AIG 2009 Annual Report Download - page 319

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dividends
Dividends declared per common share were $8.40 and $15.40 in 2008 and 2007, respectively. No dividends were
declared in 2009 as effective September 23, 2008, AIG’s Board of Directors suspended the declaration of dividends on
AIG Common Stock. Pursuant to the FRBNY Credit Agreement, AIG is restricted from paying dividends on its
common stock. Morever, pursuant to the terms of each of the AIG Series E Preferred Stock and AIG Series F
Preferred Stock, AIG is not able to declare or pay any cash dividends on AIG Common Stock or on any AIG
preferred stock ranking junior to such series of preferred stock for any period until dividends on each of the AIG
Series E Preferred Stock and AIG Series F Preferred Stock have been paid for such period.
Due to AIG’s non-payment of dividends on the AIG Series D, Series E and Series F Preferred Stock, the
Department of the Treasury, as the sole holder of AIG Series E Preferred Stock and AIG Series F Preferred Stock,
became entitled no later than February 1, 2010 to elect the greater of (i) two directors and (ii) 20 percent of AIG’s
Board of Directors (rounded upwards after giving effect to such election) to AIG’s Board of Directors.
Share Issuances and Purchases
Pursuant to the FRBNY Credit Agreement, AIG is restricted from repurchasing shares of its common stock and no
shares have been purchased since the second quarter of 2008. During the first six months of 2008, AIG purchased a
total of 1,896,303 shares of its common stock.
In May 2008, AIG sold 9,835,526 shares of common stock at a price per share of $760 for gross proceeds of
$7.47 billion and 78.4 million equity units (the Equity Units) at a price per unit of $75 for gross proceeds of
$5.88 billion. The Equity Units, the key terms of which are summarized below, are recorded as long-term debt in the
Consolidated Balance Sheet.
Equity Units
Each Equity Unit has an initial stated amount of $75 and consists of a stock purchase contract issued by AIG and,
initially, a 1/40th or 2.5 percent undivided beneficial ownership interest in three series of junior subordinated
debentures (Series B-1, B-2 and B-3), each with a principal amount of $1,000.
Each stock purchase contract requires its holder to purchase, and requires AIG to sell, a variable number of shares
of AIG Common Stock for $25 in cash on each of February 15, 2011, May 1, 2011 and August 1, 2011. The number of
shares that AIG is obligated to deliver on each stock purchase date is set forth in the chart below (where the
‘‘applicable market value’’ is an average of the trading prices of AIG Common Stock over the 20-trading-day period
ending on the third business day prior to the relevant stock purchase date).
If the applicable market value is: then AIG is obligated to issue:
• Greater than or equal to $912 • 0.02741 shares per stock purchase contract
• Between $912 and $760 • Shares equal to $25 divided by the applicable market
value
• Less than or equal to $760 • 0.03289 shares per stock purchase contract
Basic earnings (loss) per share (EPS) will not be affected by outstanding stock purchase contracts. Diluted EPS will
be determined considering the potential dilution from outstanding stock purchase contracts using the treasury stock
method, and therefore diluted EPS will not be affected by outstanding stock purchase contracts until the applicable
market value exceeds $912.
AIG is obligated to pay quarterly contract adjustment payments to the holders of the stock purchase contracts, at an
initial annual rate of 2.71 percent applied to the stated amount. The present value of the contract adjustment
payments, $431 million, was recognized at inception as a liability (a component of Other liabilities), and was recorded
as a reduction to Additional paid-in capital.
311 AIG 2009 Form 10-K