Exhibit 10.3

 

Settlement Term Sheet

 

The Ohio Public Employees Retirement System, the State Teachers Retirement
System of Ohio, and the Ohio Police and Fire Pension Fund (collectively, “Lead
Plaintiffs”), on behalf of all others similarly situated, and American
International Group, Inc. (“AIG”), have agreed in principle on the settlement of
all claims that Lead Plaintiffs have asserted against AIG in In re AIG
Securities Litigation, Master File No. 04 Civ. 8141 (S.D.N.Y.).  The principle
terms of the settlement are as follows:

 

Confidentiality:

 

The parties will use their best efforts to maintain the confidentiality of the
existence and terms of this agreement until the settlement papers have been
submitted to the Court.  This provision will not prevent the parties from
communicating the terms of the settlement to their advisors and complying with
their disclosure obligations.  The parties will exchange their proposed public
statements relating to the initial announcement of the settlement for review and
comment 24 hours before such announcement is made.  The parties are not
obligated to accept proposed comments made by the other party.

 

Settlement Class Definition:

 

The settlement class definition will be the class definition as pled in the
Consolidated Third Amended Class Action Complaint (the “Complaint”), and AIG
will seek to join the motion filed by PricewaterhouseCoopers seeking that class
definition.  In the event the Court does not accept this definition, then it
will be the class definition as modified by the Court’s February 22, 2010
Opinion regarding class certification.  AIG, however, will agree to use the
Class Definition in the Court’s February 22, 2010 Opinion if
PricewaterhouseCoopers agrees to use that definition and no other party urges
upon the Court to accept a broader class definition for a period ending five
days after the hearing on preliminary approval.

 

Settlement Amount:

 

$725 million.

 

Funding Terms:

 

(1)                                  AIG will transfer $175 million into an
escrow account (the “Escrow Account”) within 10 days of the District Court
entering an order granting preliminary approval of the settlement.

 

(2)                                  AIG’s obligation to fund the remainder of
the Settlement Amount is conditioned on its having consummated an offering of
its common stock (a “Qualified Offering”), or a series of such offerings, in
which it raises net proceeds of at least $550 million at any time before the
District Court enters its final order approving the settlement (the “Order”). 
AIG will use its best efforts, consistent with the fiduciary duties of its
management and board of Directors, to consummate a Qualified Offering, but the
decision as to whether market conditions or pending or contemplated corporate
transactions make it commercially reasonable to proceed with such an offering
will be

 

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within AIG’s unilateral discretion.  In the event that AIG effects a registered
secondary offering of common stock on behalf of the U.S. Treasury resulting in
the U.S. Treasury receiving proceeds of at least equal to $550 million, then
market access will be deemed to have been demonstrated and AIG shall be deemed
to have consummated a Qualified Offering.  In addition, AIG, at any time prior
to entry of the Order, in its sole discretion, may otherwise raise sufficient
funds to pay the Settlement Amount in cash and deposit such funds into the
Escrow Account.

 

(3)                                  If AIG does not fully fund the Escrow
Account with $725 million by the time the District Court enters its Order, Lead
Plaintiffs may, within 10 days of entry of the Order

 

(a)                                  terminate the settlement and return the
parties to the positions they had in the litigation as of July 1, 2010, or

 

(b)                                 elect to take unrestricted, transferable AIG
common stock valued at $550 million, and AIG will be obligated, within 10 days
of plaintiffs’ election, to fund the Escrow Account with stock, which will be
valued at the volume weighted average closing price for the 10 trading days
preceding entry of the Order (the “Settlement Stock”), provided AIG is able to
obtain all necessary approvals, or

 

(c)                                  elect to extend the period for AIG to make
a Qualified Offering or otherwise fund the escrow agreement for up to one year
after entry of the Order, provided that, at any time during the year, Lead
Plaintiffs may

 

(i)                                     elect, on 2 business days’ notice, to
take the Settlement Stock (which will not be repriced, except as described
below) in full satisfaction of AIG’s settlement obligations, however, if Lead
Plaintiffs’ sale of Settlement Stock results in net proceeds that exceed $550
million, then any proceeds in excess of $550 million will be returned to AIG, or

 

(ii)                                  elect, on 21 days’ notice, to terminate
the settlement,

 

but if AIG has taken steps to consummate a Qualified Offering before the
expiration of the 21 day period, Lead Plaintiffs may not demand stock or
terminate the settlement unless the offering is terminated.

 

(4)                                  If the settlement is not consummated for
any reason, then the cash and stock in the escrow account, less reasonable
administrative expenses (not to include the parties’ attorneys’ fees), will be
returned to AIG.

 

The parties will use their best efforts to make sure that the Settlement Stock
receive the exemption from registration available under Section 3(a)(10) of the
Securities Act.  In the event the exemption under Section 3(a)(10) is not
available, AIG will use its best efforts to deliver fully transferable,
unrestricted stock for the Settlement Stock.

 

In the event the Company issues one or more Forms 8K during the pricing period
or during the two week period preceding the pricing period, Lead Plaintiffs may
elect, within 10 days of the issuance of such an 8K, to have the pricing period
deferred until two weeks after any such 8K is filed.

 

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In the event the Company issues one or more Forms 8K within 12 weeks of Lead
Plaintiffs receiving Settlement Stock, Lead Plaintiffs may elect, within 10 days
of the issuance of such an 8K, to have any unsold stock repriced before sale,
with the 10-day pricing period starting two weeks after any such 8K is filed.

 

In the event that, after the Order is entered, but before any stock or cash is
distributed to the Class, Lead Plaintiffs have received the Settlement Stock,
but, for any reason, the settlement does not become effective, then Lead
Plaintiffs will return to AIG any unsold Settlement Stock and the net amount
Lead Plaintiffs actually received in the sale of any Settlement Stock (i.e., the
sale price less any transaction costs), with no further obligation to AIG.

 

Timing:

 

Both parties will use their best efforts to expedite approval of the
settlement.  AIG and Lead Plaintiffs will use their best efforts to obtain all
necessary approvals to enter into the settlement by July 16, 2010, and the
parties will use their best efforts to submit settlement papers to the Court by
August 13, 2010.

 

Subsequent to July 16, 2010, and after AIG and Lead Plaintiffs receive all
necessary approvals to proceed with the settlement, the parties will seek a stay
of all deadlines in the litigation, both in the District Court and in the Second
Circuit.

 

Blow provision:

 

The confidential portion of this Exhibit 10.3 has been omitted and filed
separately with the Securities and Exchange Commission.  Confidential Treatment
has been requested for the omitted portions.

 

Payment by Opt-Out Plaintiffs for Use of Class Discovery:

 

Plaintiffs may seek an order from the Court requiring opt-out plaintiffs to pay
into the settlement fund a fee for class discovery materials (i.e., for the
benefit of the Class) in the same percentage of Lead Plaintiffs’ lodestar and
expenses related to discovery as the percentage of the shares held by that
opt-out plaintiff during the Class Period.  Defendants will not be required to
join in any such application.

 

Releases:

 

Lead Plaintiffs and the Class will dismiss, with prejudice, all claims against
AIG, and will agree not to sue and to give general releases to AIG and everyone
AIG may have an obligation to indemnify.

 

Lead Plaintiffs and the Class will also dismiss, with prejudice, and release all
claims against Eli Broad, John A. Graf, Frank J. Hoenemeyer, Martin J. Sullivan,
Thomas R. Tizzio, Wachovia Securities, Inc. and Merrill Lynch & Co.

 

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Bar Order:

 

The bar order shall bar all future claims for contribution or indemnity (and
related claims where the injury to non-settling defendants is their liability or
risk of liability to the plaintiffs) arising out of the action, and shall apply
to the full extent of the PSLRA.

 

Disputes:

 

All disputes regarding the interpretation of and compliance with this agreement
will be resolved by Hon. Layn Phillips, as sole arbitrator.  Issues regarding
approval of the settlement will be resolved by the District Court.

 

Approvals:

 

This term sheet is conditioned upon AIG and Lead Plaintiffs receiving all
necessary approvals.  AIG and Lead Plaintiffs will use its their best efforts to
obtain all such approvals.

 

The issuance of any Settlement Stock will be subject to all necessary approvals.

 

Attorneys’ Fees for Lead Plaintiffs’ Counsel:

 

After entry of an Order approving the settlement and Lead Counsel’s fee request,
and before the resolution of appeals, if any, counsel for Lead Plaintiffs may
withdraw an amount equal to the award of attorneys’ fees and reimbursed expenses
from the Escrow Account, provided that any such withdrawal shall be repaid by
Counsel for Lead Plaintiffs, along with interest at the Escrow Account rate of
interest, if the settlement is not consummated for any reason or if the award of
attorneys’ fees and reimbursed expenses is otherwise reversed or modified.

 

Execution:

 

This Term Sheet may be executed in counterparts, including by signature
transmitted by facsimile or email.  Each counterpart when so executed shall be
deemed to be an original, and all such counterparts together shall constitute
the same instrument.

 

 

DATED:  July 1, 2010

 

 

 

 

 

This Term Sheet is hereby agreed to by:

 

 

 

 

 

/s/Thomas A. Dubbs

 

/s/ Daniel J. Kramer

Thomas A. Dubbs

 

Daniel J. Kramer

Labaton Sucharow LLP

 

Paul, Weiss, Rifkind, Wharton & Garrison LLP

140 Broadway

 

1285 Avenue of the Americas

New York, NY  10005

 

New York, New York  10019

On behalf of Lead Plaintiffs and the Class 

 

On behalf of American International Group, Inc.

 

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