AIG 2008 Annual Report Download - page 48

the RMBS toward the amounts due by such life insurance subsidiaries in terminating both the U.S. securities
lending program and the interim agreement entered into with the NY Fed whereby the NY Fed borrowed securities
from AIG subsidiaries in exchange for cash collateral. See Investments — Securities Lending Activities and Note 5
to the Consolidated Financial Statements for further information on the transaction with ML II.
AIG Affiliates Participate in the NY Fed’s Commercial Paper Funding Facility
On October 27, 2008, four affiliates of AIG (including ILFC) applied for participation in the CPFF. Currently,
AIG Funding, Inc., an AIG subsidiary, and two of AIGFP’s sponsored vehicles, Curzon Funding LLC and
Nightingale Finance LLC may issue up to approximately $6.9 billion, $7.2 billion and $1.1 billion, respectively, of
commercial paper under the CPFF. AIG Funding uses the proceeds to refinance AIG’s outstanding commercial
paper as it matures, meet other working capital needs and make prepayments under the Fed Facility while the two
other programs use the proceeds to refinance maturing commercial paper. On January 21, 2009, S&P downgraded
ILFC’s short-term credit rating and, as a result, ILFC can no longer participate in the CPFF.
Series C Preferred Stock Issuance
On March 1, 2009, AIG entered into the Series C Preferred Stock Purchase Agreement with the Trust, pursuant
to which AIG agreed to issue and sell 100,000 shares of Series C Preferred Stock to the Trust. AIG expects to issue
the Series C Preferred Stock to the Trust in early March, 2009. The aggregate purchase price for the Series C
Preferred Stock was $500,000, with an understanding that additional and independently sufficient consideration
was also furnished in September 2008 by the NY Fed in the form of its $85 billion lending commitment under the
Fed Credit Agreement.
The Series C Preferred Stock Purchase Agreement, among other things:
• provides the Trust with rights to require registration of the Series C Preferred Stock under the Securities Act
of 1933 and for AIG to facilitate other dispositions;
• prohibits AIG from issuing capital stock without the approval of the Trust so long as the Trust owns
50 percent of the Series C Preferred Stock, subject to certain exceptions relating to existing obligations and
employee benefit plans;
• requires AIG and its Board of Directors to work in good faith with the Trust to ensure satisfactory corporate
governance arrangements;
• requires the following proposals to be presented to AIG’s shareholders at AIG’s 2009 Annual Meeting of
Shareholders:
• to amend AIG’s Restated Certificate of Incorporation to permit AIG’s Board of Directors to issue
classes of preferred stock that are not of equal rank and cause the Series D Preferred Stock and any other
series of preferred stock subsequently issued to the United States Department of the Treasury to rank
senior to the Series C Preferred Stock and any other subsequently issued series of preferred stock that is
not issued to the United States Department of the Treasury; and
• to eliminate any restriction on the pledging of all or substantially all of AIG’s properties or assets; and
• requires the following proposals to be presented to AIG’s shareholders at a special shareholders’ meeting or
at a future annual shareholders’ meeting following notice from the Trust:
• to amend AIG’s Restated Certificate of Incorporation to decrease the par value of AIG’s common stock,
increase the authorized number of shares of common stock and, if these amendments are not approved;
• to amend the terms of AIG’s Restated Certificate of Incorporation to decrease the par value of AIG’s
serial preferred stock and increase the number of authorized shares of AIG’s serial preferred stock, and
amend the terms of the Series C Preferred Stock to increase the number of shares of Series C Preferred
Stock so that each share of Series C Preferred Stock would be convertible into common stock on
approximately a one-to-one basis.
42 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries