EFiled: Dec 17 2010 3:57PM EST Transaction ID 34926521 Case No. 769-VCS IN COURT OF CHANCERY OF THE STATE OF DELAWARE AMERICAN INTERNATIONAL GROUP, INC. CONSOLIDATED DERIVATIVE LITIGATION Civil Action No. 769-VCS AFFIDAVIT OF MEGAN D. McINTYRE IN SUPPORT OF PLAINTIFFS MOTION FOR APPROVAL OF SETTLEMENT AND AN AWARD OF ATTORNEYS FEES AND COSTS I, Megan D. McIntyre, hereby affirm as follows: 1. I am a director of Grant & Eisenhofer P.A. ( G&E ), counsel to plaintiff Teachers Retirement System of Louisiana ( TRSL ). Together with the law firm of Wolf Haldenstein Adler Freeman & Herz LLP ( Wolf Haldenstein ), G&E served as lead counsel for the shareholder plaintiffs in this derivative action (the Action ). 2. I have personal knowledge of the matters set forth herein based on my active participation in the prosecution of the Action. I submit this Affidavit in support of: (1) approval of the settlement of this action (the Settlement ) as set forth in the Agreement that was filed with the Court on August 26, 2010 (the Settlement Agreement ); and (2) an award of attorneys fees and costs as agreed by the parties. The proposed Settlement is with the defendants who are current or former directors, officers or employees of American International Group, Inc. ( AIG ) (the D&O Defendants ), and does not include the claims asserted in the Action against PricewaterhouseCoopers LLC ( PwC ) or against individuals and entities affiliated with Marsh & McLennan Companies Inc. ( Marsh ), General Reinsurance Corporation ( Gen Re ), or ACE Ltd. ( ACE ).
3. After more than five years of investigation and litigation of the claims in this Action, the parties have negotiated a proposed Settlement that will provide a significant benefit to AIG and, ultimately, to its public shareholders. Specifically, AIG will receive a monetary recovery of $90 million (less any attorneys fee and expenses), to be paid by the D&O Defendants insurance carriers. This is in addition to the benefits AIG achieved in a November 2009 settlement of its direct claims against defendants Greenberg and Smith -- claims that were initially brought as derivative claims by the shareholder plaintiffs in this Action, and over which AIG later took control. Set forth below are details of the events leading up to the Settlement. History of the Action 4. On October 21, 2004, a shareholder derivative complaint captioned John Paul Fulco, Trustee f/b/o Lucia Forastiere Irrevocable June Forastiere Backe Children's Trust v. Greenberg et al. was filed in this Court. This complaint was followed by two additional shareholder derivative complaints, captioned Jerome Kaplan, Trustee, Trust of Edith J. Kaplan v. Greenberg et al. and Paula Rosen v. Greenberg et al., filed on October 22, 2004 and November 4, 2004, respectively. On December 7, 2004, the Court consolidated these three cases under the caption American International Group, Inc. Consolidated Derivative Litigation, C.A. No. 769-VCS, and a consolidated complaint was filed on February 22, 2005. The consolidated complaint alleged, inter alia, that certain AIG officers and employees had breached their fiduciary duties by causing AIG to participate in illegal bid-rigging and kickback schemes with Marsh. 2
5. In April 2005, two additional shareholder derivative actions were filed on behalf of AIG, alleging that certain AIG officers and directors had breached their fiduciary duties by causing AIG to enter into a sham reinsurance transaction with Gen Re, as well as other transactions that were structured for the purpose of deceiving investors about AIG s business and financial condition. 6. On May 17, 2005, TRSL filed an amendment to an existing complaint in a separate action that had been filed in 2002, captioned Teachers Retirement System of Louisiana v. Aidinoff, et al., C.A. No. 20106 (Del. Ch.). This amended complaint expanded the scope of the claims alleged in TRSL s 2002 complaint to include the years 2002, 2003, 2004 and 2005 and to include claims relating to the Marsh bid-rigging and kickback schemes. Additionally, this amended complaint alleged that AIG officers and directors had breached their fiduciary duties by causing AIG to enter into a sham reinsurance transaction with Gen Re, and to engage in accounting fraud and other unlawful conduct. 7. On June 10, 2005, the Court entered an order providing for the claims that were added to TRSL s separate action on May 17, 2005 to be severed from that action and consolidated into this Action. This order also consolidated the two suits filed in April 2005 into the Action. 8. Counsel for the plaintiffs in the various consolidated derivative actions agreed upon a leadership structure whereby the consolidated Action would be prosecuted by TRSL and the City of New Orleans Employees Retirement System (together, Plaintiffs ) as co-lead plaintiffs. Plaintiffs were thereafter represented in the Action by G&E and Wolf Haldenstein, acting as co-lead counsel (together, Lead Counsel ). Lead 3
Counsel prepared a First Amended Consolidated Stockholders Derivative Complaint to incorporate the claims asserted in the various consolidated actions, and filed that complaint on August 6, 2005. 9. AIG appointed a special litigation committee (the SLC ) to investigate the claims alleged in the Action, and the case was stayed until March 14, 2007 to permit the SLC to complete its investigation. After several meetings between AIG s counsel and Lead Counsel and several court hearings, the SLC ultimately decided it was in AIG s best interests to (a) directly pursue the claims that had been asserted in the Action against Greenberg and Smith, (b) seek the dismissal of certain defendants and claims, and (c) take no position on the remaining claims. 10. On March 13, 2007, Plaintiffs and AIG filed a stipulation stating that AIG had decided to realign itself as a party plaintiff and would have until June 13, 2007 to file an amended complaint and to move to terminate the litigation with respect to certain defendants. Pursuant to that stipulation, on June 13, 2007, AIG filed an Amended Complaint asserting claims against Greenberg and Smith only, and moved to terminate the Action with respect to certain other defendants who had been named in the shareholder derivative complaints. 11. Following the completion of the SLC s investigation, the parties agreed to a stay of depositions in this Action, pending resolution of the claims against AIG in In re AIG Securities Litigation, No. 04-CV-8141 (S.D.N.Y.) ( the Securities Litigation ). 12. During the pendency of the stays referenced above, Lead Counsel had access to the extensive document discovery database from the Securities Litigation containing millions of pages of documents, as well as copies of the deposition transcripts 4
from that litigation. Lead Counsel reviewed and utilized certain of those documents and transcripts in connection with various amendments of the complaint. 13. On September 28, 2007, Plaintiffs and AIG jointly filed a Combined Amended Complaint, wherein AIG asserted claims directly against Greenberg and Smith, and Plaintiffs asserted claims derivatively on behalf of AIG against other defendants, including other current and former AIG employees. On April 11, 2008, Plaintiffs and AIG jointly filed the First Amended Combined Complaint, which did not alter the nonderivative claims but which asserted additional derivative claims, including a new derivative claim against Greenberg. 14. Motions to dismiss the First Amended Combined Complaint were filed on June 13, 2008, and after extensive briefing and oral argument, those motions were denied with respect to defendants Maurice Greenberg, Howard Smith, Edward Matthews, and Thomas Tizzio, and granted for lack of personal jurisdiction with respect to defendants Michael Castelli, Carlos Coello, Christian Milton and Karen Radke. During the course of briefing, Plaintiffs voluntarily dismissed defendants Vincent Cantwell, Robert Jacobson and Joseph Umansky from the Action without prejudice for lack of personal jurisdiction. On March 9, 2009, Plaintiffs also voluntarily dismissed defendants John Mohs, L. Michael Murphy and Jean-Baptist Tateossian from this Action, without prejudice, for lack of personal jurisdiction. The New York Derivative Actions 15. Between October 25, 2004 and November 15, 2004, a number of shareholder derivative actions were filed in the Southern District of New York based on substantially similar allegations to those asserted in this Action. Those suits were 5
consolidated on February 7, 2005 under the caption In re American International Group, Inc. Derivative Litigation, No. 04-CV-8406 (the New York Federal Consolidated Derivative Action ). Other plaintiffs subsequently filed shareholder derivative complaints in the Southern District of New York under the captions Bassman v. Greenberg, No. 05-CV-7022 (S.D.N.Y.) ( Bassman ), and Kleinhandler v. Greenberg, No. 05-CV-6417 (S.D.N.Y.) ( Kleinhandler ). 16. On February 11, 2009, Plaintiffs commenced a shareholder derivative action in New York Supreme Court, New York County, captioned Teachers Retirement System of La. v. Cantwell, et al., No. 650064/2009 (N.Y. Sup. Ct., N.Y. Cty.) (the New York State Derivative Action ). The purpose of the New York State Derivative Action was to reinstate and preserve claims against individuals who were never successfully served with process in this Action (including Mohs, Murphy and Tateossian) or who were dismissed from this Action for lack of jurisdiction (including Castelli, Coello, Milton, Radke, Cantwell, Jacobson, and Umansky). Motions to dismiss have been fully briefed in the New York State Derivative Action, but oral argument has been postponed indefinitely in light of the Settlement. 17. The proposed Settlement has been agreed to by the parties in the New York Federal Consolidated Derivative Action, Bassman, Kleinhandler, and the New York State Derivative Action. If the Settlement is approved by this Court, the plaintiffs in the New York actions have agreed to request the dismissal of those actions as against the settling defendants, with prejudice. 6
The Mediation And Settlement 18. On November 25, 2009, without Plaintiffs participation, AIG entered into a Memorandum of Understanding ( MOU ) with C.V. Starr & Company, Inc. ( C.V. Starr ), Starr International Company, Inc. ( SICO ), Greenberg and Smith (collectively, the Starr Parties ) to resolve all of the various disputes between them. 19. On November 27, 2009, Plaintiffs moved for a temporary restraining order to enjoin consummation of the settlement set forth in the MOU, because the terms of the MOU could arguably have been read as releasing certain derivative claims in this Action for no consideration. I drafted 20. During the course of the parties communications regarding the scope of the MOU s releases, it became apparent that AIG and the Starr Parties disagreed regarding the interpretation of the MOU and its impact on the derivative claims asserted in this Action. Specifically, AIG s counsel informed us that AIG had not intended to settle or release Plaintiffs derivative claims, while counsel for Greenberg took the position that those claims had been released. This dispute led the parties into settlement discussions directed at achieving a global resolution of all of the claims in this Action against (and among) the D&O Defendants, as well as claims between and among the D&O Defendants, AIG, and their insurance carriers. 21. Lead Counsel participated in mediation sessions ( Mediations ) with counsel for Greenberg and Smith, counsel for AIG, and representatives of the D&O insurance carriers on February 10 and 11, 2010 and March 16, 2010 before the Hon. Layn R. Phillips (ret.). The Mediations involved hotly contested and complex negotiations on numerous fronts. A substantial focus of the negotiations was on the insurance carriers 7
assertion of various coverage defenses, which if successful would have substantially reduced (and perhaps eliminated) the insurance proceeds available to fund a judgment or settlement of this case. 22. The Mediations were followed by numerous telephone discussions between the mediator and counsel, and ultimately culminated in the Settlement, which provides for the insurance carriers to pay out $150 million of their $200 million maximum available coverage. Of this $150 million, $90 million is to be paid for the benefit of AIG in settlement of the derivative cases, and $60 million is to be paid to Greenberg and Smith as final reimbursement for certain defense costs. 23. Most of the insurance carriers funded their shares of the Settlement by wire transfer on or before December 7, 2010, which was the funding deadline pursuant to their agreement with AIG. Liberty Mutual missed the deadline and funded its share of the settlement two days late, by check that was received on December 9, 2010. Liberty Mutual s counsel told me that Liberty Mutual was unable to send a wire transfer. Notice to AIG Shareholders 24. On November 16, 2010, this Court entered a Scheduling Order that, inter alia, approved the Notice and the manner for service thereof, and scheduled a Final Approval Hearing for January 18, 2011. 25. On December 10, 2010, the Notice was sent by next-business-day delivery to AIG s twenty largest record shareholders (as identified to us by AIG) and AIG s twenty largest beneficial owners (as identified on the NOBO list provided to us by AIG), excluding Greenberg, SICO and Starr. The recipients of the Notice included a 8
representative of the AIG Credit Facility Trust, which AIG s counsel told us is the entity that holds the federal government s share of AIG. 26. Additionally, copies of the Notice, the Settlement Agreement, and the Scheduling Order were posted on Lead Counsel s websites on December 9, 2010, and Summary Notice was published via PR Newswire and Investor s Business Daily on December 10, 2010. Attached as Exhibit A hereto is an Affidavit of Publication provided by Investor s Business Daily. On December 13, 2010, AIG filed a Form 8-K attaching the Notice and Settlement Agreement as exhibits. On December 14, 2010, I checked AIG s website and confirmed that the Notice was posted there as required by the Scheduling Order. 27. While the January 7, 2011 deadline for shareholder objections has not yet expired, as of today no AIG shareholder has objected to any of the Settlement terms, including the request for attorneys fees and expenses. The Fee Agreement 28. Lead Counsel represented the plaintiffs in this Action on a contingent fee basis, advancing all litigation costs. G&E s fee agreement with TRSL allows G&E to apply for attorneys fees equal to 22.5% of any recovery, plus expenses. G&E s Time and Expenses 29. According to G&E s internal accounting records, between January 1, 2007 and December 10, 2010, G&E s attorneys and paralegals devoted 10,101.10 hours to this Action and the New York State Derivative Action (which is an outgrowth of this Action and is being settled simultaneously as against the D&O Defendants). The lodestar value of these 10,101.10 hours is $4,949,977 based upon G&E s current hourly rates. 9
Exhibit A EFiled: Dec 17 2010 3:57PM EST Transaction ID 34926521 Case No. 769-VCS
Exhibit B EFiled: Dec 17 2010 3:57PM EST Transaction ID 34926521 Case No. 769-VCS