We’ve seen a lot of class action settlements, but we’ve never seen one quite like this. Late Friday, Ohio Attorney General Richard Cordray announced that he was settling a shareholder class action led by three Ohio pension funds against American International Group for $725 million. What’s so unusual about that? Well, AIG’s obligation to fund $550 million of the settlement is “conditioned on its having consummated one or more common stock offerings raising net proceeds of at least $550 million prior to final court approval,” according to this 8-K filed by AIG on Friday. Furthermore, it appears that AIG will have significant leeway to decide whether it wants to go ahead with the offering. As the 8-K states: “The decision as to whether market conditions or pending or contemplated corporate transactions make it commercially reasonable to proceed with such an offering will be within AIG’s unilateral discretion.” If the offering doesn’t happen, the plaintiffs can terminate the settlement or choose to “acquire” $550 million of AIG stock. It’s not clear how this acquisition would take place.

The settlement negotiations were led by Cordray himself, along with outside counsel at Labaton Sucharow and Cleveland’s Hahn Loeser & Parks. AIG was represented by Paul, Weiss, Rifkind, Wharton & Garrison, led by partner Daniel Kramer. Labaton partner Thomas Dubbs said that AG Cordray “personally negotiated the settlement with outside counsel out of the room.” The settlement must be approved by Manhattan federal district court judge Deborah Batts.

Cordray’s office hailed the agreement in this press release. It stated in part: “This historic settlement is an excellent result for all shareholders harmed by AIG’s misconduct, including Ohio’s teachers, firefighters, police officers, and public employees. Ohio is determined to send a strong message to the marketplace that companies who don’t play by the rules will pay a steep price.” The attorney general noted that when combined with settlements from other defendants, such as a $115 million settlement with former AIG chief executive officer Maurice Greenberg and $97.5 million from PricewaterhouseCoopers, shareholders have recovered more than $1 billion. That makes the AG’s total recovery the tenth largest in a securities class action in U.S. history, according to the press release.

We asked Dubbs, who led the Labaton Sucharow team for the state, why the settlement was structured as it was. “We believe the stock offering component of the settlement offers the investors the best chance possible of compensation given the economic circumstances of AIG and the government involvement in the company,” Dubbs told us. Ted Hart, a spokesperson for Cordray, insisted that the deal will turn out to be worth $725 million for class members. Paul Weiss’s Kramer declined to comment.

The plaintiffs initially sued AIG back in 2004. In this 497-page third amended complaint, filed in 2006, they accused AIG, Greenberg, and others of a wide range of transgressions. They claimed that the insurance giant committed accounting fraud leading to a $3.9 billion restatement in 2005, engaged in bid rigging for insurance, and manipulated the company’s stock price.

After Judge Batts granted class certification last February, the two sides started exploring a settlement. They were aided by mediator Layn Phillips, an Irell & Manella partner who is known for being one of the top mediators for securities cases.