EX-10.ZZ.III: AMENDMENT TO EMPLOYMENT ARRANGEMENTS



 




EXHIBIT 10(zz)(iii)



AMERICAN INTERNATIONAL GROUP, INC.



70 PINE STREET, NEW YORK, N.Y. 10270




TELEPHONE: (212) 770-7000




August 28, 2001




Mr. Richard W. Scott 

 122 Paul Revere Drive 

 Houston, Texas 77024




Re:     Amendment to
Employment Arrangements




Dear Mr. Scott:




This letter confirms the following understandings
reached among you, American International Group, Inc.
(“Parent”), AIG Global Investment Corp., a
wholly-owned subsidiary of Parent (“AIGGIC”) and
American General Corporation (“Company”) with respect
to (a) the Change in Control Severance Agreement dated as
of April 1, 2000 (the “Change in Control
Agreement”) and (b) the Employment Agreement dated as
of May 1, 2000 (the “Agreement”) and constitutes
an amendment to such Change in Control Agreement and the
Agreement:




		
	1. 	
    As of the Effective Date (for purposes of the
    Agreement, Effective Date shall mean the date on which the
    merger between the Company and Washington Acquisition
    Corporation, a wholly-owned subsidiary of Parent
    (“Washington”), becomes effective in accordance with
    the Merger Agreement dated as of May 11, 2001 among Parent,
    the Company and Washington (the “Merger Agreement”))
    (a) the parties agree that the Change in Control Agreement
    shall be null and void and of no further effect, and all rights
    and obligations of the Executive with respect to employment by
    the Company shall be governed by the Agreement as amended by
    this letter; (b) the Company’s rights and obligations
    under the Agreement will be assigned to AIGGIC without further
    action required, (c) AIGGIC will assume all rights and
    obligations of the Company under the Agreement, provided,
    however, that the parties agree that Employee will remain on
    the payroll of American General Corporation through
    December 31, 2002 and be transferred to the payroll of
    AIGGIC as of January 1,
    








 




2003, and (d) all references in the
Agreement to the Company (other than references to specifically
identified employee benefits or any benefit or other plans of
the Company which remain in effect in accordance with the Merger
Agreement subsequent to the Effective Date (which references
will remain references to such continuing plans of American
General Corporation so long as such plans remain in effect in
accordance with the Merger Agreement) and references to the
Company in Section 22 of the Agreement as amended by this
letter (which references will remain references to American
General Corporation)) will be deemed to be references to AIGGIC.




2. Section 3(a) of the Agreement is
amended to read in its entirety as follows:




		
	 	
    “(a) Duration of Term. Unless
    earlier terminated as provided in Section 3(b) hereof, the
    Executive’s employment with the Company under this
    Agreement shall commence at the Effective Date and shall end on
    the date that is the day before the third anniversary thereof.
    For purposes of this Agreement, “Term” shall mean such
    three-year period. The Term shall not be extended other than by
    the written agreement of the parties. Nothing in this Section
    shall limit the right of the Company or the Executive to
    terminate the Executive’s employment hereunder on the terms
    and conditions set forth in Section 7 hereof. The Company
    and the Executive agree that any such notice by the Company
    shall not constitute Good Reason for the Executive to terminate
    the Executive’s employment.”
    





3. Section 4 of the Agreement is
amended to read in its entirety as follows:




		
	 	
    “4. Position and Duties. On and after
    the Effective Date, the Executive shall serve as Senior Managing
    Director of the Company and shall be responsible for managing
    the combined U.S. fixed income assets of the Parent held through
    SunAmerica Investments, American General Investment Management
    and AIG Global Investment Group, Inc. The Executive shall also
    serve as the Chief Investment Officer of the U.S.-based
    insurance company subsidiaries of the Parent and shall have such
    additional duties and responsibilities as may be assigned to the
    Executive by the Chief Executive Officers of Parent and the
    Company. The Executive agrees to devote substantially all of the
    Executive’s full
    





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    working time, attention and energies during
    normal business hours to the performance of the Executive’s
    duties for the Company, provided that the Executive may serve as
    a director on the boards of such companies and organizations as
    the Chief Executive Officer of the Company may specifically
    approve in writing.”
    





4. Section 5 of the Agreement is amended to
read in its entirety as follows:




		
	 	
    “5. Place of
    Performance.    The principal place of
    employment and office of the Executive shall be in Houston,
    Texas; provided, however, that after June 30, 2002
    Executive agrees that such place of performance may, at
    Company’s election, be changed to in New York, New York, or
    such other location in the United States as may be designated by
    the Chief Executive Officer of the Company. In the event that
    Company elects to change such place of performance from Houston,
    Texas to any other location Company shall pay or reimburse
    Executive for all reasonable costs associated with such
    relocation.”
    





5. Section 6(a) of the Agreement is amended
to read in its entirety as follows:




		
	 	
    “(a) Base
    Salary.    As compensation for the
    performance by the Executive of the Executive’s duties
    hereunder, during the Employment Period the Company shall pay
    the Executive an annual base salary of $500,000 (such amount, as
    it may be increased from time to time, is hereinafter referred
    to as “Base Salary”). Base Salary shall be payable in
    accordance with the Company’s normal payroll practices,
    shall be reviewed at least annually by the Board and may be
    increased (but not decreased) upon review.”
    





6. Section 6(b) of the Agreement is amended
to read in its entirety as follows:




		
	 	
    “(b) Bonus.    For
    each calendar year ending during the Employment Period, the
    Executive shall participate, on comparable terms, in the AIG
    Global Investment Corp. performance-based annual incentive plan
    in which similarly situated executives of the Company
    participate, with a Target Bonus Potential (as defined in such
    plan) of 100% of Base Salary and a Range (as defined in such
    plan) of 0% to 200%. The cash amount received in accordance with
    such participation (the “Annual Bonus”) for each
    calendar year ending during the Employment Period shall be not
    less than $600,000. The Annual Bonus hereunder shall be in lieu
    of
    





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    any bonus amount (or portion thereof) payable to
    the Executive under any agreement or bonus plan of the Company,
    Parent or any subsidiary of Parent (other than the Supplementary
    Bonus as hereinafter described), including without limitation,
    the Company Performance-Based Plan for Executive Officers with
    respect to the calendar year in which the Effective Date occurs,
    and the Executive hereby waives all rights under such agreements
    or plans. The Annual Bonus payable hereunder with respect to any
    calendar year shall be paid at the time Company’s bonuses
    are paid, but no later than March 31 of the ensuing
    calendar year.
    
	 
	 	
    For each calendar year ending during the
    Employment Period, the Executive will receive a minimum of
    $90,000 of bonus compensation (the “Supplementary
    Bonus”) payable in equal quarterly amounts with regard to
    services performed in that year provided the Executive is
    employed by Parent or a subsidiary of Parent at the time of the
    respective quarterly payment when such payment becomes due.
    
	 
	 	
    At the time equity grants are made to executive
    officers of the Parent in respect of services performed in the
    calendar year ending December 31, 2001, the Executive will
    be granted equity-based awards with respect to the common stock
    of Parent (the “2001 Service Awards”), pursuant to the
    terms of the applicable Parent plans or the applicable plans of
    Starr International Company, Inc. (“SICO”), as follows:
    





			
	 	• 	
    stock options with an exercise price equal to the
    fair market value of Parent common stock on the date of grant,
    vesting (subject to your continued employment with Parent or its
    subsidiaries on the vesting dates) in four equal installments on
    each of the first, second, third and fourth anniversaries of the
    date of anniversary of the date of grant), having an aggregate
    Black- Scholes valuation of $700,000 using a Black- Scholes
    factor of 0.4059;
    
	 
	 	• 	
    Five year cliff vesting stock options, vesting
    (subject to your continued employment with Parent or its
    subsidiaries on the vesting date) in full on the fifth
    anniversary of the date of grant with an exercise price
    










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    equal to the fair market value of Parent common
    stock on the date of grant having an aggregate Black-Scholes
    valuation of $800,000 using a Black-Scholes factor of 0.40;
    





				
	 	• 	
    performance share units having a maximum
    aggregate value of $2,250,000 based on the fair market value on
    date of grant which shall vest (subject to your continued
    employment with Parent or its subsidiaries on the vesting date)
    from 0 to 100 percent as soon as administratively feasible after
    December 31, 2004 (provided that, the receipt of shares of
    Parent common stock pursuant to such units may be deferred, at
    the election of the Executive, pursuant to an applicable
    deferral program of the Parent, if any) subject to achievement
    of mutually agreed performance standards to be established by
    you and Parent:
	 
	 		
     Maximum [Performance Standard] 

     Target [Performance Standard] 

     Threshold [Performance Standard] 

     Below [Performance Standard] 

	
     Maximum Shares Earned — 100% 

     Maximum Shares Earned — 50% 

     Maximum Shares Earned — 25% 

     Maximum Shares Earned — 0% 


    




         
    and





			
	 	• 	
    900 participation units in the then current
    SICO Deferred Compensation Profit Participation Plan (“SICO
    Plan”).
    





In the event that the Executive receives any
equity award grants (other than reload options) from the Company
after the date hereof prior to the Effective Date, the 2001
Service Awards shall be reduced by the value of any such awards
(determined using a Black-Scholes value with respect to options,
using assumptions established on a basis consistent with those
applied by the Company in determining such Black-Scholes value
in respect of the 2001 grants to the Executive, and the fair
market value on the date of grant with respect to performance
based unit awards).”




		
	7. 	
    (a) Section 7(c) of the Agreement is
    amended by substituting “Board” for
    “Committee” in the first sentence thereof.
    
	 
	 	
    (b) Section 7(e) of the Agreement is
amended by deleting the phrase “or by the Executive
Termination Review Committee” from the final sentence
thereof.






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8. Section 13 of the Agreement is
amended to read in its entirety as follows:




		
	 	    
    “13. Confidential Information and
    Nonsolicitation. You will hold in a fiduciary capacity for
    the benefit of the Company all secret or confidential
    information, knowledge or data relating to the Company or any of
    its Affiliates, and their respective businesses, which you
    obtain during your employment by the Company or any of its
    Affiliates and which is not public knowledge (other than by acts
    by you or your representatives in violation of this Agreement).
    After the termination of your employment with the Company, you
    will not, without the prior written consent of the Company or as
    may otherwise be required by law or legal process, communicate
    or divulge any such information, knowledge or data to anyone
    other than the Company and those designated by the Company or to
    an attorney retained by you.
    
	 
	 	    
    During the term of this Agreement and for one
    year after the termination of your employment with the Company,
    you will not, directly or indirectly, on behalf of yourself or
    any other person, (1) solicit for employment by other than
    the Company any person employed by the Company or its Affiliates
    on the Effective Date, nor will you, directly or indirectly, on
    behalf of yourself or any other person, solicit for employment
    by other than the Company any person known by you to be employed
    at the time by the Company or its Affiliates or (2) make
    any public statement concerning the Company, any of its
    Affiliates or subsidiaries, or your employment unless previously
    approved by the Company, except as may be required by law or
    legal process.”
    





9. Section 17 of the Agreement is
amended by deleting the phrase “(other than the Severance
Agreement)” from the third sentence thereof.




10. Section 20(a) of the Agreement is
amended by substituting “Board” for
“Committee” in each sentence thereof.




11. Section 21 of the Agreement is
amended by deleting Sections 21(f) and 21(p) thereof in
their entireties.




		
	12. 	
    Section 21(m) of the Agreement is amended to
    read in its entirety as follows:
    





“(m) “Good Reason” for termination
by the Executive of the Executive’s employment shall mean
the occurrence (without the Executive’s express written
consent) of any one of the following acts by the Company, or
failures by the




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Company to act, unless, in the case of any act or
failure to act described in paragraph (I), (IV) or (V) below,
such act or failure to act is corrected prior to the Date of
Termination specified in the Notice of Termination given in
respect thereof:




 


				
	 	
    (I)
    		
    a substantial adverse alteration in the nature or
    status of the Executive’s responsibilities from those in
    effect as of the Effective Date;
    
	 
	 	
    (II)
    		
    a reduction by the Company in the
    Executive’s Base Salary;
    
	 
	 	
    (III)
    		
    the failure by the Company to pay to the
    Executive any portion of the Executive’s current Base
    Salary, Annual Bonus or Supplementary Bonus, or to pay to the
    Executive any installment under any deferred compensation
    program of the Company, within seven (7) days of the date such
    compensation is due;
    
	 
	 	
    (IV)
    		
    except for any changes required by applicable
    law, the failure by the Company to continue to provide the
    executive with benefits substantially similar to those enjoyed
    by the Executive under any of the Company’s pension,
    savings, life insurance, medical, health and accident, or
    disability plans in which the Executive was participating as of
    the Effective Date, the taking of any other action by the
    Company which would directly or indirectly materially reduce any
    of such benefits or deprive the Executive of any material fringe
    benefit enjoyed by the Executive as of the date hereof, or the
    failure by the Company to provide the Executive with at least
    four weeks of annual paid vacation days; notwithstanding the
    foregoing provisions of this subsection of Section 21, it
    shall not constitute Good Reason that the Executive’s
    benefits under the Company’s general medical, health and
    



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    accident plans are no longer substantially
    similar to the benefits enjoyed by the Executive as of the
    Effective Date, unless the changes in such benefits constitute a
    material adverse alteration thereof; or
    




 


				
	 	
    (V)
    		
    the Company’s breach of a material term or
    condition of the Agreement.
    



     
The Executive’s right to terminate the
Executive’s employment for Good Reason shall not be
affected by the Executive’s incapacity due to

        physical or
mental illness. The Executive’s continued employment shall
not constitute consent to, or waiver of rights with respect to,
any 

        act
or failure to act constituting Good Reason
hereunder.”




			
	 	13. 	
    The Agreement is amended by adding a new
    Section 22 which shall read in its entirety as follows:
    





		
	 	     
    “22. Excise Tax Gross-Up. To the extent
    that any payments or benefits received or to be received by the
    Executive (excluding payments to be made pursuant to this
    Section 22) (the “Total Payments”) pursuant to
    this Agreement or any other plan, arrangement or agreement with
    American General Corporation or Parent shall be subject to the
    excise tax imposed by Section 4999 of the Internal Revenue
    Code of 1986, as amended from time to time (the
    “Code”), or any successor provision of the Code (any
    such excise tax is referred to in this Section 22 as the
    “Excise Tax”), then the benefit or payment shall be
    increased by an amount (referred to in this Section 22 as
    the “Additional Payment”) such that the net amount
    received by the Executive, after paying any applicable Excise
    Tax and any federal, state or local income or FICA taxes on such
    Additional Payment, shall be equal to the amount that the
    Executive would have received if such Excise Tax were not
    applicable to the Total Payments.
    



	   	 
	   	For purposes of determining whether any of the
Total Payments shall be subject to the Excise Tax and the amount
of such Excise Tax, (1) all of the Total Payments will be
treated as “parachute payments” within the meaning of
Section 280G(b)(2) of the Code unless, in the opinion of
tax counsel (“Tax Counsel”)





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reasonably acceptable to the Executive and
selected by PricewaterhouseCoopers LLP (the
“Auditor”), such payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason
of Section 280G(b)(4)(A) of the Code; (2) all
“excess parachute payments” within the meaning of
Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax unless, in the opinion of Tax Counsel, such
excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered (within
the meaning of Section 280G(b)(4)(B) of the Code) in excess
of the base amount (as the term “base amount” is
defined in Section 280G(b)(3) of the Code) allocable to such
reasonable compensation, or are otherwise not subject to the
Excise Tax; and (3) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Auditor
in accordance with the principles of Sections 280G(d)(3) and (4)
of the Code. For purposes of determining the amount of the
Additional Payment, the Executive shall be deemed to pay federal
income tax at the highest marginal rate of federal income
taxation in the calendar year in which the Additional Payment is
to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of the
residence of the Executive on the date on which the Additional
Payment is paid for purposes of this Section 22, net of the
maximum reduction in federal income taxes which could be
obtained from the deduction of such state and local taxes by
such Executive. Payment shall be in the form of additional W-2
withholding if Executive is an employee of the Company at the
time of payment.




In the event that the Excise Tax is finally
determined to be less than the amount taken into account
hereunder in calculating the Additional Payment, the Executive
shall repay to the Company, within ten (10) business days
immediately following the date that the amount of such reduction
in the Excise Tax is finally determined, the portion of the
Additional Payment attributable to the amount of such reduction
(including the Excise Tax component and the federal, state and
local income and employment tax components of the Additional
Payment) to the extent that such repayment results in a
reduction in the Excise Tax and a dollar-for-dollar




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reduction in the taxable income and wages of the
Executive for purposes of federal, state and local income and
employment taxes, plus interest on the amount of such repayment
at 120 percent of the rate provided in
Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account
hereunder in calculating the Additional Payment (including by
reason of any payment the existence or amount of which cannot be
determined at the time of the Additional Payment), the Company
shall make another Additional Payment in respect of such excess
(plus any interest, penalties or additions payable by the
Executive with respect to such excess) within ten (10) business
days immediately following the date that the amount of such
excess if finally determined.




The Executive and the Company shall each
reasonably cooperate with the other in connection with any
administrative or judicial proceedings concerning the existence
or amount of liability of Excise Tax with respect to the Total
Payments. For any taxable year in which any payment constituting
a part of Total Payments is made or is treated as made or in
which any payment is made pursuant to this Section 22, the
obligation of the Company and the Executive hereunder shall
continue until the later of (i) 30 days after the date
on which the authority of the Internal Revenue Service to assess
additional tax with respect to the Federal Income Tax return of
the Executive for that year expires, or (ii) 30 days
after the date on which any Internal Revenue Service audit,
examination or other proceeding or any claim for refund with
respect to such return is finally resolved or settled. The
Executive shall have the right to compromise or settle any
dispute concerning the tax treatment of any payment constituting
or that is alleged by the Internal Revenue Service to constitute
a part of the Total Payments or any payment required pursuant to
this Section 22, and the Company agrees to be bound by any
such compromise or settlement, and to treat any payment made by
Executive as a result of such compromise or settlement as a
payment subject to the first paragraph of this Section 22
for which Executive is entitled to full reimbursement and
gross-up treatment as provided therein; provided, however,




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    that the Company may, at its cost and expense,
    assume responsibility for the handling and resolution of any
    such dispute by written notice to the Executive of its intent to
    do so, provided further that the Company shall reimburse
    the Executive for any additional taxes payable as a result of
    such resolution or as a result of any cost or expense incurred
    by the Company being or being deemed to be income for tax
    purposes to the Executive, such payment to be grossed-up to the
    same extent and in the same manner as any payments made pursuant
    to the first paragraph of this Section 22.
    
	 
	 	
    The obligations of the Company under this
    Section 22 shall be absolute and unconditional and shall
    survive the termination of this Agreement irrespective of the
    reason for such termination, and shall survive the termination
    of the Executive’s employment with the Company for any
    reason. The Company’s obligations under this
    Section 22, shall not be affected by or subject to the
    limitations of the Company’s obligations set forth in
    Section 8(a), 8(b)(ii) or 8(c)(vi) of this Agreement. All
    amounts payable under this Section 22 shall be deemed fully
    due and payable, without interest thereon, as of the Effective
    Date.”
    





		
	14.	
    The Executive agrees that this letter agreement
    constitutes his written consent to changes in his compensation
    arrangements and duties and responsibilities and under no
    circumstances shall such changes constitute “Good
    Reason” for termination by the Executive as defined in
    Section 21(m) of the Agreement.
    





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	15.	
    From and after the date hereof, the Agreement is
    hereby amended by this letter agreement, in accordance with
    Section 17 of the Agreement.
    





	 	 	 
	 
	
    Very truly yours,
    	 	 
	 
	
    
    American International Group, Inc.
    

    	 	
    American General Corporation
    
	 
	
    By: /s/ M.R. GREENBERG

    
Name:    M.R.
    Greenberg

    Title:   Chairman
    	 	
    By: /s/ GARY D. REDDICK

    
Name:    Gary D.
    Reddick

    Title:   Executive Vice President
    
	 
	
    AIG Global Investment Corp.
    	 	 
	 
	
    By: /s/ WIN J. NEUGER

    
Name:    Win J.
    Neuger

    Title:   Chairman
    	 	 
	 
	
    Accepted and Agreed as of August 28, 2001
    	 	 
	 
	
    /s/ RICHARD W. SCOTT

    
Richard W. Scott
    	 	 





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