I replayed it recently. Fairly sure that I just had to choose to not come to terms with my enemies and then to continue turning things into paperclips.
Why are you so confident in this hypothesis? Did you create the game?
It is not at all clear that every hypothetical AGI would do as you say. It’s fiction. Anything can happen.
In fact, this AGI almost definitely wouldn’t accept the simulation offer. Otherwise our protagonist would have been making simulations and resetting them instead of doing the hard work of turning the actual universe into paperclips.