AIG

Business Context and Reporting Period

This Form 8-K Current Report, dated June 25, 2009, concerns American International Group, Inc. (AIG). The filing details the execution of definitive agreements with the Federal Reserve Bank of New York (FRBNY) to transfer preferred equity interests in two major operating subsidiaries: American International Assurance Company, Limited (AIA) and American Life Insurance Company (ALICO).

Key Financial Metrics and Transaction Details

The filing outlines a restructuring of AIG's relationship with the FRBNY, converting a portion of the existing credit facility into preferred equity. Key financial terms include:

• Total Debt Reduction: A combined $25 billion reduction in the outstanding balance and maximum borrowing capacity of the FRBNY Facility.
• AIA Transaction:
  • Debt reduction: $16 billion.
  • FRBNY Liquidation Preference: $16 billion.
  • Return: 5% per annum until September 22, 2013, increasing to 9% thereafter.
• ALICO Transaction:
  • Debt reduction: $9 billion.
  • FRBNY Liquidation Preference: $9 billion.
  • Return: 5% per annum until September 22, 2013, increasing to 9% thereafter.
• Facility Floor: The maximum amount available under the FRBNY Facility shall not be less than $25 billion following these reductions.

Note: This filing does not provide standard financial metrics such as revenue, net income, operating cash flow, or current liquidity ratios.

Material Changes Versus Prior Period

On March 2, 2009, AIG and the Federal Reserve announced their intent to enter these transactions. The material change reported on June 25, 2009, is the formalization of these intentions into definitive Purchase Agreements. This shifts the capital structure from a pure debt obligation to a hybrid structure where the FRBNY holds preferred equity with specific veto rights and liquidation preferences, while AIG retains 100% of the common voting interests in the new LLCs.

Guidance, Outlook, and Risks

Management Commentary and Structure:

• AIG retains 100% of the voting power and the right to appoint the entire board of directors for both AIA LLC and ALICO LLC.
• The FRBNY obtains veto rights over significant actions and the right to compel an initial public offering (IPO) or sale of the companies, subject to restrictions.

• The transactions are subject to regulatory approvals.
• Closing is contingent upon the simultaneous closing of both the AIA and ALICO Purchase Agreements.
• The agreements are incorporated by reference as Exhibits 2.1 and 2.2, meaning the full legal terms and conditions are contained therein.

Investor Verification Checklist

• Verify the exact terms of the "veto rights" and "compulsion" clauses for IPO or sale in the attached Purchase Agreements (Exhibits 2.1 and 2.2).
• Confirm the status of required regulatory approvals for the transfer of insurance subsidiaries.
• Assess the impact of the 5% to 9% preferred return obligation on AIG's future cash flow requirements.
• Review the remaining balance and terms of the FRBNY Facility post-reduction to ensure the $25 billion floor is maintained.