American International Group, Inc. (AIG) will receive $40 billion from the U.S. Department of Treasury's Troubled Assets Relief Program (TARP) in exchange for four million shares of American International Group Series D Preferred Stock, the company said.

AIG said the transaction also includes a warrant for the Treasury to purchase a number of shares of common stock of AIG equal to 2 percent of the issued and outstanding shares, or just under 53.8 million shares. The warrant has a 10-year term.

AIG said proceeds will be used to reduce outstanding borrowings under the original $85 billion loan extended by the Federal Reserve Bank of New York in September. The maximum capacity of that credit agreement will be reduced from $85 billion to $60 billion, AIG explained.

The Series D Preferred Stock, $5 par value per share, will pay a dividend of 10 percent annually, according to the company.

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