Exhibit 10.3
     The undersigned hereby confirm that they have reached an agreement in
principle consistent with the annexed term sheet for the purchase and sale of
the Senior Preferred Stock and Warrant.

     
UNITED STATES DEPARTMENT OF THE
   TREASURY

  AMERICAN INTERNATIONAL
   GROUP, INC.

 

   

By: /s/ Neel Kashkari
  By: /s/ Edward M. Liddy
 
   
Neel Kashkari — Interim Assistant
Secretary For Financial
Stability
   

Dated: November 9, 2008

--------------------------------------------------------------------------------

 

Annex
Term Sheet for the purchase and sale of the Senior Preferred Stock and Warrant
[Attached]

--------------------------------------------------------------------------------

 

TARP AIG SSFI Investment
Senior Preferred Stock and Warrant
Summary of Senior Preferred Terms

     
Issuer:
  American International Group, Inc. (“AIG”).  
Initial Holder:
  United States Department of the Treasury (the “UST”).  
Size:
  $40 Billion aggregate liquidation preference.  
Security:
  Senior Preferred, liquidation preference $10,000 per share; provided that UST
may, upon transfer of the Senior Preferred, require AIG to appoint a depositary
to hold the Senior Preferred and issue depositary receipts.  
Ranking:
  Senior to common stock and pari passu with existing preferred shares other
than preferred shares which by their terms rank junior to the Senior Preferred.
At the meeting of stockholders called to effect the amendments to AIG’s Restated
Certificate of Incorporation contemplated by the terms of the convertible
preferred stock, AIG shall propose an amendment to its Restated Certificate of
Incorporation to allow the Senior Preferred to rank senior to the convertible
preferred stock.  
Term:
  Perpetual life.  
Dividend:
  The Senior Preferred will accrue cumulative dividends at a rate of 10% per
annum. Dividends will be payable quarterly in arrears on February 1, May 1,
August 1 and November 1 of each year. Dividends will be payable when, as and if
declared by the Board of Directors of AIG. Accrued but unpaid dividends shall
compound quarterly.  
Redemption:
  At any time that (i) the AIG Credit Facility Trust (or any successor entity
established for the benefit of the United States Treasury) “beneficially owns”
less than 30% of the aggregate voting power of AIG’s voting securities and
(ii) no holder of the Senior Preferred controls AIG, then AIG may redeem the
Senior Preferred in whole or in part at a redemption price equal to 100% of its
liquidation preference, plus an amount equal to accrued and unpaid dividends
(including, if applicable, dividends on such amount). “Control” for this purpose
means the power to direct the management and policies of AIG, directly or
indirectly, whether through the ownership of voting securities, by contract, by
the power to control AIG’s Board of Directors or otherwise. “Beneficially owns”
is as defined in Rule 13d-3 under the Securities Exchange Act of 1934. For the
avoidance of doubt, while there is AIG’s Board of Directors control (or the
potential to gain AIG’s Board of Directors control) by the holder of the Senior
Preferred, then AIG is not permitted to redeem the Senior Preferred.  
Restrictions on
Dividends:
  Subject to certain exceptions, for as long as any Senior Preferred

1

--------------------------------------------------------------------------------

 

     
 
  is outstanding, no dividends may be declared or paid on junior preferred
shares, preferred shares ranking pari passu with the Senior Preferred (“Parity
Stock”), or common shares (other than (i) in the case of pari passu preferred
shares, dividends on a pro rata basis with the Senior Preferred and (ii) in the
case of junior preferred shares, dividends payable solely in common shares), nor
may AIG repurchase or redeem any junior preferred shares, preferred shares
ranking pari passu with the Senior Preferred or common shares, unless all
accrued and unpaid dividends for all past dividend periods on the Senior
Preferred are fully paid or declared and a sum sufficient for the payment
thereof set apart.  
Common dividends:
  The UST’s consent shall be required for any increase in common dividends per
share until the fifth anniversary of the date of this investment unless prior to
such fifth anniversary the Senior Preferred is redeemed in whole or the UST has
transferred all of the Senior Preferred to third parties.  
Repurchases:
  The UST’s consent shall be required for repurchases of any common shares,
other capital stock, trust preferred securities or other equity securities
(other than (i) repurchases of the Senior Preferred, (ii) repurchases of junior
preferred shares or common shares (“Junior Stock”) in connection with the
administration of any employee benefit plan in the ordinary course of business
and consistent with past practice (including purchases to offset share dilution
pursuant to a publicly announced repurchase plan), (iii) any redemption or
repurchase of rights pursuant to any stockholders’ rights plan and (iv) the
exchange or conversion of Junior Stock for or into other Junior Stock or of
Parity Stock or trust preferred securities for or into other Parity Stock (with
the same or lesser aggregate liquidation amount) or Junior Stock, in each case,
solely to the extent required pursuant to binding contractual agreements entered
into prior to the signing date of UST’s agreement to purchase the Senior
Preferred or any subsequent agreement for the accelerated exercise, settlement
or exchange thereof for common stock), until the fifth anniversary of the date
of this investment unless prior to such fifth anniversary the Senior Preferred
is redeemed in whole or the UST has transferred all of the Senior Preferred to
third parties. Notwithstanding the foregoing, following the redemption in whole
of the Senior Preferred held by UST or the transfer by UST of all of the Senior
Preferred to one or more third parties not affiliated with UST, AIG may
repurchase, in whole or in part, at any time the Warrant then held by UST at the
fair market value of the Warrant so long as no holder of the Warrant controls
AIG as provided in clause (ii) of “Redemption” above.  
Voting rights:
  The Senior Preferred shall be non-voting, other than class voting rights on
(i) any authorization or issuance of shares other than the convertible preferred
stock ranking senior or pari passu to the Senior Preferred, (ii) any amendment
that adversely affects the rights of Senior Preferred, or (iii) any merger,
exchange or similar transaction unless the Senior Preferred remains outstanding
or is converted into or exchanged for preference securities of the surviving or
resulting entity or its ultimate parent and the Senior Preferred or such
preference shares have such rights, preferences, privileges and voting powers,
and limitations and restrictions thereof, taken as a whole, as are not
materially less

2

--------------------------------------------------------------------------------

 

     
 
  favorable to the holders thereof than those of the Senior Preferred
immediately prior to such transaction, taken as a whole.  
 
  If dividends on the Senior Preferred are not paid in full for four dividend
periods, whether or not consecutive, the Senior Preferred will have the right to
elect the greater of 2 directors and a number of directors (rounded upward)
equal to 20% of the total number of directors after giving effect to such
election. The right to elect directors will end when full dividends have been
paid for all past dividend periods.  
Transferability:
  The Senior Preferred will not be subject to any contractual restrictions on
transfer other than such as are necessary to insure compliance with U.S. federal
and state securities laws. AIG will file a registration statement (which may be
a shelf registration statement) covering the Senior Preferred as promptly as
practicable, but in any event within 15 days, after notification by the UST and,
if necessary, shall take all action required to cause such registration
statement to be declared effective as soon as possible. During any period that
an effective registration statement is not available for the resale by the UST
of the Senior Preferred, AIG will also grant to the UST piggyback registration
rights for the Senior Preferred and will take such other steps as may be
reasonably requested to facilitate the transfer of the Senior Preferred
including, if requested by the UST, using reasonable best efforts to list the
Senior Preferred on a national securities exchange. If requested by the UST, AIG
will appoint a depositary to hold the Senior Preferred and issue depositary
receipts.  
Claim in Bankruptcy:
  Equity claim with liquidation preference to common equity claim.  
Acceleration Rights:
  None  
Use of Proceeds:
  To repay the senior secured revolving credit facility governed by the Credit
Agreement dated as of September 22, 2008 (the “Credit Agreement”) between AIG
and the Federal Reserve Bank of New York (“FRBNY”).  
Tax Treatment:
  Dividends on the Senior Preferred are non tax-deductible to AIG.  
Restrictions on
Expenses:
 
AIG shall continue to maintain and implement its comprehensive written policy on
corporate expenses and distribute such policy to all AIG employees. Such policy,
as may be amended from time to time, shall remain in effect at least until such
time as any of the shares of the Senior Preferred are owned by the UST. Any
material amendments to such policy shall require the prior written consent of
the UST until such time as the UST no longer owns any shares of Senior
Preferred, and any material deviations from such policy, whether in
contravention thereof or pursuant to waivers provided for thereunder, shall
promptly be reported to the UST. Such policy shall, at a minimum: (i) require
compliance with all applicable law; (ii) apply to AIG and all of its
subsidiaries; (iii) govern (a) the hosting, sponsorship or other

3

--------------------------------------------------------------------------------

 

     
 
  payment for conferences and events, (b) the use of corporate aircraft,
(c) travel accommodations and expenditures, (d) consulting arrangements with
outside service providers, (e) any new lease or acquisition of real estate, (f)
expenses relating to office or facility renovations or relocations and
(g) expenses relating to entertainment or holiday parties; and (iv) provide for
(a) internal reporting and oversight and (b) mechanisms for addressing
non-compliance with the policy.  
Restrictions on
Lobbying:
 
AIG shall continue to maintain and implement its comprehensive written policy on
lobbying, governmental ethics and political activity and distribute such policy
to all AIG employees and lobbying firms involved in any such activity. Such
policy, as may be amended from time to time, shall remain in effect at least
until such time as any of the shares of the Senior Preferred are owned by the
UST. Any material amendments to such policy shall require the prior written
consent of the UST until such time as the UST no longer owns any shares of
Senior Preferred, and any material deviations from such policy, whether in
contravention thereof or pursuant to waivers provided for thereunder, shall
promptly be reported to the UST. Such policy shall, at a minimum: (i) require
compliance with all applicable law; (ii) apply to AIG and all of its
subsidiaries and affiliated foundations; (iii) govern (a) the provision of items
of value to any government officials, (b) lobbying and (c) political activities
and contributions; and (iv) provide for (a) internal reporting and oversight and
(b) mechanisms for addressing non-compliance with the policy.  
Reporting:
  Except as otherwise agreed, AIG shall provide the UST (i) the information
required to be provided by AIG to the FRBNY pursuant to Section 5.04 of the
Credit Agreement, (ii) the notices required by Section 5.05 of the Credit
Agreement, in each case within the time periods for delivery thereof specified
in the Credit Agreement and (iii) such executive compensation information as is
required for purposes of the Emergency Economic Stabilization Act of 2008
(“EESA”) and the regulations and guidelines thereunder; provided that, after the
termination of the Credit Agreement, such informational and notice requirements
as are provided in Section 5.04 and Section 5.05 of the Credit Agreement shall
remain in full force and effect until such time as the UST no longer owns any
shares of Senior Preferred. In addition, AIG shall promptly provide the UST such
other information and notices as the UST may reasonably request from time to
time.  
Executive
Compensation:
 
As a condition to the closing of this investment, AIG shall be subject to the
executive compensation and corporate governance requirements of Section 111(b)
of the EESA and the UST’s guidelines that carry out the provisions of such
subsection for systemically significant failing institutions as set forth in
Notice 2008-PSSFI. Accordingly, as a condition to the closing of this
investment, AIG and its senior executive officers covered by the EESA (“SEOs”)
shall modify or terminate all benefit plans, arrangements and agreements
(including golden parachute agreements) to the extent necessary to be in
compliance with,

4

--------------------------------------------------------------------------------

 

     
 
  and following the closing and for so long as the UST holds any equity or debt
securities of AIG issued under this agreement (the “Relevant Period”), AIG shall
agree to be bound by the executive compensation and corporate governance
requirements of Section 111(b) of the EESA and the guidelines set forth in
Notice 2008-PSSFI. As an additional condition to the closing, AIG and its SEOs
shall grant to the UST and the SEOs shall grant to AIG waivers releasing the
UST, and, in the case of the SEOs release, AIG, from any claims that AIG and
such SEOs may otherwise have as a result of any modification of the terms of any
benefit plans, arrangements and agreements to eliminate any provisions that
would not be in compliance with the executive compensation and corporate
governance requirements of Section 111 of the EESA and the guidelines set forth
in Notice 2008-PSSFI.  
 
  In addition to Notice 2008-PSSFI, the following will apply:  
 
            1.  AIG shall undertake during the Relevant Period to limit any
golden parachute payments to its most senior employee group, who are currently
referred to as Senior Partners (“Senior Partners”), (other than its SEOs) to the
amounts permitted by the regulations relating to participants in the EESA
Capital Purchase Program and the guidelines and Interim Final Rule (31 CFR Part
30) relating thereto as if they were SEOs (except that equity denominated awards
settled solely in equity shall not be included in such limit), and AIG shall
grant the UST a waiver releasing the UST, and shall use its best efforts to
obtain waivers from the Senior Partners releasing the UST and AIG, from claims
that AIG may have against the UST and that such Senior Partners may have against
the UST or AIG as a result of such limits, and shall have obtained such waivers
from AIG and its U.S.-based Senior Partners prior to and as an additional
condition to the closing.  
 
            2.  The annual bonus pools payable to Senior Partners in respect of
each of 2008 and 2009 shall not exceed the average of the annual bonus pools
paid to Senior Partners for 2006 and 2007 (in each case exclusive of AIG’s
historic quarterly bonus program, the amount of which will not increase for any
participant, and subject to appropriate adjustment for new hires and
departures).  
Risk Management
Committee:
 
AIG shall establish, within 30 days of the issuance of the Senior Preferred, and
maintain, at least until the UST ceases to own any shares of the Senior
Preferred, the Warrant or any other equity or debt securities of AIG, a risk
management committee of the AIG’s Board of Directors that will oversee the major
risks involved in AIG’s business operations and review AIG’s actions to mitigate
and manage those risks.  
Miscellaneous:
  The dividend rate as provided in “Dividend” above is subject to adjustment in
the sole discretion of the Secretary of the Treasury in light of, inter alia,
then-prevailing economic conditions and the financial condition of AIG, with the
objective of protecting the U.S. taxpayer.

5

--------------------------------------------------------------------------------

 

Summary of Warrant Terms

     
Warrant:
  The UST will receive a warrant (“Warrant”) to purchase a number of shares of
common stock of AIG (“Common Stock”) equal to 2% of the issued and outstanding
shares of Common Stock on the date of investment. The initial exercise price for
the Warrant shall be $2.50 per share of Common Stock (representing the par value
of the Common Stock on the date of the investment), subject to customary
anti-dilution adjustments; provided that the initial exercise price per share of
Common Stock shall be adjusted to the par value per share of the Common Stock
following the amendments to AIG’s Restated Certificate of Incorporation
contemplated by the terms of the convertible preferred stock. The Warrant shall
be net share settled or, if consented to by AIG and the UST, on a full physical
basis.  
Term:
  10 years  
Exercisability:
  Immediately exercisable, in whole or in part.  
Transferability:
  The Warrant will not be subject to any contractual restrictions on transfer
other than such as are necessary to ensure compliance with U.S. federal and
state securities laws. AIG will file a registration statement (which may be a
shelf registration statement) covering the Warrant and the Common Stock
underlying the Warrant as promptly as practicable, but in any event within 15
days after notification by the UST, and, if necessary, shall take all action
required to cause such registration statement to be declared effective as soon
as possible. During any period that an effective registration statement is not
available for the resale by the UST of the Warrant or the Common Stock
underlying the Warrant, AIG will also grant to the UST piggyback registration
rights for the Warrant and the Common Stock underlying the Warrant. AIG will
apply for the listing on the New York Stock Exchange of the Common Stock
underlying the Warrant and will take such other steps as may be reasonably
requested to facilitate the transfer of the Warrant and the underlying Common
Stock.  
Voting:
  The UST will agree not to exercise voting power with respect to any shares of
Common Stock issued to it upon exercise of the Warrant.  
Substitution:
  In the event AIG is no longer listed or traded on a national securities
exchange the Warrant will be exchangeable (in whole or in part), at the option
of the UST, for an economic interest (to be determined by the UST after
consultation with AIG) of AIG classified as permanent equity under GAAP having a
fair market value (as determined by the UST) equal to the portion of the Warrant
so exchanged.

6