Escrow Shares, fractional shares and dissenting shares described in this joint proxy statement/prospectus;

 

•

the fact that the value of the shares of A. O. Smith Class A common stock and A. O. Smith common stock reflected in this discount (assuming a one for one conversion of the A. O. Smith Class A common stock into A. O. Smith common stock) was $4.6 million, based on the closing price of $31.81 of the A. O. Smith common stock on the NYSE on December 8, 2008, the last full trading day prior to the execution of the Merger Agreement;

 

•

the fact that the discount reflected in the exchange ratio is fixed at 1.5% of the total number of A. O. Smith shares held by SICO, such that if the price of A. O. Smith Class A common stock and A. O. Smith common stock increases, the dollar amount of benefit from this discount to the A. O. Smith Unaffiliated Stockholders also increases;

 

•

the fact that SICO stockholders will have a more efficient tax position, will own A. O. Smith shares directly and can sell the shares as needed, all of which will enable them to act in the interests of the other long-term A. O. Smith stockholders;

 

•

the fact that the ability of SICO stockholders to sell their A. O. Smith shares could provide greater long-term liquidity for the A. O. Smith common stock since the A. O. Smith Class A common stock will convert into A. O. Smith common stock upon any public sale of A. O. Smith Class A common stock;

 

•

the fact that amendments to the A. O. Smith Existing Charter contemplated by the transaction reduces substantially the possibility that holders of A. O. Smith Class A common stock could obtain a theoretical control premium on a sale of those shares, and may ultimately result in the elimination of the dual class voting structure at A. O. Smith;

 

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the fact that A. O. Smith Class A common stock will automatically convert into A. O. Smith common stock if the total number of outstanding shares of A. O. Smith Class A common stock falls below

 

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2,397,976 shares, which is approximately 8% of the combined outstanding A. O. Smith Class A common stock and A. O. Smith common stock as of the date of the Merger Agreement, which may ultimately prevent holders of shares representing a disproportionately small economic interest in A. O. Smith from controlling A. O. Smith;

 

•

the fact that holders of A. O. Smith Class A common stock may no longer transfer their stock to non-Smith Family unaffiliated third parties without the shares automatically converting to A. O. Smith common stock, which is expected to disperse voting control to the holders of A. O. Smith common stock over time;

 

•

the belief that the revised and improved corporate governance structure reaffirms the A. O. Smith board of directors’ commitment to making decisions in the best interests of all stockholders, which is expected to increase the confidence of public stockholders in A. O. Smith;

 

•

the belief that the revised corporate governance structure allows the Smith Family to continue its long-standing and strong commitment to A. O. Smith and enables A. O. Smith’s management to continue making decisions for the long-term best interests of A. O. Smith and all of its stockholders;

 

•

the fact that holders of A. O. Smith common stock will be entitled to elect 33-1/3% of the members of the A. O. Smith board of directors, which is an increase from their current right to elect 25% of the members;

 

•

the fact that certain members of the Smith Family will agree to certain restrictions in the stockholder agreement which provide the A. O. Smith board of directors the right to approve certain actions these members of the Smith Family could take or propose to the possible disadvantage of the other stockholders, such as a going-private transaction;

 

•

the fact that the A. O. Smith Special Committee and its legal and financial advisors conducted arm’s length negotiations with the SICO Special Committee and its legal and financial advisors regarding the terms of the merger, and the belief of the A. O. Smith Special Committee and the A. O. Smith board of directors that the terms of the merger are as favorable to A. O. Smith and the A. O. Smith Unaffiliated Stockholders as could reasonably be attained under the circumstances;

 

•

the results of business, legal and financial due diligence investigations of SICO and its subsidiaries conducted by A. O. Smith’s management and legal and financial advisors, and the resulting conclusions by the parties conducting the due diligence investigations;

 

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the fact that A. O. Smith and its subsidiaries are indemnified by SpinCo and from the escrow, for substantially all liabilities relating to or arising from the operation of SICO’s operating businesses prior to the merger;

 

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the fact that A. O. Smith will be reimbursed by SICO for substantially all of its fees and expenses incurred in connection with the transaction;

 

•

the financial analysis presented by Morgan Stanley, independent financial advisor to the A. O. Smith Special Committee, and its oral opinion, rendered on December 8, 2008, which opinion subsequently was confirmed in a written opinion dated December 9, 2008, to the A. O. Smith Special Committee and the A. O. Smith board of directors, to the effect that as of such date and based upon and subject to the various considerations set forth in the written opinion, the exchange ratio pursuant to the Merger Agreement was fair from a financial point of view to A. O. Smith (see the sections entitled “—Opinion of Morgan Stanley, Financial Advisor to the A. O. Smith Special Committee,” beginning on page 69);

 

•

the fact that shares of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO representing approximately 78.8% of the voting power of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, and 97.9% of the voting power of the total outstanding shares of A. O. Smith Class A common stock, voting as a separate class, have agreed to vote in favor of the adoption of the Merger Agreement and the transactions contemplated by the Merger Agreement (see “Agreements Relating to the Merger—SICO Support Agreement” beginning on page 106);

 

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•

the fact that shares of SICO common stock representing approximately 52.7% of the voting power of the total outstanding shares of SICO common stock have agreed to vote in favor of the approval of the Merger Agreement (see “Agreements Relating to the Merger—Smith Family Support Agreement” beginning on page 106); and

 

•

the belief that the terms of the Merger Agreement, including the parties’ respective representations, warranties and covenants, are reasonable.

The A. O. Smith Special Committee and the A. O. Smith board of directors also considered a number of factors relating to the procedural safeguards involved in the negotiation of the merger, including those discussed below, each of which they believed supported their decision and provided assurance of the substantive and procedural fairness of the merger to A. O. Smith’s stockholders (including the A. O. Smith Unaffiliated Stockholders):

 

•

the fact that A. O. Smith’s board of directors established a special committee of independent and disinterested directors, consisting solely of directors who are not officers, employees or affiliated in any way (other than in their capacities as directors of A. O. Smith) with A. O. Smith, SICO or the Smith Family to review, evaluate and negotiate proposals made by SICO with respect to a potential transaction;

 

•

the fact that the terms and conditions of the Merger Agreement resulted from extensive negotiations between the A. O. Smith Special Committee and its advisors and the SICO Special Committee, SICO and their respective advisors;

 

•

the fact that, subject to compliance with the terms and conditions of the Merger Agreement, if there is a material intervening event, the A. O. Smith board of directors is permitted, prior to the adoption of the Merger Agreement by its stockholders, to change its recommendation; and

 

•

receipt of the written opinion of Morgan Stanley delivered on December 9, 2008 to the A. O. Smith Special Committee and the A. O. Smith board of directors to the effect that as of the date of such opinion and based upon and subject to the various considerations set forth in the written opinion, the exchange ratio pursuant to the Merger Agreement was fair from a financial point of view to A. O. Smith.

In addition to the factors described above, the A. O. Smith Special Committee and the A. O. Smith board of directors identified and considered a variety of risks and potentially negative factors in its deliberations concerning the merger, including:

 

•

the fact that the discount reflected in the exchange ratio is fixed at 1.5% of the total number of A. O. Smith shares held by SICO, such that if the price of A. O. Smith Class A common stock and A. O. Smith common stock decreases, the dollar amount of benefit from this discount to the A. O. Smith Unaffiliated Stockholders also decreases;

 

•

the possibility that the merger might not be completed as a result of the failure of one or more conditions to the merger, or that completion of the merger might be unduly delayed or subject to adverse conditions that may be imposed by governmental authorities;

 

•

the risk that the potential benefits sought in the merger might not be fully realized;

 

•

the fact that the Smith Family members who enter into the voting trust agreement may have significant influence over the management of A. O. Smith;

 

•

the fact that A. O. Smith is required to submit the approval of the merger to a vote of its stockholders even if the A. O. Smith board of directors withdraws or modifies its recommendation to vote in favor of the merger;

 

•

the interests that certain directors of A. O. Smith may have with respect to the merger in addition to their interests as A. O. Smith stockholders generally, as described in the section entitled “—Interests of A. O. Smith Executive Officers and Directors in the Merger” beginning on page 79;

 

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•

the fact that non-SICO holders of A. O. Smith Class A common stock will lose the right they currently have to freely transfer their A. O. Smith Class A common stock without the shares converting to A. O. Smith common stock upon transfer;

 

•

the fact that non-SICO holders of A. O. Smith Class A common stock will have the right to elect fewer directors than they were able to elect prior to the transaction;

 

•

the fact that the price of A. O. Smith Class A common stock and A. O. Smith common stock may decline if SICO stockholders sell the shares they receive in the merger;

 

•

the fact that the approval of the merger will not be submitted to a separate vote of the A. O. Smith Unaffiliated Stockholders;

 

•

the litigation proceedings filed in the Milwaukee County Circuit Court in the State of Wisconsin in connection with the Merger and related transactions, as described in the section entitled “—Legal Proceedings Regarding the Merger” beginning on page 84;

 

•

the risk that SpinCo could become unable to satisfy its indemnification obligations under the Merger Agreement;

 

•

the risk that the escrow fund may be insufficient to satisfy all indemnification claims of A. O. Smith and other indemnified parties; and

 

•

the various other risks associated with the merger set forth under the section entitled “Risk Factors” beginning on page 30.

After considering these factors, the A. O. Smith Special Committee and the A. O. Smith board of directors concluded that on balance the potential benefits of the merger to A. O. Smith and its stockholders outweighed the potential negative factors. In light of the number and wide variety of factors considered in connection with its evaluation of the transaction, the A. O. Smith Special Committee and the A. O. Smith board of directors did not consider it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weights to the specific factors they considered in reaching their determination. Rather, the A. O. Smith Special Committee and the A. O. Smith board of directors made their recommendations based on the totality of information presented to, and the investigation conducted by or at the direction of, the A. O. Smith Special Committee and the A. O. Smith board of directors. In addition, individual directors may have given different weight to different information and factors. This explanation of A. O. Smith’s reasons for recommending the merger and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under “Forward-Looking Statements” beginning on page 37.

In considering the recommendation of the A. O. Smith board of directors with respect to the merger, you should be aware that certain members of the A. O. Smith board of directors have certain interests in the merger that are different from, or are in addition to, the interests of A. O. Smith’s stockholders generally and which create conflicts of interest. In addition, certain of the directors of A. O. Smith will receive benefits in connection with the merger that are not available to A. O. Smith stockholders generally. For a more complete description of these interests and benefits, see “—Interests of A. O. Smith Executive Officers and Directors in the Merger” beginning on page 79 of this joint proxy statement/prospectus.

SICO’s Reasons for the Merger; Recommendations of the SICO Special Committee and SICO Board of Directors

On December 9, 2008, the SICO Special Committee unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and procedurally and substantively fair to, and in the best interests of, SICO and the SICO Unaffiliated Stockholders, and recommended that the SICO board of directors authorize, adopt and approve the Merger Agreement and the transactions contemplated thereby, including the merger. The SICO Special Committee unanimously recommends that the SICO Unaffiliated Stockholders vote “FOR” the approval the Merger Agreement at the special meeting of the SICO stockholders.

 

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On December 9, 2008, the SICO board of directors unanimously approved the Merger Agreement and the transactions contemplated thereby, including the merger, and determined that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable and procedurally and substantively fair to, and in the best interests of, SICO and the SICO stockholders, including the SICO Unaffiliated Stockholders. The SICO board of directors unanimously recommends that the SICO stockholders vote “FOR” the approval of the Merger Agreement at the special meeting of the SICO stockholders.

The SICO Special Committee and the SICO board of directors, in reaching their respective recommendations with respect to the Merger Agreement, considered a number of factors, including the material factors discussed in the following paragraphs. In light of the number and wide variety of factors considered in connection with their evaluation of the Merger Agreement and the transactions contemplated thereby, including the Merger, neither the SICO Special Committee nor the SICO board of directors considered it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its recommendation. The SICO Special Committee and the SICO board of directors viewed their respective recommendations as being based on the totality of the information presented, and the factors they considered. In addition, individual members of the SICO Special Committee or the SICO board of directors, in making their decisions, may have given different weight to different information and factors. This explanation of SICO’s reasons for the Merger and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “—Forward Looking Statements” beginning on page 37.

In arriving at its determination, the SICO Special Committee consulted with the independent legal and financial advisors to the SICO Special Committee, as well as SICO’s management, legal advisors and other representatives. In arriving at its determination, the SICO board of directors separately consulted with the SICO Special Committee, SICO’s management, legal advisors and other representatives, as well as the independent financial advisor to the SICO Special Committee. In addition, the SICO Special Committee and the SICO board of directors considered the following factors as generally supporting their respective recommendations to approve the Merger Agreement:

 

•

that the SICO common stock has historically traded at a significant discount to the underlying value of the A. O. Smith shares held by SICO, and direct ownership by the SICO stockholders of A. O. Smith shares should eliminate the discount to the value of the A. O. Smith shares caused by in SICO’s holding company structure and the tax inefficiencies associated therewith and allow the SICO stockholders to realize the underlying value of the A. O. Smith shares held by SICO;

 

•

that direct ownership by the SICO stockholders of A. O. Smith shares will provide enhanced liquidity for the SICO stockholders due to the greater public float and trading volumes for A. O. Smith shares and its NYSE listing, as compared to the SICO common stock, which is thinly traded on the Pink Sheets;

 

•

that direct ownership by the SICO stockholders of A. O. Smith shares will permit the SICO stockholders to receive direct payment of the full amount of any dividends paid by A. O. Smith with respect to the A. O. Smith shares;

 

•

that the likelihood of the merger qualifying as a tax-free reorganization under the Code so as to be non-taxable to the SICO stockholders, and the condition to the obligations of the parties to complete the merger that the IRS Letter Ruling be received;

 

•

that the amendments to the A. O. Smith Existing Charter contemplated by the Merger Agreement could improve the corporate governance structure of A. O. Smith for the benefit of all the A. O. Smith stockholders, including the SICO stockholders entitled to receive A. O. Smith shares in the merger;

 

•

with respect to the SICO board of directors, the SICO Special Committee’s determination that the Merger Agreement and the transactions contemplated thereby, including the merger, are advisable, procedurally and substantively fair to, and in the best interests of SICO and the SICO Unaffiliated

 

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Stockholders, and its recommendation that the SICO board of directors approve the Merger Agreement, and the transactions contemplated thereby, including the merger, which the SICO board of directors noted was arrived at by independent and disinterested directors, with assistance of independent financial and legal advisors and following vigorous negotiation of the transaction terms and conditions by the SICO Special Committee and its advisors;

 

•

that A. O. Smith agreed to pay SICO stockholders for the value of tax benefits, refunds and credits of SICO if and when actually realized by A. O. Smith, as more fully described below under “The Merger Agreement—Payment for Tax Benefit Items” beginning on page 101;

 

•

the financial analyses presented by Duff & Phelps and discussed with the SICO Special Committee and the SICO board of directors and the related opinion of Duff & Phelps, dated December 9, 2008, and subject to the assumptions and qualifications stated therein, to the effect that the consideration to be received in the merger by the SICO Unaffiliated Stockholders was fair, from a financial point of view, to the SICO Unaffiliated Stockholders, as more fully described below under “—Opinion of the Financial Advisor to the SICO Special Committee”;

 

•

the support of certain members of the Smith Family for the merger, and the statements made by certain members of the Smith Family to the SICO Special Committee and its advisors that alternative transactions would not be supported by such holders, rendering pursuit of such alternative transactions futile because such members of the Smith Family hold in excess of a majority of the outstanding SICO common stock; and

 

•

that all SICO stockholders would have the right to dissent from the merger and obtain payment of the fair value of their shares of SICO common stock under Nevada law, as more fully described below under “—Appraisal Rights; Dissenter’s Rights” beginning on page 84.

The SICO board of directors also identified and considered the following factors relating to potential adverse consequences of the proposed transaction to SICO:

 

•

the aggregate number of A. O. Smith shares to be received by the holders of SICO common stock in the merger reflects a discount of 1.5% to the aggregate number of A. O. Smith shares currently held by SICO;

 

•

the fact that the value of the shares of A. O. Smith Class A common stock and A. O. Smith common stock reflected in this discount (assuming a one for one conversion of the A. O. Smith Class A common stock into A. O. Smith common stock) was $4.6 million, based on the closing price of $31.81 of the A. O. Smith common stock on the NYSE on December 8, 2008, the last full trading day prior to the execution of the Merger Agreement;

 

•

that the fees and expenses of SICO and A. O. Smith associated with the completion of the merger, including that SICO has agreed to reimburse A. O. Smith for substantially all of its fees and expenses incurred in connection with the transaction;

 

•

that the amendments to the A. O. Smith Existing Charter contemplated by the transaction may, among other things, have a negative impact on the transferability of A. O. Smith Class A common stock, eliminate the ability for holders of A. O. Smith Class A common stock to obtain a theoretical control premium on a sale of those shares, and ultimately result in the elimination of the dual class voting structure at A. O. Smith;

 

•

that an amendment to the A. O. Smith Existing Charter contemplated by the transaction will result in a reduction in the number of directors elected by the holders of A. O. Smith Class A common stock;

 

•

that the indemnification obligations to A. O. Smith under the Merger Agreement, and that shares of A. O. Smith common stock that otherwise would be delivered to the holders of SICO common stock in the merger are required to be placed in escrow and may be used as a source of indemnification payments to A. O. Smith;

 

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•

the risk that the merger may not be completed and the potential impact on SICO, including the fact that the Spin-Off has been completed and cannot be undone;

 

•

the diversion of management focus and resources from other strategic opportunities and from operational matters while working to implement the merger;

 

•

the interests that certain executive officers and directors of SICO may have with respect to the merger, in addition to their interests as SICO stockholders generally, as described in the section entitled “—Interests of SICO Executive Officers and Directors in the Merger” beginning on page 80;

 

•

the litigation proceedings filed in the Milwaukee County Circuit Court in the State of Wisconsin in connection with the merger and related transactions, as described in the section entitled “—Legal Proceedings Regarding the Merger” beginning on page 84; and

 

•

various other applicable risks associated with the merger, including those described under the section entitled “—Risk Factors” beginning on page 30.

The SICO Special Committee and the SICO board of directors weighed the benefits, advantages and opportunities against the risks of entering into the Merger Agreement and completing the merger and the other transactions contemplated by the Merger Agreement. Although the SICO Special Committee and the SICO board of directors realized that there can be no assurance about future results or outcomes, including results expected or considered in the factors listed above, the SICO Special Committee and the SICO board of directors concluded that the potential benefits outweighed the potential risks of completing the merger and the other transactions contemplated by the Merger Agreement.

The foregoing discussion of the material factors considered by the SICO Special Committee and the SICO board of directors is not intended to be exhaustive, but does set forth the principal factors considered by the SICO Special Committee and the SICO board of directors.

In considering the recommendation of SICO’s board of directors with respect to the merger, you should be aware that certain members of SICO’s board of directors and certain SICO officers have interests in the merger that are different from, or are in addition to, the interests of SICO’s stockholders generally and which create conflicts of interest. In addition, certain of the directors and officers of SICO will receive benefits in connection with the merger that are not available to other SICO stockholders. For a more complete description of these interests and benefits, see “—Interests of SICO Executive Officers and Directors in the Merger” beginning on page 80 of this joint proxy statement/prospectus.

Opinion of Morgan Stanley, Financial Advisor to the A. O. Smith Special Committee

The A. O. Smith Special Committee retained Morgan Stanley to provide it with financial advisory services and to provide it and the A. O. Smith board of directors a financial opinion in connection with the proposed merger. The A. O. Smith Special Committee selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation. On December 8, 2008, Morgan Stanley rendered its oral opinion, which opinion subsequently was confirmed in a written opinion dated December 9, 2008, to the A. O. Smith Special Committee and the A. O. Smith board of directors to the effect that as of such date and based upon and subject to the various considerations set forth in the opinion, the exchange ratio pursuant to the Merger Agreement was fair from a financial point of view to A. O. Smith.

The full text of the written opinion of Morgan Stanley, dated as of December 9, 2008, is attached to this proxy statement as Annex H. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We encourage you to read the entire opinion carefully. The opinion, and the other views and analysis of Morgan Stanley referenced throughout this proxy statement, do not constitute a recommendation to any holder of A. O. Smith Class A common stock or A. O. Smith common

 

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stock as to how to vote at the meeting of stockholders to be held in connection with this transaction. In addition, the opinion does not in any manner address the prices at which the A. O. Smith Class A common stock or A. O. Smith common stock will trade following consummation of the merger. Morgan Stanley provided its opinion for the information and assistance of the A. O. Smith Special Committee and the A. O Smith board of directors in connection with the directors’ consideration of the merger, and the opinion addresses only whether the exchange ratio pursuant to the Merger Agreement was fair from a financial point of view to A. O. Smith as of the date of the opinion. The summary of the opinion of Morgan Stanley set forth in this joint proxy statement/prospectus is qualified in its entirety by reference to the full text of the opinion.

In connection with rendering its opinion, Morgan Stanley, among other things:

 

•

reviewed certain publicly available financial statements and other business and financial information of A. O. Smith and SICO, respectively;

 

•

reviewed certain internal historical financial statements and other financial and operating data concerning A. O. Smith and SICO, respectively;

 

•

discussed the past and current operations and financial condition and the prospects of A. O. Smith with senior executives of A. O. Smith;

 

•

discussed the past and current operations and financial condition and the prospects of SICO with senior executives of SICO;

 

•

reviewed the reported prices and trading activity for the A. O. Smith common stock, A. O. Smith Class A common stock and SICO common stock;

 

•

compared the financial performance of A. O. Smith and the prices and trading activity of A. O. Smith common stock with that of certain other publicly-traded companies comparable with A. O. Smith and its securities;

 

•

reviewed the financial terms, to the extent publicly available, of certain comparable merger transactions;

 

•

participated in certain discussions and negotiations among representatives of A. O. Smith and SICO and their financial and legal advisors;

 

•

reviewed the Merger Agreement and certain related documents; and

 

•

performed such other analyses and considered such other factors as Morgan Stanley deemed appropriate.

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by A. O. Smith and SICO, and formed a substantial basis for the opinion. Morgan Stanley assumed that the Spin-Off and the merger will be consummated in accordance with the terms set forth in the Merger Agreement without any waiver, amendment or delay of any terms or conditions, including, among other things, that the merger will be treated as a tax-free reorganization and/or exchange, each pursuant to the Code. For the avoidance of doubt, and without limiting the foregoing, Morgan Stanley assumed that A. O. Smith will not assume any tax liability in respect of the Spin-Off. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed Spin-Off and merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed Spin-Off and merger. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and has relied upon, without independent verification, the assessment of A. O. Smith and SICO and its legal, tax or regulatory advisors with respect to such matters. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of A. O. Smith or SICO, nor was it furnished with any such appraisals. Morgan Stanley’s

 

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opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it as of, the date of the opinion. Events occurring after such date may affect the opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm the opinion.

The following is a summary of the material analyses performed by Morgan Stanley in connection with its opinion. One of the summaries of financial analysis includes information presented in tabular format. In order to fully understand the financial analysis used by Morgan Stanley, the table must be read together with the text of the summary. The table alone does not constitute a complete description of the financial analysis.

Historical Stock Price Trading Analysis

Morgan Stanley performed a historical stock price trading analysis to provide background and perspective on the historical share price performance of A. O. Smith common stock and SICO common stock prior to and following the public announcement on February 4, 2008 of SICO’s proposal. A. O. Smith announced that it had received SICO’s proposal prior to the open of the United States stock markets on February 4, 2008. The proposal noted, among other terms, that SICO’s stockholders would receive newly issued shares of A. O. Smith Class A common stock and A. O. Smith common stock equal to the A. O. Smith Class A common stock and A. O. Smith common stock shares currently held by SICO. As a result, SICO’s proposal assumed neither a share exchange premium nor discount.

Morgan Stanley noted that A. O. Smith’s common stock share price decreased approximately 2.6% upon announcement of SICO’s proposal, from $36.28, the closing price on Friday, February 1, 2008, to $35.33, the closing price on Monday, February 4, 2008. In contrast, Morgan Stanley noted that the S&P 500 index price had decreased approximately 1.0%, from 1,395.42, the closing price on Friday, February 1, 2008, to 1380.82, the closing price on Monday, February 4, 2008. In addition, Morgan Stanley noted that SICO’s share price increased approximately 49.3% upon announcement of SICO’s proposal, from $63.63, the closing price on Friday, February 1, 2008, to $95.00, the closing price on Monday, February 4, 2008.

The shares of SICO common stock are thinly traded in an over-the-counter market that is relatively illiquid, and on certain trading days may not trade at all, which may affect the quoted market prices for shares of SICO common stock.

Precedent Transactions Analysis

Morgan Stanley also performed a precedent transactions analysis, which attempted to provide a basis for the consideration to be provided in connection with the transaction, in particular with regard to the exchange ratio. Morgan Stanley identified four transactions which in its view were substantially similar in structure and predicated on a comparable motivation to complete the transaction. The following is a list of these transactions:

Selected Precedent Transactions (Parent / Subsidiary)

 

•

Petrie Stores Corporation / Toys “R” Us, Inc.

 

•

Seagate Technology, Inc. / VERITAS Software Corporation

 

•

American BioScience, Inc. / American Pharmaceutical Partners, Inc.

 

•

Fidelity National Financial, Inc. / Fidelity National Information Services, Inc.

For each transaction listed above, Morgan Stanley analyzed the structure of the transaction to determine their applicability. Morgan Stanley determined that all of the transactions noted above were applicable because they all were mergers of a parent company into a subsidiary in a tax-free exchange of shares. Morgan Stanley reviewed each transaction to determine (i) whether the parent had voting control of the subsidiary through owning shares that provided greater than 50% of the total voting rights of the subsidiary, (ii) whether the parent

 

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had economic control of the subsidiary through owning shares that provided greater than 50% of the total ownership of the subsidiary and (iii) the amount, if any, of the discount the parent company received in the exchange of shares. In analyzing the proposed exchange ratio and resultant share exchange discount the SICO stockholders would receive, Morgan Stanley specifically focused on whether having greater than 50% of the voting control, but less than 50% economic control would cause the parent company to receive a share exchange discount to the subsidiary company shares held by the parent company prior to the merger. The following table provides a summary of the precedent transactions noted above compared to the merger contemplated between SICO and A. O. Smith, including the parent company voting control and economic ownership percentages prior to the merger and the share exchange discount received by the parent.

 

						Parent % Voting Control / Ownership Prior to Merger						Parent				Share Exchange Discount Received by Parent
Date Completed		Parent		Subsidiary		Voting Control			Economic Ownership			Voting Control		Economic Control
12/9/1994		Petrie Stores Corporation		Toys “R” Us, Inc.		14	%		14	%		No		No		8	%
11/22/2000		Seagate Technology, Inc.		VERITAS Software Corporation		32	%		32	%		No		No		15	%
4/18/2006		American BioScience, Inc.		American Pharmaceutical Partners, Inc.		66	%		66	%		Yes		Yes		0	%
11/9/2006		Fidelity National Financial, Inc.		Fidelity Information Services		51	%		51	%		Yes		Yes		0	%
TBD		Smith Investment Company		A. O. Smith		79	%		32	%		Yes		No		1.5	%

Morgan Stanley noted that in the Petrie Stores and Seagate Technology transactions, Petrie Stores and Seagate Technology neither had voting nor economic control of Toys “R” Us and VERITAS, respectively, and they received share exchange discounts of approximately 8% and 15%, respectively. Morgan Stanley noted that in the American BioScience and Fidelity National Financial transactions, American BioScience and Fidelity National Financial had both voting and economic control of American Pharmaceutical Partners and Fidelity Information Services, respectively, and did not receive a share exchange discount.

Morgan Stanley noted SICO had voting control, but not economic control of A. O. Smith. In addition, Morgan Stanley noted that pursuant to the Merger Agreement, the SICO stockholders are to receive their pro rata portion of 7,947,690 shares of A. O. Smith Class A common stock and 1,535,801 shares of A. O. Smith common stock, which represents a share exchange discount of 1.5% to the 8,067,252 and 1,559,076 shares of A. O. Smith Class A common stock and A. O. Smith common stock, respectively, currently held by SICO.

In connection with the review of the merger by the A. O Smith Special Committee and the A. O. Smith board of directors, Morgan Stanley performed financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic

 

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conditions and other matters. Many of these assumptions are beyond the control of A. O. Smith and SICO. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted these analyses described above solely as part of their analysis of the fairness of the exchange ratio pursuant to the Merger Agreement from a financial point of view to A. O. Smith and in connection with the delivery of its opinion to the A. O. Smith Special Committee and the A. O. Smith board of directors. The analyses described above do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold or at which shares of A. O. Smith Class A common stock and A. O. Smith common stock might actually trade. The exchange ratio was determined through arm’s-length negotiations between A. O. Smith and SICO and was approved by the A. O. Smith Special Committee and the A. O. Smith board of directors. Morgan Stanley provided advice to the A. O. Smith Special Committee during these negotiations. Morgan Stanley did not, however, recommend any specific exchange ratio to the A. O. Smith Special Committee or the A. O. Smith board of directors or that any specific exchange ratio constituted the only appropriate exchange ratio for the merger. As described above, Morgan Stanley’s opinion to the A. O. Smith Special Committee and the A. O. Smith board of directors was one of many factors taken into consideration by the A. O. Smith Special Committee and the A. O. Smith board of directors in making their determination to approve the Merger Agreement. The analyses as described above should not be viewed as determinative of the opinion of the A. O. Smith Special Committee and the A. O. Smith board of directors with respect to the exchange ratio or whether the A. O. Smith Special Committee and the A. O. Smith board of directors would have been willing to agree to a different exchange ratio.

Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in performing financial analysis with respect to businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and other transactions as well as for corporate, estate and other purposes. In the ordinary course of its trading, brokerage, investment management and financing activities, Morgan Stanley or its affiliates may at any time hold long or short positions, and may trade or otherwise effect transactions, for their own account or the accounts of customers, in debt or equity securities or loans of A. O. Smith, SICO or any other company or any currency or commodity that may be involved in this transaction. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

Pursuant to a letter agreement, the A. O. Smith Special Committee engaged Morgan Stanley to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of the letter agreement, the A. O. Smith Special Committee agreed to pay Morgan Stanley an aggregate fee of $1.75 million. A. O. Smith paid Morgan Stanley a $250,000 fee upon execution of the engagement letter and a $1,250,000 fee upon delivery of Morgan Stanley’s opinion in December 2008. An additional fee of $250,000 will be payable to Morgan Stanley only upon completion of the merger. The A. O. Smith Special Committee has also agreed to reimburse Morgan Stanley for its reasonable expenses, including attorneys’ fees and disbursements. Finally, A. O. Smith has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against various liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of the engagement of Morgan Stanley. The terms of the fee arrangement with Morgan Stanley were negotiated at arm’s length between the A. O. Smith Special Committee and Morgan Stanley.

Other than this engagement, during the two years preceding that date of the opinion, Morgan Stanley has not provided any material financial advisory or financing services to any party to the merger for which compensation has been received or is intended to be received.

Opinion of Duff & Phelps, Financial Advisor to the SICO Special Committee

On January 5, 2008, Duff & Phelps was engaged to provide independent financial advisory services to the SICO Special Committee and, as part of the engagement, the SICO Special Committee requested that

 

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Duff & Phelps provide an opinion to the SICO Special Committee as to the fairness, from a financial point of view, to the SICO Unaffiliated Stockholders of the consideration to be received by such holders in the merger. Duff & Phelps was not requested to, and did not in its opinion, address or otherwise provide any opinion with respect to the Spin-Off. The opinion provided by Duff & Phelps was only given with respect to the merger.

On December 9, 2008, Duff & Phelps rendered its oral opinion to the SICO Special Committee, which was subsequently confirmed in a written opinion dated December 9, 2008, that, subject to the limitations, exceptions, assumptions and qualifications set forth therein, as of such date, the consideration to be received by the SICO Unaffiliated Stockholders in the merger was fair from a financial point of view to such holders. The written opinion of Duff & Phelps states that it may also be relied upon by the SICO board of directors. The full text of the written opinion of Duff & Phelps is attached as Annex I to this joint proxy statement/prospectus and is incorporated herein by reference.

The full text of the written opinion should be read carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and qualifications and limitations of the review undertaken in rendering the opinion. The opinion of Duff & Phelps was addressed to the SICO Special Committee and may also be relied upon by the SICO board of directors, but is not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, for any other purpose without Duff & Phelps’ prior written consent, except to the extent specifically permitted by the opinion.

Duff & Phelps has not been requested to, and did not, initiate any discussions with, or solicit any indications of interest from, third parties with respect to the merger, the assets, businesses or operations of SICO, or any alternatives to the merger, or negotiate the terms of the merger. In addition, Duff & Phelps is not expressing any opinion as to the market price or value of the SICO common stock or the A. O. Smith Class A common stock or the A. O. Smith common stock following the public announcement of the merger.

Duff & Phelps’ opinion does not address the merits of the underlying business decision to enter into the merger versus any alternative strategy or transaction, is not a recommendation as to how the SICO Special Committee, the SICO board of directors or any holder of SICO common stock should vote or act with respect to any matters relating to the merger, or whether to proceed with the merger or any related transaction, and does not indicate whether the consideration received is the best possibly attainable under any circumstances.

In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. SICO, the SICO Special Committee and the SICO board of directors placed no limits on the information to which Duff & Phelps had access or the matters it could consider. Duff & Phelps’ due diligence with respect to the merger included, but was not limited to, the following:

 

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discussed the merger with the SICO Special Committee and its representatives and SICO and its management and representatives;

 

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reviewed certain publicly available business and financial information of SICO and A. O. Smith, respectively;

 

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reviewed certain internally prepared financial and operating data concerning SICO, which SICO had identified as being the most current financial statements available;

 

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reviewed drafts of the following documents related to the merger: the Merger Agreement and a form of each of the SICO support agreement, the Smith Family support agreement, the A. O. Smith Existing Charter, the A. O. Smith Amended Charter, the escrow agreement, the stockholder agreement and the voting trust agreement;

 

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reviewed the historical trading prices and trading volumes of the SICO common stock, A. O. Smith Class A common stock and A. O. Smith common stock; and

 

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conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

 

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In performing its analyses and rendering its opinion, Duff & Phelps, with the SICO Special Committee’s consent:

 

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assumed that the merger will be treated as a tax-free reorganization for United States Federal income tax purposes;

 

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did not address the impact of the merger on any particular SICO stockholder other than in such stockholder’s capacity as a stockholder;

 

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relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including SICO and its management and representatives and the SICO Special Committee and its representatives, and did not independently verify such information;

 

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assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed;

 

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assumed that information supplied to Duff & Phelps and representations and warranties made in the Merger Agreement are accurate in all material respects;

 

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assumed that all of the conditions required to implement the merger will be satisfied and that the merger will be completed in accordance with the Merger Agreement without any amendments thereto or any waivers of any terms or conditions thereof;

 

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relied upon the fact that the SICO Special Committee and SICO have engaged such tax, accounting and legal advisors as they have deemed necessary, and is giving no opinion with respect to any tax, accounting or legal matters;

 

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assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect (including any delay, limitation, condition or restriction) on SICO, A. O. Smith or the contemplated benefits expected to be derived in the merger;

 

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assumed that each member or descendant of the Smith Family and each trust for the benefit of members or descendants of the Smith Family that is, was or will be required by applicable law or regulation to be a signatory to the Schedule 13D (as defined in the Merger Agreement) has signed or will sign such Schedule 13D;

 

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has not taken into account the effect, positive or negative, that any tax attribute of SICO being assumed (including by operation of law) by or transferred to A. O. Smith in the merger would have on the merger; and

 

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assumed, based on the direction of the SICO Special Committee, that any alternative to the merger involving a sale of SICO to a third party or a recapitalization of A. O. Smith to eliminate its dual class equity structure would be futile and therefore not available.

In its analysis and in connection with the preparation of its opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the merger. To the extent that any of the foregoing assumptions insofar as they affect the merger or any of the facts on which the Duff & Phelps opinion was based prove to be untrue in any material respect, Duff & Phelps has advised the SICO Special Committee that the Duff & Phelps opinion cannot and should not be relied upon.

Duff & Phelps did not make any independent evaluation of SICO’s, SpinCo’s or A. O. Smith’s solvency or any appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise), nor has Duff & Phelps been furnished with any such evaluations or appraisals. Duff & Phelps is not a legal, tax, accounting or regulatory advisor and has relied upon, without independent verification, the assessment of SICO and its legal,

 

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tax, accounting and regulatory advisors with respect to such matters, and Duff & Phelps has made no assessment as to the impact or timing implications, if any, of any ongoing legal or regulatory investigations. Duff & Phelps has undertaken no independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which SICO is or may be a party or is or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which SICO is or may be a party or is or may be subject and, at the SICO Special Committee’s direction and with the SICO Special Committee’s consent, Duff & Phelps’ opinion makes no assumption concerning, and therefore does not consider, the potential effects of such litigation, claims or investigations or possible assertions of claims, outcomes or damages arising out of any such matters. The opinion should not be construed as a valuation opinion, credit rating, solvency opinion, analyses of SICO’s, SpinCo’s or A. O. Smith’s credit worthiness, tax advice, or accounting advice.

Set forth below is a summary of the material financial analyses performed by Duff & Phelps in reaching its fairness conclusions as of December 9, 2008. Although Duff & Phelps reviewed a number of other transactions in connection with the merger, Duff & Phelps did not identify any transaction it believed was comparable to the merger, and, accordingly, in rendering its opinion, Duff & Phelps has relied solely on an analysis designed specifically for the merger. Although developments following the date of the Duff & Phelps opinion may affect the opinion, Duff & Phelps assumed no obligation to update, revise, or reaffirm its opinion. The Duff & Phelps opinion is necessarily based upon market, economic and other conditions that were in effect on, and information made available to Duff & Phelps as of, the date of the opinion. You should understand that developments subsequent to December 9, 2008 may affect the conclusion expressed in the Duff & Phelps opinion, and that Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion. The Duff & Phelps opinion is limited to the fairness as of December 9, 2008, from a financial point of view, to SICO Unaffiliated Stockholders of the consideration to be received by such holders in the merger.

The Duff & Phelps opinion was based on the totality of the various analyses that it performed, and no particular portion of the analysis has any merit standing alone. This summary is qualified in its entirety by reference to the full text of the opinion, attached as Annex I to this joint proxy statement/prospectus. While this summary describes the analysis and factors that Duff & Phelps deemed material in its presentation to the SICO Special Committee, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, a fairness opinion is not readily susceptible to partial analysis or a summary description. In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken, as a whole, and also on the application of Duff & Phelps’ own experience and judgment. This conclusion involved significant elements of subjective judgment and qualitative analysis. Duff & Phelps gives no opinion as to the value or merit standing alone of any one or more parts of the analyses it performed.

Historical Trading Analysis

Duff & Phelps reviewed the historical trading ranges of SICO common stock and A. O. Smith common stock, and the aggregate discount implied by the market capitalization of SICO and the aggregate market value of SICO’s holdings of A. O. Smith shares (assuming one for one conversion of A. O. Smith Class A common stock into A. O. Smith common stock), for various periods before and after February 4, 2008, the date of the public announcement of SICO’s merger proposal to A. O. Smith, to provide Duff & Phelps with background and perspective for how shares of SICO common stock and A. O. Smith common stock have historically traded on a

 

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standalone basis and relative to each other. Duff & Phelps noted that the per share price of SICO common stock includes the value of other assets and liabilities held by SICO, including those related to Berlin Industries and Central States.

Duff & Phelps noted that for the five-year period prior to February 4, 2008, the aggregate discount ranged between a low of $68.4 million and a high of $273.4 million. Duff & Phelps also noted that for the period February 4, 2008 to December 8, 2008, the aggregate discount ranged between a low of negative $8.0 million and high of $140.6 million. Duff & Phelps noted that on January 31, 2008, the last trading day on which the SICO common stock traded prior to the February 4, 2008 public announcement of SICO’s merger proposal to A. O. Smith, the value of a share of SICO common stock was $64.00. Duff & Phelps also noted that on February 1, 2008, the last trading day on which A. O. Smith common stock traded prior to the February 4, 2008 public announcement of SICO’s merger proposal to A. O. Smith, the value of a share of A. O. Smith common stock was $36.28. The trading values for SICO common stock on January 31, 2008 and A. O. Smith common stock on February 1, 2008 imply an aggregate discount of $136.9 million.

The shares of SICO common stock are thinly traded in an over-the-counter market that is relatively illiquid, and on certain trading days may not trade at all, which may affect the quoted market prices for shares of SICO common stock.

SICO Stockholder Benefit Analysis

In addition to analyzing the aggregate discount, Duff & Phelps compared the aggregate discount immediately prior to the February 4, 2008 public announcement of SICO’s merger proposal to A. O. Smith with the estimated costs related to the merger (the “Net Benefit”). Duff & Phelps noted that the Net Benefit only considers the value of SICO’s holdings of A. O. Smith Class A common stock and A. O. Smith common stock, and does not consider SICO’s other assets and liabilities, including Berlin Industries, Central States and tax attributes arising out of the Spin-Off.

Duff & Phelps noted that on January 31, 2008, the last trading day on which the SICO common stock traded prior to the February 4, 2008 public announcement of SICO’s merger proposal to A. O. Smith, the value of a share of SICO common stock was $64.00. Duff & Phelps also noted that on February 1, 2008, the last trading day on which A. O. Smith common stock traded prior to the February 4, 2008 public announcement of SICO’s merger proposal to A. O. Smith, the value of a share of A. O. Smith common stock was $36.28. The trading values for the SICO common stock on January 31, 2008 and A. O. Smith common stock on February 1, 2008 imply a benefit to the SICO stockholders of $136.9 million, prior to consideration of costs related to the merger. The costs related to the merger include costs of the exchange ratio discount and cumulative transaction expenses (both those already incurred by the SICO and by A. O. Smith and those estimated to be incurred by SICO and by A. O. Smith) in excess of $200,000 related to the merger. Based on an exchange ratio discount of 1.5%, the estimated cost of this discount was $5.2 million. Based on an estimate provided by SICO’s management, cumulative transaction expenses in excess of $200,000 were estimated to be approximately $6.6 million. After considering the benefits to the SICO stockholders and the costs related to the merger, the Net Benefit prior to February 4, 2008 is estimated at $125.1 million ($136.9 million – $5.2 million – $6.6 million).

Net Valuation Difference Subsequent to February 4, 2008 Announcement

In addition to the above analyses, Duff & Phelps calculated the estimated net valuation difference as the value of SICO’s holdings of A. O. Smith common stock, less the market capitalization of SICO and costs to effect the merger, including the exchange ratio discount of 1.5% and cumulative transaction expenses in excess of $200,000. Duff & Phelps noted that the net valuation difference only considers the value of SICO’s holdings of A. O. Smith Class A common stock and A. O. Smith common stock, and does not consider SICO’s other assets and liabilities, including Berlin Industries, Central States and tax attributes arising out of the Spin-Off.

As of December 8, 2008, Duff & Phelps noted that the value of a share of SICO common stock was $60.00 and the value of a share of A. O. Smith common stock was $31.81. Based on the December 8, 2008 trading

 

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values, the valuation difference before consideration of expenses related to the merger was $107.2 million. After consideration of exchange ratio discount expense of $4.6 million and estimated transaction expenses in excess of $200,000 of $6.6 million, the implied net valuation difference as of December 8, 2008 was $96.0 million ($107.2 million – $4.6 million – $6.6 million).

Miscellaneous

Based on the foregoing analysis, Duff & Phelps concluded that the consideration to be received by the SICO Unaffiliated Stockholders in the merger was fair, from of a financial point of view, to such holders as of the date of its fairness opinion.

In its review and analysis, and in arriving at its opinion, Duff & Phelps assumed and relied upon the accuracy and completeness of all the financial and other information provided to it or publicly available and neither attempted independently to verify, nor assumed responsibility for verifying, any of such information.

The material analyses performed by Duff & Phelps have been summarized above. Nonetheless, the summary set forth above does not purport to be a complete description of the analyses performed by Duff & Phelps. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, such an opinion is not readily susceptible to a summary description. Duff & Phelps did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness. Rather, in reaching its conclusion, Duff & Phelps considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. Duff & Phelps did not place a particular reliance or weight on any particular analysis, but instead concluded that its analyses, taken as whole, supported its determination.

The SICO Special Committee selected Duff & Phelps because Duff & Phelps is a leading independent financial advisory firm, offering a broad range of valuation and investment banking services, including fairness and solvency opinions, mergers and acquisitions advisory services, mergers and acquisitions due diligence services, financial reporting and tax valuation, fixed asset and real estate consulting, ESOP and ERISA advisory services, legal business solutions and dispute consulting. Duff & Phelps is regularly engaged in the valuation of businesses and securities in the preparation of fairness opinions in connection with mergers, acquisitions and other strategic transactions.

Fees and Expenses

SICO’s engagement letter with Duff & Phelps provides that, for its services, Duff & Phelps is entitled to receive $400,000 due and payable as follows: $200,000 in cash upon execution of the engagement letter to serve as financial advisor to the SICO Special Committee in its review of possible alternative transactions for SICO; and the remaining $200,000 in cash upon the SICO Special Committee’s request to Duff & Phelps to issue its opinion. No portion of Duff & Phelps’ fee is contingent upon either the conclusion expressed in the opinion or whether the merger is successfully consummated. Furthermore, Duff & Phelps is entitled to be paid additional fees at Duff & Phelps’ standard hourly rates for any time incurred reviewing or assisting in the preparation of any proxy materials or other SEC filings or documents associated with the merger. SICO has also agreed to reimburse Duff & Phelps for its out-of-pocket expenses and reasonable fees and expenses of counsel, consultants, and advisors retained by Duff & Phelps, incurred in connection with the engagement, and to indemnify and hold harmless Duff & Phelps and its affiliates and any other person, director, employee or agent of Duff & Phelps or any of its affiliates, or any person controlling Duff & Phelps or its affiliates, for certain losses, claims, damages, expenses and liabilities relating to or arising out of services provided by Duff & Phelps as financial advisor to the SICO Special Committee. The terms of the fee arrangement with Duff & Phelps, which the SICO Special Committee and Duff & Phelps believe are customary in transactions of this nature, were negotiated at arm’s length between the SICO Special Committee and Duff & Phelps.

 

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Other than this engagement, during the two years preceding the date of the opinion, Duff & Phelps has not had any material relationship with any party to the merger for which compensation has been received or is intended to be received.

Interests of A. O. Smith Executive Officers and Directors in the Merger

A. O. Smith stockholders considering the recommendation of A. O. Smith’s board of directors regarding the merger should be aware that certain directors of A. O. Smith may have certain interests in the merger that are different from, or in addition to, the interests of A. O. Smith stockholders generally. Executive officers of A. O. Smith do not have interests in the merger that are different from, or in addition to, the interests of A. O. Smith stockholders generally. The A. O. Smith Special Committee and the A. O. Smith board of directors were aware of these interests and considered them when (a) in the case of the A. O. Smith Special Committee, they voted to recommend that the A. O. Smith board of directors adopt, authorize and declare advisable the Merger Agreement, the merger and the related transactions and recommend to the A. O. Smith Unaffiliated Stockholders that they vote to adopt the Merger Agreement and (b) in the case of the A. O. Smith board of directors, they voted to adopt, authorize and declare advisable the Merger Agreement, the merger and the related transactions and recommend to A. O. Smith’s stockholders that they vote in favor of the adoption of the Merger Agreement, the merger and the related transactions.

Interests of Bruce M. Smith

Bruce M. Smith is a director of A. O. Smith and is Chairman and Chief Executive Officer of SICO. Bruce M. Smith is also a manager of SpinCo and is the President and Chief Executive Officer of SpinCo. He, along with others, also acts as a representative of certain members of the Smith Family, which collectively beneficially own 52.7% of the outstanding shares of SICO common stock and may be deemed to be controlling stockholders of SICO. These Smith Family members may be deemed to have indirect beneficial ownership of the shares of A. O. Smith beneficially owned by SICO and have reported their indirect beneficial ownership on a Schedule 13D/A filed with the SEC on December 10, 2008.

Bruce M. Smith has a beneficial interest in 75,426 shares of the outstanding SICO common stock, which are held in trusts for the benefit of Bruce M. Smith, and 102,642 shares of the outstanding SICO common stock are held in various trusts for the benefit of the wife and children of Bruce M. Smith. In addition, Bruce M. Smith is the trustee of various trusts for the benefit of persons other than himself, his wife and children, which hold shares of SICO common stock. For a more complete description of Bruce M. Smith’s role as a trustee and his interests in SICO, see “Interests of SICO Executive Officers and Directors in the Merger—Interests of Bruce M. Smith and Arthur O. Smith” beginning on page 80 of this joint proxy statement/prospectus.

Interests of Mark D. Smith

Mark D. Smith is a director of A. O. Smith. His brother, Arthur O. Smith III, is a director of SICO and is also employed by A. O. Smith in a non-executive capacity. Arthur O. Smith III’s employment with A. O. Smith precedes his brother’s election to the A. O. Smith board of directors by more than ten years, and is subject to the same terms and conditions of employment as other A. O. Smith salaried employees. For more information on Mark D. Smith’s relationship with Arthur O. Smith III, see “Interests of SICO Executive Officers and Directors in the Merger—Interests of Arthur O. Smith, III” beginning on page 81 of this joint proxy statement/prospectus.

A. O. Smith Special Committee Compensation

The A. O. Special Committee consists of three disinterested and independent directors, Messrs. Ronald D. Brown and William P. Greubel and Ms. Idelle K. Wolf. A. O. Smith’s board of directors authorized the compensation for the members of the A. O. Smith Special Committee, in addition to the reimbursement of expenses and payment of all other fees that they receive as members of the A. O. Smith board of directors. The

 

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A. O. Smith board of directors determined that Mr. Greubel will receive $40,000 for his services as Chairman of the A. O. Smith Special Committee and Ms. Wolf and Mr. Brown will each receive $30,000 as a member of the A. O. Smith Special Committee. In addition, the A. O. Smith board of directors determined that each member of the special committee will receive remuneration in the amount of $1,500 per meeting attended in consideration of his or her acting in such capacity. The approved compensation for the members of the A. O. Smith Special Committee was not, and is not, contingent upon the adoption of the Merger Agreement and completion of the merger or any other transaction involving A. O. Smith.

Interests of SICO Executive Officers and Directors in the Merger

SICO stockholders considering the recommendation of SICO’s board of directors regarding the merger should be aware that the directors and executive officers of SICO may have certain interests in the merger that are different from, or in addition to, the interests of SICO stockholders generally. The SICO Special Committee and the SICO board of directors were aware of these interests and considered them when (a) in the case of the SICO Special Committee, they voted to recommend that the SICO board of directors authorize and approve the Merger Agreement and the transactions contemplated thereby, including the merger, and recommend to the SICO Unaffiliated Stockholders that they vote to approve the Merger Agreement and (b) in the case of the SICO board of directors, they voted to approve the Merger Agreement and the transactions contemplated thereby, including the merger, and to recommend that the SICO stockholders vote to approve the Merger Agreement.

Interests of Bruce M. Smith and Arthur O. Smith

Bruce M. Smith is Chairman and Chief Executive Officer of SICO and is a director of A. O. Smith. Bruce M. Smith is also a manager of SpinCo and is the President and Chief Executive Officer of SpinCo. Arthur O. Smith is a director of SICO. He retired as Chairman and Chief Executive Officer of SICO in January 1999. Bruce M. Smith and Arthur O. Smith also act as representatives of certain members of the Smith Family, which collectively own 52.7% of the outstanding shares of SICO common stock and may be deemed to be controlling stockholders of SICO. These Smith Family members may be deemed to have indirect beneficial ownership of the share of A. O. Smith beneficially owned by SICO and have reported their indirect beneficial ownership on a Schedule 13D/A filed with the SEC on December 10, 2008.

Bruce M. Smith has a beneficial interest in 75,426 shares of the outstanding SICO common stock, which are held in trusts for the benefit of Bruce M. Smith, and 102,642 shares of the outstanding SICO common stock are held in various trusts for the benefit of the wife and children of Bruce M. Smith. Of such shares, Bruce M. Smith may be deemed to beneficially own 31,212 shares as a result of his shared investment and voting power with respect to one of the trusts. Arthur O. Smith has a beneficial interest in 167,173 shares of the outstanding SICO common stock, including shares held in a trust for the benefit of Arthur O. Smith; his wife, Margaret B. Smith, beneficially owns 6,970 shares of the outstanding SICO common stock; and 467,209 shares of the outstanding SICO common stock are held in various trusts for the benefit of the wife and children of Arthur O. Smith. Arthur O. Smith disclaims beneficial ownership of the shares held in various trusts for the benefit of his wife and children. In addition, Messrs. Smith are trustees of various trusts for the benefit of persons other than themselves, their wives and children, which trusts hold an aggregate of 823,153 shares of SICO common stock. With respect to the shares of SICO common stock included above which are held in trust, Bruce M. Smith is sole trustee of a trust holding 11,100 shares of SICO common stock and holds all investment and voting power with respect to such trust. In addition, with respect to the SICO shares held in trust, Arthur O. Smith is one of two trustees with respect to trusts holding 485,497 shares, and Bruce M. Smith is one of two trustees with respect to trusts holding 741,834 shares; Messrs. Smith each share investment and voting power with respect to the shares held in the trusts in which they are one of two trustees. Two other trusts which are part of the Smith Family but not otherwise included above own 106,271 shares of SICO common stock. The shares of SICO common stock held beneficially by Messrs. Smith and their wives, together with shares held by Messrs. Smith in trust for the benefit of others and in the other trusts included in the Smith Family, comprised 52.7% of the 3,317,066 outstanding shares of SICO common stock as of March 4, 2009. As beneficial owners of outstanding shares of SICO

 

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common stock, Bruce M. Smith and Arthur O. Smith, as well as other members of the Smith Family, will participate in the benefits of the merger.

Certain members of the Smith Family have entered into certain agreements, arrangements and understandings in connection with the merger. In connection with the execution of the Merger Agreement, certain members of the Smith Family have entered into a support agreement, dated December 9, 2008, whereby these members of the Smith Family have agreed to take certain actions which are generally supportive of the merger, including voting their shares of SICO common stock in favor of the Merger Agreement and the other transactions contemplated thereby, including the merger. See “Agreements Relating to the Merger—Smith Family Support Agreement” for additional information. Certain members of the Smith Family have also entered into a stockholder agreement, dated December 9, 2008, with A. O. Smith whereby they generally have agreed that, for a period of up to three years after the merger, they will not engage in certain actions relating to A. O. Smith or its securities, including solicitations of proxies or stockholder consents, specific acquisition transactions, or certain transfers of their shares of A. O. Smith Class A common stock, without consent of the A. O. Smith board of directors. See “Agreements Relating to the Merger—Stockholder Agreement” for additional information. The Merger Agreement also contemplates that certain Smith Family members may form a voting trust to hold their A. O. Smith shares after the merger. The trustees of the voting trust would be responsible for the voting of the shares held in the trust. This agreement also contemplates restrictions on certain withdrawals from the voting trust. See “Agreements Relating to the Merger—Voting Trust Agreement” for additional information.

Excluding the A. O. Smith shares beneficially owned by SICO, Bruce M. Smith beneficially owns 2,649 shares of A. O. Smith common stock, which represents less than 0.1% of the outstanding shares of A. O. Smith common stock. Bruce M. Smith also has deferred receipt of stock awards representing a total of 7,160 shares of A. O. Smith common stock under A. O. Smith’s Corporate Directors’ Deferred Compensation Plan. A. O. Smith treats these deferred stock awards as restricted stock units.

Excluding the A. O. Smith shares beneficially owned by SICO, Arthur O. Smith also beneficially owns 4,734 shares of A. O. Smith common stock, which represents less than 0.1% of the outstanding shares of A. O. Smith common stock.

Bruce M. Smith’s brother, Roger S. Smith, is employed by A. O. Smith in a non-executive capacity. Roger S. Smith is a long-service employee of A. O. Smith whose employment precedes his brother’s election to the A. O. Smith board of directors by more than ten years and is subject to the same terms and conditions of employment as other A. O. Smith salaried employees.

Interests of Arthur O. Smith, III

Arthur O. Smith, III, who is the son of Arthur O. Smith, is a director of SICO, is a manager of SpinCo, and is employed by A. O. Smith in a non-executive capacity. Arthur O. Smith, III’s brother, Mark D. Smith, is a director of A. O. Smith. Arthur O. Smith, III is a long-service employee of A. O. Smith whose employment precedes his brother’s election to the A. O. Smith board of directors by more than ten years, and is subject to the same terms and conditions of employment as other A. O. Smith salaried employees.

Arthur O. Smith, III beneficially owns 124,716 shares of the outstanding common stock of SICO, 95,985 shares of which are held in trusts for the benefit of persons other than himself, his wife and children. With respect to such trusts, Mr. Smith is a co-trustee with at least one other person and holds shared investment and voting power. Mr. Smith disclaims beneficial ownership of the 95,985 shares. Mr. Smith, and his wife and children, are beneficiaries of certain of the trusts which are part of the Smith Family, but Mr. Smith is not considered to be the beneficial owner of shares of SICO common stock held by those trusts. As a beneficiary of trusts that hold SICO common stock, Mr. Smith will participate in the benefits of the Merger.

Arthur O. Smith, III may be deemed to have beneficial ownership of 844.9 shares of A. O. Smith common stock that he holds indirectly through the A. O. Smith Profit Sharing Retirement Plan. This represents less than 0.1% of the outstanding shares of A. O. Smith common stock.

 

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Interests of Other Directors and Executive Officers of SICO

Glen R. Bomberger, a director of SICO does not beneficially own any shares of SICO common stock. Mr. Bomberger beneficially owns 33,000 shares of the A. O. Smith common stock, which represents approximately 0.2% of the outstanding A. O. Smith common stock. Mr. Bomberger is also the former Chief Financial Officer of A. O. Smith.

Jere D. McGaffey, a director of SICO, does not beneficially own any shares of SICO common stock, and beneficially owns 450 shares of A. O. Smith common stock, which represents less than 0.1% of the outstanding A. O. Smith common stock. Mr. McGaffey is a former partner of Foley & Lardner LLP, which is an outside legal advisor to A. O. Smith.

Harold M. Stratton, II, a director of SICO and a member of the SICO Special Committee, beneficially owns an aggregate of 500 shares of the SICO common stock, which represents less than 0.1% of the outstanding SICO common stock, and is co-trustee of a trust that holds 1,000 shares of A. O. Smith common stock, which represents less than 0.1% of the outstanding A. O. Smith common stock. Mr. Stratton has shared voting and dispositive power with respect to these shares.

Wesley A. Ulrich, an executive officer of SICO and also an executive officer of SpinCo, beneficially owns an aggregate of 1,000 shares of SICO common stock, which represents less than 0.1% of the outstanding SICO common stock, and beneficially owns an aggregate of 1,000 shares of A. O. Smith common stock, which represents less than 0.1% of the outstanding A. O. Smith common stock.

Employment and Severance Agreements

SpinCo entered into employment and severance agreements with Bruce M. Smith and Wesley A. Ulrich. Pursuant to the agreements, upon termination of employment, SpinCo provides the executive with a severance payment of two times base salary and agrees to pay for health insurance premiums for the earlier of one year or until other employment is obtained. SpinCo also provides outplacement services.

Termination of SICO Supplemental Benefit Plan

Pursuant to the Merger Agreement, SICO agreed to terminate its Supplemental Benefit Plan prior to the Spin-Off. SICO subsequently terminated its Supplemental Benefit Plan effective December 31, 2008. SpinCo assumed SICO’s obligation to make a lump sum distribution to each participant with an account balance in the Supplemental Benefit Plan and SpinCo has paid such lump sum distribution to each participant. Each of Bruce M. Smith and Wesley A. Ulrich participated in SICO’s Supplemental Benefit Plan. Mr. Smith received a payment from SpinCo of approximately $424,000 and Mr. Ulrich received a payment from SpinCo of approximately $396,000 due to the termination of the Supplemental Benefit Plan.

SICO Special Committee Compensation

The SICO Special Committee consists of two disinterested and independent directors, Messrs. Edward E. Barr and Harold M. Stratton II. SICO’s board of directors authorized the compensation for the members of the SICO Special Committee, in addition to the reimbursement of expenses and payment of all other fees that they receive as members of the SICO board of directors. The SICO board of directors determined that Mr. Barr will receive remuneration for his services on the SICO Special Committee in the amount of $30,000 plus $750 per meeting attended and Mr. Stratton will receive remuneration for his services on the SICO Special Committee of $1,500 per day worked (with a minimum half day payment for any day worked) plus $500 per meeting attended. The approved compensation for the members of the SICO Special Committee was not, and is not, contingent upon the approval of the Merger Agreement and completion of the merger or any other transaction involving SICO.

 

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Material Agreements Between the Parties

Except for the Merger Agreement, the other agreements relating to the merger and the transactions contemplated thereby, which are described throughout this joint proxy statement/prospectus, and the matters described below, there are no, and there has not been during the past two years any, material contracts, arrangements, understandings, relationships, negotiations or transactions between A. O. Smith or its affiliates and SICO or its affiliates.

Mr. Bruce M. Smith serves as a director of A. O. Smith and as the Chairman, President, Chief Executive Officer of SICO. He participates in A. O. Smith’s Corporate Directors’ Deferred Compensation Plan, as amended, in his capacity as a director of A. O. Smith.

Mr. Bruce M. Smith’s brother, Roger S. Smith, and A. O. Smith director Mark D. Smith’s brother, Arthur O. Smith, III, are both employed by A. O. Smith in non-executive capacities. Each is a long-service employee whose employment precedes his respective brother’s election to the A. O. Smith board of directors by more than ten years. Furthermore, each is subject to the same terms and conditions of employment as other salaried employees of A. O. Smith, and the compensation for each is below the threshold for a related party transaction under SEC rules.

A. O. Smith provides SICO with consulting services, office space and group insurance coverage and other miscellaneous services. SICO reimburses A. O. Smith for the costs relating to these services. A. O. Smith and SICO are also covered by the same directors’ and officers’ insurance policy.

A. O. Smith Board of Directors after Completion of the Merger

Upon the completion of the merger, A. O. Smith’s board of directors will continue to be composed of 10 members. In addition, the A. O. Smith Amended Charter and the A. O. Smith bylaws will continue to provide that the board of directors consist of at least five members, with the fixed number of directors being established from time to time by resolution of A. O. Smith’s board of directors. Currently, holders of A. O. Smith common stock are entitled to elect 25% of the authorized number of members of the board of directors and, if such 25% is not a whole number, then the nearest higher whole number of directors (or three of the ten directors). Holders of A. O. Smith Class A common stock are entitled to elect the remaining number of authorized directors that the holders of A. O. Smith common stock are not entitled to elect (or seven of the ten directors). Following the merger, the holders of A. O. Smith common stock, voting as a separate class, will be entitled to elect 33-¹ /₃% of the authorized number of members of the A. O. Smith board of directors and, if such 33-¹/₃% is not a whole number, then rounding up to the nearest higher whole number of directors (or four of the ten directors). Holders of A. O. Smith Class A common stock will be entitled to elect the remaining number of authorized directors that the holders of A. O. Smith common stock are not entitled to elect (or six of the ten directors). Effective upon consummation of the merger, the A. O. Smith board of directors has designated Mr. Ronald D. Brown, who is currently a director elected by holders of A. O. Smith Class A common stock, as a director elected by the holders of the A. O. Smith common stock to serve until the next annual meeting of A. O. Smith’s stockholders. Additional information regarding A. O. Smith’s directors is provided in A. O. Smith’s Definitive Proxy Statement on Schedule 14A, filed with the SEC on March  5, 2009, which is incorporated herein by reference.

Management of MergerCo after Completion of the Merger

MergerCo will continue to be a wholly-owned subsidiary of A. O. Smith upon completion of the merger. As a member managed limited liability company, MergerCo will not have a board of managers. Instead, MergerCo will be managed by A. O. Smith, as its sole member. Therefore, following the merger, the directors of A. O. Smith, as discussed immediately above in the section “—A. O. Smith Board of Directors after Completion of the Merger,” will have the power to direct decisions made by A. O. Smith, the managing member of MergerCo.

 

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Legal Proceedings Regarding the Merger

On February 26, 2008 Buttonwood Tree Value Partners, LP filed a purported class action complaint against SICO, A. O. Smith and certain directors and officers of SICO and A. O. Smith in the Milwaukee County Circuit Court in Wisconsin. The initial complaint alleged that the defendants breached their fiduciary duties to plaintiffs in connection with SICO’s proposed transaction. The lawsuit sought, among other things, an injunction requiring that defendants provide plaintiff with all documents relevant to the terms and conditions of the proposed transaction and permit the plaintiff to participate in negotiations regarding the potential transaction between SICO and A. O. Smith.

On February 19, 2009, Buttonwood Tree Value Partners, LP filed an amended complaint alleging, among other things, that the individual defendants breached their fiduciary duties in connection with the proposed transaction, and that A. O. Smith, through its officers and directors, aided and abetted this purported breach of fiduciary duty. The amended complaint added certain members of the Smith family and the CEO of A. O. Smith. The amended complaint seeks, among other things, an injunction enjoining the proposed transaction and requiring defendants to make certain disclosures to SICO’s stockholders.

Counsel for the parties have agreed in principle to settle the lawsuit and have executed a Memorandum of Understanding dated March 10, 2009. A stipulation of settlement is expected to follow. As part of the settlement, and in exchange for a dismissal of the lawsuit and release, A. O. Smith has agreed to add certain corporate governance measures to its policies and SICO and A. O. Smith have agreed to make certain additional disclosures (that plaintiffs’ counsel has reviewed) to its stockholders in this joint proxy statement/prospectus.

The corporate governance measures would include the following: (1) A. O. Smith’s Nominating and Governance Committee would need to approve any transaction or arrangement with A. O. Smith reportable under Item 404 of Regulation S-K under the Securities Exchange Act of 1934, involving a potential conflict of interest of an A. O. Smith director, CEO or any of their respective family members; (2) A. O. Smith’s Nominating and Governance Committee would evaluate the independence of A. O. Smith directors under previously established and publicly available guidelines; (3) A. O. Smith’s Nominating and Corporate Governance Committee would review on an annual basis and report to the board compliance with A. O. Smith’s publicly available policy regarding conflicts of interest/affiliations involving directors and their immediate family members.

The settlement would resolve the claims in the currently pending lawsuit. It is subject to customary conditions, including preliminary and final approval by the Court, after appropriate notice and a hearing to consider the fairness of the settlement. The settlement is also subject to completion of the merger. The defendants continue to deny any liability or responsibility for the claims made in the pending lawsuit and make no admission of any wrongdoing. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Court will approve the settlement even if the parties enter into a stipulation. If the Court approves the settlement, SICO stockholders from February 2, 2008 through the completion of the merger (other than the SICO directors, SICO and A. O. Smith) will release all claims, excluding valid exercises of dissenters’ rights, relating to the merger that were or could be brought against SICO, A. O. Smith, the other defendants and in each case, their respective directors, officers, affiliates and agents. See “Risk Factors” beginning on page 30.

Appraisal Rights; Dissenter’s Rights

A. O. Smith Stockholders

Under the General Corporation Law of the State of Delaware, A. O. Smith stockholders do not have appraisal rights in connection with the merger.

SICO Stockholders

Under NRS Chapter 92A, SICO stockholders will have dissenter’s rights in connection with the merger. In general, shares of SICO common stock issued and outstanding immediately prior to the effective time of the

 

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merger that are held by a holder who (a) has not voted such shares in favor of the approval of the Merger Agreement, (b) is entitled to, and who has, properly demanded and perfected dissenter’s rights for such shares of SICO common stock in accordance with NRS 92A.420, and (c) has not effectively withdrawn or forfeited such dissenter’s rights prior to the effective time of the merger, will not be converted into a right to receive Merger Consideration at the effective time of the merger. SICO stockholders who properly demand and perfect their dissenter’s rights are entitled to obtain payment of the fair value of their shares immediately before the effective time of the merger, excluding any appreciation or depreciation in anticipation of the merger.

The following discussion is not a complete statement of the law pertaining to dissenter’s rights under the NRS, and is qualified in its entirety by the full text of NRS 92A.300 to 92A.500, inclusive, as it exists as of the date of this joint proxy statement/prospectus, which provisions are provided in their entirety as Annex J to this joint proxy statement/prospectus. A person having a beneficial interest in shares of capital stock held of record in the name of another person, such as a broker or nominee, who seeks to elect dissenter’s rights must act promptly to cause the record holder to act in accordance with the steps summarized below properly and in a timely manner to prevent such record holder from acting in a manner that may result in a loss of such person’s dissenter’s rights.

Under NRS 92A.410(1), when a proposed merger is to be submitted for approval at a meeting of stockholders of a corporation, as in the case of the SICO special meeting contemplated hereby, the subject corporation must notify each of its stockholders entitled to dissenter’s rights that dissenter’s rights are applicable and include in that notice a copy of NRS 92A.300 to 92A.500 as it then exists. This joint proxy statement/prospectus constitutes such notice to the holders of SICO common stock, and the applicable statutory provisions of the NRS are attached as Annex J to this joint proxy statement/prospectus. Any SICO stockholder who wishes to assert dissenter’s rights should review carefully the following discussion and Annex J to this joint proxy statement/prospectus. Moreover, because of the complexity of the procedures for asserting dissenter’s rights in respect of SICO common stock, we believe that the SICO stockholders who are considering asserting such dissenter’s rights should seek the advice of counsel, which counsel will not be compensated by us. The failure by a SICO stockholder to comply with the procedures specified in NRS 92A.300 to 92A.500 in a timely and proper manner may result in the loss of such stockholder’s dissenter’s rights, and such stockholder instead will receive payment of the Merger Consideration contemplated by the Merger Agreement on the same basis as other SICO stockholders.

Filing Written Objection

Any SICO stockholder who wishes to assert dissenter’s rights under NRS 92A.300 to 92A.500 must satisfy each of the following conditions:

 

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as more fully described below, before the vote on the approval of the Merger Agreement at the SICO special meeting, the stockholder must deliver to SICO at Smith Investment Company, 11270 West Park Place, Milwaukee, Wisconsin, 53224-9508, Attention Corporate Secretary, written notice of the holder’s intent to demand payment for the holder’s shares if the merger is completed; and

 

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the stockholder must either not vote on the approval of the Merger Agreement, or must vote his or her shares “AGAINST” the approval of the Merger Agreement either by proxy or in person pursuant to Section 92A.420 of the NRS. A vote “FOR” the approval of the Merger Agreement will constitute a waiver of a stockholder’s dissenter’s rights.

The written notice to SICO of the stockholder’s intent to demand payment for the stockholder’s shares must be in addition to and separate from any proxy or vote. Neither voting (in person or by proxy) against, abstaining from voting, nor failing to vote on the approval of the Merger Agreement will constitute a written notice of intent to demand payment within the meaning of NRS 92A.420.

Notice by MergerCo

Within 10 days after the merger is completed, MergerCo, as the entity surviving the merger, must send a written dissenter’s notice to all SICO stockholders entitled to assert dissenters’ rights.

 

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The dissenter’s notice will specify where stockholders should send their demand for payment, and where and when stockholders must deposit their stock certificates, if any. The dissenter’s notice will also inform stockholders of shares not represented by stock certificates of the extent to which the transfer of their shares will be restricted after their demand for payment is received. The dissenter’s notice will also include a form for demanding payment that references the date the merger was first publicly announced. The stockholder asserting dissenter’s rights must certify on this form whether or not the stockholder acquired beneficial ownership of the shares before the date the merger was first publicly announced. The dissenter’s notice will also set a date by when MergerCo must receive the demand for payment, which may not be less than 30 days nor more than 60 days after the date the dissenter’s notice is delivered. Along with the dissenter’s notice, MergerCo will provide stockholders a copy of NRS 92A.300 through 92A.500.

If, after receiving a dissenter’s notice, the stockholder wishes to assert dissenter’s rights, the stockholder must timely demand payment, certify whether the stockholder acquired beneficial ownership of the shares before the date set forth in the dissenter’s notice, and deposit the stockholder’s certificates, if any, in accordance with the terms of the dissenter’s notice. The failure by the stockholder to demand payment timely and properly or failure to deposit certificates as described in the dissenter’s notice may terminate the stockholder’s right to receive payment pursuant to NRS Chapter 92A.

A stockholder who demands payment and deposits his, her or its certificates, if any, before the effective time of the merger, retains all other rights of a stockholder until those rights are cancelled or modified by the consummation of the merger.

Payment for Shares

Except as described below, within 30 days after the stockholder’s properly executed demand for payment is received by MergerCo, the stockholder will receive what MergerCo has estimated to be the fair value of the stockholder’s shares of SICO common stock, plus accrued interest. The payment will be accompanied by SICO’s balance sheet as of the end of a fiscal year not more than 16 months before the date of payment, an income statement for that year, a statement of changes in the stockholders’ equity for that year, and the latest available interim financial statements, if any. MergerCo will also include an explanation of how it estimated the fair value of the shares and how the accrued interest was calculated, along with information regarding the stockholder’s right to challenge the fair value determined by MergerCo and a copy of NRS 92A.300 to 92A.500.

MergerCo may elect to withhold payment from a dissenting stockholder that became the beneficial owner of the shares on or after the date of the first public announcement of the merger as stated in the dissenter’s notice. To the extent MergerCo withholds payment, after the merger, MergerCo will estimate the fair value of the shares, plus accrued interest, and offer to pay this amount to the stockholder as full satisfaction of the stockholder’s demand of payment. The offer will contain a statement of MergerCo’s estimation of the fair value for shares of SICO’s common stock, an explanation of how the accrued interest was calculated, and a statement of dissenter’s right to demand payment under NRS 92A.480.

Determination of Fair Value

If the dissenting stockholder believes that the consideration paid in exchange for the stockholder’s shares is less than their fair value, or that the interest is not correctly determined, the stockholder may demand an additional payment of the difference between the stockholder’s estimate and MergerCo’s estimate of the fair value per SICO share. The stockholder must make such demand in writing and within 30 days after MergerCo has made or offered payment for the stockholder’s shares.

If a demand for payment remains unsettled, MergerCo, within 60 days after MergerCo receives the stockholder’s demand, will petition the district court of the appropriate county within Nevada to determine the fair value of the shares of SICO common stock and the accrued interest. If MergerCo does not commence such

 

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legal proceeding within the 60-day period, MergerCo will be required to pay each dissenting stockholder whose demand remains unsettled the amount demanded.

All dissenters whose demands remain unsettled will be made parties to the proceeding, and are entitled to a judgment for either (a) the amount, if any, by which the court finds the fair value of the stockholder’s shares, plus interest, exceeds the amount paid by MergerCo; or (b) the fair value, plus accrued interest, of the stockholder’s after-acquired shares for which MergerCo withheld payment, plus accrued interest, pursuant to NRS 92A.470.

MergerCo will be required to pay the costs and expenses of the court proceeding unless the court finds the dissenters acted arbitrarily, vexatiously, or not in good faith, in which case the costs will be equitably distributed as and against MergerCo and the dissenters and not necessarily in equal manner. Attorneys’ fees will be divided as the court considers equitable.

SICO stockholders should be aware that the fair value of their shares as determined in a legal proceeding in accordance with NRS 92A.490 could be more than, the same as or less than the Merger Consideration the stockholder would receive under the Merger Agreement.

Any SICO stockholder wishing to exercise dissenter’s rights is urged to consult legal counsel before attempting to exercise dissenter’s rights. The failure of a SICO stockholder to comply strictly with all of the procedures set forth in NRS 92A.300 to 92A.500, inclusive, may result in the loss of such stockholder’s statutory dissenter’s rights.

 

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THE MERGER AGREEMENT

The following summary describes the material terms of the Merger Agreement. The provisions of the Merger Agreement are complicated and not easily summarized. This summary may not contain all of the information about the Merger Agreement that is important to you. The Merger Agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference in this joint proxy statement/prospectus, and A. O. Smith and SICO encourage you to read it carefully in its entirety for a more complete understanding of the Merger Agreement.

The Merger Agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about A. O. Smith or SICO. Such information can be found elsewhere in this document and in the public filings that A. O. Smith makes with the SEC, which are available without charge through the SEC’s website at http://www.sec.gov.

The representations and warranties described below and included in the Merger Agreement were made by each of A. O. Smith and SICO to the other. These representations and warranties were made as of specific dates and are subject to important exceptions, limitations and supplemental information contained in the confidential disclosure schedules provided by each of A. O. Smith and SICO to the other in connection with the signing of the Merger Agreement. In addition, the representations and warranties may have been included in the Merger Agreement for the purpose of allocating risk between A. O. Smith and SICO rather than to establish matters as facts. The Merger Agreement is described in this joint proxy statement/prospectus and included as Annex A only to provide you with information regarding its terms and conditions, and not to provide any other factual information regarding A. O. Smith, SICO or their respective businesses. Accordingly, you should not rely on the representations and warranties in the Merger Agreement as characterizations of the actual state of facts about A. O. Smith or SICO, and you should read the information provided elsewhere in this joint proxy statement/prospectus and in the documents incorporated by reference in this joint proxy statement/prospectus for information regarding A. O. Smith and SICO and their respective businesses. See “Where You Can Find More Information” beginning on page 139 of this joint proxy statement/prospectus.

The Merger

Each of the A. O. Smith board of directors, the SICO board of directors and the sole member of MergerCo has approved the Merger Agreement, which provides for the merger of SICO with and into MergerCo, with MergerCo surviving the merger as a wholly-owned subsidiary of A. O. Smith.

Effective Time

A. O. Smith and SICO will complete the merger when all of the conditions to completion of the merger contained in the Merger Agreement, which are described in the Section entitled “—Conditions to Obligations to Complete the Merger” beginning on page 97, are satisfied or waived, including the A. O. Smith stockholders’ adoption of the Merger Agreement, adoption of the A. O. Smith Amended Charter and approval of the Stock Issuance and the approval by the SICO stockholders of the Merger Agreement. The merger will become effective upon the filing of articles of merger with the Secretary of the State of the State of Nevada and a certificate of merger with the Secretary of State of the State of Delaware.

Consideration to be Received in the Merger

Upon completion of the merger, each share of SICO common stock outstanding immediately prior to the effective time of the merger will be canceled and automatically converted into the right to receive consideration in the merger, as described below in “—A. O. Smith Class A Common Stock,” “—A. O. Smith Common Stock,” “—A. O. Smith Common Stock in Escrow,” and the cash payable in lieu of any fractional shares, as described below in “—Fractional Shares” beginning on page 89, (collectively, the “Merger Consideration”).

 

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Thereafter, each SICO stock certificate will represent only the right to receive the Merger Consideration. Each share of SICO common stock held or owned by SICO, A. O. Smith, MergerCo or any of their direct or indirect wholly owned subsidiaries immediately prior to the effective time of the merger will be automatically canceled and retired and cease to exist, and none of SICO, A. O. Smith or any of their direct or indirect subsidiaries will receive any securities of SICO or other consideration in exchange for those shares.

SICO has agreed that it will not, without the approval of the board of directors of A. O. Smith, issue new shares of SICO common stock, complete any stock splits with respect to the outstanding shares of SICO common stock or repurchase any shares of SICO common stock. As a result, we do not expect the number of outstanding shares of SICO common stock to change prior to the effective time of the merger. SICO also has agreed that it will not, without the approval of the A. O. Smith board of directors, acquire shares of A. O. Smith Class A common stock or A. O. Smith common stock or sell any of the shares of A. O. Smith Class A common stock or A. O. Smith common stock that it currently holds. In addition, A. O. Smith, currently does not intend to complete any stock splits, declare any stock dividends or take any other corporate action that would result in a change in the number of shares of A. O. Smith Class A common stock or A. O. Smith common stock held by SICO. As a result, we do not expect the number of outstanding shares of A. O. Smith Class A common stock or A. O. Smith common stock held by SICO to change prior to the effective time of the merger.

A. O. Smith Class A Common Stock

Each share of SICO common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive the number of shares of A. O. Smith Class A common stock equal to (a) 0.9850 multiplied by the number of shares of A. O. Smith Class A common stock held by SICO immediately prior to the effective time of the merger divided by (b) the number of outstanding shares of SICO common stock, rounding to the nearest one one-thousandth (.001) of a share (rounding upward in the case of any .0005 of a share), issued and outstanding immediately prior to the effective time of the merger (excluding dissenting shares) (the “Class A Exchange Ratio”).

For example, assuming there are no dissenting shares, if you currently own 1,000 shares of SICO common stock, absent the treatment of the fractional shares described below, and assuming there is no change in the number of outstanding shares of SICO common stock or the number of shares of A. O. Smith Class A common stock held by SICO, you would be entitled to receive 2,396 shares of A. O. Smith Class A common stock, which is calculated as follows: (a) 0.9850 multiplied by 8,067,252 shares of A. O. Smith Class A common stock held by SICO divided by (b) 3,317,066 shares of SICO common stock issued and outstanding immediately prior to the effective time of the merger rounding to the nearest one one-thousandth (.001) of a share (rounding upward in the case of any .0005 of a share), and then multiplied by (c) 1,000 shares of SICO common stock held by you.

A. O. Smith Common Stock

Each share of SICO common stock outstanding immediately prior to the effective time of the merger will be converted into the right to receive the number of shares of A. O. Smith common stock equal to (a)(i) 0.9850 multiplied by the number of shares of A. O. Smith common stock held by SICO immediately prior to the effective time minus (ii) the number of Escrow Shares (as described below), divided by (b) the number of outstanding shares of SICO common stock, rounding to the nearest one one-thousandth (.001) of a share (rounding upward in the case of any .0005 of a share), issued and outstanding immediately prior to the effective time of the merger (excluding dissenting shares) (the “Closing Common Exchange Ratio”).

For example, assuming there are no dissenting shares, if you currently own 1,000 shares of SICO common stock, absent the treatment of the fractional shares described below, assuming there are 500,000 Escrow Shares and that there is no change in the number of outstanding shares of SICO common stock or the number of shares of A. O. Smith common stock held by SICO, you would be entitled to receive 312 shares of A. O. Smith common stock, which is calculated as follows: (a)(i) 0.9850 multiplied by 1,559,076 shares of A. O. Smith common stock

 

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held by SICO minus (ii) 500,000 Escrow Shares divided by (b) 3,317,066 shares of SICO common stock issued and outstanding immediately prior to the effective time of the merger rounding to the nearest one one-thousandth (.001) of a share (rounding upward in the case of any .0005 of a share), and then multiplied by (c) 1,000 shares of SICO common stock held by you.

A. O. Smith Common Stock in Escrow

Immediately prior to the effective time of the merger, the Shareholders’ Representative (as defined below in “—Indemnification—Shareholders’ Representative) and A. O. Smith will enter into an escrow agreement with an escrow agent reasonably acceptable to both SICO and A. O. Smith. At the effective time of the merger, A. O. Smith will deposit with the escrow agent stock certificates representing shares of A. O. Smith common stock equal to (a) $15,000,000 divided by (b) the average of the volume-weighted average price of trades for A. O. Smith common stock on the NYSE for the ten trading days ending on the last trading day immediately preceding the closing date (the “Escrow Shares”). The Escrow Shares will be held in escrow and distributed pursuant to the escrow agreement. The form of escrow agreement is attached as Annex F to this joint proxy statement/prospectus and is described in greater detail under “Agreements Relating to the Merger—Escrow Agreement” beginning on page 108. Each share of SICO common stock will be converted into the right to receive the number of shares of A. O. Smith common stock equal to the (a) number of Escrow Shares released from the escrow account divided by (b) the number of shares of SICO common stock, rounding to the nearest one-one thousandth (.001) of a share (rounding upward in the case of any .0005 of the share), issued and outstanding immediately prior to the merger (excluding dissenting shares) (the “Per Share Escrow Release Number”).

For example, assuming there are no dissenting shares, 500,000 Escrow Shares and 100% of such Escrow Shares are released from escrow to the former SICO stockholders, if you currently own 1,000 shares of SICO common stock, absent the treatment of the fractional shares described below and assuming there is no change in the number of outstanding shares of SICO common stock or the number of shares of A. O. Smith common stock held by SICO, you would be entitled to receive 150 shares of A. O. Smith common stock, which is calculated as follows: (a) 500,000 Escrow Shares divided by (b) 3,317,066 shares of SICO common stock and outstanding immediately prior to the effective time of the merger rounding to the nearest one-one thousandth (.001) of a share (rounding upward in the case of any .0005 of the share), and then multiplied by (c) 1,000 shares of SICO common stock held by you.

Fractional Shares

A. O. Smith will not issue any fractional shares of A. O. Smith Class A common stock or A. O. Smith common stock in connection with the merger. Instead, each record holder of SICO common stock who would otherwise be entitled to receive a fraction of a share of A. O. Smith Class A common stock or A. O. Smith common stock (after taking into account and aggregating shares of A. O. Smith Class A common stock represented by all SICO stock certificates surrendered by each record holder of SICO common stock and separately taking into account and aggregating shares of A. O. Smith common stock represented by all SICO stock certificates surrendered by each record holder of SICO common stock) will receive cash, without interest, in an amount equal to the fraction multiplied by the volume-weighted average price of trades of shares of A. O. Smith common stock on the NYSE on the last trading day immediately preceding the closing date of the merger.

In addition, in lieu of the release of any fractional Escrow Shares pursuant to the escrow agreement, each record holder of SICO common stock who would otherwise be entitled to a fraction of an Escrow Share (after taking into account and aggregating any fractional Escrow Shares to which such holder would otherwise be entitled) will receive cash, without interest, in an amount equal to the fraction multiplied by the volume-weighted average price of trades for shares of A. O. Smith common stock on the NYSE on the last trading day immediately preceding the closing date of the merger. Upon payment by A. O. Smith for any fractional Escrow Shares, such fractional Escrow Share will be canceled and retired and will cease to exist.

 

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Exchange of Certificates; Letter of Transmittal

Prior to the completion of the merger, A. O. Smith will select an exchange agent reasonably satisfactory to SICO to hold the shares of A. O. Smith Class A common stock and A. O. Smith common stock to be issued to SICO stockholders in connection with the merger (excluding Escrow Shares). At the effective time of the merger, A. O. Smith will deposit such shares with the exchange agent. From time to time after the effective time of the merger, as necessary, A. O. Smith shall also make available cash in an amount sufficient to pay cash payable in lieu of fractional shares of A. O. Smith Class A common stock and A. O. Smith common stock, and, if required pursuant to the Merger Agreement, any dividends or other distributions on A. O. Smith Class A common stock and A. O. Smith common stock with a record date after the completion of the merger.

Letter of Transmittal

Promptly following the effective time of the merger, the exchange agent will mail to each record holder of SICO common stock a letter of transmittal and instructions for surrendering the record holder’s stock certificates in exchange for certificates representing the shares of A. O. Smith Class A common stock and A. O. Smith common stock issuable to each such holder pursuant to the merger. SICO stockholders who hold their shares in book entry form also will receive instructions for the exchange of their shares for the Merger Consideration from the exchange agent. Those holders of SICO common stock who properly surrender their SICO stock certificates (or uncertificated shares) in accordance with the exchange agent’s instructions will receive (a) the shares of A. O. Smith Class A common stock and A. O. Smith common stock issuable to each such holder pursuant to the merger, (b) cash, without interest, in lieu of any fractional share of A. O. Smith Class A common stock or A. O. Smith common stock issuable to any such holders and (c) dividends or other distributions, if any, to which they are entitled under the terms of the Merger Agreement. Following the completion of the merger, SICO will not register any transfers of SICO common stock on its stock transfer books.

Holders of SICO common stock should not send in their SICO stock certificates until they receive a letter of transmittal from the exchange agent with instructions for the surrender of SICO stock certificates.

Withholding

The exchange agent will be entitled to deduct and withhold from the Merger Consideration and from any cash dividends or other distributions, if any, to which a holder is entitled under the terms of the Merger Agreement the amounts it is required to deduct or withhold under any United States federal, state, local or foreign tax law. If the exchange agent withholds any amounts, these amounts will be treated for all purposes of the merger as having been paid to the stockholders from whom they were withheld.

Dividends and Distributions

Until SICO stock certificates are surrendered for exchange, any dividends or other distributions declared after the effective time of the merger with respect to A. O. Smith Class A common stock or A. O. Smith common stock into which shares of SICO common stock may have been converted will accrue but will not be paid. A. O. Smith will pay to former SICO stockholders any unpaid dividends or other distributions, without interest, only after such stockholders have duly surrendered their SICO stock certificates.

Representations and Warranties

The Merger Agreement contains general representations and warranties made by each of A. O. Smith and MergerCo, on the one hand, and SICO on the other, regarding aspects of their, and their respective subsidiaries, respective businesses, financial condition and structure, as well as other facts pertinent to the merger. These representations and warranties are subject to materiality, knowledge and other similar qualifications in many respects.

 

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The following representations and warranties of A. O. Smith and MergerCo expire five years after the effective time of the merger and relate to:

 

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corporate organization, corporate standing and corporate power;

 

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corporate authorization, including board approval, to enter into and carry out the obligations contained in the Merger Agreement;

 

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enforceability of the Merger Agreement;

 

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inapplicability of state takeover laws;

 

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absence of any conflict or violation of the corporate charter, bylaws or similar organizational documents or any agreements with third parties, as a result of entering into and carrying out the obligations contained in the Merger Agreement;

 

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capitalization of A. O. Smith;

 

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brokers used and fees payable in connection with the merger;

 

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litigation;

 

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vote of stockholders required to complete the merger;

 

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opinion of financial advisor; and

 

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organization and liabilities of MergerCo.

In addition to the foregoing, the Merger Agreement also contains the following representations and warranties of A. O. Smith which expire at the effective time of the merger:

 

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the absence of any violation of any legal requirements applicable to A. O. Smith or its subsidiaries of any of their properties of assets as a result of entering into and carrying out the obligations contained in the Merger Agreement; and

 

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the accuracy of information supplied for inclusion in this joint proxy statement/prospectus and other similar documents.

The following representations and warranties of SICO expire five years after the effective time of the merger and relate to:

 

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corporate organization, corporate standing and corporate power, including subsidiaries;

 

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corporate authorization, including board approval, to enter into and carry out the obligations contained in the Merger Agreement;

 

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enforceability of the Merger Agreement;

 

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inapplicability of state takeover laws;

 

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absence of any conflict or violation of the corporate charter, bylaws or similar organizational documents, any applicable legal requirements or any agreements with third parties, as a result of entering into and carrying out the obligations contained in the Merger Agreement;

 

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capitalization of SICO;

 

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organization and liabilities of SpinCo and other subsidiaries of SICO;

 

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compliance with laws and permits;

 

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accuracy of financial statements;

 

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absence of undisclosed liabilities;

 

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brokers used and fees payable in connection with the merger;

 

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absence of certain changes since December 31, 2007;

 

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employee benefit plans and labor matters;

 

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litigation;

 

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real estate matters;

 

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environmental matters;

 

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tax matters;

 

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intellectual property matters;

 

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vote of stockholders required to complete the merger;

 

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opinion of financial advisor;

 

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accuracy of information supplied for inclusion in this joint proxy statement/prospectus, the information statement distributed by SICO in connection with the Spin-Off and other similar documents;

 

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material contracts; and

 

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solvency.

Conduct of Business Pending the Merger

SICO has undertaken certain covenants that place restrictions on it and its subsidiaries until the effective time of the merger. In general, SICO has agreed to conduct its business in all maternal respects only in the ordinary course of business consistent with past practice unless required by law, specifically permitted by the Merger Agreement or any ancillary agreement or to the extent that A. O. Smith otherwise consents in writing (such consent not to be unreasonably withheld or delayed). In addition, SICO has agreed to certain restrictions limiting its and its subsidiaries’ ability to, among other things:

 

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split, combine or reclassify any shares of capital stock of SICO or its subsidiaries;

 

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authorize for issuance, issue or sell or agree or commit to issue or sell any stock of any class or any other securities or equity equivalents of SICO or its subsidiaries;

 

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amend the organizational documents of SICO or any of its subsidiaries;

 

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other than in connection with the Spin-Off, acquire any equity interest in any person or any division or other assets or form any subsidiary;

 

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make any material tax election, enter into any settlement or compromise of any material tax liability, or file a material amendment to a tax return or for a material refund of taxes;

 

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establish, adopt, amend in any material respect or terminate any SICO benefit plan, other than to comply with applicable law or in accordance with the Merger Agreement;

 

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commence any material litigation or settle any material claim, litigation, action or proceeding;

 

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incur or guarantee any indebtedness for money borrowed;

 

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take any action that is intended to result in any of SICO’s representations and warranties set forth in the Merger Agreement becoming untrue; or

 

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enter into an agreement to take any of the foregoing actions.

The Merger Agreement also contains covenants relating to the preparation of this document and the stockholders meetings, access to information of the other company and public announcements with respect to the transactions contemplated by the Merger Agreement.

 

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Reasonable Best Efforts

Each party to the Merger Agreement agrees to use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by the Merger Agreement and the ancillary agreements.

Fees and Expenses

SICO will pay for all of its transaction expenses as well as all reasonable out of pocket fees, costs and expenses in excess of $200,000 incurred by A. O. Smith in connection with the transactions contemplated by the Merger Agreement, whether or not the merger is consummated.

Spin-Off

SICO agreed in the Merger Agreement to complete the Spin-Off prior to the effective time of the merger. SICO completed the Spin-Off effective January 19, 2009. For additional information regarding the Spin-Off, please see “The Companies—SICO—Recent Developments.” In connection with the Spin-Off, all intercompany obligations of SICO to Berlin Industries and Central States were transferred to SpinCo and SICO’s existing obligations to M&I Marshall & Ilsey Bank were either terminated or transferred to SpinCo.

Obligations of each of the A. O. Smith and SICO Boards of Directors with Respect to its Recommendation and Holding a Meeting of its Stockholders

Prior to the vote of the SICO stockholders and solely in response to a material event relating to SICO’s business that was unknown to SICO’s board of directors, the SICO Special Committee or the SICO board of directors may withdraw or modify its recommendation in a manner that adversely affects the transaction if the SICO board of directors or a duly constituted committee thereof determines in good faith, after consultation with financial advisors and legal counsel, that it must withdraw or modify the recommendation to comply with its fiduciary duties to SICO and its stockholders. If such recommendation is withdrawn, SICO may cancel its stockholders’ meeting without submitting the Merger Agreement to a vote.

Prior to the vote of the A. O. Smith stockholders and solely in response to a material event relating to A. O. Smith’s business that was unknown to A. O. Smith’s board of directors, the A. O. Smith’s Special Committee or the A. O. Smith board of directors may withdraw or modify its recommendation in a manner that adversely affects the transaction if the A. O. Smith board of directors or a duly constituted committee thereof determines in good faith, after consultation with financial advisors and legal counsel, that it must withdraw or modify the recommendation to comply with its fiduciary duties to A. O. Smith and its stockholders. If such recommendation is withdrawn, A. O. Smith may not cancel its stockholders’ meeting without submitting the Merger Agreement, the A. O. Smith Amended Charter and the Stock Issuance to a vote of its stockholders.

The support agreement that A. O. Smith and SICO entered into with members of the Smith Family includes a provision that restricts, for a period of one year after the termination of the Merger Agreement, the ability of such Smith Family members to support any alternative transaction that results in the termination of the Merger Agreement (as described below in “Agreements Relating to the Merger—Smith Family Support Agreement”).

Employee Benefit Matters

SICO has agreed to take the following actions prior to the effective time of the merger:

 

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to terminate the Smith Investment Company Supplemental Benefit Plan and cause SpinCo to assume the obligation to make a lump sum distribution to each participant with an account balance in the Supplemental Benefit Plan;

 

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to cause Berlin Industries to agree in writing to terminate and release SICO from all obligations to provide medical stop loss coverage to Berlin Industries;

 

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to assign to SpinCo all obligations to pay post-retirement health benefits to former employees of SICO’s Belvedere division; provided, that upon the liquidation or dissolution of SpinCo or the distribution of substantially all of its assets, SpinCo will either terminate such post-retirement benefits or reserve an amount sufficient to satisfy any future obligations; and

 

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to assign to SpinCo or a subsidiary of SpinCo sponsorship of all SICO benefit plans and SpinCo or a subsidiary of SpinCo to retain responsibility for all liability for any healthcare continuation coverage required by law.

Belvidere Environmental Matters

Pursuant to the Spin-Off, SICO transferred and assigned its ownership of the Belvidere real property, located at 725 Columbia Avenue, Belvidere, Illinois to SpinCo. SICO and SpinCo have agreed to take certain actions with respect to hazardous substances that existed, exist or shall exist in the future on, at, under or from the Belvidere property.

Assumption of Belvidere Environmental Liabilities by SpinCo

Pursuant to the Spin-Off, SpinCo assumed, and will indemnify SICO and A. O. Smith for, all liabilities related to the remediation, investigation, monitoring, claims, penalties, fines or other obligations relating to hazardous substances on the Belvidere property. SpinCo agreed to take the following steps in regard to such hazardous substances on the Belvidere property.

Closure Letter Regarding Groundwater and Regulated RCRA Units

There have been ongoing efforts to resolve certain identified issues relating to hazardous substances on the Belvidere property under the Resource Conservation and Recovery Act (“RCRA”). SpinCo agreed to take the following steps in regard to such RCRA issues on the Belvidere property:

 

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pay all costs and use commercially reasonable efforts to obtain a closure letter from the Illinois Environmental Protection Agency (“IEPA”) for soil and groundwater impacts that no further investigation, remediation, monitoring or response/corrective action is required (the “Closure Letter”);

 

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provide A. O. Smith with reasonable access to the Belvidere property upon request; and

 

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remain solely responsible for addressing all matters that may arise in the event that the IEPA or any other governmental authority reopens or requests additional work be performed with respect to such RCRA matters after issuance of the Closure Letter.

If, upon termination of the escrow agreement, neither SpinCo nor SICO has obtained the Closure Letter, then SpinCo must reserve an amount equal to 110% of the amount deemed sufficient in the reasonable opinion of a third party environmental consultant to fund the actions necessary to obtain the Closure Letter.

Investigation of Environmental Law Violations on Belvidere Property

If SpinCo becomes aware of any violation of environmental laws related to a release or threatened release of hazardous substances on the Belvidere property which was present on the Belvidere property prior to the effective time of the merger, other than the RCRA issues described in the previous section, SpinCo will take the following steps regarding such violations:

 

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enroll the Belvidere property into the Illinois Site Remediation Program to the extent reasonably required to comply with environmental laws;

 

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conduct such actions that are required to obtain a focused No Further Remediation Letter (“NFR”) in regard to the violation in question to the extent reasonably required by environmental law;

 

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provide A. O. Smith with reasonable access to the Belvidere property upon request; and

 

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remain solely responsible for all matters raised in the event the IEPA or any other governmental authority reopens or requests any additional work to be performed on the Belvidere property in connection with such violation after issuance of an NFR.

If, upon termination of the escrow agreement, a violation triggering the need to obtain an NFR has been discovered and SpinCo has not obtained the NFR, then SpinCo must reserve an amount equal to 110% of the amount deemed sufficient in the reasonable opinion of a third party environmental consultant to fund the actions necessary to obtain the NFR.

Directors and Officers Exculpation and Insurance

For at least six years after the effective time of the merger, MergerCo’s certificate of formation and operating agreement will contain provisions that are not less favorable to SICO’s directors and officers than SICO’s current organizational documents with respect to exculpation of such directors and officers for periods at or prior to the effective time of the merger.

For at least six years after the effective time of the merger, A. O. Smith will maintain for the benefit of SICO’s directors and officers, as of the date of the Merger Agreement and as of the effective time, an insurance policy covering events prior to the effective time of the merger that is not less favorable in the aggregate than any policy of A. O. Smith for its directors and officers.

A. O. Smith Insiders

The A. O. Smith board of directors has adopted a resolution consistent with Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) so that the disposition or acquisition by an officer or director of A. O. Smith of shares of A. O. Smith common stock pursuant to this Merger Agreement, the merger and other transactions contemplated thereby, will be an exempt transaction under Rule 16b-3 under the Exchange Act.

Notice of Breach

Each of A. O. Smith and SICO shall give each other prompt written notice if its executive officers have knowledge of any breach or violation of any of its respective representations and warranties, covenants or agreements contained in the Merger Agreement.

Litigation

Each party shall promptly notify each other party if it has knowledge of any claim arising out of the Merger Agreement or the transactions contemplated thereby, which notice shall describe such claim in reasonable detail. SICO will control the defense of any transaction-related claim to the extent it involves SICO, SpinCo, Berlin Industries, Central States or any of their respective affiliates, directors, officers or employees (other than A. O. Smith and its directors, officers and employees). A. O. Smith will control the defense of any transaction-related claim to the extent it involves A. O. Smith, MergerCo or any of their respective affiliates, directors, officers or employees. If A. O. Smith controls the defense, SICO has the right to approve A. O. Smith’s selection of legal counsel, which approval may not be unreasonably withheld or delayed, and SICO has the right at its expense to participate in the defense with counsel it chooses. A. O. Smith may only settle a transaction-related claim with SICO’s prior written consent, which consent may not be unreasonably withheld or delayed. After the merger, the Shareholders’ Representative will take the place of SICO in connection with such procedures relating to transaction-related claims.

 

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Cancellation of Stock

As soon as possible after the effective time of the merger, A. O. Smith will cause MergerCo to transfer to A. O. Smith all of the A. O. Smith Class A common stock and A. O. Smith common stock MergerCo holds and A. O. Smith shall cancel such shares.

Restrictions on SpinCo

From the date of the Merger Agreement until five years after the effective time of the merger, SpinCo will not repurchase or otherwise acquire any of its equity interests or make or pay any dividend or distribution on any of its equity interests other than (a) distributions for income taxes permitted by SpinCo’s operating agreement or (b) other dividends, distributions, repurchases or acquisitions if prior to the date of such dividend, distribution, repurchase or acquisition, SpinCo deposits $4,000,000 into escrow to secure SpinCo’s indemnification obligations. If SpinCo deposits $4,000,000 in escrow prior to the release of all of the Escrow Shares pursuant to the escrow agreement, A. O. Smith will cause an amount of Escrow Shares with an aggregate value of $4,000,000 to be released from escrow in accordance with the escrow agreement.

Resignation of Officers and Directors

SICO’s officers and directors will resign prior to the effective time of the merger and SICO will provide evidence of such resignations to A. O. Smith.

Taxes

SICO will pay all SICO taxes due on or prior to the closing date including any estimated tax payments due on or prior to the closing date in accordance with applicable law.

Conditions to Obligations to Complete the Merger

Each of A. O. Smith’s, MergerCo’s and SICO’s obligation to complete the merger is subject to the fulfillment or waiver of mutual conditions, including:

 

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the approval of the Merger Agreement by the requisite vote of stockholders of SICO;

 

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the adoption of the Merger Agreement, the adoption of the A. O. Smith Amended Charter and the approval of Stock Issuance by the requisite vote of stockholders of A. O. Smith;

 

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the effectiveness of the registration statement of which this joint proxy statement/prospectus forms a part under the Securities Act, and the absence of any stop order of proceedings initiated or threatened by the SEC for that purpose;

 

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the filing of the A. O. Smith Amended Charter (as described below in “A. O. Smith Charter Amendment”) with the Secretary of State of the State of Delaware;

 

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if applicable, the approval of the listing on the NYSE of A. O. Smith common stock to be issued in the merger and such other shares to be reserved for issuance in connection with the merger;

 

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the receipt of all material approvals, authorizations and consents of any governmental authority required to consummate the merger;

 

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the receipt by SICO and A. O. Smith of the IRS Letter Ruling from the IRS;

 

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the absence of a preliminary or permanent injunction or other order, decree or ruling issued by a court or other governmental authority or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority that has the effect of making the consummation of the merger illegal or otherwise prohibiting the consummation of the merger; and

 

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the acceptance of the filing of the Articles of Merger with the Secretary of State of the State of Nevada and the Certificate of Merger with the Secretary of State of the State of Delaware.

Each of A. O. Smith’s and MergerCo’s obligation to effect the merger is further subject to the satisfaction of the following conditions, which may be waived by A. O. Smith prior to the effective time of the merger:

 

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the representations and warranties of SICO in the Merger Agreement being true and correct (without regard to qualifications such as materiality or material adverse effect) as of the date of the Merger Agreement and as of the closing date of the merger (except for representations and warranties made only as of a specified date), except to the extent that any inaccuracies would not, in the aggregate, reasonably be expected to have a material adverse effect on SICO (which includes effects that would reasonably be expected to result in A. O. Smith or MergerCo being subject to indemnifiable damages in excess of $3,000,000 or that would prevent or materially delay completion of the merger);

 

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the performance in all material respects by SICO and SpinCo of their obligations under the Merger Agreement;

 

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the delivery by SICO of certificates of its Chief Executive Officer or Chief Financial Officer and its Secretary, dated as of the closing date of the merger; and

 

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the execution of the escrow agreement as described below in “Agreements Relating to the Merger—Escrow Agreement” beginning on page 108.

SICO’s obligation to effect the merger is further subject to the satisfaction of the following conditions, which may be waived in writing by SICO prior to the effective time of the merger:

 

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the representations and warranties of A. O. Smith in the Merger Agreement being true and correct (without regard to qualifications such as materiality or material adverse effect) as of the date of the Merger Agreement and as of the closing date (except for representations and warranties made only as of a specified date), except to the extent that any inaccuracies would not, in the aggregate, reasonably be expected to have a material adverse effect on A. O. Smith (which includes effects that would reasonably be expected to prevent or materially delay completion of the merger);

 

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the performance in all material respects by A. O. Smith and MergerCo of their obligations under the Merger Agreement;

 

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the delivery by A. O. Smith of certificates of its Chief Executive Officer or Chief Financial Officer and its Secretary, dated as of the closing date of the merger;

 

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the execution of the escrow agreement as described below in “Agreements Relating to the Merger—Escrow Agreement” beginning on page 108;

 

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the absence of any condition, event, fact or circumstance that has or would reasonably be expected to have a material adverse effect on the transaction (which includes effects that would reasonably be expected to result in SpinCo or the former SICO stockholders (by recourse to the Escrow Shares) being subject to indemnifiable damages in excess of $3,000,000 or that would reasonably be expected to adversely affect the rights, privileges or preferences of the A. O. Smith Class A common stock or the A. O. Smith common stock); and

 

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the absence of a number of dissenting shares that represent more than 5% of the number of shares of SICO common stock issued and outstanding immediately prior to the completion of the merger.

Indemnification

Beginning at the effective time of the merger, indemnification pursuant to the following indemnification provisions of the Merger Agreement will be the exclusive remedy for any breach of the Merger Agreement, including any representation, warranty, covenant and agreement contained in the agreement.

 

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Indemnification by SpinCo and from the Escrow Shares

A. O. Smith and its subsidiaries and their respective officers, directors, employees, owners, agents, affiliates and their respective successors and assigns are indemnified by SpinCo and out of the Escrow Shares from and against losses, costs, obligations, liabilities, settlement payments, fines, penalties, damages, expenses, taxes or other charges, directly or indirectly resulting from or arising out of the following:

 

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any inaccuracy in or breach of any representation or warranty of SICO in the Merger Agreement or any ancillary agreement to which SICO is a party;

 

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any breach of any covenant or agreement on the part of SICO in the Merger Agreement;

 

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any transaction expenses of SICO not paid by SICO prior to the effective time of the merger;

 

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any A. O. Smith transaction expenses in excess of $200,000 not reimbursed by SICO prior to the effective time of the merger;

 

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any costs, expenses or other amounts (including expenses) incurred, paid or payable by A. O. Smith in connection with any litigation or other claim related to the merger or the other transactions contemplated by the Merger Agreement;

 

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any liabilities of any nature, whether accrued, absolute, contingent or otherwise incurred by SICO, SpinCo or any SICO subsidiary prior to the effective time of the merger, or to the extent arising out of any circumstances with respect to SICO, SpinCo, any SICO subsidiary or any of their respective business operations which occurred prior to the effective time of the merger;

 

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the exercise by any stockholder of SICO of dissenters’ rights pursuant to the Merger Agreement (taking into account the benefit of A. O. Smith not having to pay any such stockholders any Merger Consideration that such stockholder would have been entitled to);

 

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any rights to indemnification, reimbursement or compensation from SICO asserted by any individual who served as director or officer of SICO prior to the effective time of the merger, whether pursuant to any of SICO’s organizational documents, contracts or otherwise and whether or not related to claims pending on, or asserted after, the closing date;

 

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any taxes of SICO for any pre-closing tax period;

 

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certain reductions or denials of certain tax benefits and tax refunds;

 

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any liabilities relating to any SICO benefit plan; or

 

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the Spin-Off.

SpinCo also indemnifies A. O. Smith and its subsidiaries and their respective officers, directors, employees, owners, agents, affiliates and their respective successors and assigns from and against losses, costs, obligations, liabilities, settlement payments, fines, penalties, damages, expenses, taxes or other charges, related to any breach of any covenant or agreement on the part of SpinCo in the Merger Agreement.

The representations, warranties, covenants and agreements given or made by SICO in the Merger Agreement or any ancillary agreement shall survive the closing for a period of five years after the closing date with respect to indemnification claims against SpinCo and for a period of two years after the closing date with respect to indemnification claims from the Escrow Shares.

Indemnification by A. O. Smith

SICO’s former stockholders and each of their respective officers, directors, employees, owners, agents, affiliates and their successors and assigns are indemnified by A. O. Smith from and against losses, costs, obligations, liabilities, settlement payments, fines, penalties, damages, expenses or other charges, related to:

 

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any inaccuracy in or breach of any representation or warranty of A. O. Smith or MergerCo in the Merger Agreement or any ancillary agreement to which A. O. Smith or MergerCo is a party; or

 

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any breach of any covenant or agreement on the part of A. O. Smith or MergerCo in the Merger Agreement;

The representations, warranties, covenants and agreements given or made by A. O. Smith or MergerCo in the Merger Agreement or any ancillary agreement shall survive the closing for a period of 5 years after the closing date except for the representations and warranties regarding (a) the absence of any violation of, any legal requirements applicable to A. O. Smith or its subsidiaries or their properties or assets as a result of entering into and carrying out the obligations contained in the Merger Agreement and (b) the accuracy of information supplied for inclusion in this joint proxy statement/prospectus and other similar documents, which expire at the effective time of the merger.

Shareholders’ Representative

Upon the approval of the Merger Agreement, each former SICO stockholder will be deemed to have irrevocably appointed SpinCo, as its, his or her true and lawful attorney-in-fact and agent (the “Shareholders’ Representative”). The Shareholders’ Representative will act solely and exclusively on behalf of the former SICO stockholders with regard to matters pertaining to the indemnification by the former SICO stockholders and all matters under the escrow agreement or relating to Escrow Shares. A. O. Smith and any other person may absolutely rely upon the actions of the Shareholders’ Representative. The Shareholders’ Representative will pay all expenses incurred by the Shareholders’ Representative in performing its duties.

Indemnification Procedures

As soon as reasonably practicable after becoming aware of any claim that may give rise to indemnification obligations, A. O. Smith or SICO, as applicable, shall give written notice (“Claim Notice”) to the party or parties from which indemnification is sought. The Claim Notice shall describe the claim in reasonable detail and indicate the amount of damages that have been suffered by the indemnified party.

If a third party makes a claim against an indemnified party, the indemnifying party will have the right upon written notice (a “Control Notice”) to conduct the defense against such a third party claim in its own name or, if necessary, in the name of the indemnified party, subject to the following requirements:

 

•

the indemnifying party must acknowledge in writing that any damages that may be assessed against the indemnified party constitute damages for which the indemnified party may be indemnified under the Merger Agreement;

 

•

the indemnifying party may not control the defense of a suit or proceeding involving criminal liability or in which any relief other than monetary damages is sought against the indemnified party;

 

•

the indemnified party must cooperate with the indemnifying party and shall have the right, at its own expense, to participate in the defense;

 

•

the indemnifying party will not enter into any settlement of any third party claim or stop defending any third party claim without the prior written consent of the indemnified party, provided that the indemnified party may withhold its consent if injunctive or other equitable relief would be imposed against the indemnified party or such settlement or cessation would lead to material liability or financial obligation for the indemnified party, for which the indemnified party is not entitled to indemnification;

 

•

the indemnified party may employ a separate counsel to be paid by the indemnifying party if the indemnified party is named in the third party claim and it is determined that the indemnified party and indemnifying party have conflicting interests or different defenses in connection with the third party claim; and

 

•

the indemnifying party consents to the nonexclusive jurisdiction of any court in which a claim or cause of action in respect to a third party claim is brought against any indemnified party.

 

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Furthermore, the Shareholders’ Representative shall act as nominee for the former SICO stockholders with respect to any claim for indemnification against the Escrow Shares.

Limits on Indemnification; Calculation of Damages

When pursuing the collection of damages pursuant to the indemnification provisions, the A. O. Smith indemnified parties must first proceed against SpinCo before pursuing any claim against the Escrow Shares. If SpinCo does not satisfy all damages for which payment is due with respect to a claim within 15 days after agreement that payment is due or a final judgment, the A. O. Smith indemnified parties may proceed against the Escrow Shares, which represent the sole and exclusive source of satisfaction and payment for any indemnification claims against the former SICO stockholders.

Damages will be calculated after giving effect to any amount received by the indemnified party under any insurance coverage or any contribution from any third party for the claim and after giving effect to any tax benefit resulting from the claim when realized by the indemnified party. For this purpose, tax benefits with respect to A. O. Smith and its subsidiaries are treated as realized only to the extent that by the due date (including extensions) of the tax return for the last period from which losses or credits can be carried back, A. O. Smith and its subsidiaries have not otherwise generated a loss or credit to offset the income or tax that would have been reduced by the potential tax benefit. If a tax benefit will not be realized until after the indemnification payment is due, the indemnifying party is required to pay the full indemnification amount and the indemnified party will be obligated to pay the amount of the tax benefit to the indemnifying party when realized. The right to receive payment for these tax benefits shall survive indefinitely.

The A. O. Smith indemnified parties do not have any rights to indemnification for damages pursuant to the Merger Agreement to the extent that any such damages result from or arise out of any information of A. O. Smith that is incorporated by reference in this joint proxy statement/prospectus.

Furthermore, SpinCo waives any right to:

 

•

seek contribution or other payment from SICO with respect to damages for which SpinCo is required to indemnify A. O. Smith indemnified parties; or

 

•

bring a claim against current or former directors of A. O. Smith as a result of damages for which SpinCo is required to indemnify A. O. Smith indemnified parties.

Payment for Tax Benefit Items

A. O. Smith is required to pay to the Shareholders’ Representative for the account of the former SICO stockholders the amount of any tax refunds relating to SICO received by A. O. Smith or its subsidiaries after the effective time with respect to any pre-closing tax period and any tax benefits relating to SICO (including SICO’s net operating loss carryforwards) actually realized by A. O. Smith or its subsidiaries after the effective time of the merger. For this purpose, tax benefits with respect to A. O. Smith and its subsidiaries are treated as realized to the extent that, by the due date (including extensions) of the tax return for the last period from which losses or credits can be carried back, A. O. Smith and its subsidiaries have not otherwise generated a loss or credit to offset the income or tax that would have been reduced by the potential tax benefits. The right to receive payment for these tax benefits shall survive indefinitely.

Termination

Under the terms of the Merger Agreement, the Merger Agreement may be terminated at any time prior to the effective time of the merger:

 

•

by mutual written consent of A. O. Smith, MergerCo and SICO;

 

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•

by either of SICO, on one hand, or A. O. Smith or MergerCo, on the other hand:

 

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if the required SICO stockholder vote is not obtained at the SICO stockholder meeting or the required A. O. Smith stockholder votes are not obtained at the A. O. Smith stockholder meeting;

 

–

if any governmental authority of competent jurisdiction has issued an injunction or taken any other action, which permanently restrains, enjoins or otherwise prohibits the consummation of the merger; or

 

–

if the consummation of the merger does not occur on or before September 30, 2009;

 

•

by A. O. Smith or MergerCo, on one hand, or SICO, on the other hand, if there has been a breach of any representation, warranty, covenant or agreement of the other party contained in the Merger Agreement, which would result in a failure of any of the closing conditions of the non-breaching party, that cannot reasonably be cured prior to September 30, 2009; provided, however, that the non-breaching party shall have given the breaching party written notice of such breach, delivered at least 20 days prior to such termination; or

 

•

by A. O. Smith or MergerCo, on one hand, or SICO, on the other hand, if the board of directors of the other party has withdrawn or modified its recommendation to consummate the merger in a manner that adversely affects the transactions contemplated by the Merger Agreement.

 

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A. O. SMITH AMENDED CHARTER

The following summary describes proposed changes to the A. O. Smith Existing Charter by the A. O. Smith Amended Charter. This summary may not contain all of the information about the A. O. Smith Amended Charter that is important to you. The A. O. Smith Amended Charter is attached as Annex B to this joint proxy statement/prospectus and is incorporated by reference in this joint proxy statement/prospectus, and A. O. Smith encourages you to read it carefully in its entirety for a more complete understanding.

General

The Merger Agreement provides that, as a condition to the merger, the A. O. Smith Existing Charter be amended and restated and filed with the Secretary of State for the State of Delaware. The proposed A. O. Smith Amended Charter will provide for:

 

•

an increase, solely for purposes of completing the merger, in the total number of authorized shares of A. O. Smith Class A common stock that A. O. Smith can issue from 14,000,000 shares to 22,067,252 shares;

 

•

an increase in the percentage of members of the A. O. Smith board of directors that holders of A. O. Smith common stock, voting as a separate class, elect from 25% to 33-1/3% of the members of the board of directors (if such 33-1/3 % is not a whole number, then rounding up to the nearest whole number of directors (or four of the ten directors));

 

•

shares of A. O. Smith Class A common stock to convert automatically into A. O. Smith common stock, subject to certain exceptions, upon transfer to unaffiliated third parties; and

 

•

all shares of A. O. Smith Class A common stock to convert automatically into A. O. Smith common stock once the outstanding shares of A. O. Smith Class A common stock fall below 2,397,976 shares, which is approximately 8% of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock as of the date of the Merger Agreement.

Increase in the Number of Authorized Shares of A. O. Smith Class A Common Stock

Pursuant to the merger, A. O. Smith will issue new shares of A. O. Smith Class A common stock and A. O. Smith common stock to the former SICO stockholders. The A. O. Smith Existing Charter does have a sufficient number of authorized but unissued shares of A. O. Smith Class A common stock for A. O. Smith to issue the requisite number of shares of A. O. Smith Class A common stock included in the Merger Consideration. The A. O. Smith Amended Charter will increase, solely for purposes of completing the merger, the authorized number of shares of A. O. Smith Class A common stock from 14,000,000 shares to 22,067,252 shares. Following the effective time of the merger, A. O. Smith will cancel the shares of A. O. Smith Class A common stock currently held by SICO, as described above in “The Merger Agreement—Consideration to be Received in the Merger” beginning on page 88. Under the A. O. Smith Amended Charter, A. O. Smith will be prohibited from reissuing such shares of A. O. Smith Class A common stock after they are cancelled, so that the total number of shares of A. O. Smith Class A common stock that A. O. Smith is authorized to issue will return to 14,000,000.

Increase in the Number of Directors the Holders of A. O. Smith Common Stock are Entitled to Elect

Currently, the A. O. Smith Existing Charter provides that the holders of A. O. Smith common stock, voting as a class, elect 25% of the members of A. O. Smith’s board of directors. The A. O. Smith Amended Charter will increase this percentage to 33-¹/₃%. If 33-¹/₃% of the authorized number of directors is not a whole number, then the holders of A. O. Smith common stock will be entitled to elect the nearest higher whole number of directors that is at least 33-¹/ ₃% of the board of directors. Holders of A. O. Smith Class A common stock, voting as a separate class, will elect the remaining directors. The A. O. Smith Board currently consists of ten directors, with three elected by the A. O. Smith common stock. If A. O. Smith Proposal 2 passes and the A. O. Smith Amended

 

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Charter takes effect, the holders of A. O. Smith common stock will elect four of the ten directors. Effective upon consummation of the merger, the A. O. Smith board of directors has designated Mr. Ronald D. Brown, who is currently a director elected by holders of A. O. Smith Class A common stock as a director elected by the holders of the A. O. Smith common stock to serve until the next annual meeting of the A. O. Smith stockholders.

Conversion of A. O. Smith Class A Common Stock Upon Transfer

The A. O. Smith Amended Charter provides for the automatic conversion to A. O. Smith common stock of any shares of A. O. Smith Class A common stock that are transferred to transferees that are not Permitted Transferees (as defined below in this section). If, after the effective time of the merger, a beneficial owner of shares of A. O. Smith Class A common stock as of the effective time of the merger (an “Existing Class A Holder”) transfers the beneficial ownership of shares of A. O. Smith Class A common stock, whether by sale, assignment, gift, bequest, appointment or otherwise, to a transferee who is not a Permitted Transferee, then each share of A. O. Smith Class A common stock that is transferred shall automatically be converted into one share of A. O. Smith common stock. The A. O. Smith Amended Charter contains a provision providing a holder of A. O. Smith Class A common stock 30 days to cure an inadvertent non-permitted transfer or a non-permitted transfer made with a bona fide belief that it was a not a non-permitted transfer. When determining whether this automatic conversion applies, “Permitted Transferee” shall mean:

 

•

with respect to any Existing Class A Holder that is a natural person (each of the following will be referred to as a “Related Party”):

 

–

the parents, grandparents, siblings, spouses, ex-spouses and issue (either natural or adoptive), spouses and ex-spouses of issue (either natural or adoptive) of such Existing Class A Holder;

 

–

any trust for the benefit of, the estate of or the legal representative of, any of such Existing Class A Holder or such persons, provided, that any such trust shall qualify as a Related Party notwithstanding that a remainder interest in such trust is for the benefit of any other person;

 

–

any partnership the partners of which are any such Existing Class A Holder or one or more of such persons; or

 

–

any limited liability company, corporation or other entity the ownership interests of which are held by any such Existing Class A Holder or one or more of such persons; or

 

•

with respect to any Existing Class A Holder that is a trust, partnership, limited liability company, corporation or other entity:

 

–

the beneficiaries of such trust;

 

–

the partners, members, stockholders or other equity owners of such partnership, limited liability company, corporation or other entity; and

 

–

the Related Parties of such persons;

 

•

any lineal descendant of Lloyd R. Smith and any such lineal descendant’s parents, grandparents, siblings, spouses, ex-spouses and issue (either natural or adoptive), spouses and ex-spouses of issue (either natural or adoptive) and:

 

–

any trust for the benefit of, the estate of or the legal representative of, any such persons, provided, that any such trust shall qualify notwithstanding that a remainder interest in such trust is for the benefit of any other person;

 

–

any partnership the partners of which are one or more of such persons; or

 

–

any limited liability company, corporation or other entity the ownership interests of which are held by one or more of such persons.

The A. O. Smith Existing Charter does not include a provision providing for the automatic conversion of A. O. Smith Class A common stock upon its transfer.

 

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Automatic Class A Common Stock Conversion Trigger

The A. O. Smith Amended Charter also includes a provision which provides that once the outstanding shares of A. O. Smith Class A common stock fall below 2,397,976, which is approximately 8% of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock as of the date of the Merger Agreement, each outstanding share of A. O. Smith Class A common stock will convert into a share of A. O. Smith common stock. The A. O. Smith Existing Charter does not include such a provision.

Mechanics of Conversion

In the event of an automatic conversion of shares of A. O. Smith Class A common stock, the certificates formerly representing outstanding shares of A. O. Smith Class A common stock subject to automatic conversion will be deemed to represent a like number of shares of A. O. Smith common stock.

 

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AGREEMENTS RELATING TO THE MERGER

The following is a summary of the material provisions of various agreements entered or to be entered into by the parties in connection with or related to the merger. This summary may not contain all of the information that is important to you. You should refer to the full text of the agreements which are attached hereto and are incorporated by reference in this joint proxy statement/prospectus. We encourage you to read them carefully in their entirety for a complete understanding.

SICO Support Agreement

As a condition to the willingness of A. O. Smith to enter into the Merger Agreement, SICO entered into a support agreement with A. O. Smith. The full text of this support agreement is attached as Annex C to this joint proxy statement/prospectus and is incorporated herein by reference. Pursuant to this agreement, SICO agreed to vote its shares of A. O. Smith Class A common stock and A. O. Smith common stock (including shares of A. O. Smith Class A common stock and A. O. Smith common stock acquired during the term of the support agreement) (a) in favor of the merger and the other transactions contemplated thereby, including the Merger Agreement and any other matter that is on the ballot that facilitates the merger, and (b) against any proposal that would reasonably be expected to prevent or materially delay the consummation of the merger. These shares represent approximately 78.8% of the voting power of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, and approximately 97.9% of the voting power of the total outstanding shares of A. O. Smith Class A common stock, voting as a separate class.

Further, while the agreement is in effect and only with respect to SICO’s shares of A. O. Smith Class A common stock and A. O. Smith common stock, SICO has agreed not to:

 

•

sell, transfer, pledge, encumber, assign or otherwise dispose of any shares, or any interest therein;

 

•

enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance or other disposition of, or limitation on the voting rights of, any of the shares; or

 

•

commence or participate in any class action with respect to any claim against A. O. Smith and MergerCo relating to the negotiation, execution and delivery of the support agreement, the Merger Agreement or the consummation of the merger.

The support agreement will terminate upon the earlier of the termination of the Merger Agreement, the withdrawal of the A. O. Smith board of directors recommendation and the effective time of the merger.

Because the shares of A. O. Smith Class A common stock and A. O. Smith common stock held by SICO represent approximately 78.8% of the voting power of the total outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, voting together as a single class, and 97.9% of the voting power of the total outstanding shares of A. O. Smith Class A common stock, voting as a separate class, stockholders of A. O. Smith holding voting power sufficient to approve the proposals to adopt the Merger Agreement, to adopt the A. O. Smith Amended Charter and to approve the Stock Issuance have agreed to vote in favor of these proposals at the A. O. Smith special meeting.

Smith Family Support Agreement

As a condition to the willingness of A. O. Smith and SICO to enter into the Merger Agreement, certain members of the Smith Family entered into a support agreement. The full text of this support agreement is attached as Annex D to this joint proxy statement/prospectus and is incorporated herein by reference. Pursuant to this agreement, such members of the Smith Family agreed to vote their shares of SICO common stock (including any shares of SICO common stock acquired during the term of the support agreement) (a) in favor of the merger and the other transactions contemplated thereby, including the Merger Agreement and any other matter that is on the ballot that facilitates the merger, and (b) against any proposal that would reasonably be expected to prevent or

 

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materially delay the consummation of the merger. These shares represent approximately 52.7% of the voting power of the total outstanding shares of SICO common stock. If the Merger Agreement terminates because the SICO board of directors modifies or withdraws its recommendation, these members of the Smith Family have agreed for a period of one year after the termination of the Merger Agreement not to vote in favor of any proposal that resulted in or is related to the change of the SICO board recommendation.

Further, while the agreement is in effect and only with respect to the shares of SICO that each such member of the Smith Family owns, each such member of the Smith Family has agreed not to:

 

•

sell, transfer, pledge, encumber, assign or otherwise dispose of any shares, or any interest therein;

 

•

enter into any contract, option or other arrangement or understanding with respect to the sale, transfer, assignment, pledge, encumbrance or other disposition of, or limitation on the voting rights of, any of the shares;

 

•

seek dissenter’s rights from the merger under Nevada law; or

 

•

commence or participate in any class action with respect to any claim against A. O. Smith and MergerCo relating to the negotiation, execution and delivery of the support agreement, the merger Agreement or the consummation of the merger.

The support agreement will terminate upon the earlier of the termination of the Merger Agreement, the withdrawal of the A. O. Smith board recommendation and the effective time of the merger.

Because the shares of SICO common stock held by the members of the Smith Family who signed the Smith Family support agreement represent approximately 52.7% of the voting power of the total outstanding shares of SICO common stock, stockholders of SICO holding voting power sufficient to approve the proposal to approve the Merger Agreement have agreed to vote in favor of the proposal to approve the Merger Agreement at the SICO special meeting.

Stockholder Agreement

As a condition to the willingness of A. O. Smith to enter into the Merger Agreement and to the formation of the voting trust contemplated by the voting trust agreement described below, certain members of the Smith Family entered into a stockholder agreement with A. O. Smith relating to the shares of A. O. Smith Class A common stock and A. O. Smith common stock they will own following the consummation of the merger. The full text of this stockholder agreement is attached as Annex E to this joint proxy statement/prospectus and is incorporated herein by reference. Pursuant to this agreement, such stockholders agreed to certain standstill and other obligations with respect to the affairs of A. O. Smith during the term of the agreement.

Specifically, such members of the Smith Family agreed, while the stockholder agreement is in effect, that they will not, without prior written approval of the A. O. Smith board of directors:

 

•

directly or indirectly participate in or publicly announce an intention to participate in any “solicitation” of “proxies” other than in response to a proxy contest initiated by an unrelated third party;

 

•

knowingly participate in, or consent to the taking of any stockholder action by consent without a meeting other than in response to a proxy contest initiated by an unrelated third party or otherwise initiated or not opposed by A. O. Smith;

 

•

submit or solicit stockholder approval for any proposal for consideration at any A. O. Smith annual or special meeting;

 

•

solicit or commence an alternative acquisition transaction (a transaction where any person acquires more than 50% of the assets or beneficial ownership of more than 50% of any class of stock of A. O. Smith); or

 

•

agree with any other person to take any of the actions described above.

 

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Holders of A. O. Smith Class A common stock are permitted under the stockholder agreement, without approval of the board of directors of A. O. Smith, (a) to solicit proxies or consents and take action by written consent, solely regarding matters affecting the rights, preferences or privileges of the A. O. Smith Class A common stock and not shared with the holders of A. O. Smith common stock and (b) to elect directors with respect to the A. O. Smith Class A common stock in accordance with the A. O. Smith Amended Charter.

The stockholder agreement will take effect upon the effective time of the merger and will terminate upon the earlier of (a) any termination of the Merger Agreement, (b) three years after the effective time of the merger, (c) the date that all outstanding A. O. Smith Class A common stock automatically converts into A. O. Smith common stock in accordance with the A. O. Smith Amended Charter (described above in “A. O. Smith Amended Charter”), (d) A. O. Smith publicly announces it is being acquired or (e) ten days after a solicitation to acquire A. O. Smith if A. O. Smith does not publicly reject the offer.

Escrow Agreement

Pursuant to the Merger Agreement, A. O. Smith, SpinCo (both in its individual capacity and as the Shareholders’ Representative) and an escrow agent will enter into an escrow agreement for the purpose of providing a source of payment for a period of two years to reimburse A. O. Smith for the payment of any losses for which A. O. Smith is entitled to indemnification pursuant to the Merger Agreement (as discussed above under “The Merger Agreement—Indemnification”). The full text of the form of escrow agreement is attached hereto as Annex F to this joint proxy statement/prospectus and is incorporated herein by reference.

Establishment of Escrow Fund

A. O. Smith will deposit with the escrow agent a number of shares of A. O. Smith common stock that would otherwise be deliverable to holders of SICO common stock pursuant to the Merger Agreement with a market value as of the effective time of the merger that is equal to $15,000,000. In addition, SpinCo may deposit cash with the escrow agent up to five times during the term of the escrow agreement to obtain the release of Escrow Shares. The market value of any Escrow Shares that are released pursuant to any such cash substitution will be determined as of the effective time of the merger.

At the effective time of the merger, A. O. Smith, on behalf of SICO’s stockholders, will deposit with the escrow agent stock certificates representing the Escrow Shares or a book-entry with respect to the Escrow Shares in the escrow agent’s account. Until delivered to A. O. Smith, the Escrow Shares equal to each SICO stockholder’s pro rata percentage of the Escrow Shares shall be registered in the name of such SICO stockholder. Each SICO stockholder’s pro rata percentage will be equal to the number of shares of SICO common stock held by such SICO stockholder divided by the total number of shares of SICO common stock held by all SICO stockholders (other than shares cancelled in accordance with the Merger Agreement or dissenting shares).

Further, the SICO stockholders are entitled to receive any dividends, interest or other earnings earned on the Escrow Shares while in escrow and SpinCo is entitled to receive any interest or other earnings on the escrow cash. Any such earnings will be the sole and exclusive property of the SICO stockholders with respect to earnings on the Escrow Shares and SpinCo with respect to the earnings on the escrow cash. Each SICO stockholder will have the right to vote and grant consents with respect to its Escrow Shares.

If any portion of the escrow fund consists of cash, the escrow agent will invest such cash at the joint written instructions of A. O. Smith and the Shareholders’ Representative.

Indemnification Claims

To make an indemnification claim pursuant to the Merger Agreement (such claims are described above under “The Merger Agreement—Indemnification”) to be paid from the escrow fund, A. O. Smith must provide the Shareholders’ Representative a Claim Notice by the deadline provided in the Merger Agreement.

 

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Undisputed Claims

If the Shareholders’ Representative does not provide a Counter Notice disputing either A. O. Smith’s indemnification claims or estimate within 30 days following receipt by the Shareholders’ Representative of the Claim Notice, then the claim will be deemed established under the escrow agreement, and the escrow agent will promptly deliver to A. O. Smith from the escrow fund:

 

•

cash in an amount equal to the indemnification amount claimed; and

 

•

if the cash is not sufficient to satisfy the indemnification amount, shares in an amount equal to the unsatisfied indemnification amount, with the market value of such Escrow Shares to be determined as of the date of the delivery of the Escrow Shares.

Disputed Claims

If the Shareholders’ Representative provides a Counter Notice within 30 days following the receipt by the Shareholders’ Representative of the Claim Notice, the escrow agent will deliver within 3 business days the appropriate amount of cash and/or shares only in accordance with

 

•

joint written instructions of A. O. Smith and the Shareholders’ Representative; or

 

•

a final judgment with no further right to appeal, upon an award rendered by a court of competent jurisdiction.

Termination of Escrow

The escrow agent shall release the escrowed cash in the escrow fund to SpinCo and the Escrow Shares in the escrow fund to the former SICO stockholders in accordance with their respective pro rata percentage, 24 months after the effective time of the merger. However, the escrow fund is to retain 110% of the aggregate amount of any indemnification claims outstanding on the escrow release date until all such claims have been resolved.

Early Release of Shares

If, prior to the termination of the escrow, all legal proceedings related to the merger have been settled by the parties thereto or there has been a final judgment with respect to such legal proceedings, A. O. Smith and the Shareholders’ Representative will provide joint written instructions to the escrow agent authorizing the escrow agent to distribute a portion of the escrow fund to the former SICO stockholders. After such distribution, the escrow fund must retain an aggregate value of $7,500,000 of escrowed cash and Escrow Shares, plus an amount equal to the amount by which aggregate indemnification amount of all pending claims exceeds $3,000,000. Each former SICO stockholder will receive a portion of the escrow fund distributed to SICO stockholders in accordance with such stockholder’s respective pro rata percentages.

Voting Trust Agreement

In connection with the Merger Agreement, certain members of the Smith Family may enter into a voting trust agreement. After giving effect to the merger, these members of the Smith Family are expected to own approximately 41.4% of the total voting power of the outstanding shares of A. O. Smith Class A common stock and A. O. Smith common stock, taken together as a single class, and approximately 51.6% of the voting power of the outstanding shares of A. O. Smith Class A common stock, as a separate class. The full text of the form of voting trust agreement is attached as Annex G to this joint proxy statement/prospectus and is incorporated herein by reference. Pursuant to this agreement, each such member of the Smith Family will agree to deposit his, her or its shares of A. O. Smith Class A common stock and A. O. Smith common stock with the trustees and, in effect, assign all rights and powers incident to the ownership of those shares to the trustees. Such members of the Smith Family may withdraw part or all of their shares held in trust upon the trustees’ unanimous consent, which shall not be withheld without good cause.

 

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Rights and Duties of Trustees

Among others specified in the voting trust agreement, each trustee will have the following duties and rights with respect to the shares held in trust:

 

•

vote the shares either in person or by proxy;

 

•

make pro rata distributions to the beneficiaries of any cash or property received by reason of the shares;

 

•

give the beneficiaries prompt notice of the issuance or granting of any warrants or rights to subscribe to any security issued by A. O. Smith;

 

•

unless directed otherwise, use and/or exchange A. O. Smith common stock held by the trust as consideration for the purchase of A. O. Smith Class A common stock available to the trust from time to time;

 

•

become parties to or participate in proceedings affecting the shares, A. O. Smith or the powers and duties of the trustees;

 

•

exchange shares of A. O. Smith common stock held in trust for shares of A. O. Smith Class A common stock;

 

•

borrow or arrange for borrowing for the purpose of purchasing additional shares;

 

•

vote for himself or herself as a director of A. O. Smith;

 

•

take action with the approval of a majority of the trustees then qualified as trustees;

 

•

keep proper records with respect to the trust assets and beneficiaries; and

 

•

hold office until he or she resigns, dies, becomes incapacitated, or refuses to act or is removed by the beneficiaries possessing trust interests representing at least 66-2/3% of the voting power of all shares held by the trustees.

Transfers and Withdrawals

The shares held in trust are transferable only on the books of the trustees, where the transferee will be substituted for the previously registered owner. The transferee, however, must be a member of the Smith Family. Additionally, if the transferee is not a depositor under the voting trust agreement, then the transferee will not become a depositor simply as a result of the transfer.

Whenever a beneficiary wishes to withdraw from the trust, or sell or otherwise transfer or dispose of any or all of his, her or its shares deposited in the trust, or whenever such beneficiary ceases to be eligible to be a party to the voting trust agreement, the following procedures must be observed:

 

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if the beneficiary is no longer an eligible party to the voting trust agreement, the trustees must give notice to the stockholder of the termination of eligibility;

 

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if the beneficiary intends to withdraw or transfer his, her or its shares, the trustees must give notice of the intended withdrawal and/or transfer to the trustees’ secretary;

 

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if shares of A. O. Smith Class A common stock are being transferred or withdrawn, they shall automatically be exchanged for shares of A. O. Smith common stock held by the trust to the extent available in the trust;

 

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if a beneficiary provides a notice of withdrawal, it will constitute an offer to sell his, her or its shares to the trust at a price per share equal to the average closing sales price per share of A. O. Smith common stock as traded on the NYSE for the ten trading days prior to the proposed withdrawal;

 

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if sufficient interest has been expressed by the beneficiaries upon their deposit with the trust, trustees may do any of the following: (a) purchase A. O. Smith common stock from other sources for the purpose of exchanging shares of the common stock for shares of A. O. Smith Class A common stock pursuant to the point above; (b) purchase for cash some or all of the shares that are A. O. Smith Class A common stock; or (c) subject to the prior written consent of the beneficiaries, purchase for cash some or all of the shares that are A. O. Smith common stock;

 

•

a beneficiary is permitted to withdraw his, her or its offer of sale at any time prior to the time of transfer or withdrawal; and

 

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if the trust does not purchase any or all of the shares, the withdrawing beneficiary may withdraw the shares that were not purchased and the trustees will cause A. O. Smith to promptly deliver to that withdrawing beneficiary certificates or other evidence of ownership as may be provided by A. O. Smith for such shares.

The voting trust agreement may be terminated at any time by vote of the beneficiaries having trust interests representing at least 75% of the voting power of the shares held in trust. Otherwise, the agreement will remain in effect for 30 years, and will automatically renew for additional 30 year renewal periods thereafter.

 

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ACCOUNTING TREATMENT

The pending transaction between A. O. Smith and SICO will be accounted for as a reverse acquisition with SICO as the accounting acquirer and A. O. Smith as the accounting acquiree (which is the surviving entity for legal purposes). As this is a common control transaction under FAS 141(R) Business Combinations, the transaction will be accounted for as an equity transaction under FAS 160 Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51 as the acquisition of a noncontrolling interest and will not require purchase accounting.

Furthermore, because SICO is treated as the continuing reporting entity for accounting purposes, the reports filed by A. O. Smith, as the surviving corporation in the transaction, after the date of the transaction will parallel the financial reporting required under United States generally accepted accounting principles and SEC reporting rules as if SICO were the legal successor to its reporting obligation as of the date of the transaction. Accordingly, prior period financial information presented in the A. O. Smith financial statements will reflect the historical activity of SICO.

REGULATORY APPROVALS

To complete the merger, A. O. Smith and SICO are required to obtain approvals or consents from, or make filings with, various regulatory authorities. These regulatory approvals and filings include the IRS Letter Ruling, which is described in “Material United States Federal Income Tax Consequences of the Merger.” On February 10, 2009, A. O. Smith received confirmation from the NYSE that no supplemental listing application is required with respect to the Stock Issuance. A. O. Smith and SICO currently are not aware of additional material governmental consents, approvals or filings that are required prior to the parties’ consummation of the merger, and the merger and transactions contemplated by the Merger Agreement are not subject to the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. In the event additional material consents, approvals or filings are required to complete the merger, it is presently contemplated that such consents, approvals or filings will be sought or made. The parties’ obligations to complete the merger are conditioned upon receipt of required regulatory approvals and the absence of any pending action by a court or the government to enjoin the merger, make the consummation of the merger illegal or otherwise prohibit the merger. See “The Merger Agreement—Conditions to Obligations to Complete the Merger” beginning on page 97.

A. O. Smith and SICO will seek to complete the merger in the second quarter of 2009. While A. O. Smith and SICO currently do not expect any action by a regulatory authority to enjoin or prohibit the merger or otherwise impose conditions upon or changes to the merger, there can be no assurance that there will not be any such actions, conditions or changes, and any such actions, conditions or changes could have the effect of delaying completion of the merger or imposing additional costs on the parties or limiting revenues following the merger, any of which might have a material adverse effect on A. O. Smith or MergerCo following the merger. Neither A. O. Smith nor SICO is obligated to complete the merger if any such conditions, individually or in the aggregate, would result in a material adverse change under the terms of the Merger Agreement. See “Risk Factors” beginning on page 30.

For information relating to existing or potential future legal proceedings seeking to enjoin the merger, among other things, see “The Merger—Legal Proceedings Regarding the Merger” beginning on page 84 and “Risk Factors” beginning on page 30.

 

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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

A. O. Smith Stockholders

There are no United States federal income tax consequences of the merger to A O. Smith stockholders with respect to their shares of A. O. Smith Class A common stock or A. O. Smith common stock.

SICO Stockholders

The following discussion summarizes the material United States federal income tax consequences of the merger to SICO’s stockholders. This discussion is not a complete analysis of all the potential United States federal income tax consequences of the merger to SICO stockholders, nor does it address any tax consequences arising under any state, local or foreign tax laws, the federal estate tax or gift tax laws, or any other United States federal tax laws. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the IRS, all as in effect on the date hereof. These authorities may change, possibly retroactively, resulting in United States federal income tax consequences different from those discussed below.

This discussion is limited to SICO stockholders who receive shares of A. O. Smith Class A common stock and A. O. Smith common stock in the merger and who hold SICO common stock as capital assets within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all United States federal income tax considerations that may be relevant to a particular holder in light of that holder’s particular circumstances. This discussion also does not consider any specific facts or circumstances that may be relevant to holders subject to special rules under the United States federal income tax laws, including, without limitation, holders who are not United States persons, United States expatriates or former long-term residents, holders whose functional currency is not the United States dollar, partnerships and other pass-through entities, real estate investment trusts, regulated investment companies, “controlled foreign corporations,” “passive foreign investment companies,” “foreign personal holding companies,” corporations that accumulate earnings to avoid United States federal income tax, banks, financial institutions, insurance companies, brokers, dealers or traders in securities, commodities or currencies, tax-exempt organizations, tax-qualified retirement plans, persons subject to the alternative minimum tax, persons holding SICO common stock, A. O. Smith Class A common stock or A. O. Smith common stock as part of a hedge, straddle or other risk reduction strategy or as part of a conversion transaction or other integrated investment, persons who hold SICO common stock, or receive A. O. Smith Class A common stock or A. O. Smith common stock in compensatory transactions, or persons deemed to sell the units under the constructive sale provisions of the Code.

THIS DISCUSSION IS A GENERAL SUMMARY AND DOES NOT PURPORT TO BE A COMPREHENSIVE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER. SICO STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE PARTICULAR UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE MERGER, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER ANY STATE, LOCAL OR FOREIGN TAX LAWS, THE FEDERAL ESTATE OR GIFT TAX LAWS, AND ANY OTHER UNITED STATES FEDERAL TAX LAWS.

Definition of United States Person

This discussion is limited to SICO stockholders who are United States persons. A United States person is any of the following:

 

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an individual citizen or resident of the United States;

 

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a corporation (or other entity treated as a corporation for United States federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

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an estate the income of which is subject to United States federal income tax regardless of its source; or

 

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a trust that (a) is subject to the primary supervision of a United States court and in which one or more United States persons has the authority to control all substantial decisions or (b) has validly elected to be treated as a United States person for United States federal income tax purposes.

If a partnership (or other entity taxed as a partnership for United States federal income tax purposes) holds SICO common stock or will hold shares of A. O. Smith Class A common stock or A. O. Smith common stock, the tax treatment of a partner in the partnership generally will depend on the status of the partner and upon the activities of the partnership. Accordingly, such partnerships and partners in such partnerships are urged to consult their tax advisors regarding the specific United States federal income tax consequences to them.

Material Tax Consequences of Merger

A. O. Smith and SICO intend that the merger will qualify as a tax-free reorganization for United States federal income tax purposes. Pursuant to the Merger Agreement, A. O. Smith’s and SICO’s obligations to effect the merger are conditioned on the receipt of the IRS Letter Ruling to the effect that for United States federal income tax purposes, the merger will constitute a reorganization within the meaning of Section 368(a) of the Code.

Assuming the merger is treated as a reorganization within the meaning of Section 368(a) of the Code, the merger will have the following United States federal income tax consequences:

 

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A SICO stockholder will not recognize any gain or loss upon the receipt of shares of A. O. Smith Class A common stock and A. O. Smith common stock in exchange for the stockholder’s SICO common stock, except that gain or loss will be recognized on the receipt of cash instead of a fractional share of A. O. Smith Class A common stock or A. O. Smith common stock. In addition, payments to SICO stockholders for SICO tax benefits, as described below, will be taxable when paid. If a SICO stockholder receives cash instead of a fractional share of A. O. Smith Class A common stock or A. O. Smith common stock, the stockholder will be required to recognize gain or loss, measured by the difference between the amount of cash received and the portion of such SICO stockholder’s tax basis in his SICO common stock allocable to that fractional share of A. O. Smith Class A common stock or A. O. Smith common stock. This gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if the holding period for the SICO common stock so exchanged is more than one year as of the effective time of the merger;

 

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A SICO stockholder will have a tax basis in the A. O. Smith Class A common stock and A. O. Smith common stock received in the merger equal to (a) the tax basis of the SICO common stock surrendered by that stockholder in the merger, reduced by (b) any tax basis of the SICO common stock surrendered that is allocable to a fractional share of A. O. Smith Class A common stock or A. O. Smith common stock for which cash is received;

 

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The holding period of the shares of A. O. Smith Class A common stock and A. O. Smith common stock received by a SICO stockholder in the merger will include the holding period of the shares of SICO common stock exchanged therefor, assuming the SICO common stock is held as a capital asset; and

 

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In the case of a SICO stockholder that holds shares of SICO common stock with differing tax bases, or differing holding periods, Treasury Regulations provide guidance on how such stockholder may allocate his or her tax basis to shares of A. O. Smith Class A common stock and A. O. Smith common stock received in the merger. SICO stockholders that hold multiple blocks of SICO common stock are urged to consult their tax advisors regarding the proper allocation of their basis among and holding periods to shares of A. O. Smith Class A common stock and A. O. Smith common stock received in the merger.

 

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Pursuant to the Merger Agreement, A. O. Smith will pay to the SICO stockholders an amount equal to the benefit derived by A. O. Smith from (a) carry-forwards of losses, deductions and other items of SICO and (b) amounts credited against tax of A. O. Smith or any of its subsidiaries attributable to SICO for periods before the closing date. A. O. Smith will also pay to the SICO stockholders any tax refunds of MergerCo that are received by A. O. Smith or its subsidiaries that relate to periods before the closing date. Payments, if any, to the SICO stockholders by A. O. Smith from such credits, refunds, carry forwards of losses, deductions and the other items of SICO will be taxable when paid to the SICO stockholders.

The IRS Letter Ruling will be based on certain representations as to factual matters made by SICO, A. O. Smith and MergerCo as of the time the transactions are consummated. If any such representations are inaccurate, incomplete or untrue in any material respect as of the effective time of the merger, the tax consequences of the merger and related transactions could differ materially from those described above.

Reporting Requirements

A “significant holder” of SICO stock will be required to retain records pertaining to the merger and will be required to file with such holder’s United States federal income tax return for the year in which the merger takes place a statement setting forth facts relating to the merger, including:

 

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the names and employer identification numbers of all of the parties to the merger;

 

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the date of the merger; and

 

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the fair market value, determined immediately before the exchange of all of the SICO common stock held by such significant holder that is transferred in the transaction and such significant holder’s basis, determined immediately before the exchange, in the SICO common stock.

A “significant holder” is a SICO stockholder if, immediately prior to the exchange, such holder:

 

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owned at least 5% (by vote or value) of the total outstanding stock of SICO; or

 

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owned securities in SICO with a basis of $1,000,000 or more.

Information Reporting and Backup Withholding

A SICO stockholder may be subject to information reporting and backup withholding in connection with any cash payments made in connection with the merger, unless such stockholder provides proof of an applicable exemption or a correct taxpayer identification number, and otherwise complies with the applicable requirements of the backup withholding rules. The amounts withheld under the backup withholding rules are not an additional tax and may be refunded or credited against the stockholder’s United States federal income tax liability, provided the required information is timely furnished to the IRS.

The foregoing discussion of the material United States federal income tax consequences of the merger is not intended to be legal or tax advice to any particular SICO stockholder. Tax matters regarding the merger are complicated, and the tax consequences of the merger to any particular SICO stockholder will depend on that stockholder’s particular circumstances. SICO stockholders should consult their own tax advisors regarding the specific tax consequences of the merger, including tax return reporting requirements, the applicability of federal, state, local and foreign tax laws and the effect of any proposed change in the tax laws.

 

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THE COMPANIES

A. O. Smith

A. O. Smith is a leading manufacturer of water heating equipment and electric motors, serving a diverse mix of residential, commercial and industrial end markets principally in North America with a growing global presence. A. O. Smith is comprised of two reporting segments: Water Products and Electrical Products. The Water Products business manufactures and markets a comprehensive line of residential gas and electric water heaters, standard and specialty commercial water heating equipment, high-efficiency copper-tube boilers, and water systems tanks and offers its water heating products in North America, Europe, India and China. The Electrical Products business manufactures and markets a comprehensive line of hermetic motors, fractional horsepower alternating current (AC) and direct current (DC) motors. A. O. Smith is also one of the largest manufacturers of electric motors for residential and commercial applications in North America.

A. O. Smith is a reporting company with the SEC. A. O. Smith common stock trades on the NYSE under the symbol “AOS,” and A. O. Smith Class A common stock is quoted on the OBB under the symbol “SAOSA.” Its executive offices are located at 11270 West Park Place, Milwaukee, Wisconsin 53224-9508, Telephone: (414) 359-4000.

For a detailed description of A. O. Smith’s business, the latest financial statements of A. O. Smith, management’s discussion and analysis of A. O. Smith’s financial condition and results of operations, a description of the A. O. Smith common stock and other important information concerning A. O. Smith, see A. O. Smith’s Annual Report on Form 10-K for the year ended December 31, 2008 and all other documents filed with the SEC pursuant to Section 13(a) and 15(d) of the Exchange Act since December 31, 2008, which are incorporated by reference in this joint proxy statement/prospectus. See “Where You Can Find More Information” beginning on page 139.

Description of A. O. Smith Class A Common Stock to be Registered

The following summary of the material terms of A. O. Smith Class A common stock is not intended to be a complete summary of all the rights and preferences of A. O. Smith Class A common stock. A. O. Smith urges you to read the A. O. Smith Amended Charter for a complete description of the rights and preferences of A. O. Smith Class A common stock. A copy of the A. O. Smith Amended Charter is attached to this joint proxy statement/prospectus and is incorporated by reference. See “Where You Can Find More Information” beginning on page 139. Additionally, the DGCL may affect the terms of the A. O. Smith Class A common stock. The following summary assumes that the proposals presented in this joint proxy statement/prospectus, including the proposal to adopt the A. O. Smith Amended Charter, are adopted and approved and that the A. O. Smith Amended Charter becomes effective.

General

The A. O. Smith Amended Charter authorizes the issuance of 22,067,252 shares of A. O. Smith Class A common stock, par value $5.00 per share. Under the terms of the A. O. Smith Amended Charter, A. O. Smith is prohibited from reissuing any of the shares of A. O. Smith Class A common stock held by SICO after such shares are cancelled in accordance with the terms of the Merger Agreement.

Except as described below, shares of A. O. Smith Class A common stock and A. O. Smith common stock have the same rights and privileges, rank equally, share ratably and are in all respects identical. The rights, preferences and privileges of holders of A. O. Smith Class A common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of A. O. Smith preferred stock which A. O. Smith may issue in the future.

 

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A. O. Smith Class A common stock is currently quoted on the OBB under the symbol “SAOSA.” Under the A. O. Smith Amended Charter, which will be in effect after the merger, the transfer of A. O. Smith Class A common stock to any transferee who is not a “Permitted Transferee” will result in the automatic conversion to A. O. Smith common stock of the s