DESCRIPCION OBRA PROPUESTA

NOTES TO FINANCIAL STATEMENTS

154

2002 2001 2000

__________________________________ __________________________________ ___________________________________

Weighted Weighted Weighted

Average Average Average

Shares Exercise Price Shares Exercise Price Shares Exercise Price Shares Under Option:

Outstanding at beginning of year 54,295,320 $42.68 38,171,151 $31.53 41,415,126 $23.29 Outstanding at beginning of year – AGC — — 15,100,013 51.87 — — Granted 5,683,324 66.17 8,771,982 71.56 2,179,220 95.48 Assumed upon acquisition from HSB — — — — 1,605,468 81.43 Exercised (4,242,718) 35.04 (6,209,008) 41.16 (5,796,592) 13.80 Exercised, delivery deferred (590,048) 6.60 (847,128) 3.76 (760,070) 3.06 Forfeited (931,862) 72.29 (691,690) 55.55 (472,001) 36.70 Outstanding at end of year 54,214,016 $45.63 54,295,320 $42.68 38,171,151 $31.53 Options exercisable at year-end 43,978,843 $39.30 47,346,372 $37.39 32,778,411 $24.87 Weighted average fair value per share of options granted $24.65 $22.25 $34.22

Additional information with respect to AIG’s plans at December 31, 2002, and changes for the three years then ended, were as follows:

In 1999, the AIG Board of Directors construed the AIG stock option plans to allow deferral of delivery of AIG shares otherwise deliverable upon the exercise of an option to a date or dates specified by the optionee upon the request of an optionee. During 2002, options with respect to 590,048 shares were exercised with delivery deferred. At December 31, 2002, optionees had made valid elections to defer delivery of 439,635 shares of AIG common stock upon exercise of options expiring during 2003.

As a result of the acquisition of HSB in November 2000, HSB options outstanding at the acquisition date were fully vested and were converted into options to purchase AIG com- mon stock at the exchange ratio of 0.4178 shares of AIG common stock for each share of HSB common stock. No fur- ther options can be granted under the HSB option plans, but outstanding options so converted continue in force until exer- cise or expiration. At December 31, 2002, there were

1,413,268 shares of AIG common stock reserved for issuance under the HSB option plans, none of which qualified for ISO Treatment.

At August 29, 2001, AGC had stock-based compensa- tion plans pursuant to which options and restricted share units had been issued and remained outstanding. Options granted under these plans had an exercise price equal to the market price on the date of the grant, had a maximum term of ten years and generally became exercisable ratably over a three- year period. All of the AGC options outstanding at the acquisition date became fully vested on that date and were converted into options to purchase AIG common stock at an exchange ratio of 0.5790 shares of AIG common stock for each share of AGC common stock. No further options can be granted under the AGC plans, but outstanding options so converted continue in force until exercise or expiration. At December 31, 2002, there were 13,862,087 shares of AIG common stock reserved for issuance on exercise of options under these plans. Options with respect to 1,898,266 of these shares qualified for ISO Treatment as of December 31, 2002.

(ii) 2002 Stock Incentive Plan: AIG’s 2002 Stock Incentive Plan was adopted at its 2002 shareholders’ meeting and amended and restated by the AIG Board of Directors on September 18, 2002. This plan provides that equity-based or equity-related awards with respect to up to a maximum of 16,000,000 shares of common stock can be issued to officers, employees or members of the Board of Directors of AIG. Under the Plan, no grantee may receive awards covering more than 250,000 shares of common stock. During 2002, AIG granted restricted stock units (RSUs) relating to 171,215 shares of com- mon stock to employees. These RSUs will vest on the fourth anniversary of the date of grant assuming continued

employment through such date. AIG reserves the right to make payment for the RSUs in shares of common stock or the cash equivalent on the date of vesting. At December 31, 2002, there were 15,828,785 shares of common stock reserved for issuance in connection with future grants of awards under the Plan.

(iii) Performance-Based Restricted Stock Units:

During 2002 and 2001, AIG issued performance-based restricted stock units with respect to 4,783 shares and 124,365 shares, respectively, of AIG common stock in connection with contractual obligations as a result of the AGC acquisition.

(iv) Employee Stock Purchase Plan: AIG’s 1996

Employee Stock Purchase Plan was adopted at its 1996 share- holders’ meeting and became effective as of July 1, 1996. Eligible employees may receive privileges to purchase up to an aggregate of 4,218,750 shares of AIG common stock, at a

price equal to 85 percent of the fair market value on the date of the grant of the purchase privilege. Purchase privileges are granted annually and were originally limited to the number of whole shares that could be purchased by an amount equal to 5 percent of an employee’s annual salary or $5,500, whichever was less. Beginning with the January 1, 1998 subscription, the maximum allowable purchase limitation increased to 10 percent of an employee’s annual salary or $10,000 per year, whichever is less, and the eligibility requirement was reduced from two years to one year.

There were 274,442 shares, 503,847 shares and 742,773 shares issued under the 1996 plan at weighted average prices of $70.76, $62.02 and $52.66 for the years ended December 31, 2002, 2001 and 2000, respectively. The excess or deficit of the proceeds over the par value or cost of the common stock issued under these plans was credited or charged to additional paid-in capital.

As of December 31, 2002, there were 636,853 shares of common stock subscribed to at a weighted average price of $54.52 per share pursuant to grants of privileges under the 1996 plan. There were 56,720 shares available for the grant of future purchase privileges under the 1996 plan at December 31, 2002.

(b) The following are disclosures with respect to the stock compensation plans of AGC prior to its acquisition by AIG. Both share information and exercise price information have been recalculated to reflect the exchange ratio of 0.5790 shares of AIG common stock for each outstanding share of AGC’s common stock. All of AGC’s options vested immedi- ately prior to the closing date of the acquisition.

14. Stock Compensation Plans

American International Group, Inc. and Subsidiaries

155

Information about stock options outstanding at December 31, 2002, is summarized as follows:

Options Outstanding Options Exercisable

__________________________________________________________________________________________ _____________________________________________

Weighted Weighted Weighted

Number Average Remaining Average Number Average

Outstanding Contractual Life Exercise Price Exercisable Exercise Price

Range of Exercise Prices:

$ 4.47 - 14.44 7,380,455 2.0 years $ 7.87 7,380,455 $ 7.87 15.31 - 24.68 8,903,526 3.7 years 20.30 8,903,526 20.30 25.42 - 38.43 7,974,008 5.1 years 34.52 7,974,008 34.52 40.24 - 57.80 7,823,354 6.4 years 52.32 7,767,954 52.30 58.74 - 63.67 9,869,612 7.8 years 60.10 5,346,248 59.17 64.01 - 77.17 4,629,753 7.7 years 66.84 4,210,465 66.45 78.65 - 100.57 7,633,308 8.3 years 84.83 2,396,187 88.38 54,214,016 $45.63 43,978,843 $39.30

In addition, at December 31, 2002, options to purchase 358,594 shares at a weighted average exercise price of $20.31

had been previously granted to AIG non-employee directors and remained outstanding.