Exhibit 10.2
EXECUTION VERSION
SHORTFALL AGREEMENT
BETWEEN
MAIDEN LANE III LLC
AND
AIG FINANCIAL PRODUCTS CORP.
     This Agreement, made and entered into as of November 25, 2008, by and
between Maiden Lane III LLC., a Delaware limited liability company (“ML III”),
and AIG Financial Products Corp., a Delaware corporation (“AIG-FP”).
WITNESSETH:
     WHEREAS, as of October 31, 2008, AIG-FP was party to the derivative
transactions listed on Schedule A hereto (the “Derivative Transactions”), with
an aggregate notional value of $53,510,385,969;
     WHEREAS, AIG-FP and ML III have entered into a termination agreement with
each counterparty to the Derivative Transactions, each with a trade date of
November 10, 2008 (the “Termination Agreements”), whereby inter alia, each
Derivative Transaction would be terminated and each of the parties to the
Derivative Transactions would be released of all of its duties and obligations
thereunder;
     WHEREAS, ML III has entered into a forward purchase agreement with each
counterparty to the Derivative Transactions (the “Purchase Agreements”) whereby
ML III will purchase certain CDO Issues underlying the Derivative Transactions;
     WHEREAS, ML III has entered into the Master Investment and Credit
Agreement, dated as of November 25, 2008, with the Federal Reserve Bank of New
York, American International Group, Inc. (“AIG”) and The Bank of New York Mellon
(the “Master Investment and Credit Agreement”) in connection with obtaining
certain loans and equity contributions to purchase the CDO Issues;
     WHEREAS, ML III entered into the Purchase Agreements and the Master
Investment and Credit Agreement in partial reliance on AIG-FP’s promise to make
the payments, if any, described herein and AIG-FP has entered into the
Termination Agreements in partial reliance on ML III’s promises to make the
payments, if any, described herein;
     WHEREAS, AIG-FP has delivered collateral to the counterparties to the
Derivative Transactions (the “Counterparties”) as set forth on Schedule A
hereto, as previously determined by ML III or its designee(s), in consultation
with AIG-FP (with respect to each Derivative Transaction, the “Posted
Collateral”); and
     WHEREAS, as of October 31, 2008, the difference between the notional value
of each Derivative Transaction and the market value of the related CDO Issue, or
portion of a CDO Issue, as applicable, underlying such Derivative Transaction
was as set forth in Schedule A hereto under the heading “Negative
Mark-to-Market,” as previously determined by ML III or its designee(s), in
consultation with AIG-FP (with respect to each Derivative Transaction, the
“Transaction Value”);
     NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties hereto agree as follows:
     1. Definitions. Capitalized terms used, but not defined, herein shall have
the meanings ascribed to them in the Purchase Agreements, or, if not defined
therein, the Master Investment and Credit Agreement.
     (a) “Adjustment Date” means the fifth Business Day following the final
Forward Closing Date, or such other date as may be agreed to by ML III and
AIG-FP.

 

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     (b) “Collateral Excess Amount” means, with respect to each Derivative
Transaction, the amount by which (i) the Posted Collateral for the portion of
the Derivative Transaction that terminated as a result of consummation of the
transactions contemplated by the related Termination Agreement and Forward
Purchase Agreement exceeds (ii) the Transaction Value for such consummated
transactions.
     (c) “Collateral Shortfall Amount” means, with respect to each Derivative
Transaction, the amount by which (i) the Transaction Value for the portion of
the Derivative Transaction that terminated as a result of consummation of the
transactions contemplated by the related Termination Agreement and Forward
Purchase Agreement exceeds (ii) the Posted Collateral for such portion of such
terminated Derivatives Transaction.
     2. Adjustment Payments.
     (a) On the Adjustment Date, if the aggregate Collateral Excess Amounts
exceed the aggregate Collateral Shortfall Amounts, ML III shall, on the
Adjustment Date, pay or cause to be paid, in immediately available funds, the
amount of such excess to AIG-FP.
     (b) On the Adjustment Date, if the aggregate Collateral Shortfall Amounts
exceed the aggregate Collateral Excess Amounts, AIG-FP shall pay, in immediately
available funds, the amount of such excess to ML III for credit to the
Collateral Account.
     (c) To the extent ML III has received amounts by means of set-off credit to
the amounts otherwise payable by ML III to the Counterparties, or otherwise has
collected fixed amount payments accrued prior to the Trade Date, ML III shall
pay such amounts to AIG-FP on the first Payment Date following such collection
or set off (to the extent collected or set off by the second day prior to the
relevant Notice Date), with such amounts to be determined by ML III, or its
designee(s), in consultation with AIG-FP.
     3. AIG-FP’s Representations and Warranties.
     (a) Organization; Powers. AIG-FP is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization and has all
requisite power and authority to execute, deliver and perform its obligations
hereunder.
     (b) Authorization; No Conflict. The execution, delivery and performance of
this Agreement by AIG-FP have been duly authorized by all requisite corporate
and, if required, stockholder action and will not (A) result in the violation by
AIG-FP of (1) any provision of law, statute, rule or regulation, or of the
certificate or articles of incorporation or other constitutive documents or
bylaws of AIG-FP, (2) any order of any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (each, a “Governmental Authority”) or (3) any provision of any
indenture, agreement or other instrument to which AIG-FP is a party or by which
it or any of its property is or may be bound, (B) be in conflict with, result in
a breach of or constitute (alone or with notice or lapse of time or both) a
default under, or give rise to any right to accelerate or to require the
prepayment, repurchase or redemption of any obligation under any such indenture,
agreement or other instrument or (C) result in the creation or imposition of any
mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
lien (statutory or other), charge or other security interest or any preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including any conditional sale or other title retention
agreement and any capital lease having substantially the same economic effect as
any of the foregoing) upon or with respect to any property or assets now owned
or hereafter acquired by AIG-FP.

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     (c) Enforceability. This Agreement has been duly executed and delivered by
AIG-FP and constitutes a legal, valid and binding agreement of AIG-FP
enforceable against AIG-FP in accordance with its terms, except that such
enforceability may be limited by bankruptcy, insolvency, or other similar laws
of general applicability affecting the enforcement of creditors’ rights
generally and by the court’s discretion in relation to equitable remedies.
     (d) Governmental Approvals. No action, consent or approval of, registration
or filing with or any other action by any Governmental Authority is or will be
required to be taken, obtained or made by AIG-FP in connection with the
transactions contemplated hereunder except (i) such as have been made or
obtained and are in full force and effect and (ii) with respect to any
Governmental Authority other than a Governmental Authority of the United States
or any state thereof, if the failure to take such action, obtain such consent or
approval, or register or file with such Governmental Authority could not
reasonably be expected to have a Material Adverse Effect.
     (e) Litigation; Compliance with Laws.
     (i) Except as set forth in the financial statements attached to AIG’s most
recently filed form 10-Q, there are no actions, suits or proceedings at law or
in equity or by or before any Governmental Authority now pending or, to the
knowledge of AIG-FP, threatened against or affecting AIG-FP or any business,
property or rights of AIG-FP as to which there is a reasonable possibility of an
adverse determination and that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to result in a material impairment
of the totality of the rights and remedies of, or benefits available to ML III
under this Agreement and the Transaction Documents taken as a whole.
     (ii) AIG-FP is not in violation of any law, rule or regulation (including
any zoning, building, ordinance, code or approval or any building permits) or
any restrictions of record or is in default with respect to any judgment, writ,
injunction, decree or order of any Governmental Authority, where such violation
or default could reasonably be expected to result in a material impairment of
the totality of the rights and remedies of, or benefits available to ML III
under this Agreement and the Transaction Documents taken as a whole.
     4. Covenant not to make certain amendments to any Purchase Agreements. In
consideration of AIG-FP’s agreement in Section 2 above, ML III hereby covenants
not to amend any Purchase Agreement in a manner that will cause AIG-FP to be
liable to any Counterparty for a greater portion of the Combined Settlement
Amount (as defined in the Termination Agreements) than it would have been under
the Purchase Agreement in the form originally entered into between the
Counterparty and ML III. For the avoidance of doubt, this provision shall have
no impact on ML III’s ability to exercise discretion in accordance with the
terms of the Purchase Agreements, including determinations of whether and when a
CDO Issue becomes an Excluded Asset or whether and when the conditions for the
purchase of a CDO Issue have been met or on ML III’s ability to waive any such
condition.
     5. No Bankruptcy Petition Against ML III. AIG-FP hereby covenants and
agrees that it will not at any time (i) commence or institute against ML III or
join with or facilitate any other Person in commencing or instituting against ML
III, any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution, receivership, insolvency or liquidation proceedings, or other
proceedings under any United States Federal or state, or other jurisdiction,
bankruptcy or similar law or statute now or hereafter in effect in connection
with any obligations relating to this Agreement or any of the other Transaction
Documents or (ii) participate in any assignment for benefit of creditors,
compositions, or arrangements with respect to ML III’s debts. The agreements in
this Section 5 shall survive the termination of this Agreement and payment in
full of all obligations under this Agreement.
     6. Waivers. AIG-FP hereby waives any failure or delay on the part of ML III
in asserting or enforcing any of its rights or in making any claims or demands
hereunder.

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     7. Opinion. AIG-FP shall cause to be delivered to ML III an opinion
substantially in the form of the opinion required under Section 7.01(c)(i)(D) of
the Master Investment and Credit Agreement with respect to its entry into this
Agreement.
     8. Notices. Any notice, instruction, request, consent, demand or other
communication required or contemplated by this Agreement shall be in writing,
shall be given or made or communicated by hand delivery or fax, confirmed by
telephone, addressed as follows:

         
 
  If to ML III:   Maiden Lane III LLC
 
      c/o Federal Reserve Bank of New York
 
      33 Liberty Street New York, New York 10045
 
      Attention: Helen Mucciolo, Senior Vice President
 
      Telecopy: (212) 720-1333
 
      Telephone: (212) 720-1593
 
      E-mail: helen.mucciolo@ny.frb.org
 
       
 
  with copies to:    
 
       
 
      Federal Reserve Bank of New York
 
      33 Liberty Street New York, New York 10045
 
      Attention: Joyce M. Hansen, Deputy General Counsel and Senior Vice
 
      President
 
      Telecopy: (212) 720-1756
 
      Telephone: (212) 720-5024
 
      E-mail: joyce.hansen@ny.frb.org
 
       
 
      Davis Polk & Wardwell
 
      450 Lexington Avenue, New York, New York 10017
 
      Attention: Bjorn Bjerke
 
      Telephone: (212) 450-4000
 
       
 
  If to AIG-FP:   AIG Financial Products Corp.
 
      50 Danbury Road
 
      Wilton, CT
 
      06897-4444
 
      Attn: Chief Financial Officer
 
      Phone: (203) 222-4700
 
      Fax: (203) 222-4780
 
       
 
  with copies to:    
 
       
 
      AIG Financial Products Corp.
 
      50 Danbury Road
 
      Wilton, CT
 
      06897-4444
 
      Attn: General Counsel
 
      Phone: (203) 222-4700
 
      Fax: (203) 222-4780
 
       
 
      Weil, Gotshal & Manges LLP
 
      767 Fifth Avenue
 
      New York, NY 10103
 
      Attention: Jason A.B. Smith

 
      Telephone: (212) 310-8000

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     9. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
     10. Jurisdiction; Consent to Service of Process.
     (a) Each party hereby irrevocably and unconditionally submits, for itself
and its property, to the exclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City, and any
appellate court from any thereof, in any action or proceeding arising out of or
relating to this Agreement, or for recognition or enforcement of any judgment,
and each of the Parties hereby irrevocably and unconditionally agrees that all
claims in respect of any such action or proceeding may be heard and determined
in such New York State or, to the extent permitted by law, in such federal
court. Each of the Parties agrees that a final judgment in any such action or
proceeding shall be conclusive.
     (b) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may
now or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement in any New York State or federal
court. Each party hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
     (c) Each party irrevocably consents to service of process in the manner
provided for notices in Section 8. Nothing in this Agreement will affect the
right of any party to serve process in any other manner permitted by law.
     11. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION
WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS. EACH PARTY
(A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES
THAT IT AND THE OTHER PARTIES HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND
THE OTHER TRANSACTION DOCUMENTS, AS APPLICABLE, BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
     12. Limited Recourse. Notwithstanding anything to the contrary contained in
this Agreement, the obligations of ML III under this Agreement are solely the
obligations of ML III and shall be payable solely to the extent of funds
received by and available to ML III in accordance with the Transaction
Documents. No recourse shall be had for the payment of any amount owing in
respect of any obligation of, or claim against, ML III arising out of or based
upon this Agreement against any holder of a Membership Interest, employee,
officer or Affiliate thereof and, except as specifically provided herein, no
recourse shall be had for the payment of any amount owing in respect of any
obligation of, or claim against, ML III arising out of or based upon this
Agreement against any holder of the Membership Interests or any equity interests
in any Related Party of any such holder; provided that the foregoing shall not
relieve any such person or entity from any liability they might otherwise have
as a result of willful misconduct, gross negligence or fraudulent actions taken
or omissions by them. The provisions of this Section shall survive the
termination or expiration of this Agreement and payment in full of any and all
obligations arising from this Agreement.
     13. Default. Upon and default by either party hereunder and the expiration
of all applicable grace periods, the non-defaulting party shall have all rights
and remedies available under applicable law.
     14. Miscellaneous.

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     (a) All headings herein are for convenience of reference only and shall be
disregarded in the interpretation hereof.
     (b) This Agreement may be signed in any number of counterparts, each of
which shall be an original; but such counterparts shall together constitute one
and the same instrument.
     (c) In the event of an assumption of AIG-FP’s obligations under this
Agreement by a successor, such successor shall succeed to and be substituted for
AIG-FP with the same effect as if it had been named herein, and upon such
assumption, AIG-FP shall be relieved of any further obligation hereunder. This
Agreement may not be assigned by AIG-FP without the prior written consent of ML
III.
     (d) In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.

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     IN WITNESS WHEREOF, each of the parties hereto has caused this Shortfall
Agreement to be executed on its behalf by its officers thereunto duly authorized
on the day and year first above written.

              MAIDEN LANE III LLC
 
            By: FEDERAL RESERVE BANK OF NEW YORK,
as its sole Managing Member
 
       
 
  By:   /s/ Sandra C. Krieger
 
       
 
      Name:  Sandra C. Krieger
 
      Title:   Executive Vice President
 
            AIG FINANCIAL PRODUCTS CORP.
 
       
 
  By:   /s/ William N. Dooley
 
       
 
      Name:  William N. Dooley
 
      Title:   Chief Executive Officer