EX-10.3






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






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	 	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






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	 	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






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	 	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,






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	 	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.






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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.







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