Document:

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.

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.

6EX-10.4

Exhibit 10.4

AMENDMENT NO. 2 TO CREDIT AGREEMENT

     AMENDMENT dated as of November 9, 2008 to the Credit Agreement dated as of September 22, 2008
(as amended from time to time, the “Credit Agreement”) between AMERICAN INTERNATIONAL GROUP, INC.,
as Borrower (the “Borrower”) and FEDERAL RESERVE BANK OF NEW YORK, as Lender (the “Lender”).

PRELIMINARY STATEMENTS

     (1) WHEREAS, Borrower intends to issue 2008 Preferred Stock (as defined below) having an
aggregate liquidation preference of $40 billion.

     (2) WHEREAS, Borrower has requested Lender to amend the Credit Agreement in connection with
such issuance and to make certain other changes as described herein, and Lender has agreed, subject
to the terms and conditions hereinafter set forth, to amend the Credit Agreement to effect such
changes as set forth below.

     NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and
for other good and valuable consideration, the sufficiency and receipt of which is hereby
acknowledged, the parties hereto hereby agree as follows:

     Section 1. Defined Terms; References. Unless otherwise specifically
defined herein, each term used herein that is defined in the Credit Agreement has the meaning
assigned to such term in the Credit Agreement. Each reference to “this Agreement”, “hereof”,
“hereunder”, “herein” and “hereby” and each other similar reference in the Credit Agreement, and
each reference in any other Loan Document to “the Credit Agreement”, “thereof”, “thereunder”,
“therein” or “thereby” or other similar reference to the Credit Agreement, shall, after the
Amendment No. 2 Effective Date (as defined in Section 9 of this Amendment), refer to the Credit
Agreement as amended hereby.

     Section 2. Amendments to Definitions. Section 1.01 of the Credit Agreement is amended by
adding or amending (as applicable) the following definitions to read in their entirety as follows:

               “2008 Preferred Stock” shall mean the Series D Preferred Stock of the Borrower,
par value $5.00 per share, issued to the United States Department of the
Treasury.

1

 

               “2008 Warrants” shall mean warrants issued by the Borrower to the United States
Department of the Treasury concurrently with the issuance of the 2008 Preferred
Stock.

               “Applicable Margin” shall mean 3.00% per annum.

               “Maturity Date” shall mean September 13, 2013.

               “Subject Issuer” shall mean any Person that is a Subject Issuer as defined in the
Guarantee and Pledge Agreement, excluding any Person whose Equity Interests are
not (and are not required to be) subject to any Lien in favor of the Lender
pursuant to the Guarantee and Pledge Agreement.”

     Section 3. Amendment to Available Commitment Fee. Section 2.05(a) of the Credit Agreement is
hereby amended by replacing the reference to “8.50%” therein with “0.75%”.

     Section 4. Commitment Reduction. Section 2.10(h) of the Credit Agreement is hereby amended
to read in its entirety as follows:

                              “(h) Simultaneously with any prepayment required by paragraph (b), (c) or
(d) of this Section 2.10, the Commitment shall be automatically and permanently
reduced (i) in the case of any prepayment from the Net Cash Proceeds of the
issuance of 2008 Preferred Stock and the 2008 Warrants, to $60,000,000,000 and
(ii) otherwise, in an amount equal to that portion of the Net Cash Proceeds
required to be applied to prepay the Original Principal Amount of the Loans
pursuant to such paragraphs.”

     Section 5. Amendments to Certain Covenants. The proviso to Section 6.06(a) of the Credit
Agreement is hereby amended by replacing “and” where it appears at the end of clause (i) thereof
with a semicolon and adding the following new clause (iii) after clause (ii) thereof:

               “and (iii) so long as no Default shall have occurred and be continuing or would
result therefrom, the Borrower may make payments of cumulative compounding
dividends on its 2008 Preferred Stock at a rate not to exceed 10% per annum”

     Section 6. Amendments to Exhibit D. Exhibit D of the Credit Agreement is hereby amended to
read in its entirety as set forth on Exhibit A hereto.

     Section 7. Certain Technical Amendments. (a) Clause (E) of the proviso to Section 6.06(b)
is hereby amended to read in its entirety as follows

                    “(E) clause (i) of the foregoing shall not apply to restrictions or conditions
imposed by any agreement relating to secured

2

 

                         Indebtedness or secured Swap Contracts permitted by this Agreement if such
restrictions or conditions apply only to the property or assets securing such
Indebtedness or such Swap Contracts, as the case may be”.

     (b) Schedule 8.01 of the Credit Agreement is hereby amended by replacing the entry requiring
that notices be copied to Joyce M. Hansen with the following new entry:

                         Federal Reserve Bank of New York

                         33 Liberty Street New York, New York 10045

                         Attention: James R. Hennessy, Counsel and Vice President

                         Telecopy: (212) 720-7797

                         Telephone: (212) 720-5024

                         E-mail: james.hennessy@ny.frb.org

     Section 8. Representations of Borrower. The Borrower represents and warrants on the
Amendment No. 2 Effective Date that (i) the representations and warranties of Borrower contained in
Article 3 of the Credit Agreement and by any Loan Party in any other Loan Document shall be true
and correct on and as of the Amendment No. 2 Effective Date, except to the extent that such
representations and warranties specifically refer to an earlier date, in which case they shall be
true and correct as of such earlier date; and (ii) no Default or Event of Default shall exist on
the Amendment No. 2 Effective Date after giving effect to this Amendment.

     Section 9. Conditions to Effectiveness. This Amendment shall become effective on the date
(the “Amendment No. 2 Effective Date”) when, and only when, each of the following conditions shall
have been satisfied to the satisfaction of Lender:

     (a) Execution of Counterparts. Lender shall have received from Borrower a counterpart
hereof signed by Borrower.

     (b) Execution of Consent. Lender shall have received counterparts of a consent
substantially in the form of Exhibit B to this Amendment, duly executed by each Guarantor.

     (c) Expenses. Lender shall have received reimbursement for all costs and expenses
(including fees, charges and disbursements of counsel to Lender) to the extent required by Section
8.05(a) of the Credit Agreement, including in connection with the preparation, negotiation and
execution of this Amendment.

     (d) Consummation of 2008 Preferred Stock Issuance. Borrower shall have consummated
the issuance of 2008 Preferred Stock having a liquidation preference of not less than
$40,000,000,000 on or prior to the Amendment No. 2 Effective Date.

3

 

     Section 10. Certain Consequences Of Effectiveness. On and after the Amendment No. 2
Effective Date, the rights and obligations of the parties hereto shall be governed by the Credit
Agreement as amended by this Amendment; provided that the rights and obligations of the parties to
the Credit Agreement with respect to the period prior to the Amendment No. 2 Effective Date shall
continue to be governed by the provisions of the Credit Agreement prior to giving effect to this
Amendment. Each Loan Document, as specifically amended hereby, is, and shall continue to be, in
full force and effect and is hereby ratified and confirmed in all respects. Without limiting the
foregoing, the Security Documents and all of the Collateral do and shall continue to secure the
payment of all obligations under the Loan Documents as amended hereby.

     Section 11. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.

     Section 12. Counterparts. This Amendment may be signed in any number of
counterparts, each of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. Delivery by telecopier of an executed counterpart of a
signature page to this Amendment shall be effective as delivery of an original executed counterpart
of this Amendment.

4

 

     IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of
the date first above written.

	 	 	 
	 	 	AMERICAN INTERNATIONAL

   GROUP, INC., as Borrower

	 	 
	 	 
	 	 	By:             
/s/ Kathleen E. Shannon

	 	 	 
	 	 	        Name:
Kathleen E. Shannon

	 	 	        Title:  
Senior Vice President and

	 	 	                   
Secretary

 

 

	 	 	 
	 	 	FEDERAL RESERVE BANK OF 

   NEW YORK, as Lender

	 	 
	 	 
	 	 	By:              /s/
Steven J. Manzari

	 	 	 
	 	 	        Name:
Steven J. Manzari

	 	 	        Title:  
Senior Vice President

 

 

EXHIBIT A

Summary of Terms of Preferred Stock and Related Issues

	 	 	 
	Issuer

	 	American International Group, Inc. (“AIG”).
	 
	Purchaser

	 	AIG Credit Facility Trust, a new trust established for the
benefit of the United States Treasury (“Trust”).
	 
	Securities

	 	100,000 shares of Series C Perpetual, Convertible, Participating
Preferred Stock, par value $5.00 per share (“Preferred Stock”).
	 
	Consideration

	 	$500,000 plus the lending commitment of the Federal Reserve Bank
of New York (“NY Fed”); AIG’s board will acknowledge the receipt
of value at least equal to the aggregate par value of the shares
of Preferred Stock in connection with their issuance.
	 
	Voting rights

	 	Except where a class vote is required by law, the Preferred
Stock will vote with the common stock on all matters submitted
to AIG’s stockholders, and will be entitled to an aggregate
number of votes equal to (i) the Initial Number of Shares (as
defined below), as adjusted pursuant to the anti-dilution
provisions, minus (ii) the votes, if any, attributable to shares
of common stock previously issued on any partial conversion of
the Preferred Stock; provided that the number of votes
attributable to the Preferred Stock shall not exceed 77.9% of
the aggregate number of votes of the Preferred Stock and the
shares of common stock then outstanding.
	 
	Dividends

	 	The Preferred Stock will be entitled to participate in any
dividends paid on the common stock, and shall receive (i) the
dividends attributable to the Initial Number of Shares, as
adjusted pursuant to the anti-dilution provisions, minus (ii)
the dividends, if any, paid with respect to shares of common
stock previously issued on any partial conversion of the
Preferred Stock; provided that the dividends attributable to the
Preferred Stock shall not exceed 77.9% of the aggregate amount
of dividends paid on the Preferred Stock and the shares of
common stock then outstanding.
	 
	Conversion

	 	Upon the effectiveness of the amendment to AIG’s restated
certificate of incorporation described in clause (i) under
“Stockholder vote,” the Preferred Stock will be convertible into
a number of shares of common stock (the “Initial Number of
Shares”) equal to the excess of (a) the product of 3.9751244
times the Number of Outstanding Shares over (b) 53,798,766 (the
number of shares of common stock underlying the 2008 Warrants).
The “Number of Outstanding Shares” means, as of any date, the
number of shares of common stock outstanding as of the date of
issuance of the Preferred Stock plus the number of shares of
common stock, if any, issued on or prior to such date in
settlement of AIG’s Equity Units.
	 
	Anti-Dilution 

Provisions

	 	The Preferred Stock will have customary anti-dilution provisions.
	 
	Term

	 	Perpetual.

 

 

	 	 	 
	Liquidation 

preference

	 	$500,000 in aggregate.
	 
	Stockholder vote

	 	AIG’s board will call a meeting of stockholders as soon as
practicable after the issuance of the Preferred Stock. At that
meeting, the stockholders, with the common stockholders voting
as a separate class in the case of the matters in clause (i),
will vote on, among other things, (i) amendments to AIG’s
certificate of incorporation to (a) reduce the par value of
AIG’s common stock to $0.000001 per share and (b) increase the
number of authorized shares of common stock to 19 billion and
(ii) any other measures deemed by the NY Fed to be necessary for
the conversion of the Preferred Stock or the operation of the
Facility, including the pledging of collateral thereunder.
	 
	Equity issues

	 	So long as the Trust’s equity ownership, determined as the sum
of its ownership of common stock and the number of shares of
common stock underlying the Preferred Stock (whether or not the
Preferred Stock is then convertible), shall equal or exceed 50%
of the Initial Number of Shares (as adjusted pursuant to the
anti-dilution provisions), AIG shall not issue any capital
stock, or any or securities or instruments convertible or
exchangeable into, or exercisable for, capital stock, without
the written consent of the Trust other than (i)(x) issues of
capital stock to satisfy any security or instrument existing on
September 16, 2008 that is exercisable for, convertible into or
exchangeable for common stock, (y) in respect of equity
compensation awards issued in the ordinary course of business
under AIG’s Amended and Restated 2007 Stock Incentive Plan or
AIG’s Amended and Restated 2002 Stock Incentive Plan or (z) in
respect of any tax-qualified plan approved in the ordinary
course of business by the Board of Directors of AIG that meets
the requirements of Section 423 of the Internal Revenue Code and
(ii) subsequent to written notice from the Trust that AIG’s
corporate governance arrangements are satisfactory to the
trustees (x) in respect of equity compensation awards issued
under any equity compensation plan (including any material
amendments thereto) approved by shareholders after September 16,
2008 in accordance with the shareholder approval requirements of
the NYSE Listed Company Manual or (y) in any one year, up to
0.5% of the outstanding shares of common stock pursuant to any
other employee benefit plan, employment contract or similar
arrangement that is approved by the Compensation and Management
Resources Committee of the Board of Directors of AIG.
	 
	Governance

	 	AIG and its board will work in good faith with the trustees of
the Trust to ensure corporate governance arrangements
satisfactory to the trustees.
	 
	Registration rights

	 	AIG will enter into a customary agreement providing for demand
registration rights for the Preferred Stock and the underlying
common stock, will apply for the listing on the NYSE of the
common stock underlying the Preferred Stock, and will take such
other steps as the NY Fed may reasonably request to facilitate
the transfer of the Preferred Stock or common stock received on
conversion of the Preferred Stock.
	 
	Regulation

	 	AIG will take all actions necessary or expedient for obtaining
any regulatory approvals, notices, waivers or consents related
to the issuance and acquisition of the Preferred Stock and will
assist the NY Fed in such matters.

 

 

	 	 	 
	NYSE

	 	AIG will take all actions necessary or expedient for obtaining
NYSE approval for the issuance and voting of the Preferred
Stock, including actions required of the audit committee of the
board of AIG to take advantage of the exemption from the NYSE’s
stockholder approval requirements set forth in Section 312.05 of
the NYSE Listed Company Manual.
	 
	Takeover laws

	 	AIG will take all actions necessary or expedient in order to
exempt the acquisition and ownership of the Preferred Stock and
any common stock issued upon conversion of the Preferred Stock
from (i) the requirements of any applicable “moratorium”,
“control share”, “fair price” or other anti-takeover laws and
regulations of any jurisdiction, including Section 203 of the
Delaware General Corporation Law, and (ii) any other applicable
provision of the organizational documents of AIG or the
comparable organizational documents of any subsidiary of AIG.

 

 

EXHIBIT B

     Reference is made to Amendment No. 2 dated November [___], 2008 between American International
Group, Inc., as Borrower (the “Borrower”) and Federal Reserve Bank of New York, as Lender (the
“Lender”) (the “Amendment”). Unless otherwise specifically defined herein, each term used herein
that is defined in the Amendment shall have the meaning assigned to such term in the Amendment.

     Each of the undersigned hereby consents to the Amendment and hereby confirms and agrees that
(a) notwithstanding the effectiveness of the Amendment, each Loan Document to which it is party is,
and shall continue to be, in full force and effect and is hereby ratified and confirmed in all
respects, except that, on and after the effectiveness of the Amendment, each reference in the Loan
Documents to the “Credit Agreement”, “thereof”, “thereunder”, “therein” or “thereby” or similar
references to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended
by the Amendment and (b) the Loan Documents to which each of the undersigned is a party and all of
the Collateral described therein do, and shall continue to, secure the payment of all obligations
under the Loan Documents, as amended hereby.

	 	 	 
	 	 	[GUARANTORS]

	 	 
	 	 
	 	 	By:

	 	 	 
	 	 	        Name:

	 	 	        Title:

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