AIG 2010 Annual Report Download - page 345

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual
limitations, while in other cases such limitations are not specified or are not applicable.
AIG is unable to develop a reasonable estimate of the maximum potential payout under certain of these
arrangements. Overall, AIG believes that it is unlikely it will have to make any material payments related to
completed sales under these arrangements, and no material liabilities related to these arrangements have been
recorded in the Consolidated Balance Sheet. See Note 1 herein for additional information on sales of businesses
and asset dispositions.
ALICO Sale
Pursuant to the terms of the ALICO stock purchase agreement, AIG has agreed to provide MetLife with
certain indemnities, the most significant of which include:
• Indemnification related to breaches of general representations and warranties with an aggregate deductible
of $125 million and a maximum payout of $2.25 billion. The indemnification extends for 21 months after
November 1, 2010.
• Indemnifications related to specific product, investment, litigation and other matters that are excluded from
the general representations and warranties indemnity. These indemnifications provide for various deductible
amounts, which in certain cases are zero, and maximum exposures, which in certain cases are unlimited, and
extend for various periods after the completion of the sale.
• Tax indemnifications related to insurance reserves that extend for taxable periods ending on or before
December 31, 2013 and that are limited to an aggregate of $200 million, and certain other tax-related
representations and warranties that extend to the expiration of the statute of limitations and are subject to
an aggregate deductible of $50 million.
• Indemnification for taxes incurred by ALICO as a result of the proposed elections under Section 338 of the
Internal Revenue Code (the Code). Such elections have the effect of shifting the federal income tax liability
on the sale from the seller to ALICO.
In connection with the above, AIG placed $3 billion of sales proceeds (consisting of MetLife securities received
upon the completion of the sale) into an escrow arrangement that declines to zero over a 30-month period ending
in April 2013, with claims submitted related to the indemnifications reducing the amount that can be released.
AIG has accrued for estimated liabilities for indemnities, including the Italian internal fund suspension matter
discussed above.
AGF Sale
Under the terms of the sale of AGF, AIG and the purchaser have made certain customary representations,
warranties and covenants in the stock purchase agreement and AIG agreed to provide the purchaser with certain
indemnities. The transaction closed on November 30, 2010. In connection with entering into the stock purchase
agreement, AIG and AGF amended their tax sharing agreement, which terminated on the closing of the
transaction, (i) to provide that the parties’ payment obligation under the tax sharing agreement shall be limited to
the payments required to be made by AIG to AGF with respect to the 2009 taxable year in accordance with the
tax sharing agreement and (ii) to include the terms of the promissory note to be issued by AIG in satisfaction of
its 2009 taxable year payment obligation to AGF.
Star/Edison Sale
Pursuant to the terms of the Star/Edison stock purchase agreement, AIG has agreed to provide Prudential
Financial, Inc. with certain indemnities, the most significant of which is indemnification related to breaches of
general representations and warranties that exceed 4.1 billion Yen ($50 million at the December 31, 2010
AIG 2010 Form 10-K 329