<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1999 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____.
Commission File Number: 0-25985
American Equity Investment Life Holding Company
-----------------------------------------------
(Exact name of registrant as specified in its charter)
Iowa 42-1447959
---- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
5000 Westown Parkway, Suite 440 (515) 221-0002
West Des Monies, Iowa 50266 --------------
------------------------------- (Telephone)
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $1 per share
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant: No public market exists nor has active trading
occurred.
Shares of common stock outstanding as of February 29, 2000: 4,712,310
Documents incorporated by reference: Portions of the registrant's
definitive proxy statement for the annual meeting of shareholders to be held
June 30, 2000 are incorporated by reference into Part III of this report.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
From 10-K. [_]
<PAGE>
PART I
Item 1. Business
American Equity Investment Life Holding Company was formed on December 15,
1995, to develop, market, issue and administer annuities and life insurance
through its life insurance subsidiary. We are a full service under writer of a
broad array of annuity and insurance products. Our business consists primarily
of the sale of equity-index and fixed rate annuities. Our business strategy is
to focus on our annuity business and earn predicable returns by managing
investment spreads and investment risk.
As a foundation for beginning our business, we acquired two blocks of
in-force insurance from American Life and Casualty Insurance Company, the
principal operating subsidiary of The Statesman Group, Inc., of which our
Chairman, David J. Noble, and our Executive Vice Presidents, James M. Gerlach
and Terry A. Reimer, were previously officers. In September 1996, we acquired
Century Life Insurance Company which expanded our licensing authority to 23
states and the District of Columbia. We then merged our life subsidiary into
Century Life Insurance Company and renamed the merged entity "American Equity
Investment Life Insurance Company."
We were incorporated in the State of Delaware on December 15, 1995, and
reincorporated in the State of Iowa on January 7, 1998. Our executive offices
are located at 5000 Westown Parkway, Suite 440, West Des Moines, IA 50266, and
our telephone number is (515) 221-0002. Information contained on our website is
not a part of this report.
Products
Our products include equity-index annuities, fixed rate annuities, a
variable annuity and life insurance.
Equity-Index Annuities. Equity-index annuities accounted for approximately
64% of the total annuity deposits collected during 1999. These products allow
purchasers to earn investment returns linked to equity index appreciation
without the risk of loss of their principal.
The annuity contract value is equal to the premiums paid, increased for
returns which are based upon a percentage (the "participation rate") of the
annual appreciation (based in certain situations on monthly averages) in a
recognized index or benchmark. The participation rate, which we may reset
annually, generally varies among the equity-index products from 65% to 100%.
Some of the products also have an "asset fee" of from 1% to 4% which is deducted
from the interest to be credited. The asset fees may be adjusted annually by us,
subject to stated maximums. In addition, some products apply an overall maximum
limit (or "cap") on the amount of annual interest the policyholder may earn in
any one contract year, and the applicable cap also may be adjusted annually
subject to stated minimums. The minimum guaranteed contract values are equal to
80% to 100% of the premium collected plus interest credited at an annual rate of
3%. The annuities provide for penalty-free withdrawals of up to 10% of premium
or accumulation value (depending on the product) in each year after the first
year of the annuity's term. Other withdrawals are subject to a surrender charge
ranging initially from 9% to 25% over a surrender period of from five to fifteen
years. During the applicable surrender charge period, the surrender charges on
some equity-index products remain level, while on other equity-index products,
the surrender charges decline by one to two percentage points per year. After a
number of years, as specified in the annuity contract, the annuitant may elect
to take the proceeds of the annuity either in a single payment or in a series of
payments for life, for a fixed number of years, or for a combination of these
payment options. We purchase call options on the applicable indexes as an
investment to provide the income needed to fund the amount of the annual
appreciation required to be credited on the equity-index products.
Page 2 of 24
<PAGE>
Fixed Rate Annuities. These products, which accounted for approximately 36%
of the total annuity deposits collected during 1999, include single premium
deferred annuities ("SPDAs"), flexible premium deferred annuities ("FPDAs") and
single premium immediate annuities ("SPIAs"). An SPDA generally involves the
tax-deferred accumulation of interest on a single premium paid by the
policyholder. After a number of years, as specified in the annuity contract, the
annuitant may elect to take the proceeds of the annuity either in a single
payment or in a series of payments for life, for a fixed number of years, or for
a combination of these payment options. FPDAs are similar to SPDAs in many
respects, except that the FPDA allows additional premium payments in varying
amounts by the policyholder without the filing of a new application. Our SPDAs
and FPDAs generally have an interest rate (the "crediting rate") that is
guaranteed by us for the first policy year. After the first policy year, we have
the discretionary ability to change the crediting rate to any rate at or above a
guaranteed minimum rate. The guaranteed rate on all policies in force and new
issues ranges from 3% to 4%. The initial crediting rate is largely a function of
the interest rate we can earn on invested assets acquired with new annuity fund
deposits and the rates offered on similar products by our competitors. For
subsequent adjustments to crediting rates, we take into account the yield on our
investment portfolio, annuity surrender assumptions, competitive industry
pricing and crediting rate history for particular groups of annuity policies
with similar characteristics.
Approximately 90% of our fixed rate annuity sales have been "bonus"
products. The initial crediting rate on these products specifies a bonus
crediting rate ranging from 1% to 7% of the annuity deposit for the first policy
year only. After the first year, the bonus interest portion of the initial
crediting rate is automatically discontinued, and the renewal crediting rate is
established. Generally, there is a compensating adjustment in the commission
paid to the agent to offset the first year interest bonus. In all situations,
we obtain an acknowledgement from the policyholder, upon policy issuance, that a
specified portion of the first year interest will not be paid in renewal years.
As of December 31, 1999, crediting rates on our outstanding SPDAs and FPDAs
generally ranged from 5.00% to 5.85% excluding interest bonuses guaranteed for
the first year. The average crediting rate on FPDAs and SPDAs including interest
bonuses was 6.51%, and the average crediting rate on those products excluding
bonuses was 5.11%.
The policyholder is typically permitted to withdraw all or a part of the
premium paid, plus accumulated interest credited to the account (the
"accumulation value"), subject to the assessment of a surrender charge for
withdrawals in excess of specified limits. Most of our SPDAs and FPDAs provide
for penalty-free withdrawals of up to 10% of the accumulation value each year
after the first year, subject to limitations. Withdrawals in excess of allowable
penalty-free amounts are assessed a surrender charge during a penalty period
which generally ranges from five to fifteen years after the date the policy is
issued. This surrender charge is initially 9% to 25% of the accumulation value
and generally decreases by approximately one to two percentage points per year
during the surrender charge period. Surrender charges are set at levels to
protect us from loss on early terminations and to reduce the likelihood of
policyholders terminating their policies during periods of increasing interest
rates. This practice lengthens the effective duration of the policy liabilities
and enables us to maintain profitability on such policies.
Our SPIAs are designed to provide a series of periodic payments for a fixed
period of time or for life, according to the policyholder's choice at the time
of issue. The amounts, frequency, and length of time of the payments are fixed
at the outset of the annuity contract. SPIAs are often purchased by persons at
or near retirement age who desire a steady stream of payments over a future
period of years. The single premium is often the payout from a terminated
annuity contract. The implicit interest rate on SPIAs is based on market
conditions when the policy is issued. The implicit interest rate on our
outstanding SPIAs averaged 5.10% at December 31, 1999.
Page 3 of 24
<PAGE>
Variable Annuity. Variable annuities differ from equity-index and fixed
rate annuities in that the policyholder, rather than the insurance company,
bears the investment risk and the policyholder's rate of return is dependent
upon the performance of the particular investment option selected by the
policyholder. Profits on variable annuities are derived from the fees charged to
policyholders. Sales to date have been insignificant.
In December 1997, we entered into a strategic alliance with Farm Bureau
Life Insurance Company for the development, marketing and administration of
variable annuity products. This agreement enabled us to introduce variable
products into our product line. An affiliate of Farm Bureau provides the
administrative support necessary to manage this business, and is paid an
administrative fee for those services. We share in 30% of the risks, costs and
operating results of these products through a reinsurance arrangement. See the
discussion under Reinsurance for additional information regarding this
arrangement as well as Farm Bureau's beneficial ownership of our common stock.
Our variable product became available for sale in the third quarter of 1998.
Life Insurance. These products include traditional ordinary and term,
universal life and other interest-sensitive life insurance products. As a result
of the acquisition of the National Guard Life insurance business from American
Life and Casualty Insurance Company we are one of the largest life insurance
Icarriers for members of the state National Guard Associations, with more than
$1.5 billion of life insurance in force. We intend to continue offering a
complete line of life insurance products for individual and group markets.
Investments
Investment activities are an integral part of our business, and investment
income is a significant component of our total revenues. Profitability of many
of our products is significantly affected by spreads between interest yields on
investments and rates credited on annuity liabilities. Although substantially
all credited rates on SPDAs and FPDAs may be changed annually, changes in
crediting rates may not be sufficient to maintain targeted investment spreads in
all economic and market environments. In addition, competition and other
factors, including the potential for increases in surrenders and withdrawals,
may limit our ability to adjust or to maintain crediting rates at levels
necessary to avoid narrowing of spreads under certain market conditions. As of
December 31, 1999, the average yield, computed on the amortized cost basis of
our investment portfolio, was 7.41%; the average interest rate credited or
accruing to our fixed rate annuity liabilities, excluding interest bonuses
guaranteed for the first year of the annuity contract, was 5.11%.
We manage the index-based risk component of our equity-index annuities by
purchasing call options on the applicable indexes to hedge such risk and
adjusting the participation rates, asset fee rates and other product features to
reflect the change in the cost of such options (which varies based on market
conditions).
For additional information regarding the composition of our investment
portfolio and our interest rate risk management, see Management's Discussion and
AInalysis of Financial Condition and Results of Operations, Quantitative and
Qualitative Disclosures About Market Risk, and Note 3 of the Notes to the
Audited Consolidated Financial Statements included elsewhere in this report.
Page 4 of 24
<PAGE>
Marketing
We market our products primarily to individuals in the United States ages
45-75 who are seeking to accumulate tax-deferred savings. We believe that
significant growth opportunities exist for annuity products because of favorable
demographic and economic trends. According to the U.S. Census Bureau, there were
33.5 million Americans age 65 and older in 1995, representing 13% of the U.S.
population. By 2030, this sector of the population is expected to increase to
22% of the total population. Our products are particularly attractive to this
group as a result of the guarantee of principal, competitive rates of credited
interest, tax-deferred growth and alternative payout options.
We market our products through a variable cost brokerage distribution
network. We emphasize high quality service to our agents and policyholders.
Approximately 95% of new annuity policies are issued within 48 hours of our
receipt of the application and initial premium, and commissions to agents are
paid weekly. We believe these factors have been significant in building
excellent relationships with our existing agency force.
We have recruited approximately 18,000 independent agents and agencies
ranging in profile from national sales organizations to personal producing
general agents. We aggressively recruit new agents and expect to continue to
expand our independent agency force. In our recruitment efforts, we emphasize
that agents have direct access to our executive officers, giving us an edge in
recruiting over larger and foreign-owned competitors. We are currently licensed
to sell our products in 42 states and the District of Columbia. We have applied
or anticipate applying for licenses to sell our products in the remaining
states.
The insurance brokerage distribution system is comprised of insurance
brokers and marketing organizations. We are pursuing a strategy to increase the
size of our brokerage distribution network by developing relationships with
national and regional marketing organizations. These organizations typically
recruit agents for us by advertising our products and our commission structure,
through direct mail advertising, or through seminars for insurance agents and
brokers. These organizations bear most of the cost incurred in marketing our
products. We compensate marketing organizations by paying them a percentage of
the commissions earned on new annuity and life policy sales generated by the
agents recruited in such organizations. We also conduct other incentive programs
for agents from time to time. We generally do not enter into exclusive
arrangements with these marketing organizations.
Two of our national marketing organizations accounted for more than 10% of
the annuity deposits and insurance premiums collected during 1999. One of these
organizations produced approximately 15% of the collections and the other
produced approximately 13%. The states with the largest share of direct premiums
collected are: California (16.4%), Florida (15.9%), Michigan (5.9%), Texas
(5.4%) and Arizona (5.2%).
Competition and Ratings
We operate in a highly competitive industry. Most of our competitors are
substantially larger and enjoy substantially greater financial resources, higher
ratings by rating agencies, broader and more diversified product lines and more
widespread agency relationships. Our annuity products compete with equity-index,
fixed rate and variable annuities sold by other insurance companies and also
with mutual fund products, traditional bank investments and other investment and
retirement funding alternatives. Insurers compete with other insurance
companies, financial intermediaries and other institutions based on a number of
factors, including premium rates, policy terms and conditions, service provided
to distribution channels and policyholders, ratings by rating agencies,
reputation and broker compensation.
Page 5 of 24
<PAGE>
The sales agents for our products use the ratings assigned to an insurer by
independent rating agencies as one factor in determining which insurer's annuity
to market . In recent years, the market for annuities has been dominated by
those insurers with the highest ratings. Our life subsidiary has received a
rating of A- (Excellent) from A. M. Best Company and Api from Standard & Poor's.
Ratings generally involve quantitative and qualitative evaluations of a
company's financial condition and operating performance. Generally, rating
agencies base their ratings upon information furnished to them by the insurer
and upon their own investigations, studies and assumptions. Ratings are based
upon factors of concern to policyholders, agents and intermediaries and are not
directed toward the protection of investors and are not recommendations to buy,
sell or hold securities.
A. M. Best ratings currently range from A++ (Superior) to F (In
Liquidation), and include 15 separate ratings categories. Within these
categories, A++ (Superior) and A+ (Superior) are the highest, followed by A
(Excellent) and A- (Excellent). Publications of A. M. Best indicate that the A
and A- ratings are assigned to those companies that, in A. M. Best's opinion,
have demonstrated excellent overall performance when compared to the standards
established by A. M. Best and have demonstrated a strong ability to meet their
obligations to policyholders over a long period of time.
Standard & Poor's insurer financial strength ratings currently range from
AAA to NR, and include 10 separate ratings categories. Within these categories,
AAA and AA are the highest, followed by A and BBB. Publications of Standard &
Poor's indicate that an insurer rated "BBB" or higher is regarded as having
financial security characteristics that outweigh any vulnerabilities, and is
highly likely to have the ability to meet financial commitments. In addition, an
insurer with a rating of A is regarded as having strong financial security
characteristics. Ratings denoted with a "pi" subscript are insurer financial
strength ratings based on an analysis of an insurer's published financial
information and additional information in the public domain. They do not reflect
in-depth meetings with an insurer's management and are therefore based on less
comprehensive information than ratings without a "pi" subscript.
A.M. Best and Standard & Poor's review their ratings of insurance companies
from time to time. There can be no assurance that any particular rating will
continue for any given period of time or that it will not be changed or
withdrawn entirely if, in their judgment, circumstances so warrant. If our
ratings were to be downgraded for any reason, we could experience a material
decline in the sales of our products and the persistency of our in-force
business.
Reinsurance
Consistent with the general practice of the life insurance industry, our
life subsidiary enters into agreements of indemnity reinsurance with other
insurance companies in order to reinsure portions of the coverage provided by
its life and accident and health insurance products. Indemnity reinsurance
agreements are intended to limit a life insurer's maximum loss on a large or
unusually hazardous risk or to diversify its risks. Indemnity reinsurance does
not discharge the original insurer's primary liability to the insured. Our
reinsured business is primarily ceded to two reinsurers. We believe the assuming
companies are able to honor all contractual commitments, based on our periodic
review of their financial statements, insurance industry reports and reports
filed with state insurance departments. We do not use financial or surplus
relief reinsurance.
As of December 31, 1999, the policy risk retention limit was $100,000 or
less on all policies issued by us. Reinsurance ceded by us was immaterial and
reinsurance that we assumed (through the acquisition of two blocks of in-force
insurance from American Life and Casualty Insurance Company) represented
approximately 39% of net life insurance in force.
Page 6 of 24
<PAGE>
During 1998, our life subsidiary entered into a modified coinsurance
agreement to cede 70% of its variable annuity business to an affiliate of Farm
Bureau Life Insurance Company. Farm Bureau beneficially owns 33.27% of the
Company's common stock. Under this agreement and related administrative services
agreements, the Company paid Farm Bureau's affiliate $155,908 and $77,954 for
the years ended December 31, 1999 and 1998, respectively. The modified
coinsurance agreement has an initial term of four years and will continue
thereafter until termination by written notice at the election of either party.
Any such termination will apply to the submission or acceptance of new policies,
and business reinsured under the agreement prior to any such termination is not
eligible for recapture before the expiration of 10 years.
Regulation
Life insurance companies are subject to regulation and supervision by
the states in which they transact business. State insurance laws establish
supervisory agencies with broad regulatory authority, including the power to:
o grant and revoke licenses to transact business;
o regulate and supervise trade practices and market conduct;
o establish guaranty associations;
o license agents;
o approve policy forms;
o approve premium rates for some lines of business;
o establish reserve requirements;
o prescribe the form and content of required financial statements and
reports;
o determine the reasonableness and adequacy of statutory capital and
surplus;
o perform financial, market conduct and other examinations;
o define acceptable accounting principles;
o regulate the type and amount of permitted investments; and
o limit the amount of dividends and surplus note payments that can be
paid without obtaining regulatory approval.
Our life subsidiary is subject to periodic examinations by state regulatory
authorities. The Iowa Insurance Division completed an examination of our life
subsidiary as of December 31, 1997 in 1998. No adjustments were recommended or
required as a result of this examination.
Most states have also enacted regulations on the activities of insurance
holding company systems, including acquisitions, extraordinary dividends, the
terms of surplus notes, the terms of affiliate
Page 7 of 24
<PAGE>
transactions and other related matters. We are registered pursuant to such
legislation in Iowa. Recently, a number of state legislatures have considered or
have enacted legislative proposals that alter, and in many cases, increase the
authority of state agencies to regulate insurance companies and holding company
systems.
Most states, including Iowa, where our life subsidiary is domiciled, have
enacted legislation or adopted administrative regulations affecting the
acquisition of control of insurance companies as well as transactions between
insurance companies and persons controlling them. The nature and extent of such
legislation and regulations currently in effect vary from state to state.
However, most states require administrative approval of the direct or indirect
acquisition of 10% or more of the outstanding voting securities of an insurance
company incorporated in the state. The acquisition of 10% of such securities is
generally deemed to be the acquisition of "control" for the purpose of the
holding company statutes and requires not only the filing of detailed
information concerning the acquiring parties and the plan of acquisition, but
also administrative approval prior to the acquisition. In many states, the
insurance authority may find that "control" in fact does not exist in
circumstances in which a person owns or controls more than 10% of the voting
securities.
Although the federal government does not directly regulate the business of
insurance, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation, securities regulation and federal taxation can significantly affect
the insurance business. In addition, legislation has been passed which could
result in the federal government assuming some role in regulating insurance
companies and which allows combinations between insurance companies, banks and
other entities.
The Securities and Exchange Commission has requested comments as to whether
equity-index annuities, such as those sold by us, should be treated as
securities under the Federal securities laws rather than as insurance products.
Treatment of these products as securities would likely require additional
registration and licensing of these products and the agents selling them, as
well as cause us to seek additional marketing relationships for these products.
In recent years, the National Association of Insurance Commissioners
("NAIC"), an association of state regulators and their staffs, has approved and
recommended to the states for adoption and implementation several model laws and
regulations including:
o investment reserve requirements;
o risk-based capital ("RBC") standards for determining the level of
statutory capital and surplus an insurer must maintain in relation to
its investment and insurance risks;
o codification of insurance accounting principles;
o additional investment restrictions;
o restrictions on an insurance company's ability to pay dividends; and
o life product illustrations
The NAIC is currently developing new model laws or regulations, including:
o product design standards;
Page 8 of 24
<PAGE>
o reserve requirements; and
o annuity product illustrations.
These model laws and regulations may be adopted by the various states in
which our life subsidiary is licensed, but the ultimate content and timing of
any statutes and regulations adopted by the states cannot be determined at this
time. It is not possible to predict the future impact of changing state and
federal regulations on our operations. Furthermore, there can be no assurance
that existing insurance related laws and regulations will not become more
restrictive in the future or that laws and regulations enacted in the future
will not be more restrictive.
The NAIC's RBC requirements are intended to be used by insurance regulators
as an early warning tool to identify deteriorating or weakly capitalized
insurance companies for the purpose of initiating regulatory action. The RBC
formula defines a new minimum capital standard which supplements low, fixed
minimum capital and surplus requirements previously implemented on a
state-by-state basis. Such requirements are not designed as a ranking mechanism
for adequately capitalized companies.
The NAIC's RBC requirements provide for four levels of regulatory attention
depending on the ratio of a company's total adjusted capital to its RBC.
Adjusted capital is defined as the total of statutory capital, surplus, asset
valuation reserve and certain other adjustments. Calculations using the NAIC
formula at December 31, 1999, indicate that the ratio of total adjusted capital
to RBC for us exceeded by approximately 4 times the highest level at which
regulatory action might be triggered.
Our life subsidiary also may be required, under the solvency or guaranty
laws of most states in which it does business, to pay assessments up to certain
prescribed limits to fund policyholder losses or liabilities of insolvent
insurance companies. These assessments may be deferred or forgiven under most
guaranty laws if they would threaten an insurer's financial strength and, in
certain instances, may be offset against future premium taxes. Assessments
related to business reinsured for periods prior to the effective date of the
reinsurance are the responsibility of the ceding companies. Given the short
period of time since the inception of our business, we believe that assessments,
if any, will be minimal.
Federal Income Taxation
The annuity and life insurance products that we market and issue generally
provide the policyholder with an income tax advantage, as compared to other
savings investments, such as certificates of deposit and taxable bonds, in that
income taxation on any increases in the contract values of these products is
deferred until it is received by the policyholder. With other savings
investments, the increase in value is generally taxed as earned. Annuity
benefits and life insurance benefits, which accrue prior to the death of the
policyholder, are generally not taxable until paid. Life insurance death
benefits are generally exempt from income tax. Also, benefits received on
immediate annuities are recognized as taxable income ratably, as opposed to the
methods used for some other investments which tend to accelerate taxable income
into earlier years. The tax advantage for annuities and life insurance is
provided in the Internal Revenue Code of 1986, as amended (the "Code"), and is
generally followed in all states and other United States taxing jurisdictions.
From time to time, various tax law changes have been proposed that could
have an adverse effect on our business, including the elimination of all or a
portion of the income tax advantage for annuities and life insurance. If
legislation were enacted to eliminate the tax deferral for annuities, such a
change would have an adverse effect on our ability to sell non-qualified
annuities. Non-qualified annuities are
Page 9 of 24
<PAGE>
annuities that are not sold to an individual retirement account or other
qualified retirement plan.
Our life subsidiary is taxed under the life insurance company provisions of
the Code. Provisions in the Code require a portion of the expenses incurred in
selling insurance products to be capitalized and deducted over a period of
years, as opposed to immediate deduction in the year incurred. This provision
increases the tax for statutory accounting purposes which reduces statutory
surplus and, accordingly, decreases the amount of cash dividends that may be
paid by our life subsidiary.
Employees
As of December 31, 1999, we had 113 full-time employees, of which 103 are
located in Des Moines, Iowa, and 10 are located in the Pell City, Alabama
offices. We have experienced no work stoppages or strikes and consider our
relations with our employees to be excellent. None of our employees are
represented by a union.
Other Subsidiaries
We formed American Equity Investment Properties, L.C., an Iowa limited
liability company to hold title to an office building in Birmingham, Alabama,
where a portion of our life subsidiary's operations were conducted. The building
was sold in 1998, and American Equity Investment Properties, L.C. now holds the
remaining cash proceeds from the sale of the building. There are no present
plans to dissolve American Equity Investment Properties, L.C., which may be used
in the future to facilitate other aspects of our business.
On February 16, 1998, we formed American Equity Capital, Inc., an Iowa
corporation, in connection with the introduction of variable products as a part
of our product mix. American Equity Capital, Inc. acts as the broker-dealer for
the sale of our variable products and will recruit other broker-dealers to
establish a distribution network for these products.
On July 9, 1999, we formed American Equity Capital Trust I, a Delaware
statutory business trust. On October 25, 1999, we formed American Equity Capital
Trust II, a Delaware statutory business trust. We formed these trusts in
connection with the issuance of two issues of trust preferred securities. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Note 8 of the Notes to the Audited Consolidated Financial
Statements included elsewhere in this report.
Item 2. Properties.
We do not own any real estate. We lease space for our principal offices in
West Des Moines, Iowa, pursuant to written leases for approximately 26,550
square feet at an annual rental of $480,588. The leases expire on June 30, 2004
and have a renewal option of an additional five year term at a rental rate equal
to the prevailing fair market value. We also lease space for our office in Pell
City, Alabama, pursuant to a written lease dated January 3, 2000, for
approximately 3,380 square feet at an annual rental of $43,095. This lease
expires on December 31, 2004.
Item 3. Legal Proceedings
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Page 10 of 24
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established public trading market for our common stock. As of
February 29, 2000, we had 284 common shareholders.
In 1999, we paid a cash dividend of $0.02 per share on our common stock and
our participating convertible preferred stock. We intend to continue to pay an
annual cash dividend on such shares so long as we have sufficient capital and/or
future earnings to do so. However, we anticipate retaining most of our future
earnings, if any, for use in our operations and the expansion of our business.
Our credit agreement contains a restrictive covenant which limits our
ability to declare or pay any dividends. In addition, since we are a holding
company, our ability to pay cash dividends depends in large measure on our
subsidiaries' ability to make distributions of cash or property to us. Iowa
insurance laws restrict the amount of distributions our life subsidiary can pay
to us without the approval of the Iowa Insurance Division. See Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes 7 and 10 of the Notes to the Audited Consolidated Financial Statements
included elsewhere in this report.
Any further determination as to dividend policy will be made by our board
of directors and will depend on a number of factors, including our future
earnings, capital requirements, financial condition and future prospects and
such other factors as our board of directors may deem relevant.
For information regarding unregistered sales of equity securities
Iduring 1999, see our Form 10-Qs for the quarters ending June 30, 1999 and
September 30, 1999.
Page 11 of 24
<PAGE>
Item 6. Selected Consolidated Financial Data
The following selected consolidated financial data as of and for the
periods indicated should be read in conjunction with our consolidated financial
statements and related notes and Management's Discussion and Analysis of
Financial Condition and Results of Operations appearing elsewhere in this
report.
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------
1999 1998 1997 1996
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
Insurance policy income $ 13,746,532 $ 11,170,655 $ 11,436,803 $14,554,714
Net investment income 64,609,612 26,356,472 4,018,617 865,155
Realized gains on investments 1,454,417 426,782 -- --
-------------- ------------ ------------ -----------
Total revenue 79,810,561 37,953,909 15,455,420 15,419,869
Benefits and expenses
Insurance policy benefits and change
in future polic benefits 7,231,895 6,084,893 7,440,080 8,787,700
Interest credited to account balances 41,726,895 15,837,912 2,129,686 77,831
Interest expense on notes payable 896,383 788,770 979,826 493,801
Interest expense on amounts due under
repurchase agreements 3,490,849 1,528,718 291,547 --
Amortization of deferred policy
acquisition costs and value
of insurance in force acquired 11,240,271 3,946,133 1,143,032 879,916
Amortization of goodwill 70,000 70,000 70,000 17,500
Other operating costs and expenses 12,058,398 8,692,813 8,160,863 6,302,094
-------------- ------------ ------------ -----------
Total benefits and expenses 76,714,691 36,949,239 20,215,034 16,558,842
-------------- ------------ ------------ -----------
Income (loss) before income taxes 3,095,870 1,004,670 (4,759,614) (1,138,973)
Income tax (expense) benefit 1,369,835 (760,483) 1,390,226 --
-------------- ------------ ------------ -----------
4,465,705 244,187 (3,369,388) (1,138,973)
Minority interest in earnings of
subsidiaries:
Earnings attributable to company-
obligated mandatorily redeemable
preferred securities of subsidiary
trusts (2,022,359) -- -- --
-------------- ------------ ------------ -----------
Net income (loss) $ 2,443,346 $ 244,187 $ (3,369,388) $(1,138,973)
============== ============ ============ ===========
PER SHARE DATA:
Basic earnings (loss) per common share $ 0.52 $ 0.05 $ (2.11) $ (1.90)
Diluted earnings (loss) per common share 0.42 0.05 (2.11) (1.90)
Dividends declared per common share 0.02 -- -- --
BALANCE SHEET DATA (at period end):
Total assets $1,665,503,450 $683,011,836 $229,418,131 $35,214,597
Policy benefit reserves 1,358,875,848 541,082,179 155,998,268 11,846,566
Notes payable 20,600,000 10,000,000 10,000,000 10,000,000
Trust preferred securities issued by
subsidiary trusts 98,981,629 -- -- --
Stockholders' equity 34,324,291 66,130,521 54,426,049 10,137,102
OTHER FINANCIAL DATA:
Life subsidiary statutory capital and
surplus at December 31 $ 139,855,053 $ 80,947,913 $ 64,709,809 $17,302,272
Life subsidiary statutory net income
for the year ended December 31 17,837,476 4,803,545 4,470,284 1,174,811
</TABLE>
Page 12 of 24
<PAGE>
Item 7. Management's discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis reviews our consolidated financial
position at December 31, 1999 and 1998, and our consolidated results of
operations for the three years ended December 31, 1999, and where appropriate,
factors that may affect future financial performance. This analysis should be
read in conjunction with the audited consolidated financial statements, notes
thereto and selected consolidated financial data appearing elsewhere in this
report.
All statements, trend analyses and other information contained in this
report and elsewhere (such as in filings by us with the Securities and Exchange
Commission, press releases, presentations by us or our management or oral
statements) relative to markets for our products and trends in our operations or
financial results, as well as other statements including words such as
"anticipate," "believe," "plan," "estimate," "expect," "intend," and other
similar expressions, constitute forward-looking statements under the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
subject to known and unknown risks, uncertainties and other factors which may
cause actual results to be materially different from those contemplated by the
forward-looking statements. Such factors include, among other things:
o general economic conditions and other factors, including prevailing
interest rate levels and stock and credit market performance which may
affect (among other things) our ability to sell our products, our
ability to access capital resources and the costs associated
therewith, the market value of our investments and the lapse rate and
profitability of policies
o customer response to new products and marketing initiatives
o mortality and other factors which may affect the profitability of our
products
o changes in the Federal income tax laws and regulations which may
affect the relative income tax advantages of our products
o increasing competition in the sale of annuities
o regulatory changes or actions, including those relating to regulation
of financial services affecting (among other things) bank sales and
underwriting of insurance products and regulation of the sale,
underwriting and pricing of products
o the risk factors or uncertainties listed from time to time in our
private placement memorandums or filings with the Securities and
Exchange Commission
Results of Operations
Business Overview. We effectively commenced business on January 1, 1996,
shortly after our formation and incorporation. As a foundation for beginning our
business, we acquired two blocks of in-force insurance from another insurance
company, of which several of our executive officers were previously employees.
Later in 1996, we acquired another life insurance company with no in-force
insurance which expanded our licensing authority to sell insurance and annuities
to 23 states and the District of Columbia. Since then, we have expanded our
licensing to 42 states and the District of Columbia.
Page 13 of 24
<PAGE>
We specialize in the sale of individual annuities (primarily deferred
annuities) and, to a lesser extent, we also sell life insurance. Under generally
accepted accounting principles, premium collections for deferred annuities are
reported as deposit liabilities instead of as revenues. Earnings from products
accounted for as deposit liabilities are primarily generated from the excess of
net investment income earned over the interest credited to the policyholder, or
the "investment spread," as well as realized gains on investments. In the case
of equity-index annuities, the investment spread consists of net investment
income in excess of the amortization of the cost of the options purchased to
fund the index-based component of the policyholder's return. Revenue is also
recognized from surrender charges deducted from the policyholder's account
balance.
Commissions and certain other costs relating to the production of new and
renewal business are not expensed when incurred but instead are capitalized as
deferred policy acquisition costs. Deferred policy acquisition costs for
annuities are amortized into expense with the emergence of gross profits. Under
certain circumstances, deferred policy acquisition costs will be expensed
earlier than originally estimated, for example, when policy terminations are
higher than originally estimated and when investments relating to the
liabilities of such products are called or sold at a gain prior to anticipated
maturity.
We had net income of $2,443,000 for the year ended December 31, 1999,
compared to net income of $244,000 in 1998 and a net loss of $3,369,000 in 1997.
The trend in net income is a direct result of the substantial growth in our
annuity business which began to accelerate in the third quarter of 1997. Annuity
reserves grew from $23,657,000 at June 30, 1997 to $146,311,000 at December 31,
1997, $529,765,000 at December 31, 1998 and $1,342,256,000 at December 31, 1999.
New annuity deposits for the year ended December 31, 1999 increased 116% to
$814,605,000, compared to $377,917,000 for 1998. The 1998 amount represented a
166% increase over the 1997 amount of $141,854,000, of which $121,430,000 was
collected in the second half of the year. The increased annuity production is a
direct result of the growth in our agency force, which increased from
approximately 400 agents at December 31, 1996, to 4,450 agents at December 31,
1997, 10,525 agents at December 31, 1998 and 18,000 agents at December 31, 1999.
The growth in our annuity business resulted in a sizeable increase in our
investment spread for 1999 and 1998. While certain expenses also increased as a
result of the growth in our annuity business, the incremental profits from a
larger deposit base allowed us to offset a greater portion of our fixed
operating costs and expenses. Our 1999 results also benefitted from a gain of
$1,542,000 on the termination of a total return swap contract. Our 1998 results
also benefitted from a gain of $275,000 on the sale of an office building in
Birmingham, Alabama, from which our operations in that location were previously
conducted. The comparison of 1998 to 1997 was also favorably impacted by certain
costs and expenses recognized in 1997 as discussed below under Other operating
costs and expenses.
Traditional life and accident and health insurance premiums decreased 2% to
$10,294,000 in 1999 and 8% to $10,528,000 in 1998 from $11,425,000 in 1997. The
majority of our traditional life and accident and health insurance premiums
consist of group policies sold to a limited market. Because our primary focus is
the sale of annuities, we have made no effort to expand sales of these products
to other markets. As a result, sales of such products have declined slightly.
Annuity and single premium universal life product charges (surrender
charges assessed against policy withdrawals and mortality and expense charges
assessed against single premium universal life policyholder account balances)
increased 437% to $3,452,000 in 1999, and 5,258% to $643,000 in 1998, from
$12,000 in 1997. These increases are principally attributable to the growth in
our annuity business
Page 14 of 24
<PAGE>
and correspondingly, increases in annuity policy withdrawals subject to
surrender charges. Withdrawals from annuity and single premium universal life
policies were $60,845,000, $23,637,000 and $2,419,000 for 1999, 1998 and 1997,
respectively.
Net investment income increased 145% to $64,610,000 in 1999 and 556% to
$26,356,000 in 1998 from $4,019,000 in 1997. These increases are principally
attributable to the growth in our annuity business and correspondingly,
increases in our invested assets. Invested assets (amortized cost basis)
increased 147% to $1,499,730,000 at December 31, 1999 and 199% to $607,764,000
at December 31, 1998 compared to $203,034,000 at December 31, 1997, while the
effective yield earned on average invested assets was 7.34%, 7.46% and 7.80% for
1999, 1998, and 1997, respectively.
Realized gains on investments increased 241% to $1,454,000 in 1999 compared
to $427,000 in 1998 and $0 in 1997. The increase in 1999 was primarily
attributable to a gain realized on the termination of a total return swap
contract. In 1998, realized gains consisted of a gain of $152,000 on the sale of
fixed maturity securities and a gain of $275,000 on the sale of our office
building in Alabama.
Traditional life and accident and health insurance benefits increased 19%
to $7,232,000 in 1999 and decreased 18% to $6,085,000 in 1998 compared to
$7,440,000 in 1997. The increase in 1999 was attributable to an increase in
death benefits and surrenders, and the decrease in 1998 was attributable to a
decrease in those items for that year.
Interest credited to annuity policyholder account balances increased 163%
to $41,727,000 in 1999 and 644% to $15,838,000 in 1998 from $2,130,000 in 1997.
These increases are principally attributable to increases in annuity
liabilities. The amounts are also impacted by changes in the weighted average
crediting rate for our fixed rate annuity liabilities, which, excluding interest
rate bonuses guaranteed for the first year of the annuity contract, was 5.11%,
5.20% and 5.43% at December 31, 1999, 1998 and 1997, respectively. The weighted
average crediting rate, including interest rate bonuses guaranteed for the first
year of the annuity contract, was 6.51%, 7.05%, and 7.25% at December 31, 1999,
1998 and 1997, respectively.
Interest expense on notes payable increased 14% to $896,000 in 1999 and
decreased 19% to $789,000 in 1998 from $980,000 in 1997. The 1999 increase is
attributable to increases in the outstanding borrowings in the third and fourth
quarters of 1999, offset in part by a decrease in the average applicable
interest rate. The 1998 decrease is attributable to lower interest rates. The
applicable interest rate declined from 8.41% for 1997 to 7.96% for 1998, and
7.52% for 1999.
Interest expense on amounts due under repurchase agreements increased 128%
to $3,491,000 in 1999 and 424% to $1,529,000 in 1998 from $292,000 in 1997.
These increases were principally attributable to larger average balances of
funds borrowed, offset in part by a lower cost of funds in 1999. See Note 7 of
the Notes to the Audited Consolidated Financial Statements included elsewhere in
this report.
Amortization of deferred policy acquisition costs and value of insurance in
force acquired increased 185% to $11,240,000 in 1999 and 245% to $3,946,000 in
1998 from $1,143,000 in 1997. These increases are primarily due to the growth in
our annuity business as discussed above.
Other operating costs and expenses increased 39% to $12,058,000 in 1999 and
7% to $8,693,000 in 1998 from $8,161,000 in 1997. These increases are
principally attributable to increases in employees and related salaries and
costs of employment. The comparison of 1998 to 1997 is also favorably impacted
by $1,864,000 of costs and expenses for two items in 1997. These items were: (i)
$1,236,000
Page 15 of 24
<PAGE>
for agency and product development costs that were expensed in 1997 in the year
incurred rather than being capitalized and amortized to expense in subsequent
years and (ii) $628,000 for compensation expense as a result of an amendment to
the stock option agreement with our chairman and president. See Note 9 of the
Notes to the Audited Consolidated Financial Statements included elsewhere in
this report.
Income tax expense for 1999 was a benefit of $1,370,000 compared to an
expense of $760,000 in 1998, and a benefit of $1,390,000 in 1997. The benefit in
1999 is attributable to: (i) the elimination of the December 31, 1998 valuation
allowance on deferred income tax assets of $1,537,000 and (ii) tax benefits of
$708,000 attributable to the redeemable preferred securities of subsidiaries.
Excluding these two items, 1999 income tax expense would have been $815,000 for
an effective income tax rate of 27%. The effective income tax rates for 1998 and
1997, excluding the impact of changes in the valuation allowance for deferred
income tax assets were 36% and 44%, respectively. These effective income tax
rates varied from the applicable statutory federal income tax rates of 35% for
1999 and 34% for 1998 and 1997 principally because: (i) in 1999, the December
31, 1998 net deferred tax asset was adjusted to the 35% rate; (ii) in 1998, we
had certain nondeductible expenses; and (iii) in 1997, we qualified as a small
life insurance company under provisions of the Internal Revenue Code and
recognized the small company deduction only available to such companies. See
Note 6 of the Notes to the Audited Consolidated Financial Statements included
elsewhere in this report.
Minority interest in earnings of subsidiaries includes amounts for
distributions and the accretion of the issue discount on company-obligated
mandatorily redeemable preferred stocks of subsidiary trusts issued in 1999. Tax
benefits attributable to these amounts are reported as a reduction of income tax
expense. See Note 8 of the Notes to the Audited Consolidated Financial
Statements included elsewhere in this report.
Financial Condition
Investments. Our investment strategy is to maintain a predominantly
investment grade fixed income portfolio, provide adequate liquidity to meet our
cash obligations to policyholders and others and maximize current income and
total investment return through active investment management. Consistent with
this strategy, our investments principally consist of fixed maturity securities
and short-term investments. We also have approximately 3% of our invested assets
at December 31, 1999 in derivative instruments (equity market index call
options) purchased in connection with the issuance of equity-index annuities.
Insurance statutes regulate the type of investments that our life
subsidiary is permitted to make and limit the amount of funds that may be used
for any one type of investment. In light of these statutes and regulations and
our business and investment strategy, we generally seek to invest in United
States government and government-agency securities and corporate securities
rated investment grade by established nationally recognized rating organizations
or in securities of comparable investment quality, if not rated.
We have classified a substantial portion of our fixed maturity investments
as available-for-sale to maximize investment flexibility. Available-for-sale
securities are reported at market value and unrealized gains and losses, if any,
on these securities are included directly in a separate component of
stockholders' equity, thereby exposing stockholders' equity to incremental
volatility due to changes in market interest rates and the accompanying changes
in the reported value of securities classified as available-for-sale, with
stockholders' equity increasing as interest rates decline and, conversely,
decreasing as interest rates rise.
Page 16 of 24
<PAGE>
Liabilities. Our liability for policy benefit reserves increased
$817,794,000 and $385,084,000 during 1999 and 1998, respectively, to
$1,358,876,000 at December 31, 1999 and $541,082,000 at December 31, 1998,
primarily due to annuity sales as discussed above. Substantially all of our
annuity products have a surrender charge feature designed to reduce early
withdrawal or surrender of the policies and to partially compensate us for our
costs if policies are withdrawn early. Notwithstanding these policy features,
the withdrawal rates of policyholder funds may be affected by changes in
interest rates.
On October 18, 1996, we borrowed $10,000,000 from two banks under a
variable rate revolving credit agreement. Proceeds from the borrowing were
contributed to the capital and surplus of our life subsidiary ($6,000,000) and
used to refinance indebtedness we incurred to capitalize our life subsidiary at
the time of its formation ($4,000,000). During 1999, this line of credit was
increased to permit maximum borrowings of $25,000,000, and we borrowed an
additional $10,600,000, bringing our liability for notes payable to $20,600,000
at December 31, 1999. We loaned the proceeds of the 1999 borrowings to American
Equity Investment Service Company (see discussion that follows under Liquidity
of Parent Company). The loan matures on March 31, 2001 with an option for a four
year extension as a term loan. Under this agreement, we are required to maintain
minimum capital and surplus levels at our life subsidiary and meet certain other
financial and operating ratio requirements. We are also prohibited from
incurring other indebtedness for borrowed money without obtaining a waiver from
the lenders and from paying dividends on our capital stock in excess of 10% of
our consolidated net income for the prior fiscal year (except that in 1999 we
were permitted to make a dividend payment equal to 44% of our consolidated net
income for 1998).
Stockholders' Equity. We were initially capitalized in December, 1995 and
January, 1996 through the issuance of shares of Common Stock for cash of
$4,000,000. Subsequent to our initial capitalization (400,000 shares of Common
Stock after a May 29, 1996 100-for-1 stock split), we issued additional shares
of Common Stock, warrants to purchase shares of Common Stock and shares of
Series Preferred Stock convertible into shares of Common Stock in several
private placement offerings as follows:
<TABLE>
<CAPTION>
No. Issued Warrant
------------------------- Exercise
Description Issue Price Shares Warrants Price
----------------------- ----------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Common Stock & Warrants
--1996 $10.00 780,000 156,000 $10.00
--1997 10.00 3,998 798 10.00
--1998(1) 10.00 3,000 600 10.00
------------- --------
786,998 157,398(2)
--1997 12.00 570,416 114,083(3) 12.00
-- 68,250(4) 12.00
------------- --------
570,416 182,333
Common Stock - 1997 16.00 2,666,250
1998 Series A Participating
Preferred Stock - 1998 16.00 625,000
</TABLE>
(1) issued to the placement agent in payment of a portion of the
compensation due to the placement agent
(2) exercised during 1998
(3) exercised during 1999
(4) issued to the placement agent as part of placement agent compensation;
expire on April 30, 2000
Page 17 of 24
<PAGE>
The aggregate net proceeds from these offerings, including proceeds
received from the exercise of warrants, was $65,699,000, substantially all of
which were contributed to the capital and surplus of our life subsidiary or used
to fund the acquisition of the life insurance company acquired in 1996.
A portion of the 2,666,250 shares of Common Stock issued in 1997 at $16 per
share were issued in a rights offering to existing stockholders and in
connection therewith, certain of our officers and directors received management
subscription rights to purchase one share of Common Stock for each share owned
and one-half share of Common Stock for each stock option held on the offering
date. An aggregate of 719,125 management subscription rights were issued to nine
officers and directors at that time. The management subscription rights have an
exercise price of $16.00 per share and expire on December 1, 2002. Farm Bureau
Life Insurance Company purchased 1,562,500 shares of Common Stock in this
offering and received a right of first refusal to maintain a 20% ownership
interest in our capital stock.
The 625,000 shares of 1998 Series A Participating Preferred Stock issued in
1998 have participating dividend rights with the shares of Common Stock, when
and as such dividends are declared. The preferred shares are convertible into
shares of Common Stock on a one for one basis upon the earlier of the initial
public offering of our Common Stock or December 31, 2003.
In September, 1999, American Equity Capital Trust I ("Trust I"), our
wholly-owned subsidiary, issued $25,970,000 of 8% Convertible Trust Preferred
Securities (the "8% Trust Preferred Securities"). In connection with Trust I's
issuance of the 8% Trust Preferred Securities and the related purchase by us of
all of Trust I's common securities, we issued $26,773,000 in principal amount of
our 8% Convertible Junior Subordinated Debentures, due September 30, 2029 (the
"8% Debentures") to Trust I. The sole assets of Trust I are the 8% Debentures
and any interest accrued thereon. Each 8% Trust Preferred Security is
convertible into one share of our common stock at a conversion price equal to
the lesser of (i) $30 per share or (ii) 90% of the initial price per share to
the public of common stock sold in connection with our initial public offering
of such common stock (the "IPO"), upon the earlier of the 91st day following the
IPO or September 30, 2002. The interest payment dates on the 8% Debentures
correspond to the distribution dates on the 8% Trust Preferred Securities. The
8% Trust Preferred Securities, which have a liquidation value of $30 per share
plus accrued and unpaid distributions, mature simultaneously with the 8%
Debentures. As of December 31, 1999, 865,671.33 shares of 8% Trust Preferred
Securities were outstanding, all of which are unconditionally guaranteed by us
to the extent of the assets of Trust I.
In October, 1999, American Equity Capital Trust II ("Trust II"), our
wholly-owned subsidiary, issued 97,000 shares of 5% Trust Preferred Securities
(the "5% Trust Preferred Securities"). The 5% Trust Preferred Securities, which
have a liquidation value of $100 per share ($97,000,000 in the aggregate) have
been assigned a fair value of $72,490,000 (based upon an effective 7%
yield-to-maturity). The consideration received by Trust II in connection with
the issuance of the 5% Trust Preferred Securities consisted of fixed income
trust preferred securities of equal value which were issued by the parent of
Farm Bureau Life insurance Company. Farm Bureau beneficially owns 33.27% of our
common stock.
In connection with Trust II's issuance of the 5% Preferred Securities and
the related purchase by us of all of Trust II's common securities, we issued
$100,000,000 in principal amount of our 5% Subordinated Debentures, due June 1,
2047 (the "5% Debentures") to Trust II. The sole assets of Trust II are the 5%
Debentures and any interest accrued thereon. The interest payment dates on the
5% Debentures correspond to the distribution dates on the 5% Trust Preferred
Securities. The 5% Trust Preferred Securities mature simultaneously with the 5%
Debentures. All of the 5% Trust Preferred Securities are unconditionally
guaranteed by us to the extent of the assets of Trust II.
Page 18 of 24
<PAGE>
Liquidity for Insurance Operations. Our life subsidiary generally receives
adequate cash flow from premium collections and investment income to meet its
obligations. Annuity and life insurance liabilities are generally long-term in
nature. Policyholders may, however, withdraw funds or surrender their policies,
subject to surrender and withdrawal penalty provisions. At December 31, 1999,
approximately 98% of our annuity liabilities were subject to penalty upon
surrender.
We believe that the diversity of our investment portfolio and the
concentration of investments in high-quality, liquid securities provides
sufficient liquidity to meet foreseeable cash requirements. The investment
portfolio at December 31, 1999 included $1,434,164,883 of publicly traded
investment grade bonds. Although there is no present need or intent to dispose
of such investments, our life subsidiary could readily liquidate portions of its
investments, if such a need arose. In addition, investments could be used to
facilitate borrowings under reverse-repurchase agreements or dollar-roll
transactions. Such borrowings have been used by our life subsidiary from time to
time to increase our return on investments and to improve liquidity.
Liquidity of Parent Company. The parent company is a legal entity separate
and distinct from its subsidiaries, and has no business operations. The parent
company needs liquidity primarily to service its debt, including the
subordinated debentures issued to subsidiary trusts, pay operating expenses and
pay dividends to stockholders. The primary sources of funds for these payments
are: (i) interest received on trust preferred securities received in connection
with the issuance of the 5% Trust Preferred Securities; (ii) principal and
interest payments received on the parent company's note receivable from American
Equity Investment Service Company (see discussion that follows); (iii) dividends
on capital stock and surplus note interest payments from our life subsidiary;
(iv) cash on hand ($683,000 at December 31, 1999); and (v) cash ($835,000 at
December 31, 1999) that may be distributed by the American Equity Investment
Properties, L.C. which holds the remaining cash proceeds from the sale of the
office building in Birmingham, Alabama that was sold in 1998. The parent company
may also obtain cash by issuing debt or equity securities.
The payment of dividends or the distributions, including surplus note
payments, by our life subsidiary is subject to regulation by the Iowa Insurance
Division. Currently, our life subsidiary may pay dividends or make other
distributions without the prior approval of the Iowa Insurance Division, unless
such payments, together with all other such payments within the preceding twelve
months, exceed the greater of (1) our life subsidiary's net gain from operations
(excluding net realized capital gains or losses) for the preceding calendar
year, or (2) 10% of our statutory surplus at the preceding December 31. For
2000, up to $16,326,000 can be distributed as dividends or surplus note payments
without prior approval of the Iowa Insurance Division. In addition, dividends
and surplus note payments may be made only out of earned surplus, and all
surplus note payments are subject to prior approval by regulatory authorities.
Our life subsidiary had $29,259,000 of earned surplus at December 31, 1999.
The maximum distribution permitted by law or contract is not necessarily
indicative of an insurer's actual ability to pay such distributions, which may
be constrained by business and regulatory considerations, such as the impact of
such distributions on surplus, which could affect the insurer's ratings or
competitive position, the amount of premiums that can be written and the ability
to pay future dividends or make other distributions. Further, the Iowa insurance
laws and regulations require that the statutory surplus of our life subsidiary
following any dividend or distribution must be reasonable in relation to our
outstanding liabilities and adequate for its financial needs.
The transfer of funds by our life subsidiary is also restricted by certain
covenants in our loan agreement which, among other things, requires the life
subsidiary to maintain statutory capital and surplus (including the asset
valuation and interest maintenance reserves) of $120,000,000 plus 25% of
statutory
Page 19 of 24
<PAGE>
net income for periods subsequent to December 31, 1999. Under the most
restrictive of these limitations, $21,450,000 of earned surplus at December 31,
1999 would be available for distribution by our life subsidiary to the parent
company in the form of dividends or other distributions.
Statutory accounting practices prescribed or permitted for our life
subsidiary differ in many respects from those governing the preparation of
financial statements under generally accepted accounting principles ("GAAP").
Accordingly, statutory operating results and statutory capital and surplus may
differ substantially from amounts reported in the GAAP basis financial
statements for comparable items. Information as to statutory capital and surplus
and statutory net income for our life subsidiary as of December 31, 1999 and
1998 and for the years ended December 31, 1999, 1998 and 1997 is included in
Note 10 of the Notes to Audited Consolidated Financial Statements included
elsewhere in this report.
Our life subsidiary has entered into a general agency commission and
servicing agreement with American Equity Investment Service Company, an
affiliated company wholly-owned by the Company's chairman and president, whereby
the affiliate acts as a national supervisory agent with responsibility for
paying commissions to the Company's agents. This agreement initially benefits
the life subsidiary's statutory surplus by extending the payment of a portion of
the first year commissions on new annuity business written by the life
subsidiary over a longer period of time, and thereby enabling the life
subsidiary to conduct a comparatively greater volume of business. In subsequent
periods, the life subsidiary's statutory surplus is reduced through the payment
of renewal commissions to the affiliate on this business based upon the account
balances of the annuities remaining in force for a period of five years (see
Note 11 of the Notes to the Audited Consolidated Financial Statements included
elsewhere in this report).
The aggregate amount of first year commissions paid by the affiliate with
funds obtained from sources other than the life subsidiary was $69,127,000 from
the inception of the agreement through December 31, 1999, and the aggregate
amount of renewal commissions paid by the life subsidiary to the affiliate for
the same period was $22,708,000.
During 1999, the parent company agreed to loan the affiliate up to
$50,000,000 as the source of funds for the affiliate portion of first year
commissions and had advanced $18,175,000 through December 31, 1999 pursuant to
the promissory note evidencing this agreement. Principal and interest are
payable quarterly over five years from the date of the advance. The principal
source of funds for us to advance funds to the affiliate is our bank line of
credit, of which $4,400,000 was available for borrowing at December 31, 1999. We
anticipate increasing the maximum borrowing level under our bank line of credit
in 2000 in order to be able to continue to make funds available to the affiliate
to fund its portion of first year commissions.
Future payments by the life subsidiary on business in force at December 31,
1999 are dependent upon the account balances of the annuities remaining in force
on each remaining quarterly renewal commission payment date. Assuming that the
account balances remain constant over such remaining renewal commission payments
dates, future renewal commission payments by the life subsidiary would be
$4,756,556 per quarterly payment until December, 2002 and $3,685,274 per
quarterly payment from January, 2003 until June, 2005. All such payments would
be capitalized as deferred policy acquisition costs and amortized to expense
pursuant to the Company's stated accounting policy.
Page 20 of 24
<PAGE>
Inflation
Inflation does not have a significant effect on our balance sheet; we have
minimal investments in property, equipment or inventories. To the extent that
interest rates may change to reflect inflation or inflation expectations, there
would be an effect on our balance sheet and operations. Higher interest rates
experienced in recent periods have decreased the value of our fixed maturity
investments. It is likely that declining interest rates would have the opposite
effect. It is not possible to calculate the effect such changes in interest
rates have had on our operating results.
Year 2000 Readiness Disclosure
Many computer programs were originally written using two digits rather than
four digits to identify a particular year. Such programs may recognize a date
using "00" as the year 1900 rather than the year 2000. If not corrected, these
computer programs could cause system failures or miscalculations in the year
2000, with possible adverse effects on our operations.
During the first quarter of 1998, we developed a strategy to identify and
then test our internal computer programs which are date sensitive. Our systems
for administering our group life policies were identified as having two-digit
date codes. Conversion to four-digit codes and testing of such converted systems
commenced in the second quarter of 1998 and was completed prior to December 31,
1998. These systems are now year 2000 compliant. The costs of testing and
conversion charged to expense during 1998 were approximately $25,000.
The policy issue and administration system for our individual annuity and
life insurance business is a system developed from the outset using four digits
for the year. This system was purchased from a third party vendor in the fourth
quarter of 1996. At that time, the vendor provided us with a letter of year 2000
compliance for this system. However, we did not rely solely on the compliance
letter and began a comprehensive systems test in the third quarter of 1998.
Testing included processing daily, monthly, quarterly and annual business cycles
through February 29, 2000. Internal testing was completed during the fourth
quarter of 1998. This system was determined to be year 2000 compliant. The costs
of testing of this system charged to expense during 1998 were approximately
$10,000.
External testing with third party providers of computer dependent services
was completed during the first quarter of 1999. The most critical of these
providers to our ongoing business operations is the financial institution with
which we electronically interface each business day for the processing of
premium collections and commission payments. Integrated testing between us and
this financial institution was successfully completed in February 1999. Testing
included all types of ACH (Automated Clearing House) transactions. The cost of
such testing charged to expense in 1999 was approximately $5,000.
Additionally, we instituted a corporate wide disaster recovery plan for our
data systems which included our Iowa and Alabama locations. Both locations were
prepared to serve the other in the event of a prolonged business outage. The
plan incorporated contingencies for year 2000 interruptions caused by certain
third party providers and other outside elements for which adequate testing
cannot be conducted. These would include, for example, utility companies that
supply electricity and water.
We experienced no disruptions or other problems with our computer systems
on January 1, 2000 or thereafter in connection with date-sensitive processing.
We experienced no disruptions in other services such electronic funds transfers,
phone systems or utilities.
Page 21 of 24
<PAGE>
Pending Accounting Change
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities." Statement
No. 133 requires companies to record derivatives on the balance sheet as assets
or liabilities, measured at fair value. Accounting for gains or losses resulting
from changes in the values of those derivatives is dependent on the use of the
derivative and whether it qualifies for hedge accounting. The Statement is
effective for us in the year 2001, with earlier adoption encouraged. We have not
yet determined the effect that adoption of this new Statement will have on our
operations or financial position.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk is our primary market risk exposure. Substantial and
sustained increases and decreases in market interest rates can affect the
profitability of our products and the market value of our investments.
The profitability of most of our products depends on the spreads between
interest yield on investments and rates credited on insurance liabilities. We
have the ability to adjust crediting rates (participation or asset fee rates for
equity-index annuities) on substantially all of our annuity policies at least
annually (subject to minimum guaranteed values). In addition, substantially all
of our annuity products have surrender and withdrawal penalty provisions
designed to encourage persistency and to help ensure targeted spreads are
earned. However, competitive factors, including the impact of the level of
surrenders and withdrawals, may limit our ability to adjust or maintain
crediting rates at levels necessary to avoid narrowing of spreads under certain
market conditions.
A major component of our interest rate risk management program is
structuring the investment portfolio with cash flow characteristics consistent
with the cash flow characteristics of our insurance liabilities. We use computer
models to simulate cash flows expected from our existing business under various
interest rate scenarios. These simulations enable us to measure the potential
gain or loss in fair value of our interest rate-sensitive financial instruments,
to evaluate the adequacy of expected cash flows from our assets to meet the
expected cash requirements of our liabilities and to determine if it is
necessary to lengthen or shorten the average life and duration of our investment
portfolio. (The "duration" of a security is the time weighted present value of
the security's expected cash flows and is used to measure a security's
sensitivity to changes in interest rates). When the durations of assets and
liabilities are similar, exposure to interest rate risk is minimized because a
change in value of assets should be largely offset by a change in the value of
liabilities. At December 31, 1999, the effective duration of our fixed maturity
securities and short-term investments was approximately 8.6 years and the
estimated duration of our insurance liabilities was approximately 6.9 years.
If interest rates were to increase 10% from levels at December 31, 1999, we
estimate that the fair value of our fixed maturity securities, net of
corresponding changes in the values of deferred policy acquisition costs and
insurance in force acquired would decrease by approximately $62,673,000. The
computer models used to estimate the impact of a 10% change in market interest
rates incorporate numerous assumptions, require significant estimates and assume
an immediate and parallel change in interest rates without any management of the
investment portfolio in reaction to such change. Consequently, potential changes
in value of our financial instruments indicated by the simulations will likely
be different from the actual changes experienced under given interest rate
scenarios, and the differences may be material. Because we actively manage our
investments and liabilities, our net exposure to interest rates can vary over
time.
Page 22 of 24
<PAGE>
Item 8. Consolidated Financial Statements and Supplementary Data.
The financial statements are included as a part of this report on form 10-K
on pages F-1 through F-29.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The information required by Part III is incorporated by reference from our
definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A within 120 days after December 31, 1999.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Financial Statements and Financial Statement Schedules. See Index to
Consolidated Financial Statements on page F-1 for a list of financial statements
and financial statement schedules included in this report.
All other schedules to the consolidated financial statements required by
Article 7 of Regulation S-X are omitted because they are not applicable, not
required, or because the information is included elsewhere in the consolidated
financial statements or notes thereto.
Exhibits. See Exhibit Index immediately preceding the Exhibits for a list
of Exhibits filed with this report.
Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended December 31, 1999.
Page 23 of 24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 20th day of
March, 2000.
AMERICAN EQUITY INVESTMENT
LIFE HOLDING COMPANY
By: /s/ D.J. NOBLE
-----------------------------------
D.J. Noble, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
registration statement has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title (Capacity) Date
- --------- ---------------- ----
<S> <C> <C>
/s/ D.J. NOBLE Chairman of the Board and President, March 20, 2000
- ------------------------ (Principal Executive Officer)
D.J. Noble
/S/ WENDY L. CARLSON Chief Financial Officer and General Counsel March 20, 2000
- ------------------------ (Principal Financial Officer)
Wendy L. Carlson
/s/ TERRY A. REIMER Chief Operating Officer and Executive
- ------------------------ Vice President (Principal Accounting Officer March 20, 2000
Terry A. Reimer
/s/ JAMES M. GERLACH Director March 20, 2000
- ------------------------
James M. Gerlach
/s/ ROBERT L. HILTON Director March 20, 2000
- ------------------------
Robert L. Hilton
/s/ BEN T. MORRIS Director March 20, 2000
- ------------------------
Ben T. Morris
/s/ DAVID S. MULCAHY Director March 20, 2000
- ------------------------
David S. Mulcahy
/s/ A.J. STRICKLAND, III Director March 20, 2000
- ------------------------
A.J. Strickland, III
/s/ HARLEY A. WHITFIELD Director March 20, 2000
- ------------------------
Harley A. Whitfield
/s/ JOHN C. ANDERSON Director March 20, 2000
- ------------------------
John C. Anderson
</TABLE>
Page 24 of 24
<PAGE>
American Equity Investment Life
Holding Company
Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
Index to Financial Statements
Report of Independent Auditors..............................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets.................................................F-3
Consolidated Statements of Operations.......................................F-5
Consolidated Statements of Changes in Stockholders' Equity..................F-6
Consolidated Statements of Cash Flows.......................................F-8
Notes to Consolidated Financial Statements.................................F-10
Schedules
Schedule I - Summary of Investments - Other Than
Investments in Related Parties.........................................F-30
Schedule II - Condensed Financial Information of Registrant
(Parent Company).......................................................F-31
Schedule III - Supplementary Insurance Information.........................F-36
Schedule IV - Reinsurance..................................................F-37
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
American Equity Investment Life Holding Company
We have audited the accompanying consolidated balance sheets of American Equity
Investment Life Holding Company as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1999. Our audits also included the financial statement schedules listed in the
Index on page F-1. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of American Equity
Investment Life Holding Company at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ Ernst & Young LLP
Des Moines, Iowa
March 1, 2000
F-2
<PAGE>
American Equity Investment Life Holding Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31
1999 1998
-------------- ------------
<S> <C> <C>
Assets
Cash and investments:
Fixed maturity securities:
Available-for-sale, at market (amortized cost:
1999 - $1,070,465,367; 1998 - $600,300,562) $ 997,019,819 $601,897,562
Held for investment, at amortized cost
(market: 1999 - $315,974,664) 398,467,247 --
Equity securities, at market
(cost: 1999 - $8,019,999) 7,613,489 --
Derivative instruments 44,209,883 16,171,621
Policy loans 231,068 192,184
Cash and cash equivalents 5,881,515 15,891,779
-------------- ------------
Total cash and investments 1,453,423,021 634,153,146
Receivable from other insurance companies 597,956 616,737
Premiums due and uncollected 1,097,105 1,684,698
Accrued investment income 14,183,386 2,946,796
Receivables from related parties 18,896,009 89,427
Property, furniture and equipment, less accumulated
depreciation: 1999 - $1,632,011; 1998 - $859,085 1,346,325 1,242,228
Value of insurance in force acquired 752,427 1,068,906
Deferred policy acquisition costs 126,684,495 32,005,772
Intangibles, less accumulated amortization
1999 - $681,412; 1998 - $472,306 2,238,004 646,142
Deferred income tax asset 43,036,868 8,289,499
Federal income taxes recoverable 1,662,522 -
Other assets 1,214,545 117,035
Assets held in separate account 370,787 151,450
-------------- ------------
Total assets $1,665,503,450 $683,011,836
============== ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
American Equity Investment Life Holding Company
Consolidated Balance Sheets
(continued)
<TABLE>
<CAPTION>
December 31
1999 1998
-------------------- --------------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Liabilities:
Policy benefit reserves:
Traditional life and accident and health
insurance products $ 15,059,895 $ 11,317,156
Annuity and single premium universal life products 1,343,815,953 529,765,023
Other policy funds and contract claims 11,553,574 6,315,598
Provision for experience rating refunds 544,610 833,679
Amounts due to related parties 10,003,258 2,438,600
Notes payable 20,600,000 10,000,000
Amounts due under repurchase agreements 86,968,750 49,000,000
Amounts due on securities purchased 29,713,749 -
Federal income taxes payable -- 1,648,822
Other liabilities 13,566,954 5,410,987
Liabilities related to separate account 370,787 151,450
-------------------- --------------------
Total liabilities 1,532,197,530 616,881,315
Commitments and contingencies
Minority interest in subsidiaries: company-obligated
mandatorily redeemable preferred securities of
subsidiary trusts 98,981,629 --
Stockholders' equity:
Series Preferred Stock, par value $1 per share, 2,000,000 shares
authorized; 625,000 shares of 1998 Series A Participating
Preferred Stock issued and outstanding 625,000 625,000
Common Stock, par value $1 per share - 25,000,000 shares
authorized; issued and outstanding:
1999 - 4,712,310 shares; 1998 - 4,581,962 shares 4,712,310 4,581,962
Additional paid-in capital 66,057,863 64,783,117
Accumulated other comprehensive income (loss) (35,234,635) 420,035
Retained-earnings deficit (1,836,247) (4,279,593)
-------------------- --------------------
Total stockholders' equity 34,324,291 66,130,521
-------------------- --------------------
Total liabilities and stockholders' equity $ 1,665,503,450 $ 683,011,836
==================== ====================
</TABLE>
See accompanying notes
F-4
<PAGE>
American Equity Investment Life Holding Company
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Traditional life and accident and
health insurance premiums $10,294,437 $10,528,108 $11,424,907
Annuity and single premium
universal life product charges 3,452,095 642,547 11,896
Net investment income 64,609,612 26,356,472 4,018,617
Realized gains on investments 1,454,417 426,782 --
----------- ----------- -----------
Total revenues 79,810,561 37,953,909 15,455,420
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 7,231,895 6,084,893 7,440,080
Interest credited to account balances 41,726,895 15,837,912 2,129,686
Interest expense on notes payable 896,383 788,770 979,826
Interest expense on amounts due
under repurchase agreements 3,490,849 1,528,718 291,547
Amortization of deferred policy
acquisition costs and value of
insurance in force acquired 11,240,271 3,946,133 1,143,032
Amortization of goodwill 70,000 70,000 70,000
Other operating costs and expenses 12,058,398 8,692,813 8,160,863
----------- ----------- -----------
Total benefits and expenses 76,714,691 36,949,239 20,215,034
----------- ----------- -----------
Income (loss) before income taxes 3,095,870 1,004,670 (4,759,614)
Income tax benefit (expense):
Current (14,188,656) (5,311,080) (2,565,057)
Deferred 15,558,491 4,550,597 3,955,283
----------- ----------- -----------
1,369,835 (760,483) 1,390,226
Minority interests in subsidiaries:
Earnings attributable to company-
obligated mandatorily redeemable preferred
securities of subsidiary trusts (2,022,359) -- --
----------- ----------- -----------
Net income (loss) $ 2,443,346 $ 244,187 $(3,369,388)
=========== =========== ===========
Basic earnings (loss) per common share $ 0.52 $ 0.05 $ (2.11)
=========== =========== ===========
Diluted earnings (loss) per common share $ 0.42 $ 0.05 $ (2.11)
=========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE>
Consolidated Statements of Changes in Stockholders' Equity
American Equity Investment Life Holding Company
<TABLE>
<CAPTION>
Preferred
Stock
--------
<S> <C>
Balance at January 1, 1997 $ --
Comprehensive loss:
Net loss for year --
Change in net unrealized investment gains/losses --
Total comprehensive loss
Issuance of 3,240,864 shares of common stock,
less issuance expenses of $2,928,493 --
Compensation expense related to issuance of stock
options and warrants --
--------
Balance at December 31, 1997 --
Comprehensive income:
Net income for year --
Change in net unrealized investment gains/losses --
Total comprehensive income
Issuance of 161,098 shares of common stock, less issuance
expenses of $329,700 --
Issuance of 625,000 shares of 1998 Series A Participating
Preferred Stock, less issuance expenses of $31,930 625,000
--------
Balance at December 31, 1998 625,000
Comprehensive loss:
Net income for year --
Change in net unrealized investment gains/losses --
Total comprehensive loss
Issuance of 130,348 shares of common stock, less issuance
expenses of $21,756 --
Dividends on preferred stock ($.02 per share) --
Dividends on common stock ($.02 per share) --
--------
Balance at December 31, 1999 $625,000
========
</TABLE>
See accompanying notes.
F-6
<PAGE>
American Equity Investment Life Holding Company
Consolidated Statements of Changes in Stockholders' Equity
(continued)
<TABLE>
<CAPTION>
Accumulated
Additional Other Retained- Total
Paid-In Comprehensive Earnings Stockholders'
Common Stock Capital Income (Loss) Deficit Equity
- ---------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
$1,180,000 $10,313,050 $ (201,556) $(1,154,392) $ 10,137,102
-- -- -- (3,369,388) (3,369,388)
-- -- 411,856 -- 411,856
------------
(2,957,532)
3,240,864 43,377,615 -- -- 46,618,479
-- 628,000 -- -- 628,000
- ---------- ----------- ------------ ----------- ------------
4,420,864 54,318,665 210,300 (4,523,780) 54,426,049
-- -- -- 244,187 244,187
-- -- 209,735 -- 209,735
------------
453,922
161,098 1,121,382 -- -- 1,282,480
-- 9,343,070 -- -- 9,968,070
- ---------- ----------- ------------ ----------- ------------
4,581,962 64,783,117 420,035 (4,279,593) 66,130,521
-- -- -- 2,443,346 2,443,346
-- -- (35,654,670) -- (35,654,670)
------------
(33,211,324)
130,348 1,381,492 -- -- 1,511,840
-- (12,500) -- -- (12,500)
-- (94,246) -- -- (94,246)
- ---------- ----------- ------------ ----------- ------------
$4,712,310 $66,057,863 $(35,234,635) $(1,836,247) $ 34,324,291
========== =========== ============ =========== ============
</TABLE>
See accompanying notes.
F-7
<PAGE>
American Equity Investment Life Holding Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 2,443,346 $ 244,187 $(3,369,388)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Adjustments related to interest sensitive products:
Interest credited to account balances 41,726,895 15,837,912 2,129,686
Annuity and single premium universal life (3,452,095) (642,547) (11,896)
product charges
Increase in traditional life and accident and
health insurance reserves 3,742,739 1,629,777 287,197
Policy acquisition costs deferred:
Commissions paid to related party (73,804,373) (24,164,726) (3,353,491)
Other (3,590,628) (1,908,540) (789,435)
Amortization of deferred policy acquisition costs 10,923,792 3,672,039 761,032
Amortization of discount and premiums on
fixed maturity securities and derivative
instruments (10,765,015) (12,975,476) (997,853)
Provision for depreciation and other amortization 1,298,511 991,569 913,168
Compensation expense related to issuance of
stock options and warrants -- -- 628,000
Realized gains on investments (1,454,417) (426,782) --
Deferred income taxes (15,558,491) (4,550,597) (3,955,283)
Change in other operating assets and liabilities:
Federal income taxes recoverable (1,662,522) -- --
Federal income taxes payable (1,648,822) (913,920) 2,562,742
Accrued investment income (11,236,590) (1,184,172) (1,347,769)
Other policy funds and contract claims 5,237,976 3,960,442 1,279,542
Amounts due to related parties 7,564,658 -- --
Receivables from related parties (18,806,582) -- --
Other liabilities 8,155,967 4,309,326 2,282,475
Other (650,621) (72,751) (271,762)
------------ ------------ -----------
Net cash used in operating activities (61,536,272) (16,194,259) (3,253,035)
</TABLE>
See accompanying notes.
F-8
<PAGE>
American Equity Investment Life Holding Company
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Investing activities
Sales, maturities or repayments of investments:
Fixed maturity securities - available-for-sale $ 308,669,843 $ 222,745,031 $ 22,591,487
Derivative instruments 1,541,669 -- --
--------------- ------------- -------------
310,211,512 222,745,031 22,591,487
Acquisitions of investments:
Fixed maturity securities - available-for-sale (734,248,023) (602,830,456) (200,181,267)
Fixed maturity securities - held for investment (310,499,557) -- --
Equity securities (8,019,999) -- --
Derivative instruments (39,396,518) (11,539,179) (1,815,674)
Proceeds received from futures contract 4,969,781
Policy loans (38,884) (8,831) (26,830)
--------------- ------------- -------------
(1,087,233,200) (614,378,466) (202,023,771)
Proceeds from sale of property -- 2,094,619 --
Purchases of property, furniture and equipment (877,023) (625,567) (1,123,129)
--------------- ------------- -------------
Net cash used in investing activities (777,898,711) (390,164,383) (180,555,413)
Financing activities
Receipts credited to annuity and single
premium universal life policyholder
account balances 816,126,324 377,917,332 141,853,600
Return of annuity and single premium universal
life policyholder account balances (60,844,621) (23,637,290) (2,419,197)
Financing fees deferred (1,800,968) -- --
Proceeds from notes payable 10,600,000 -- --
Increase in amounts due under repurchase agreements 37,968,750 49,000,000 --
Proceeds from issuance of company-obligated
mandatorily redeemable preferred securities of
subsidiary trusts 25,970,140 -- --
Net proceeds from sale of preferred stock -- 9,968,070 --
Net proceeds from issuance of common stock 1,511,840 1,282,480 46,618,479
Dividends paid (106,746) -- --
--------------- ------------- -------------
Net cash provided by financing activities 829,424,719 414,530,592 186,052,882
--------------- ------------- -------------
Increase (decrease) in cash and cash equivalents (10,010,264) 8,171,950 2,244,434
Cash and cash equivalents at beginning of year 15,891,779 7,719,829 5,475,395
--------------- ------------- -------------
Cash and cash equivalents at end of year $ 5,881,515 $ 15,891,779 $ 7,719,829
=============== ============= =============
Supplemental disclosures of cash flow information
Cash paid during year for:
Interest $ 4,903,561 $ 1,995,789 $ 1,113,886
Income taxes 17,500,000 6,225,000 2,315
Non-cash investing and financing activities:
Bonus interest deferred as policy acquisition costs 7,602,004 5,909,679 1,035,325
Issuance of common stock in payment of deferred
compensation 90,400 -- --
Exchange of held for investment fixed maturity securities
for company-obligated mandatorily redeemable
preferred securities of subsidiary trusts 72,490,000 -- --
</TABLE>
See accompanying notes.
F-9
<PAGE>
American Equity Investment Life Holding Company
Notes to Consolidated Financial Statements
December 31, 1999
1. Organization and Significant Accounting Policies
Organization
American Equity Investment Life Holding Company (the Company), through its
wholly-owned subsidiary, American Equity Investment Life Insurance Company, is
licensed to sell insurance products in 42 states and the District of Columbia at
December 31, 1999. The Company offers a broad array of annuity and insurance
products. The Company's business consists primarily of the sale of equity-index
and fixed rate annuities. In 1998, the Company began offering variable annuity
products. The Company operates solely in the life insurance business.
Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries: American Equity Investment Life Insurance
Company, American Equity Investment Capital, Inc. (formed in 1998), American
Equity Capital Trust I (formed in 1999), American Equity Capital Trust II
(formed in 1999), American Equity of Hawaii, Inc. (formed in 1999) and American
Equity Investment Properties, L.C. All significant inter-company accounts and
transactions have been eliminated.
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Significant estimates and
assumptions are utilized in the calculation of value of insurance in force
acquired, deferred policy acquisition costs, policyholder liabilities and
accruals and valuation allowances on investments. It is reasonably possible that
actual experience could differ from the estimates and assumptions utilized.
Certain amounts in the 1998 and 1997 consolidated financial statements have been
reclassified to conform to the 1999 financial statement presentation.
Investments
Fixed maturity securities (bonds and redeemable preferred stocks that mature
more than one year after issuance) that may be sold prior to maturity are
classified as available-for-sale. Available-for-sale securities are reported at
estimated fair value and unrealized gains and losses, if any, on these
securities are included directly in a separate component of stockholders'
equity, net of income taxes and certain adjustments. Premiums and discounts are
amortized/accrued using methods which result in a constant yield over the
securities' expected lives. Amortization/accrual of premiums and discounts on
mortgage and asset-backed securities incorporate prepayment assumptions to
estimate the securities' expected lives.
Fixed maturity securities that the Company has the positive intent and ability
to hold to maturity are classified as held for investment. Held for investment
securities are reported at cost adjusted for amortization of premiums and
discounts. Changes in the market value of these securities, except for declines
that are other than temporary, are not reflected in the Company's financial
statements. Premiums and discounts are amortized/accrued using methods which
result in a constant yield over the securities' expected lives.
Equity securities, comprised of common and non-redeemable preferred stocks, are
reported at market value. Unrealized gains and losses are included directly in a
separate component of stockholders' equity, net of income taxes.
F-10
<PAGE>
The Company sells deferred annuity products with an additional benefit provision
based on the increase, if any, in specified equity market indexes or benchmarks.
The Company has purchased one-year option contracts with characteristics similar
to the additional benefit provisions to hedge potential increases to
policyholder benefits resulting from these additional benefit provisions. The
cost of the options is amortized over the life of the contracts and is recorded,
net of proceeds received upon expiration, as a component of net investment
income.
These options are reported at fair value in the consolidated balance sheets. The
options are purchased at the time the related annuity policies are issued, with
similar maturity dates and benefit features that fluctuate as the value of the
options change. Changes in the unrealized appreciation of the options
($12,762,839, $8,061,627 and $839,359 during the years ended December 31, 1999,
1998 and 1997, respectively) are offset by changes to the policy benefit
liabilities in the consolidated statements of operations.
The Company's hedging strategy attempts to mitigate any potential risk of loss
under these agreements through a regular monitoring process which evaluates the
program's effectiveness. The Company is exposed to risk of loss in the event of
nonperformance by the counterparties and, accordingly, the Company purchases its
option contracts from multiple counterparties and evaluates the creditworthiness
of all counterparties prior to purchase of the contracts. At December 31, 1999,
all of these options had been purchased from nationally recognized investment
banking institutions with a Standard and Poor's credit rating of BBB+ or higher.
Policy loans are reported at unpaid principal.
The carrying values of all the Company's investments are reviewed on an ongoing
basis for credit deterioration. If this review indicates a decline in market
value that is other than temporary, the Company's carrying value in the
investment is reduced to its estimated realizable value and a specific writedown
is taken. Such reductions in carrying value are recognized as realized losses
and charged to income. Realized gains and losses on sales are determined on the
basis of specific identification of investments.
Market values, as reported herein, of fixed maturity and equity securities are
based on the latest quoted market prices, or for those fixed maturity securities
not readily marketable, at values which are representative of the market values
of issues of comparable yield and quality.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Deferred Policy Acquisition Costs
To the extent recoverable from future policy revenues and gross profits, certain
costs of producing new business, principally commissions, first-year bonus
interest and certain costs of policy issuance (including policy issue costs of
$2,949,107 in 1999, $1,908,540 in 1998 and $789,435 in 1997) have been deferred.
For annuity and single premium universal life products, these costs are being
amortized generally in proportion to expected gross profits from surrender
charges and investment, mortality, and expense margins. That amortization is
adjusted retrospectively when estimates of future gross profits/margins
(including the impact of realized investment gains and losses) to be realized
from a group of products are revised. Deferred policy acquisition costs are also
adjusted for the change in amortization that would have occurred if
available-for-sale fixed maturity securities had been sold at their aggregate
market value and the proceeds reinvested at current yield. The impact of this
adjustment is included in accumulated other comprehensive income (loss) within
stockholders' equity.
For traditional life and accident and health insurance, deferred policy
acquisition costs are being amortized over the premium-paying period of the
related policies in proportion to premium revenues recognized, principally using
the same assumptions for interest, mortality and withdrawals that are used for
computing liabilities for future policy benefits subject to traditional
"lock-in" concepts.
F-11
<PAGE>
Value of Insurance In Force Acquired
The value of insurance in force acquired represents that actuarially determined
present value of the projected future cash flows from the insurance contracts
that were acquired pursuant to two reinsurance agreements. This balance is
amortized, evaluated for recovery and adjusted for the impact of unrealized
gains and losses in the same manner as deferred policy acquisition costs
described above.
Intangibles
Intangibles consist of deferred debt and trust preferred security issue costs
and the excess of the purchase price paid over the fair value of the net assets
acquired (goodwill) in connection with the purchase of an inactive life
insurance company in 1996. Deferred issue costs are being amortized over the
life of the related agreement using the interest method. Goodwill is being
amortized over 10 years using the straight-line method.
Property, Furniture and Equipment
Property and furniture and equipment, comprised primarily of office furniture
and equipment, data processing equipment and capitalized software costs, are
reported at cost less allowances for depreciation. Depreciation expense is
determined primarily using the straight-line method over the estimated useful
lives of the assets.
Separate Accounts
The separate account assets and liabilities represent funds that are separately
administered for the benefit of variable annuity policyholders who bear the
underlying investment risk. The separate account assets and liabilities are
carried at fair value. Revenues and expenses related to the separate account
assets and liabilities, to the extent of premiums received from and benefits
paid or provided to the separate account policyholders, are excluded from the
amounts reported in the consolidated statements of operations. The Company
receives various fees (mortality, expense and surrender charges assessed against
policyholder account balances) that are included as revenues in the consolidated
statements of operations.
Future Policy Benefits
Future policy benefit reserves for annuity and single premium universal life
products are computed under a retrospective deposit method and represent policy
account balances before applicable surrender charges. Policy benefits and claims
that are charged to expense include benefit claims incurred in the period in
excess of related policy account balances. Interest crediting rates for these
products ranged from 3.0% to 12.0% in 1999 and 1998, and from 3.0% to 12.4% in
1997. A portion of this amount ($7,602,004, $5,909,679 and $1,035,325 during the
years ended December 31, 1999, 1998 and 1997, respectively) represents an
additional interest credit on first-year premiums payable until the first
contract anniversary date (first-year bonus interest). Such amounts have been
offset against interest credited to account balances and deferred as policy
acquisitions costs.
The liability for future policy benefits for traditional life insurance is based
on net level premium reserves, including assumptions as to interest, mortality,
and other assumptions underlying the guaranteed policy cash values. Reserve
interest assumptions are level and range from 3.0% to 6.0%. The liabilities for
future policy benefits for accident and health insurance are computed using a
net level premium method, including assumptions as to morbidity and other
assumptions based on the Company's experience, modified as necessary to give
effect to anticipated trends and to include provisions for possible unfavorable
deviations. Policy benefit claims are charged to expense in the period that the
claims are incurred.
Unpaid claims include amounts for losses and related adjustment expenses and are
determined using individual claim evaluations and statistical analysis. Unpaid
claims represent estimates of the ultimate net costs of all losses, reported and
unreported, which remain unpaid at December 31 of each year. These estimates are
necessarily subject to the impact of future changes in claim severity, frequency
and other factors. In spite of the variability inherent in such situations,
management believes that the unpaid claim amounts are adequate. The estimates
are continuously reviewed and as adjustments to these amounts become necessary,
such adjustments are reflected in current operations.
F-12
<PAGE>
Certain policies of the Company include provisions for refunds of premiums based
upon annual experience of the underlying business equal to net premiums received
less a 16% administrative fee and less claims incurred. Such amounts (1999 -
$1,206,348; 1998 - $523,807; and 1997 - $711,129) are reported as a reduction of
traditional life and accident and health insurance premiums in the consolidated
statements of operations.
Deferred Income Taxes
Deferred income tax assets or liabilities are computed based on the temporary
differences between the financial statement and income tax bases of assets and
liabilities using the enacted marginal tax rate. Deferred income tax expenses or
credits are based on the changes in the asset or liability from period to
period. Deferred income tax assets are subject to ongoing evaluation of whether
such assets will be realized. The ultimate realization of deferred income tax
assets depends on generating future taxable income during the periods in which
temporary differences become deductible. If future income is not generated as
expected, deferred income tax assets may need to be written off.
Stockholders' Equity
During 1999, the Company increased the number of authorized shares of common
stock, $1 par value, from 10,000,000 to 25,000,000. In connection with the
issuance of the Company's common stock under certain private placement
offerings, the Company issued warrants to purchase one additional share of
common stock for every five shares that were purchased. In addition, warrants to
purchase 80,000 shares of the Company's common stock were issued in 1997 in
connection with the amendment of the Stock Option Agreement with the Company's
chairman (see Note 9). During 1999, 114,083 warrants were exercised at a price
of $12.00 per share. During 1998, 157,398 warrants were exercised at a price of
$10.00. At December 31, 1999, the Company had warrants for 148,250 shares
outstanding with exercise prices of $12.00 per share (68,250 shares) and $10.00
per share (80,000 shares). All of the warrants expire on April 30, 2000.
During 1998, the Company issued 625,000 shares of 1998 Series A Participating
Preferred Stock, at par, under a private placement offering in exchange for cash
of $10,000,000. These shares have participating dividend rights with shares of
the Company's common stock, when and as such dividends are declared. These
shares are convertible into shares of the Company's common stock on a
one-for-one basis and have no voting rights.
Recognition of Premium Revenues and Costs
Revenues for annuity and single premium universal life products consist of
surrender charges assessed against policyholder account balances and mortality
and expense charges (single premium universal life products only) during the
period. Expenses related to these products include interest credited to
policyholder account balances and benefit claims incurred in excess of
policyholder account balances (single premium universal life products only).
Traditional life and accident and health insurance premiums are recognized as
revenues over the premium-paying period. Future policy benefits and policy
acquisition costs are recognized as expenses over the life of the policy by
means of the provision for future policy benefits and amortization of deferred
policy acquisition costs.
All insurance-related revenues, benefits, losses and expenses are reported net
of reinsurance ceded.
Comprehensive Income (Loss)
Comprehensive income (loss) includes all changes in stockholders' equity during
a period except those resulting from investments by and distributions to
stockholders. Other comprehensive income (loss) excludes net realized investment
gains (losses) included in net income (loss) which merely represent transfers
from unrealized to realized gains and losses. These amounts totaled $983,264 and
$35,886 in 1999 and 1998, respectively. Such amounts, which have been measured
through the date of sale, are net of adjustments to deferred policy acquisition
costs and income taxes totaling $471,153 in 1999 and $115,864 in 1998.
F-13
<PAGE>
Pending Accounting Change
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 requires companies to record
derivative instruments on the balance sheet at fair value. Accounting for gains
or losses resulting from changes in the fair values of derivative instruments is
dependent on the use of the derivative and whether it qualifies for hedge
accounting. The Statement is effective for the Company in the year 2001, with
earlier adoption encouraged. The Company has not yet determined the effect that
this new Statement will have on its operations or financial position.
2. Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in estimating the
fair values of financial instruments:
Fixed maturity securities: Quoted market prices, when available, or price
matrices for securities which are not actively traded, developed using yield
data and other factors relating to instruments or securities with similar
characteristics.
Equity securities: Quoted market prices, where available.
Derivative instruments: Quoted market prices from related counterparties.
Policy loans: The Company has not attempted to determine the fair values
associated with its policy loans, as management believes any differences between
the Company's carrying value and the fair values afforded these instruments are
immaterial to the Company's financial position and, accordingly, the cost to
provide such disclosure is not worth the benefit to be derived.
Cash and cash equivalents: Amounts reported in the consolidated balance sheets
for these instruments approximate their fair values.
Separate account assets and liabilities: Reported at estimated fair value in the
consolidated balance sheets.
Annuity and single premium universal life policy reserves: Fair values of the
Company's liabilities under contracts not involving significant mortality or
morbidity risks (principally deferred annuities), are stated at the cost the
Company would incur to extinguish the liability (i.e., the cash surrender
value). The Company is not required to and has not estimated the fair value of
its liabilities under other contracts.
Notes payable and amounts due under repurchase agreements: As all notes and
short-term indebtedness under repurchase agreements have variable interest
rates, the amounts reported in the consolidated balance sheets for these
instruments approximate their fair values.
Company-obligated mandatorily redeemable preferred securities of subsidiary
trusts: Fair values are estimated by discounting expected cash flows using
interest rates currently being offered for similar securities.
F-14
<PAGE>
The following sets forth a comparison of the fair values and carrying amounts of
the Company's financial instruments:
<TABLE>
<CAPTION>
December 31
1999 1998
------------------------------ ---------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Assets
Fixed maturity securities:
Available-for-sale $ 997,019,819 $ 997,019,819 $601,897,562 $601,897,562
Held-for-investment 398,467,247 315,974,664 -- --
Equity securities 7,613,489 7,613,489 -- --
Derivative instruments 44,209,883 44,209,883 16,171,621 16,171,621
Policy loans 231,068 231,068 192,184 192,184
Cash and cash equivalents 5,881,515 5,881,515 15,891,779 15,891,779
Separate account assets 370,787 370,787 151,450 151,450
Liabilities
Annuity and single premium
universal life reserves 1,343,815,953 1,149,271,147 529,765,023 458,253,796
Notes payable 20,600,000 20,600,000 10,000,000 10,000,000
Amounts due under repurchase
agreements 86,968,750 86,968,750 49,000,000 49,000,000
Separate account liabilities 370,787 370,787 151,450 151,450
Company-obligated mandatorily
redeemable preferred securities
of subsidiary trusts 98,981,629 98,981,629 -- --
</TABLE>
F-15
<PAGE>
3. Investments
At December 31, 1999 and 1998, the amortized cost and estimated fair value of
fixed maturity securities and equity securities were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
December 31, 1999 Cost Gains Losses Fair Value
- --------------------------------- -------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities
Available-for-sale
United States Government
and agencies $ 642,115,817 $ 111,819 $(39,229,308) $602,998,328
State, municipal and
other governments 4,539,257 -- (379,607) 4,159,650
Public utilities 12,201,799 -- (1,362,599) 10,839,200
Corporate securities 300,422,046 408,652 (28,539,013) 272,291,685
Redeemable preferred stocks 9,240,340 -- (824,220) 8,416,120
Mortgage and asset-backed
securities 101,946,108 642,075 (4,273,347) 98,314,836
-------------- ---------- ------------ ------------
$1,070,465,367 $1,162,546 $(74,608,094) $997,019,819
============== ========== ============ ============
Held for investment
United States Government
and agencies $ 323,311,715 $ -- $(74,631,915) $248,679,800
Redeemable preferred stocks 75,155,532 -- (7,860,668) 67,294,864
-------------- ---------- ------------ ------------
$ 398,467,247 $ -- $(82,492,583) $315,974,664
============== ========== ============ ============
Equity securities
Non-redeemable preferred
stocks $ 6,850,000 $ -- $ (227,160) $ 6,622,840
Common stocks 1,169,999 -- (179,350) 990,649
-------------- ---------- ------------ ------------
$ 8,019,999 $ -- $ (406,510) $ 7,613,489
============== ========== ============ ============
December 31, 1998
- ------------------------------------
Fixed maturity securities
Available-for-sale
United States Government
and agencies $ 385,393,461 $ 854,292 $ (23,637) $386,224,116
State, municipal and other
governments 4,227,231 -- (3,231) 4,224,000
Public utilities 9,869,720 194,810 -- 10,064,530
Corporate securities 191,393,819 1,036,268 (525,097) 191,904,990
Mortgage and asset-backed
securities 9,416,331 64,400 (805) 9,479,926
-------------- ---------- ------------ ------------
$ 600,300,562 $2,149,770 $ (552,770) $601,897,562
============== ========== ============ ============
</TABLE>
F-16
<PAGE>
The amortized cost and estimated fair value of fixed maturity securities at
December 31, 1999, by contractual maturity, are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. All of
the Company's mortgage-backed and asset-backed securities provide for periodic
payments throughout their lives, and are shown below as a separate line.
<TABLE>
<CAPTION>
Available-for-sale Held for investment
----------------------------------- ---------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Due after one year through five years $ 13,815,639 $ 13,480,248 $ -- $ --
Due after five years through ten years 148,996,868 144,701,650 -- --
Due after ten years through twenty years 492,734,730 469,617,702 -- --
Due after twenty years 312,972,022 270,905,383 398,467,247 315,974,664
-------------- ------------ ------------ ------------
968,519,259 898,704,983 398,467,247 315,974,664
Mortgage-backed and asset-backed
securities 101,946,108 98,314,836 -- --
-------------- ------------ ------------ ------------
$1,070,465,367 $997,019,819 $398,467,247 $315,974,664
============== ============ ============ ============
</TABLE>
Net unrealized gains (losses) on available-for-sale fixed maturity securities
and equity securities reported as a separate component of stockholders' equity
were comprised of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION> December 31
1999 1998
------------ ----------
<S> <C> <C>
Net unrealized gains (losses) on available-for-sale
fixed maturity and equity securities $(73,852,058) $1,597,000
Adjustments for assumed changes in amortization of
deferred policy acquisition costs 19,644,927 (960,583)
Deferred income tax benefit (expense) 18,972,496 (216,382)
------------ ----------
Net unrealized gains (losses) reported as accumulated
other comprehensive income (loss) $(35,234,635) $ 420,035
============ ==========
</TABLE>
Components of net investment income are as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Fixed maturity securities $69,877,178 $28,304,437 $5,131,361
Equity securities 456,000 -- --
Derivative instruments (6,151,600) (1,767,580) (589,484)
Policy loans 19,722 8,338 12,281
Cash and cash equivalents 487,254 331,530 124,393
Other 951,035 55,109 --
----------- ----------- ----------
65,639,589 26,931,834 4,678,551
Less investment expenses (1,029,977) (575,362) (659,934)
----------- ----------- ----------
Net investment income $64,609,612 $26,356,472 $4,018,617
=========== =========== ==========
</TABLE>
F-17
<PAGE>
An analysis of sales, maturities, and principal repayments of the Company's
available-for-sale fixed maturity securities for the year ended December 31,
1999 is as follows:
<TABLE>
<CAPTION>
Gross Gross Proceeds
Amortized Realized Realized from
Cost Gains Losses Sale
------------ -------- ---------- ------------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
Scheduled principal repayments,
calls and tenders $195,837,799 $ -- $ -- $195,837,799
Sales 112,919,296 322,454 (409,706) 112,832,044
------------ -------- --------- ------------
$308,757,095 $322,454 $(409,706) $308,669,843
============ ======== ========= ============
Year ended December 31, 1998
Scheduled principal repayments
calls and tenders $157,731,977 $ -- $ -- $157,731,977
Sales 64,861,304 163,865 (12,115) 65,013,054
------------ -------- -------- ------------
$222,593,281 $163,865 $(12,115) $222,745,031
============ ======== ======== ============
</TABLE>
For the year ended December 31, 1999, realized gains on investments consisted of
net losses of $87,252 on the sale of available-for-sale fixed maturity
securities and a gain of $1,541,669 on the termination of a total return swap.
For the year ended December 31, 1998, realized gains of $426,782 consisted of
net gains on sales of available-for-sale fixed maturities of $151,750 and a gain
on the sale of real property of $275,032. The Company did not have any realized
gains for the year ended December 31, 1997.
The change in unrealized appreciation/depreciation on investments for the year
ended December 31, 1999 aggregated ($75,449,058), and consisted of unrealized
depreciation on available-for-sale fixed maturity securities and equity
securities of $75,042,548 and $406,510, respectively. The changes in unrealized
appreciation/depreciation on investments aggregated $905,405 and $893,151 for
the years ended December 31, 1998 and 1997, respectively, and were entirely
attributable to available-for-sale fixed maturity securities. The change in net
unrealized appreciation/depreciation is recorded net of adjustments to deferred
policy acquisition costs and deferred income taxes totaling $39,794,388 in 1999,
$695,670 in 1998 and $481,295 in 1997.
As a part of its asset-liability management activities, the Company from time to
time purchases financial futures instruments and total return exchange
agreements. The operations of the Company are subject to risk of interest rate
fluctuations to the extent that there is a difference between the amount of the
Company's interest-earning assets and interest-bearing liabilities that mature
in specified periods. The principal objective of the Company's asset-liability
management activities is to provide maximum levels of net investment income
while maintaining acceptable levels of interest rate and liquidity risk, and
facilitating the funding needs of the Company. Financial futures contracts are
commitments to either purchase or sell a financial instrument at a specific
future date for a specified price and may be settled in cash or through delivery
of the financial instrument. Total return exchange agreements generally involve
the exchange of the total return or yield on a referenced security for a
specified interest rate.
If a financial futures contract used to manage interest rate risk is terminated
early or results in payments based on the change in value of the underlying
asset, any resulting gain or loss is deferred and amortized as an adjustment to
the yield of the designated asset over its remaining life as long as the
transaction qualifies for hedge accounting. The effectiveness of the hedge is
measured by a historical and probable future high correlation of changes in the
fair value of the hedging instruments with changes in value of the hedged item.
If correlation ceases to exist, hedge accounting will be terminated and gains or
losses recorded in income. To date, high correlation has been achieved. Deferred
gains totaling $4,969,781 for 1999 ($0 in 1998) are included in held for
investment fixed maturities and will be amortized as an adjustment to interest
income over the life of the hedged instrument. The notional amount of
outstanding agreements to sell securities was $204,600,000 at
F-18
<PAGE>
December 31, 1999. A fixed maturity security with an amortized cost of
$14,932,303 has been deposited with a broker dealer to establish a margin
account for the futures contracts.
For total return exchange agreements, the differential of the total return yield
or interest to be paid or received on a settlement date is recognized as an
adjustment to investment income. If a total return swap agreement is terminated
early any resulting gain or loss is recognized as realized gain or loss. In
1999, the Company recognized net investment expense of $2,069,355 related to
payments made on settlement dates, and realized a gain of $1,541,669 on the
termination of one total return swap agreement. The notional amount of
outstanding agreements was $332,000,000 at December 31, 1999.
At December 31, 1999, affidavits of deposits covering fixed maturity securities
and short-term investments with a amortized cost of $1,388,740,914 were on
deposit with state agencies to meet regulatory requirements.
At December 31, 1999, the following investments in any person or its affiliates
(other than bonds issued by agencies of the United States Government) exceeded
10% of stockholders' equity:
<TABLE>
<CAPTION>
Estimated Amortized Estimated Amortized
Issuer Fair Value Cost Issuer Fair Value Cost
- ----------------------------------- ----------- ----------- ------------------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
FBL Capital Trust I $67,294,864 $75,155,532 United Dominion Realty $4,802,600 $5,162,500
AIG Global Trust 19,000,000 19,000,008 U.S. Tr Cap A 144A 5,262,046 5,355,772
Knight Funding, Ltd 19,053,000 18,430,348 Nationwide Health Prop. 4,890,600 6,043,729
Northwest Airlines 10,135,483 10,123,774 BT Capital Trust 4,868,000 5,334,466
Sutter CBO 10,353,000 10,000,000 Health Care Properties 4,815,000 5,000,000
South Street CBO 9,520,839 9,737,000 Keycorp Inst.. Cap-A 144A 4,701,920 5,265,316
FMR Corp. 9,662,600 10,084,411 Chase Capital I 4,894,450 5,166,715
Nations Bank 9,890,000 13,059,307 Fortress CBO C 4,482,500 4,634,799
Evaluated Loan Collateral 9,108,000 9,108,000 Harcourt Gen. Inc. 4,607,000 4,944,039
M&I Capital Trust 9,125,000 10,406,323 BS Com. Mtg. 1999-C1-D 4,295,800 4,723,306
American Financial Group 8,793,200 9,357,988 Orng & Rkld Utilities 4,397,000 4,962,985
Genamerica Capital I 8,586,000 9,593,719 Simon Debartolo 4,375,586 5,005,544
Jet Equipment Trust 8,250,000 8,214,878 Developers Div. Rlty 4,215,250 5,013,067
Ikon Capital, Inc. 7,841,120 7,975,587 NJ Econ Dev Authority 4,159,650 4,539,257
JPM Capital Trust 7,700,000 8,473,156 Citicorp Capital II 4,018,006 4,322,442
Bear Stearns M.T. Notes 7,680,000 7,930,144 Witco Corp. 3,845,000 4,698,565
Commercial Net I 7,388,480 7,699,283 Southern Co. Cap. Trust 3,823,200 4,261,940
Land O' Lake Capital Tr. 6,837,432 8,078,789 First Industrial LP Mtn 3,800,000 4,090,222
New Plan Excel Realty Tr. 6,622,840 6,850,000 New Plan Realty Tr. Mtn 3,654,800 4,171,590
Engelhard Corp. 5,516,400 5,896,425 Spieker Properties 3,583,720 4,031,540
Farmers Exchange Capital 5,250,000 5,800,300 Lehman Bros. Holdings 3,508,000 4,879,094
Hilton Hotels Corp. 5,246,850 5,966,360 Nascor 1998-026-A13 3,442,684 3,423,260
Health Care Property 5,146,680 5,565,410 EOP Operating LP 3,436,400 3,973,337
Juniper 99 A-3a 4,615,650 5,000,000
</TABLE>
F-19
<PAGE>
4. Value of Insurance In Force Acquired
An analysis of the value of insurance in force acquired for the years ended
December 31, 1999, 1998 and 1997 is as follows:
Year ended December 31
1999 1998 1997
---------- ---------- ---------
Balance at beginning of year $1,068,906 $1,343,000 $1,725,000
Accretion of interest during
the year 55,000 71,000 91,000
Amortization of asset (371,479) (345,094) (473,000)
---------- ---------- ----------
Balance at end of year $ 752,427 $1,068,906 $1,343,000
========== ========== ==========
Amortization of the value of insurance in force acquired for the next five years
is expected to be as follows: 2000 - $232,000; 2001 - $104,000; 2002 - $104,000;
2003 - $103,000; and 2004 - $104,000.
5. Reinsurance and Policy Provisions
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers. Reinsurance coverages
for life insurance vary according to the age and risk classification of the
insured. The Company does not use financial or surplus relief reinsurance.
Reinsurance contracts do not relieve the Company of its obligations to its
policyholders. To the extent that reinsuring companies are later unable to meet
obligations under reinsurance agreements, the Company's life insurance
subsidiary would be liable for these obligations, and payment of these
obligations could result in losses to the Company. To limit the possibility of
such losses, the Company evaluates the financial condition of its reinsurers,
and monitors concentrations of credit risk. Insurance premiums have been reduced
by $1,110,871, $567,027 and $722,545 and insurance benefits have been reduced by
$335,558, $375,592 and $503,154 during the years ended December 31, 1999, 1998
and 1997, respectively, as a result of cession agreements.
No allowance for uncollectible amounts has been established against the
Company's asset for amounts receivable from other insurance companies since none
of the receivables are deemed by management to be uncollectible.
During 1998, the company entered into a modified coinsurance agreement to cede
70% of its variable annuity business to Equitrust Life Insurance Company
("Equitrust"). Equitrust is an affiliate of Farm Bureau Life Insurance Company
which beneficially owns 33.27% of the Company's common stock. Under this
agreement and related administrative services agreements, the Company paid
Equitrust $155,908 and $77,954 for the years ended December 31, 1999 and 1998,
respectively. The modified coinsurance agreement has an initial term of four
years and will continue thereafter until termination by written notice at the
election of either party. Any such termination will apply to the submission or
acceptance of new policies, and business reinsured under the agreement prior to
any such termination is not eligible for recapture before the expiration of 10
years. Equitrust (or one of its affiliates) provides the administrative support
necessary to manage this business.
F-20
<PAGE>
The activity in the liability for unpaid claims and related adjustment expense
for the years ended December 31, 1999, 1998 and 1997, net of reinsurance, is
summarized as follows:
<TABLE>
<CAPTION>
Unpaid Claims Unpaid
Liability at Claims
Beginning of Claims Claims Liability at
Year Incurred Paid End of Year
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1999
1999 $ -- $ 550,877 $ 319,145 $ 231,732
1998 and prior 672,661 (186,097) 124,112 362,452
----------- ----------- ----------- -----------
672,661 $ 364,780 $ 443,257 594,184
=========== ===========
Active life reserve 1,518,222 1,575,828
----------- -----------
Total accident and health reserves $ 2,190,883 $ 2,170,012
=========== ===========
Year ended December 31, 1998
1998 $ -- $ 580,845 $ 318,507 $ 262,338
1997 and prior 667,287 (133,100) 123,864 410,323
----------- ----------- ----------- -----------
667,287 $ 447,745 $ 442,371 672,661
=========== ===========
Active life reserve 1,406,694 1,518,222
----------- -----------
Total accident and health reserves $ 2,073,981 $ 2,190,883
=========== ===========
Year ended December 31, 1997
1997 $ -- $ 556,302 $ 296,060 $ 260,242
1996 and prior 629,651 (107,471) 115,135 407,045
----------- ----------- ----------- -----------
629,651 $ 448,831 $ 411,195 667,287
=========== ===========
Active life reserve 1,350,132 1,406,694
----------- -----------
Total accident and health reserves $ 1,979,783 $ 2,073,981
=========== ===========
</TABLE>
6. Income Taxes
The Company files a consolidated federal income tax return with all its
subsidiaries except American Equity Investment Life Insurance Company, which
files a separate federal income tax return and American Equity Investment
Properties, L.C., which is taxed as a partnership and, as such, all taxable
income is allocated to its owners.
Deferred income taxes are established by the Company and its subsidiaries based
upon the temporary differences among financial reporting and tax bases of assets
and liabilities within each entity, the reversal of which will result in taxable
or deductible amounts in future years when the related asset or liability is
recovered or settled, measured using the enacted tax rates.
F-21
<PAGE>
Income tax benefit (expense) differed from that computed at the applicable
statutory federal income tax rate (35% in 1999; 34% in 1998 and 1997) as
follows.
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income (loss) before income taxes $ 3,095,870 $ 1,004,670 $(4,759,614)
=========== =========== ===========
Income tax benefit (expense) on income (loss)
before income taxes at statutory rate $(1,083,555) $ (341,588) $ 1,618,269
Tax effect of:
Earnings on company-obligated
mandatorily redeemable preferred
securities of subsidiary trusts 708,000 -- --
State income taxes 61,000 59,000 129,000
Small company deduction -- -- 331,000
Change in valuation allowance on
deferred income tax assets 1,537,000 (397,000) (707,000)
Other 147,390 (80,895) 18,957
----------- ----------- -----------
Income tax benefit (expense) $ 1,369,835 $ (760,483) $ 1,390,226
=========== =========== ===========
</TABLE>
The tax effect of individual temporary differences at December 31, 1999 and
1998, is as follows:
<TABLE>
<CAPTION>
December 31
1999 1998
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Policy benefit reserves $ 55,066,000 $ 17,810,000
Provision for experience rating refunds 191,000 283,000
Unrealized depreciation on available-for-sale fixed
maturity securities and equity securities 18,972,496 --
Deferred compensation 426,000 350,000
Net operating loss carryforwards 1,609,000 1,182,000
Other 15,372 66,000
------------ ------------
76,279,868 19,691,000
Deferred income tax liabilities:
Unrealized appreciation of available-for-sale
fixed maturity securities -- (216,382)
Accrued discount on fixed maturity securities (800,000) --
Deferred policy acquisition costs (31,861,000) (8,939,000)
Value of insurance in force acquired (263,000) (363,000)
Other (319,000) (346,119)
------------ ------------
(33,243,000) (9,864,501)
Valuation allowance on deferred income tax assets -- (1,537,000)
------------ ------------
Deferred income tax asset $ 43,036,868 $ 8,289,499
============ ============
</TABLE>
The Company regularly reviews its needs for a valuation allowance against its
deferred income tax assets. During the year ended December 31, 1997, the
Company's life insurance company became taxable and it is expected that it will
continue to pay federal income taxes in the foreseeable future. As a result, the
valuation allowance pertaining to deferred income tax assets at this subsidiary
was eliminated at December 31, 1997. At December 31, 1998 and 1997, the Company
carried a valuation allowance against deferred income tax assets of the non-life
insurance entities due to the uncertainty of future income. However, this
valuation allowance was eliminated at December 31, 1999 as a result of the
Company's adoption of plans and policies relative to future taxable income or
loss of the non-life entities.
The Company has net operating loss carryforwards for tax purposes of $3,978,000
at December 31, 1999, which expire in 2010 through 2014. None of these
carryforwards is currently available to reduce the tax provisions for financial
reporting purposes.
F-22
<PAGE>
7. Notes Payable and Amounts Due Under Repurchase Agreements
On October 18, 1996, the Company borrowed $10 million from two banks under a
variable rate revolving credit agreement with a maximum borrowing level of $10
million. During 1999, the maximum borrowing level was increased to $25,000,000,
and the Company borrowed an additional $10,600,000. The notes bear interest
(7.56% at December 31, 1999) at LIBOR plus a specified margin of up to 1.75% and
interest is payable quarterly. Principal and accrued interest is due and payable
on March 31, 2001, with an option for a four-year extension as a term loan.
Under the agreement, the Company is required to maintain minimum capital and
surplus levels at American Equity Investment Life Insurance Company and meet
certain other financial and operating ratio requirements. The Company is also
prohibited from incurring other indebtedness for borrowed money and from paying
dividends on its capital stock in excess of 10% of its consolidated net income
for the prior fiscal year (except that in 1999, the Company was permitted to
make the dividend payments reflected in the consolidated financial statements).
As part of its investment strategy, the Company enters into securities lending
programs to increase its return on investments and improve its liquidity. These
transactions are accounted for as amounts due under repurchase agreements
(short-term collateralized borrowings). Such borrowings averaged approximately
$68,139,218 and $28,216,906 for the years ended December 31, 1999 and 1998,
respectively, and were collateralized by investment securities with fair market
values approximately equal to the amount due. At December 31, 1999, the Company
has securities lending programs with First Union Securities, Inc. and Bear,
Stearns & Co., Inc. with amounts due to each of $57,906,250 and $29,062,500,
respectively. The weighted average interest rate on amounts due under repurchase
agreements was 5.12% and 5.42% for the years ended December 31, 1999 and 1998,
respectively.
8. Minority Interests in Subsidiary Trusts
During, 1999, American Equity Capital Trust I ("Trust I"), a wholly-owned
subsidiary of the Company, issued $25,970,140 of 8% Convertible Trust Preferred
Securities (the "8% Trust Preferred Securities"). In connection with Trust I's
issuance of the 8% Trust Preferred Securities and the related purchase by the
Company of all of Trust I's common securities, the Company issued $26,773,000 in
principal amount of its 8% Convertible Junior Subordinated Debentures, due
September 30, 2029 (the "8% Debentures") to Trust I. The sole assets of Trust I
are the 8% Debentures and any interest accrued thereon. Each 8% Trust Preferred
Security is convertible into one share of common stock of the Company at a
conversion price equal to the lesser of (i) $30 per share or (ii) 90% of the
initial price per share to the public of the Company's common stock sold in
connection with its initial public offering of such common stock (the "IPO"),
upon the earlier of the 91st day following the IPO or September 30, 2002. The
interest payment dates on the 8% Debentures correspond to the distribution dates
on the 8% Trust Preferred Securities. The 8% Trust Preferred Securities, which
have a liquidation value of $30 per share plus accrued and unpaid distributions,
mature simultaneously with the 8% Debentures. At December 31, 1999, 865,671.33
shares of 8% Trust Preferred Securities were outstanding, all of which are
unconditionally guaranteed by the Company to the extent of the assets of Trust
I.
Also during 1999, American Equity Capital Trust II ("Trust II"), a wholly-owned
subsidiary of the Company, issued 97,000 shares of 5% Trust Preferred Securities
(the "5% Trust Preferred Securities"). The 5% Trust Preferred Securities, which
have a liquidation value of $100 per share ($97,000,000 in the aggregate), have
been assigned a fair value of $72,490,000 (based upon an effective 7%
yield-to-maturity). The consideration received by Trust II in connection with
the issuance of the 5% Trust Preferred Securities consisted of fixed income
trust preferred securities of equal value which were issued by the parent of
Farm Bureau Life insurance Company. Farm Bureau beneficially owns 33.27% of our
common stock.
In connection with Trust II's issuance of the 5% Preferred Securities and the
related purchase by the Company of all of Trust II's common securities, the
Company issued $100,000,000 in principal amount of its 5% Subordinated
Debentures, due June 1, 2047 (the "5% Debentures") to Trust II. The sole assets
of Trust II are the 5% Debentures and any interest accrued thereon. The interest
payment dates on the 5% Debentures correspond to the distribution dates on the
5% Trust Preferred Securities. The 5% Trust Preferred Securities mature
simultaneously with the 5% Debentures. All of the 5% Trust Preferred Securities
are unconditionally guaranteed by the Company to the extent of the assets of
Trust II.
F-23
<PAGE>
9. Retirement and Stock Compensation Plans
The Company has adopted a contributory defined contribution plan which is
qualified under Section 401(k) of the Internal Revenue Code. The plan covers
substantially all full-time employees of the Company, subject to minimum
eligibility requirements. Employees can contribute up to 15% of their annual
salary (with a maximum contribution of $10,000 in 1999, $10,000 in 1998, and
$9,500 in 1997) to the plan. The Company contributes an additional amount,
subject to limitations, based on the voluntary contribution of the employee.
Further, the plan provides for additional employer contributions based on the
discretion of the Board of Directors. Plan contributions charged to expense were
$41,703, $25,231 and $19,434 for the years ended December 31, 1999, 1998 and
1997 respectively.
The Company has entered into deferred compensation arrangements with certain
officers, directors, and consultants, whereby these individuals have agreed to
take common stock of the Company at a future date in lieu of current cash
payments. The common stock is to be issued in conjunction with a "trigger
event", as that term is defined in the individual agreements. At December 31,
1999 and 1998, these individuals have earned, and the Company has reserved for
future issuance, 96,060 and 96,958 shares of common stock, respectively,
pursuant to these arrangements. The Company has also accrued $1,097,933 and
$1,017,333 as an other liability at December 31, 1999 and 1998, respectively,
representing the value associated with the shares earned. In September, 1999, a
retired employee received a distribution of 9,040 shares in accordance with the
employee's deferred compensation arrangement.
During 1997, the Company established the American Equity Investment NMO Deferred
Compensation Plan whereby agents can earn common stock in addition to their
normal commissions. Awards are calculated using formulas determined annually by
the Company's Board of Directors and are generally based upon new annuity
deposits. For the years ended December 31, 1999, 1998 and 1997, agents earned
the right to receive 112,596, 83,861 and 13,131 shares, respectively. These
shares will be awarded at the end of the vesting period of 4 years for the 1999
and 1998 programs, and 3 years for the 1997 program. A portion of the awards may
be subject to forfeiture if certain production levels are not met over the
remaining vesting period. The Company recognizes commission expense as the
awards vest. For the years ended December 31, 1999 and 1998, agents vested in
53,042 and 25,342 shares of common stock, respectively, and the Company recorded
commission expense (which was subsequently capitalized as deferred policy
acquisition costs) of $1,379,092 and $295,354, respectively, under these plans.
Amounts accrued are reported as other liabilities until the stock has been
issued. At December 31, 1999, the Company has reserved 209,588 shares for future
issuance under the plans. Two of the Company's national marketing organizations
accounted for more than 10% of the annuity deposits and insurance premium
collections during 1999.
During 1997, a Stock Option Agreement with the Company's Chairman (and owner of
8.6% of its outstanding common stock at December 31, 1999) was amended to fix
the number of options and warrants to purchase shares of the Company's common
stock at 400,000. Certain of these options and warrants have an exercise price
of $10.00 per share and expire in 2000 (80,000 warrants) and 2007 (200,000
options). The remaining 120,000 options can be exercised at anytime at fair
value and expire in 2007. In connection with the 1997 amendment, the Company
recorded compensation expense of $628,000. In 1999, the Stock Option Agreement
was further amended to fix the exercise price of the 120,000 options previously
exercisable at fair market value at $22.00 per share.
The Company's 1996 Stock Option Plan authorizes the grants of options to
officers, directors and employees for up to 400,000 shares of the Company's
common stock. All options granted have 10 year terms, and vest and become fully
exercisable immediately. The Company has elected to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25) and
related Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, Accounting for Stock-Based Compensation, requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the fair value of the underlying stock on the date of
grant, no compensation expense is recognized.
Changes in the number of stock options outstanding during the years ended
December 31, 1999, 1998 and 1997 are as follows (excluding options on 120,000
shares that were exercisable at fair value in 1998 and 1997 and converted to a
fixed exercise price in 1999):
F-24
<PAGE>
Weighted-
Average
Exercise Total
Number of Price per Exercise
Shares Share Price
---------- ---------- -------------
Outstanding at January 1, 1997 612,000 $ 10.00 $ 6,120,000
Granted 341,700 10.98 3,750,400
Cancelled (412,000) 10.00 (4,120,000)
Exercised (200) 10.00 (2,000)
Forfeited (5,800) 10.00 (58,000)
---------- -----------
535,700 10.62 5,690,400
Outstanding at December 31, 1997
Granted 38,500 16.00 616,000
Canceled (16,500) 10.18 (168,000)
Exercised (700) 11.71 (8,200)
---------- -----------
Outstanding at December 31, 1998
557,000 11.01 6,130,200
Granted 95,920 22.44 2,152,240
Converted 120,000 22.00 2,640,000
Canceled (1,550) 20.06 (31,000)
Exercised (7,225) 10.27 (74,200)
---------- -----------
Outstanding at December 31, 1999 764,145 14.16 $10,817,240
========== ===========
Stock options outstanding at December 31, 1999 (all currently exercisable) are
follows:
Weighted-
Average
Remaining Life
Number (in Years)
------- --------------
Exercise price:
$10.00 375,000 7.18
$12.00 122,600 7.55
$16.00 51,675 8.73
$22.00 204,370 8.26
$26.00 10,500 9.92
-------
764,145 7.67
=======
At December 31, 1999, the Company had 47,730 shares of common stock available
for future grant under the 1996 Stock Option Plan.
On December 1, 1997, in connection with a rights offering of shares of the
Company's common stock, the Company issued subscription rights to purchase an
aggregate of 719,125 shares of the Company's common stock to certain officers
and directors. The subscription rights have an exercise price of $16.00 per
share, were fully exercisable immediately, and expire on December 1, 2002.
F-25
<PAGE>
Pro forma information regarding net income is required by SFAS No. 123, and has
been determined as if the Company had accounted for its employee stock options
and subscription rights under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a minimum value
option pricing model (which is used for non-public companies) with the following
weighted-average assumptions:
Year ended December 31
1999 1998 1997
---- ---- ----
Risk-free interest rate 4.73% 5.40% 6.50%
Dividend yield 0% 0% 0%
Weighted-average expected life 3 years 3 years 3 years
The minimum value option pricing model is similar to the Black-Scholes option
valuation model (which is primarily used for public companies) except that it
excludes an assumption for the expected volatility of market price. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma net earnings and earnings per common share were as follows:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
---------- -------- -----------
<S> <C> <C> <C>
Net income (loss), as reported $2,443,346 $244,187 $(3,369,388)
Net income (loss), pro forma 2,035,000 189,000 (4,903,000)
Basic earnings per common share, as reported 0.52 0.05 (2.11)
Basic earnings per common share, pro forma 0.43 0.04 (3.07)
Diluted earnings per common share, as reported 0.42 0.05 (2.11)
Diluted earnings per common share, pro forma 0.35 0.04 (3.07)
</TABLE>
10. Life Insurance Subsidiary
Iowa Insurance Laws require domestic insurers to maintain a minimum of $5.0
million capital and surplus.
Prior approval of regulatory authorities is required for the payment of
dividends to the Company by its life insurance subsidiary which exceed an annual
limitation. During 2000, the life insurance subsidiary could pay dividends to
its parent of approximately $16,326,000 without prior approval from regulatory
authorities.
The financial statements of American Equity Investment Life Insurance Company
included herein differ from related statutory-basis financial statements
principally as follows: (a) the bond portfolio is segregated into
held-for-investment (carried at amortized cost), available-for-sale (carried at
fair value), and trading (carried at fair value) classifications rather than
generally being carried at amortized cost; (b) acquisition costs of acquiring
new business are deferred and amortized over the life of the policies rather
than charged to operations as incurred; (c) the excess of purchase price over
net assets acquired in business combinations is allocated to identifiable
intangibles such as value of insurance in force acquired, rather than being
entirely attributable to goodwill (a portion of which may be non-admitted); (d)
policy reserves on traditional life and accident and health insurance products
are based on reasonable assumptions of expected mortality, morbidity, interest
and withdrawals which include a provision for possible adverse deviation from
such assumptions which may differ from reserves based on statutory mortality
rates and interest; (e) future policy benefit reserves on certain universal life
and annuity products are based on full account values, rather than discounting
methodologies utilizing statutory interest rates; (f) reinsurance amounts are
shown as gross amounts, net of an allowance for uncollectible amounts, on the
consolidated balance sheet rather than netted against the corresponding
receivable or payable; (g) deferred income taxes are provided for the
F-26
<PAGE>
difference between the financial statement and income tax bases of assets and
liabilities; (h) net realized gains or losses attributed to changes in the level
of interest rates in the market are recognized as gains or losses in the
statement of operations when the sale is completed rather than deferred and
amortized over the remaining life of the fixed maturity security or mortgage
loan; (i) declines in the estimated realizable value of investments are charged
to the statement of operations for declines in value, when such declines in
value are judged to be other than temporary rather than through the
establishment of a formula-determined statutory investment reserve (carried as a
liability), changes in which are charged directly to surplus, (j) agents'
balances and certain other assets designated as "non-admitted assets" for
statutory purposes are reported as assets rather than being charged to surplus;
(k) revenues for universal life and annuity products consist of policy charges
for the cost of insurance, policy administration charges, amortization of policy
initiation fees and surrender charges assessed rather than premiums received;
and (l) pension income or expense is recognized in accordance with SFAS No. 87,
Employers' Accounting for Pensions, rather than in accordance with rules and
regulations permitted by the Employee Retirement Income Security Act of 1974;
(m) surplus notes are reported as a liability rather than as a component of
capital and surplus; and (n) assets and liabilities are restated to fair values
when a change in ownership occurs, rather than continuing to be presented at
historical cost.
Net income for the life insurance subsidiary as determined in accordance with
statutory accounting practices was $17,837,476, $4,803,545 and $4,470,284 in
1999, 1998 and 1997, respectively, and total statutory capital and surplus of
the life insurance subsidiary was $139,855,053 and $80,947,913 at December 31,
1999 and 1998, respectively.
In 1998, the NAIC adopted codified statutory accounting principles
(Codification). Codification will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that the Company uses to prepare its statutory-basis financial
statements, to be effective January 1, 2001. Codification will require adoption
by the various states before it becomes the prescribed statutory basis of
accounting for insurance companies domesticated within those states.
Accordingly, before Codification becomes effective for the Company, the State of
Iowa must adopt Codification as the prescribed basis of accounting on which
domestic insurers must report their statutory-basis results to the Insurance
Division, Department of Commerce, of the State of Iowa. At this time it is
anticipated that the State of Iowa will adopt Codification. However, based on
current guidance, management believes that the impact of Codification will not
be material to the Company's statutory-basis financial statements.
11. Commitments and Contingencies
The Company has a General Agency Commission and Servicing Agreement with
American Equity Investment Service Company (the Service Company), wholly-owned
by the Company's chairman, whereby, the Service Company acts as a national
supervisory agent with responsibility for paying commissions to agents of the
Company. Under the terms of the original agreement, the Service Company was
required to pay the greater of (a) 5% of the premiums collected by the Company
on the sale of certain annuity products, or (b) 50% of the agent's commissions
payable by the Company on the sale of those same policies. In return, the
Company agreed to pay quarterly renewal commissions to the Service Company equal
to .3275% of the premiums received by the Company on policies that still remain
in force. In addition, the Company has agreed to pay supplemental commissions
should lapses in any quarter exceed 1.88%, or certain other circumstances arise.
The Agreement terminates on June 30, 2005.
On December 31, 1997, the Service Company and the Company amended the Agreement
to provide for the payment of 100% of the agents' commissions by the Service
Company for policies issued from July 1, 1997 through December 31, 1997. In
return, the Company agreed to pay the Service Company quarterly renewal
commissions of .7% of the premiums received by the Company before January 1,
1998 that still remain in force, and .325% for in-force amounts received
thereafter. The revised quarterly renewal commission schedule commenced December
31, 1997. For policies issued from January 1, 1998 through August 30, 1999, the
original agreement remains in effect and, accordingly, the Company pays renewal
commissions of .325% of the premiums received on such policies which remain in
force.
On June 30, 1999, the Service Company and the Company further amended the
Agreement to provide for the payment of 30% of agents' commissions by the
Service Company for policies issued on or after September 1, 1999, and the
Company agreed to pay the Service company quarterly renewal commissions of .25%
for in force amounts received thereafter.
F-27
<PAGE>
During the years ended December 31, 1999, 1998 and 1997, the Service Company
paid $37,722,852, $19,933,480, and $11,470,576 respectively, to agents of the
Company and the Company paid renewal commissions to the Service Company of
$14,566,020, $6,781,288 and $1,360,410, respectively. At December 31, 1999 and
1998, amounts payable to the Service Company by the life insurance subsidiary
included in amounts due to related parties were $10,003,258 and $2,438,600,
respectively.
During 1999, the Company agreed to loan to the Service Company up to $50,000,000
pursuant to a promissory note bearing interest at the "reference rate" of the
financial institution which is the Company's principal lender. Principal and
interest are payable quarterly over five years from the date of the advance. At
December 31, 1999, amounts advanced to and interest receivable from the Service
company were $18,175,000 and $581,957, respectively.
The Company leases its home office space and certain equipment under operating
leases which expire through June 2004. During the years ended December 31, 1999,
1998 and 1997, rent expense on the home office space totaled $451,748, $350,174
and $334,627, respectively. At December 31, 1999, minimum rental payments due
under all noncancellable operating leases with initial terms of one year or more
are:
Year ending December 31:
2000 $ 538,000
2001 535,000
2002 528,000
2003 520,000
2004 265,000
-----------
$ 2,386,000
===========
Assessments are, from time to time, levied on the Company by life and health
guaranty associations by most states in which the Company is licensed to cover
losses to policyholders of insolvent or rehabilitated companies. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. Given the short period since inception, management believes that
assessments against the Company for failures known to date will be minimal.
F-28
<PAGE>
12. Earnings per share
The following table sets forth the computation of basic earnings (loss)per
common share and diluted earnings per common share:
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Numerator:
Net income (loss) $ 2,443,346 $ 244,187 $(3,369,388)
Dividends on preferred stock (12,500) -- --
----------- ----------- -----------
Numerator for basic earnings (loss) per
common share 2,430,846 244,187 (3,369,388)
Dividends on preferred stock 12,500 -- --
----------- ----------- -----------
Numerator for diluted earnings (loss) per common
share $ 2,443,346 $ 244,187 $(3,369,388)
=========== =========== ===========
Denominator:
Weighted average shares outstanding 4,669,429 4,464,912 1,598,695
Effect of dilutive securities:
Preferred stock 625,000 3,425 --
Warrants 84,586 117,370 --
Stock options and management subscription rights 342,801 114,788 --
Deferred compensation agreements 117,487 13,533 --
----------- ----------- -----------
Adjusted weighted average shares outstanding 5,839,303 4,714,028 1,598,695
=========== =========== ===========
Basic earnings (loss) per common share $ 0.52 $ 0.05 $ (2.11)
=========== =========== ===========
Diluted earnings (loss) per common share $ 0.42 $ 0.05 $ (2.11)
=========== =========== ===========
</TABLE>
The effect of the convertible stock of the subsidiary trusts has not been
included in the computation of dilutive earnings per share as the effect is
antidilutive.
F-29
<PAGE>
Schedule I
Summary of Investments - Other Than
Investments in Related Parties
American Equity Investment Life Holding Company
December 31, 1999
<TABLE>
<CAPTION>
Amount at Which
Shown in
Type of Investment Cost (1) Value Balance Sheet
- ------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
Fixed maturity securities
Available for sale
United States Government and agencies $ 642,115,817 $ 602,998,328 $ 602,998,328
State, municipal and other governments 4,539,257 4,159,650 4,159,650
Public utilities 12,201,799 10,839,200 10,839,200
Corporate securities 300,422,046 272,291,685 272,291,685
Redeemable preferred stocks 9,240,340 8,416,120 8,416,120
Mortgage and asset-backed securities 101,946,108 98,314,836 98,314,836
-------------- -------------- --------------
1,070,465,367 997,019,819 997,019,819
Held for investment
United States Government and agencies 323,311,715 248,679,800 323,311,715
Redeemable preferred stocks 75,155,532 67,294,864 75,155,532
-------------- -------------- --------------
398,467,247 315,974,664 398,467,247
-------------- -------------- --------------
Total fixed maturity securities 1,468,932,614 1,312,994,483 1,395,487,066
-------------- -------------- --------------
Equity securities:
Non-redeemable preferred stocks 6,850,000 6,622,840 6,622,840
Common stocks 1,169,999 990,649 990,649
-------------- -------------- --------------
Total equity securities 8,019,999 7,613,489 7,613,489
-------------- -------------- --------------
Derivative instruments 22,546,058 44,209,883
Policy loans 231,068 231,068
Short-term investments 45,000 45,000
-------------- --------------
Total investments $1,499,774,739 $1,447,586,506
============== ==============
</TABLE>
(1) On the basis of cost adjusted for repayments and amortization of premiums
and accrual of discounts for fixed maturity securities and derivative
instruments.
F-30
<PAGE>
Schedule II
Condensed Financial Information of Registrant
(Parent Company)
American Equity Investment Life Holding Company
Condensed Balance Sheets
<TABLE>
<CAPTION>
December 31
1999 1998
------------- -------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 682,980 $ 2,212,159
Fixed maturity security, held for investment, at amortized cost
(market: 1999 -$43,013,614) 46,667,553 --
Receivables from subsidiary (eliminated in consolidation) 3,194,630 --
Receivables from related parties 18,788,327 --
Property, furniture and equipment, less accumulated depreciation of
$760,956 in 1999 and $453,927 in 1998 211,050 518,079
Debt issue costs, less accumulated amortization of $453,912 in 1999 and
$314,805 in 1998 1,765,505 103,642
Deferred income tax asset 1,963,212 --
Investment income due and accrued 546,666 --
Other assets -- 27,699
------------- -------------
73,819,923 2,861,579
Investment in and advances to subsidiaries (eliminated in consolidation) 86,826,790 74,712,974
------------- -------------
Total assets $ 160,646,713 $ 77,574,553
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Notes payable $ 20,600,000 $ 10,000,000
Payable to subsidiaries (eliminated in consolidation) 102,028,638 --
Amounts due to related parties 2,591,370 --
Other liabilities 1,102,414 1,444,032
------------- -------------
Total liabilities 126,322,422 11,444,032
Commitments and contingencies
Stockholders' equity:
Series Preferred Stock 625,000 625,000
Common Stock 4,712,310 4,581,962
Additional paid-in capital 66,057,863 64,783,117
Accumulated other comprehensive income (loss) (35,234,635) 420,035
Retained-earnings deficit (1,836,247) (4,279,593)
------------- -------------
Total stockholders' equity 34,324,291 66,130,521
------------- -------------
Total liabilities and stockholders' equity $ 160,646,713 $ 77,574,553
============= =============
</TABLE>
See accompanying note to condensed financial statements.
F-31
<PAGE>
Schedule II
Condensed Financial Information of Registrant
(Parent Company)
American Equity Investment Life Holding Company
Condensed Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Net investment income $ 1,022,500 $ 154,307 $ 50,161
Dividends from subsidiary (eliminated in consolidation) 3,000,000 -- --
Interest from subsidiary (eliminated in consolidation) 46,419 -- --
Surplus note interest from subsidiary
(eliminated in consolidation) 1,079,106 157,788 134,077
Interest on note receivable from related party
(eliminated in consolidation) 581,957 -- --
----------- ----------- -----------
Total revenues 5,729,982 312,095 184,238
Expenses:
Interest expense on notes payable 896,383 788,770 979,826
Interest expense on debentures issued to subsidiary trusts
(eliminated in consolidation) 2,068,778 -- --
Other operating costs and expenses 821,814 818,782 1,281,776
----------- ----------- -----------
Total expenses 3,786,975 1,607,552 2,261,602
----------- ----------- -----------
Income (loss) before income taxes, equity in undistributed
income (loss) of subsidiaries and earnings attributable
to company-obligated mandatorily redeemable preferred
securities of subsidiary trusts 1,943,007 (1,295,457) (2,077,364)
Deferred income tax benefit 1,963,212 -- --
----------- ----------- -----------
Income (loss) before equity in undistributed income (loss) of
subsidiaries and earnings attributable to company-obligated
mandatorily redeemable preferred securities of subsidiary trusts 3,906,219 (1,295,457) (2,077,364)
Equity in undistributed income (loss) of subsidiaries
(eliminated in consolidation) 559,486 1,539,644 (1,292,024)
----------- ----------- -----------
Income (loss) before earnings attributable to company-obligated
mandatorily redeemable preferred securities of subsidiary trusts 4,465,705 244,187 (3,369,388)
Minority interest in subsidiaries - earnings attributable to company-
obligated mandatorily redeemable preferred securities of
subsidiary trusts (2,022,359) -- --
----------- ----------- -----------
Net income (loss) $ 2,443,346 $ 244,187 $(3,369,388)
=========== =========== ===========
</TABLE>
See accompanying note to condensed financial statements.
F-32
<PAGE>
Schedule II
Condensed Financial Information of Registrant
(Parent Company)
American Equity Investment Life Holding Company
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities
Net income (loss) $ 2,443,346 $ 244,187 $ (3,369,388)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Provision for depreciation and amortization 446,136 401,624 306,082
Accrual of discount on fixed maturity security (333,753) -- --
Compensation expense related to issuance of stock options and warrants -- -- 628,000
Equity in undistributed loss (income) of subsidiaries (559,486) (1,539,644) 1,292,024
Minority interest in subsidiaries - earnings attributable to company-
obligated mandatorily redeemable preferred securities
of subsidiary trusts 2,022,359 -- --
Accrual of discount on debentures issued to subsidiary trusts 521,489 -- --
Deferred income taxes (1,963,212) -- --
Changes in operating assets and liabilities:
Receivable from subsidiaries (3,194,630) 126,775 (85,509)
Receivable from related party (613,327) -- --
Investment income due and accrued (546,666) -- --
Other assets 27,699 (25,657) (2,042)
Payable to subsidiaries 1,850 (17,247) (733,313)
Amounts due to related parties 2,591,370 -- --
Other liabilities (341,620) 481,802 128,634
------------ ------------ ------------
Net cash provided by (used in) operating activities 501,555 (328,160) (1,835,512)
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Investing activities
Capital contributions to subsidiaries (6,075,159) (6,600,000) (42,500,000)
Purchase of surplus notes from subsidiary (17,000,000) (5,500,000) --
Purchase of note receivable from related party (18,175,000) -- --
Purchases of property, furniture and equipment -- (196,117) (514,269)
------------ ------------ ------------
Net cash provided by (used in) investing activities (41,250,159) (12,296,117) (43,014,269)
Financing activities
Financing fees deferred (1,800,968) -- --
Proceeds from notes payable 10,600,000 -- --
Proceeds from issuance of company-obligated mandatorily redeemable
preferred securities of subsidiary trusts 29,015,299 -- --
Net proceeds from sale of preferred stock -- 9,968,070 --
Net proceeds from issuance of common stock 1,511,840 1,282,480 46,618,479
Dividends paid (106,746) -- --
------------ ------------ ------------
Net cash provided by financing activities 39,219,425 11,250,550 46,618,479
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (1,529,179) (1,373,727) 1,768,698
Cash and cash equivalents at beginning of year 2,212,159 3,585,886 1,817,188
------------ ------------ ------------
Cash and cash equivalents at end of year $ 682,980 $ 2,212,159 $ 3,585,886
============ ============ ============
Supplemental disclosure of cash flow information
Cash paid during the year for interest:
Interest on notes payable $ 896,383 $ 467,111 $ 840,344
Interest paid to subsidiary trusts 1,547,289 -- --
Exchange of fixed maturity securities for debentures issued to
subsidiary trusts 72,490,000 -- --
Fixed maturity security contributed to subsidiary 26,156,200 -- --
</TABLE>
See accompanying note to condensed financial statements.
F-34
<PAGE>
Schedule II
Condensed Financial Information of Registrant
(Parent Company)
American Equity Investment Life Holding Company
Note to Condensed Financial Statements
December 31, 1999
1. Basis of Presentation
The accompanying condensed financial statements should be read in conjunction
with the consolidated financial statements and notes thereto of American Equity
Investment Life Holding Company.
In the parent company-only financial statements, the Company's investment in and
advances to subsidiaries (which includes surplus notes issued by the Company's
life insurance subsidiary) is stated at cost plus equity in undistributed income
(losses) of subsidiaries since the date of acquisition and net unrealized
gains/losses on the subsidiaries' fixed maturity securities classified as
"available-for-sale" and equity securities in accordance with SFAS 115,
Accounting for Certain Investments in Debt and Equity Securities.
The parent company's fixed maturity security is held for investment.
See Note 7 to the consolidated financial statements for a description of the
parent company's notes payable.
F-35
<PAGE>
Schedule III
Supplementary Insurance Information
American Equity Investment Life Holding Company
December 31, 1999
<TABLE>
<CAPTION>
Future Policy
Deferred Benefits, Other Policy
Policy Losses, Claims Claims and Insurance
Acquisition and Loss Unearned Benefits Premiums
Segment Costs Expenses Premiums Payable and Charges
- ---------------------------- -------------- -------------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999
Life insurance $126,684,495 $1,358,875,848 $ - $11,553,574 $13,746,532
Year ended December 31, 1998
Life insurance 32,005,772 541,082,179 - 6,315,598 11,170,655
Year ended December 31, 1997
Life insurance 4,282,491 155,998,268 - 2,355,156 11,436,803
Amortization
Benefits of Deferred
Net Claims, Losses Policy Other
Investment and Settlement Acquisition Operating Premiums
Segment Income Expenses Costs Expenses Written
- ---------------------------- - ---------- -------------- -------------- ----------- --------
Year ended December 31, 1999
Life insurance $64,609,612 $48,958,790 $10,923,792 $16,832,109 $ -
Year ended December 31, 1998
Life insurance 26,356,472 21,922,805 3,672,039 11,354,395 -
Year ended December 31, 1997
Life insurance 4,018,617 9,569,766 761,032 9,884,236 -
</TABLE>
F-36
<PAGE>
Schedule IV
Reinsurance
American Equity Investment Life Holding Company
<TABLE>
<CAPTION>
Assumed from Percentage of
Gross Ceded to Other Amount Assumed
Segment Amount Other Companies Companies Net Amount to Net
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999
Life insurance in force $1,555,677,000 $1,268,312 $ 990,516,000 $2,544,925,000 38.9%
============== ========== ============== ============== =====
Insurance premiums and
other considerations
Annuity and single
premium universal
life product
charges $ 3,452,095 $ -- $ -- $ 3,452,095 - %
Traditional life
insurance and
accident and health
insurance premiums 7,444,448 1,110,871 3,960,860 10,294,437 38.5%
-------------- ---------- -------------- -------------- -----
$ 10,896,543 $1,110,871 $ 3,960,860 $ 13,746,532 28.8%
============== ========== ============== ============== =====
December 31, 1998
Life insurance in force $ 1,407,000 $ -- $2,398,544,000 $2,399,951,000 99.9%
============== ========== ============== ============== =====
Insurance premiums and
other considerations
Annuity product charges $ 642,547 $ -- $ -- $ 642,547 - %
Traditional life insurance
and accident and health
insurance premiums 19,174 567,027 11,075,961 10,528,108 105.2%
-------------- ---------- -------------- -------------- -----
$ 661,721 567,027 $ 11,075,961 $ 11,170,655 99.2%
============== ========== ============== ============== =====
December 31, 1997
Life insurance in force $ -- $ -- $2,427,796,000 $2,427,796,000 100.0%
============== ========== ============== ============== =====
Insurance premiums and
other considerations
Annuity product charges $ 11,896 $ -- $ -- $ 11,896 - %
Traditional life insurance
and accident and health
insurance premiums -- 722,545 12,147,452 11,424,907 106.3%
-------------- ---------- -------------- -------------- -----
$ 11,896 $ 722,545 $ 12,147,452 $ 11,436,803 106.2%
============== ========== ============== ============== =====
</TABLE>
F-37
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation, including Articles of Amendment**
3.2 Amended and Restated Bylaws
4.1 Agreement dated December 4, 1997 between American Equity Investment
Life Holding Company and Farm Bureau Life Insurance Company re Right
of First Refusal*
4.2 Stockholders' Agreement dated April 30, 1997 among American Equity
Investment Life Holding Company, David J. Noble, Twenty Services,
Inc., Sanders Morris Mundy Inc. and stockholders*
4.3 Registration Rights Agreement dated April 30, 1997 between American
Equity Investment Life Holding Company and stockholders*
4.4 Amended and Restated Declaration of Trust of American Equity Capital
Trust I dated September 7, 1999
The Company agrees to furnish the Commission upon its request a copy
of any instrument defining the rights of holders of long-term debt of
the Company and its consolidated subsidiaries
9 Voting Trust Agreement dated December 30, 1997 among Farm Bureau Life
Insurance Company, American Equity Investment Life Holding Company and
David J. Noble, David S. Mulcahy and Debra J. Richardson (Voting
Trustees)*
10.1 Restated and Amended General Agency Commission and Servicing Agreement
dated June 30, 1997 between American Equity Investment Life Insurance
Company and American Equity Investment Service Company*
10.1-A 1999 General Agency Commission and Servicing Agreement dated as of
June 30, 1999 between American Equity Investment Life Insurance
Company and American Equity Investment Service Company
10.2 1996 Stock Option Plan*
10.3 Restated and Amended Stock Option and Warrant Agreement dated April
30, 1997 between American Equity Investment Life Holding Company and
D.J. Noble*
10.4 Warrant to Purchase Common Stock dated May 12, 1997 issued to Sanders
Morris Mundy Inc.*
10.5 Deferred Compensation Agreements between American Equity Investment
Life Holding Company and (a)ab James M. Gerlach dated June 6, 1996*
(b)abTerry A. Reimer dated November 11, 1996* (c)abDavid S. Mulcahy
dated December 31, 1997*
21 Subsidiaries of American Equity Investment Life Holding Company
27 Financial Data Schedule
- ----------
* Incorporated by reference to the Registration Statement on Form 10 dated
April 29, 1999
** Incorporated by reference to the Registration Statement on Form 10 dated
April 29, 1999 and Post-Effective Amendment No. 1 to the Registration
Statement on Form 10 dated July 20, 1999.
<PAGE>
Exhibit 3.2
- -------------------------------------------------------------------------------
AMENDED AND RESTATED BYLAWS
OF
AMERICAN EQUITY INVESTMENT
LIFE HOLDING COMPANY
(an Iowa Corporation)
(hereinafter referred to as "Corporation")
ARTICLE 1
PRINCIPAL OFFICE
The principal office of the Corporation is at the location identified in
the most recent annual report filed by the Corporation with the Iowa Secretary
of State or such other location as may be designated by the Board of Directors.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
Section 2.1 Annual Meeting. The annual meeting of the shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting, shall be held at such place, time and date as
shall be designated from time to time by the board of directors.
Section 2.2 Special Meetings. Special meetings of the shareholders, for any
purpose or purposes, shall be called in accordance with the Iowa Business
Corporation Act.
Section 2.3 Notice of Meetings.
Notice of (i) the place, date and time of all meetings of shareholders;
(ii) the initial authorization or issuance, subsequent to the next preceding
shareholders' meeting, of shares for promissory notes or promises to render
services in the future; (iii) any indemnification of a director required by law
to be reported to shareholders; and, (iv) in the case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not less
than ten (10) days nor more than sixty (60) days before the date of the meeting
to each shareholder entitled to vote at such meeting and to such other
shareholders as are required by law to be given such notice. The board of
directors may establish a record date for the determination of shareholders
entitled to notice, as provided in Section 5.9 of these bylaws. Notice of
adjourned meetings need only be given if required by law or Section 2.14 of
these bylaws.
<PAGE>
Section 2.4 Waiver of Notice.
(a) A written waiver of notice of any meeting of the shareholders signed
by any shareholder entitled to such notice, whether before or after the time
stated in such notice for the holding of such meeting, shall be equivalent to
the giving of such notice to such shareholder in due time as required by law and
these bylaws.
(b) A shareholder's attendance at any shareholders' meeting, in person or
by proxy, waives (i) giving of notice of such meeting and irregularities in any
notice given, unless the shareholder at the beginning of the meeting or promptly
upon the shareholder's arrival objects to holding the meeting or transacting
business at the meeting, and (ii) objection to consideration of a particular
matter at the meeting that is not within the purpose or purposes described in
the meeting notice, unless the shareholder objects to considering the matter
when it is presented.
Section 2.5 Voting List. After fixing a record date for a meeting, the
Secretary shall prepare an alphabetical list of the names of all shareholders
who are entitled to notice of the shareholders' meeting. The list must be
arranged by voting group and within each voting group by class or series of
shares, and show the address of and number of shares held by each shareholder.
The shareholders' list must be available for inspection by any shareholder
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting, at the Corporation's
principal office or at a place identified in the meeting notice in the city
where the meeting will be held. A shareholder, or a shareholder's agent or
attorney, is entitled on written demand to inspect and, subject to the
requirements of law, to copy the list, during regular business hours and at the
person's expense, during the period it is available for inspection. The
Corporation shall make the shareholders' list available at the meeting, and any
shareholder, or a shareholder's agent or attorney, is entitled to inspect the
list at any time during the meeting or any adjournment.
Section 2.6 Quorum. Unless otherwise required by law, the holders of a
majority of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum at
all meetings of the shareholders for the transaction of business. A quorum, once
established, shall not be broken by the withdrawal of enough votes to leave less
than a quorum. If, however, such quorum shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, in the manner provided in Section 2.14, until a
quorum shall be present or represented.
Section 2.7 Organization.
(a) Such person as the board of directors may have designated, or, in the
absence of such a person, the President, or in his or her absence, such person
as shall be designated by the holders of a majority of the shares present at the
meeting, shall call meetings of the shareholders to order and shall act as
chairperson of such meetings.
2
<PAGE>
(b) The Secretary of the Corporation shall act as Secretary at all
meetings of the shareholders, but in the absence of the Secretary at any meeting
of the shareholders, the presiding officer may appoint any person to act as
Secretary of the meeting.
Section 2.8 Voting of Shares.
(a) Every shareholder entitled to vote may vote in person or by proxy.
Except as otherwise provided by law, each outstanding share regardless of class,
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. Unless otherwise provided by law, at each meeting for election of
directors, each shareholder entitled to vote shall be entitled to vote the
number of shares owned by the shareholder for as many persons as there are
directors to be elected and for whose election such shareholder has a right to
vote, and directors shall be elected by a majority of the votes cast.
(b) The shareholders having the right to vote shares at any meeting shall
only be those of record on the stock books of the Corporation, on the record
date fixed pursuant to the provisions of Section 5.9 of these bylaws or by law.
(c) Absent special circumstances, the shares of the Corporation held by
another corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation is held by the Corporation,
shall not be voted at any meeting.
(d) Voting by shareholders on any question or in any election may be viva
voce unless the chairperson of the meeting shall order or any shareholder shall
demand that voting be by ballot. On a vote by ballot, each ballot shall be
signed by the shareholder voting, or in the shareholder's name by proxy, if
there be such proxy, and shall state the number of shares voted by such
shareholder.
(e) If a quorum exists, action on a matter, other than the election of
directors, by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless a
greater number is required by law.
Section 2.9 Voting by Proxy or Representative.
(a) At all meetings of the shareholders, a shareholder entitled to vote
may vote in person or by proxy appointed in writing. An appointment of a proxy
is effective when received by the secretary or other officer or agent authorized
to tabulate votes. An appointment is valid for eleven months unless a longer
period is expressly provided in the appointment form.
(b) Shares held by an administrator, executor, guardian, conservator,
receiver, trustee, pledgee, or another corporation may be voted as provided by
law.
Section 2.10 Inspectors. The board of directors in advance of any meeting
of shareholders may (but shall not be obliged to) appoint inspectors to act at
such meeting or any adjournment thereof. If inspectors are not so appointed, the
officer or person acting as chairperson of any such
3
<PAGE>
meeting, and on the request of any shareholder or his proxy, shall make such
appointment. In case any person appointed as inspector shall fail to appear or
act, the vacancy may be filled by appointment made by the board of directors in
advance of the meeting, or at the meeting by the officer or person acting as
chairperson. The inspectors shall register proxies, determine the number of
shares outstanding, the voting power of each, the shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies, receive votes, ballots, assents or consents, hear and determine all
challenges and questions in any way arising in connection with the vote, count
and tabulate all votes, assents and consents, determine and announce the result,
and do such acts as may appear proper to conduct the election or vote with
fairness to all shareholders. The maximum number of such inspectors appointed
shall be three, and no inspector whether appointed by the board of directors or
by the officer or person acting as chairperson need be a shareholder.
Section 2.11 Consent of Shareholders in Lieu of Meeting. Any action
required or permitted by law to be taken at a meeting of the shareholders, may
be taken without a meeting if a consent in writing setting forth the action so
taken shall be signed by the holders of outstanding shares having not less than
ninety percent of the votes entitled to be cast at a meeting at which all shares
entitled to vote on the action were present and voted, and are delivered to the
Corporation for inclusion in the minutes.
Section 2.12 Conduct of Business. The chairperson of any meeting of
shareholders shall determine the order of business and procedure at the meeting,
including such regulation of the manner of voting and the conduct of business as
seem to him or her to be in order.
Section 2.13 Nature of Business at Meetings of Shareholders. No business
may be transacted at an annual meeting of shareholders, other than business that
is either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the board of directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the board of directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
shareholder of the Corporation (i) who is a shareholder of record on the date of
the giving of the notice provided for in this Section 2.13 and on the record
date for the determination of shareholders entitled to vote at such annual
meeting and (ii) who complies with the notice procedures set forth in this
Section 2.13.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a shareholder, such shareholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.
To be timely, a shareholder's notice to the Secretary must be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the
anniversary date of the immediately preceding annual meeting of shareholders;
provided, however, that in the event that the annual meeting is called for a
date that is not within thirty (30) days before or after such anniversary date,
notice by the shareholder in order to be timely must be so received not later
than the close of business on the tenth (10th) day following the day on which
notice of the date of the annual meeting was mailed or public announcement of
the date of the annual meeting was made, whichever first occurs. In no event
shall the
4
<PAGE>
public announcement of an adjournment of an annual meeting commence a new time
period for the giving of a shareholder's notice as described above.
To be in proper written form, a shareholder's notice to the Secretary must
set forth as to each matter such shareholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of such shareholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such business
by such shareholder and any material interest of such shareholder in such
business and (v) a representation that such shareholder intends to appear in
person or by proxy at the annual meeting to bring such business before the
meeting.
No business shall be conducted at the annual meeting of shareholders except
business brought before the annual meeting in accordance with the procedures set
forth in this Section 2.13, provided, however, that, once business has been
-------- -------
properly brought before the annual meeting in accordance with such procedures,
nothing in this Section 2.13 shall be deemed to preclude discussion by any
shareholder of any such business. If the presiding officer of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the presiding officer shall declare to
the meeting that the business was not properly brought before the meeting and
such business shall not be transacted.
For purposes of this Section 2.13, "public announcement" shall mean an
announcement in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
Section 2.14 Adjourned Meetings. A meeting of shareholders may be adjourned
to another time and to another place by either the chairperson of the meeting or
a majority of the votes present. When a meeting is adjourned to another place,
date or time, notice need not be given of the adjourned meeting if the place,
date and time thereof are announced at the meeting at which the adjournment is
taken; provided, however, that if the date of any adjourned meeting is more than
one hundred twenty (120) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
notice of the place, date and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be transacted
which might have been transacted at the original meeting.
ARTICLE 3
BOARD OF DIRECTORS
Section 3.1 Number of Directors The number of directors shall be such
number as the board of directors shall at the time have designated.
5
<PAGE>
Section 3.2 Qualifications and General Powers No director is required to be
an officer or employee of the Corporation or a resident of the State of Iowa.
The business and affairs of the Corporation shall be managed by the board of
directors. The board of directors may authorize any officer or officers, agent
or agents, to enter into any contract or to execute and deliver any instrument
in the name and on behalf of the Corporation, and such authority may be general
or confined to specific instances.
Section 3.3 Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation. Nominations of persons for election to the board
of directors may be made at any annual meeting of shareholders, or at any
special meeting of shareholders called for the purpose of electing directors,
(a) by or at the direction of the board of directors (or any duly authorized
committee thereof) or (b) by any shareholder of the Corporation (i) who is a
shareholder of record on the date of the giving of the notice provided for in
this Section 3.3 and on the record date for the determination of shareholders
entitled to vote at such meeting and (ii) who complies with the notice
procedures set forth in this Section 3.3.
In addition to any other applicable requirements, for a nomination to be
made by a shareholder, such shareholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation.
To be timely, a shareholder's notice to the Secretary must be delivered to
or mailed and received at the registered office of the Corporation (a) in the
case of an annual meeting, not less than sixty (60) days nor more than ninety
(90) days prior to the anniversary date of the immediately preceding annual
meeting of shareholders; provided, however, that in the event that the annual
meeting is called for a date that is not within thirty (30) days before or after
such anniversary date, notice by the shareholder in order to be timely must be
so received not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the annual meeting was mailed
or public announcement of the date of the annual meeting was made, whichever
first occurs; and (b) in the case of a special meeting of shareholders called
for the purpose of electing directors, not later than the close of business on
the tenth (10th) day following the day on which notice of the date of the
special meeting was mailed or public announcement of the date of the special
meeting was made, whichever first occurs. In no event shall the public
announcement of an adjournment of an annual or special meeting commence a new
time period for the giving of a shareholder's notice as described above.
To be in proper written form, a shareholder's notice to the Secretary must
set forth (a) as to each person whom the shareholder proposes to nominate for
election as a director (i) the name, age, business address and residence address
of the person, (ii) the principal occupation or employment of the person, (iii)
the class or series and number of shares of capital stock of the Corporation
which are owned beneficially or of record by the person and (iv) any other
information relating to the person that would be required to be disclosed in a
proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act, and the rules and regulations promulgated thereunder; and (b) as
to the shareholder giving the notice (i) the name and record address of such
shareholder, (ii) the class or
6
<PAGE>
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such shareholder, (iii) a description of all
arrangements or understandings between such shareholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such shareholder, (iv) a
representation that such shareholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such shareholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of
the Exchange Act and the rules and regulations promulgated thereunder. Such
notice must be accompanied by a written consent of each proposed nominee to
being named as a nominee and to serve as a director if elected.
No person shall be eligible for election as a director of the Corporation
unless nominated in accordance with the procedures set forth in this Section
3.3. If the presiding officer of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the presiding officer
shall declare to the meeting that the nomination was defective and such
defective nomination shall be disregarded.
For purposes of this Section 3.3, "public announcement" shall mean an
announcement in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
Section 3.4 Increase in Number of Directors; Tenure. In case the number of
directors be increased by thirty percent or less of the number of directors last
approved by the shareholders, by amendment to these bylaws by the board of
directors or by resolution of the board of directors, the directorships to be
filled by reason thereof may be filled by the affirmative vote of a majority of
the directors, though less than a quorum of the board of directors.
Section 3.5 Quorum and Manner of Acting. A majority of the number of
directors then holding office shall constitute a quorum for the transaction of
business; but if at any meeting of the board there be less than a quorum
present, a majority of the directors present may adjourn the meeting from time
to time until a quorum shall be present Notice of any adjourned meeting need
not be given. At all meetings of directors, a quorum being present, the act of
the majority of the directors present at the meeting shall be the act of the
board of directors.
Section 3.6 Resignation. Any director of the Corporation may resign at any
time by giving written notice to the board of directors, its chairperson or the
Corporation. The resignation of any director shall take effect upon delivery of
notice thereof or at such later date as shall be specified in such notice; and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
Section 3.7 Vacancies. Any vacancy occurring in the board of directors
through death, resignation, removal or any other cause may be filled by the
affirmative vote of a majority of the remaining directors, though less than a
quorum of the board of directors. A director elected to fill
7
<PAGE>
a vacancy, other than a newly created directorship, shall hold office for the
unexpired term of his predecessor.
Section 3.8 Compensation of Directors. The directors shall be entitled to
be reimbursed for any expenses paid by them on account of attendance at any
regular or special meeting of the board of directors and the board may fix the
compensation of directors from time to time by resolution of the board.
Section 3.9 Place of Meetings, etc. The board of directors may hold its
meetings and keep the books and records of the Corporation (except that the
record of its shareholders must also be kept at the places described in Section
3.5 of these bylaws) at such place or places within or without the State of
Iowa, as the board may from time to time determine. A director may participate
in any meeting by any means of communication, including, but not limited to
telephone conference call, by which all directors participating may
simultaneously hear each other during the meeting.
Section 3.10 Annual Meeting. Immediately after the final adjournment of
each annual meeting of the shareholders for the election of directors, the board
of directors shall meet, at the same place where said meeting of shareholders
finally adjourned, for the purpose of organization, the election of officers and
the transaction of other business. Notice of such meeting need not be given.
Such meeting may be held at any other time or place as shall be specified in a
notice given as hereinafter provided for special meetings of the board of
directors or in a consent and waiver of notice thereof signed by all the
directors, at which meeting the same matters shall be acted upon as is above
provided.
Section 3.11 Regular Meetings. Regular meetings of the board of directors
shall be held at such place and at such times as the board of directors shall by
resolution fix and determine from time to time. No notice shall be required for
any such regular meeting of the board.
Section 3.12 Special Meetings; Notice.
(a) Special meetings of the board shall be held whenever called by
direction of the president, or one-third (1/3) of the directors at the time
being in office.
(b) Notice of each such meeting shall be delivered to each director, at
least two (2) days before the date on which the meeting is to be held, by mail,
telegraph, cable, radio or wireless, or personally or by telephone. Each notice
shall state the time and place of the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting. At
any meeting at which every director shall be present, even without any notice,
any business may be transacted.
Section 3.13 Substitutes for Notice. A written waiver of notice signed by a
director, whether before or after the time of the meeting stated therein, shall
be equivalent to the giving of such notice in due time as required by these
bylaws. Attendance of a director at or participation in a meeting shall
constitute a waiver of notice of such meeting, unless the director at the
beginning
8
<PAGE>
of the meeting or promptly upon arrival objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
Section 3.14 Director's Assent Presumed. A director of the Corporation who
is present at a meeting of its board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless the director's dissent shall be entered in the minutes of the meeting or
unless the director shall file a written dissent to such action with the person
acting as the Secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered or certified mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 3.15 Order of Business.
(a) At meetings of the board of directors, business shall be transacted in
such order as, from time to time, the board of directors may determine by
resolution.
(b) At all meetings of the board, the chairperson or in his or her
absence, vice chairperson, or in their absence the President, or in the
president's absence the most senior Vice President present, or otherwise the
person designated by the vote of a majority of the directors present shall
preside.
Section 3.16 Action Without Meeting. Any action required or permitted by
law to be taken at any meeting of the board of directors may be taken without a
meeting if the action is taken by all members of the board and if one or more
consents in writing setting forth the action so taken shall be signed by all of
the directors then in office and included in the minutes.
Section 3.17 Committees.
(a) The board of directors, by resolution adopted by the affirmative vote
of a majority of the number of directors then in office, may establish one or
more committees, including an executive committee, each committee to consist of
two (2) or more directors appointed by the board of directors Any such
committee shall serve at the will of the board of directors. Each such
committee shall have the powers and duties delegated to it by the board of
directors. The board of directors may elect one or more of its members as
alternate members of any such committee who may take the place of any absent
member or members at any meeting of such committee, upon request by the
president or the chairperson of such committee. Each such committee shall fix
its own rules governing the conduct of its activities as the board of directors
may request.
(b) A committee of the board shall not: (i) authorize distributions by the
Corporation; (ii) approve or propose to shareholders of the Corporation action
that the law requires be approved by shareholders; (iii) fill vacancies on the
board of directors of the Corporation or on any of its committees; (iv) amend
the articles of incorporation of the Corporation; (v) adopt, amend or repeal
bylaws of the Corporation; (vi) approve a plan of merger not requiring
shareholder approval; (vii) authorize or approve reacquisition of shares by the
Corporation, except according to a formula or
9
<PAGE>
method prescribed by the board of directors; or (viii) authorize or approve the
issuance or sale or contract for sale of shares, or determine the designation
and relative rights, preferences and limitations of a class or series of shares,
except that the board of directors may authorize a committee or a senior
executive officer of the Corporation to do so within limits specifically
prescribed by the board of directors.
ARTICLE 4
OFFICERS
Section 4.1 Generally. The officers of the Corporation shall be a
President, one or more Vice Presidents (the number thereof to be determined by
the board of directors), a Secretary, a Treasurer and such other officers as may
from time to time be appointed by the board of directors. One person may hold
the offices and perform the duties of any two or more of said offices. In its
discretion, the board of directors may delegate the powers or duties of any
officer to any other officer or agents, notwithstanding any provision of these
bylaws, and the board of directors may leave unfilled for any such period as it
may fix, any office except those of President, Treasurer and Secretary. The
officers of the Corporation shall be appointed annually by the board of
directors at the annual meeting thereof. Each such officer shall hold office
until the next succeeding annual meeting of the board of directors and until his
successor shall have been duly chosen and shall qualify or until his death or
until he shall resign or shall have been removed.
Section 4.2 Removal. Any officer may be removed by the board of directors,
with or without cause, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed.
Section 4.3 Powers and Duties of the President. The President shall be the
chief executive officer of the Corporation. Subject to the provisions of these
bylaws and to the direction of the board of directors, he or she shall have the
responsibility for the general management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the office of chief executive or which are
delegated to him or her by the board of directors. He or she shall have power
to sign all stock certificates, contracts and other instruments of the
Corporation which are authorized and shall have general supervision and
direction of all of the other officers, employees and agents of the Corporation.
Section 4.4 Powers and Duties of the Vice President(s). In the absence of
the President or in the event of the death, inability or refusal to act of the
President, the Vice President (or in the event there be more than one Vice
President, the Vice Presidents in the order designated at the time of their
election, or in the absence of any designation, the senior Vice President in
length of service) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. Any Vice President may sign, with the Secretary or Assistant
Secretary, certificates for shares of the Corporation; and shall perform such
other duties and have such authority as from time to time may be assigned to
such Vice President by the President or by the board of directors.
10
<PAGE>
Section 4.5 Powers and Duties of the Secretary. The Secretary shall (a)
keep minutes of all meetings of the shareholders and of the board of directors;
(b) authenticate records of the Corporation and attend to giving and serving all
notices of the Corporation as provided by these bylaws or as required by law;
(c) be custodian of the corporate seal (if any), the stock certificate books and
such other books, records and papers as the board of directors may direct, and
see that the corporate seal (if any) is affixed to all stock certificates and to
all documents, the execution of which on behalf of the Corporation under its
seal (if any) is duly authorized; (d) keep a stock record showing the names of
all persons who are shareholders of the Corporation, their post office addresses
as furnished by each such shareholder, and the number of shares of each class of
stock held by them respectively, and at least ten (10) days before each
shareholders' meeting, prepare a complete list of shareholders entitled to vote
at such meeting arranged in alphabetical order; (e) sign with the President or a
Vice President certificates for shares of the Corporation, the issuance of which
shall have been duly authorized; and (f) in general, perform all duties incident
to the office of Secretary and such other duties as from time to time may be
assigned to the Secretary by the President or the board of directors.
Section 4.6 Powers and Duties of the Treasurer. The Treasurer shall (a)
have custody of and be responsible for all monies and securities of the
Corporation, shall keep full and accurate records and accounts in books
belonging to the Corporation, showing the transactions of the Corporation, its
accounts, liabilities and financial condition and shall see that all
expenditures are duly authorized and are evidenced by proper receipts and
vouchers; (b) deposit in the name of the Corporation in such depository or
depositories as are approved by the directors, all moneys that may come into the
Treasurer's hands for the Corporation's account; (c) render an account of the
financial condition of the Corporation at least annually; and (d) in general,
perform such duties as may from time to time be assigned to the Treasurer by the
President or by the board of directors.
Section 4.7 Assistants. There shall be such number of Assistant Secretaries
and Assistant Treasurers as the board of directors may from time to time
authorize and appoint. The Assistant Secretaries and Assistant Treasurers in
general, shall perform such duties as shall be assigned to them by the
Secretary, or the Treasurer, respectively, or by the president or the board of
directors. The board of directors shall have the power to appoint any person to
act as assistant to any other officer, or to perform the duties of any other
officer whenever for any reason it is impracticable for such officer to act
personally, and such assistant or acting officer so appointed shall have the
power to perform all the duties of the office to which he or she is so appointed
to be assistant, or as to which he or she is so appointed to act, except as such
power may be otherwise defined or restricted by the board of directors.
ARTICLE 5
SHARES, THEIR ISSUANCE AND TRANSFER
Section 5.1 Consideration for Shares. The board of directors may authorize
shares to be issued for consideration consisting of any tangible or intangible
property or benefit to the Corporation, including cash, promissory notes,
services performed, contracts for services to be performed, or other securities
of the Corporation. Before the Corporation issues shares, the board
11
<PAGE>
of directors must determine that the consideration received or to be received
for shares to be issued is adequate. If the Corporation issues or authorizes the
issuance of shares for promissory notes or for promises to render services in
the future, the Corporation shall report in writing to the shareholders the
number of shares authorized or issued and the consideration received by the
Corporation with or before the notice of the next shareholders' meeting.
Section 5.2 Certificates for Shares. Every shareholder of the Corporation
shall be entitled to a certificate or certificates, to be in such form as the
board of directors shall prescribe, certifying the number and class of shares of
the Corporation owned by such shareholder.
Section 5.3 Execution of Certificates. The certificates for shares of stock
shall be numbered in the order in which they shall be issued and shall be signed
by the President or a Vice President and the Secretary or an Assistant Secretary
of the Corporation, and may be sealed with the seal (if any) of the Corporation
or a facsimile thereof. The signatures of the President or Vice President and
the Secretary or Assistant Secretary or other persons signing for the
Corporation upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer or
other authorized person who has signed or whose facsimile signature has been
placed upon such certificate for the Corporation shall have ceased to be such
officer or employee or agent before such certificate is issued, it may be issued
by the Corporation with the same effect as if he or she were such officer or
employee or agent at the date of its issue.
Section 5.4 Share Record. A record shall be kept by the Secretary, or by
any other officer, employee or agent designated by the board of directors, of
the names and addresses of all shareholders and the number and class of shares
held by each represented by such certificates and the respective dates thereof
and in case of cancellation, the respective dates of cancellation.
Section 5.5 Cancellation. Every certificate surrendered to the Corporation
for exchange or transfer shall be cancelled, and no new certificate or
certificates shall be issued in exchange for any existing certificate until such
existing certificate shall have been so cancelled, except in cases provided in
Section 5.8 of these bylaws.
Section 5.6 Transfers of Stock. Transfers of shares of the capital stock of
the Corporation shall be made only on the books of the Corporation by the record
holder thereof, or by his or her attorney thereunto authorized by power of
attorney duly executed and filed with the Secretary of the Corporation, and on
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation; provided, however, that whenever any
transfer of shares shall be made for collateral security, and not absolutely,
such fact, if known to the Secretary of the Corporation, shall be so expressed
in the entry of transfer.
Section 5.7 Regulations. The board of directors may make such other rules
and regulations as it may deem expedient, not inconsistent with law, concerning
the issue, transfer and registration of certificates for shares of the stock of
the Corporation.
12
<PAGE>
Section 5.8 Lost, Destroyed, or Mutilated Certificates. In the event of
the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the board of directors may
establish concerning proof of such loss, theft or destruction and concerning the
giving of a satisfactory bond or bonds of indemnity.
Section 5.9 Record Date. The board may fix, in advance, a date as the
record date for any determination of shareholders for any purpose such date in
every case to be not more than seventy (70) days prior to the date on which the
particular action or meeting, requiring such determination of shareholders, is
to be to be taken or held. If no record date is so fixed for the determination
of shareholders, the close of business on the day before the date on which the
first notice of a shareholders' meeting is delivered or the date on which the
resolution of the board of directors declaring a share dividend or distribution
(other than in connection with a repurchase or reacquisition of shares) is
adopted, as the case may be, shall be the record date for such determination of
shareholders. When a determination of shareholders entitled to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof, unless the board of
directors selects a new record date or unless a new record date is required by
law.
ARTICLE 6
MISCELLANEOUS PROVISIONS
Section 6.1 Facsimile Signatures. In addition to the provisions for use of
facsimile signatures elsewhere specifically authorized in these bylaws,
facsimile signatures of any officer or officers of the corporation may be used
whenever and as authorized by the board of directors or a committee thereof.
Section 6.2 Corporate Seal. The board of directors may by resolution (but
shall not be required to) provide for a corporate seal which, if provided, shall
be circular in form and shall bear the name of the corporation and the words
"Corporate Seal" and "Iowa ". The Secretary shall be custodian of any such seal.
The board of directors may also authorize a duplicate seal to be kept and used
by any other officer.
Section 6.3 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the board of directors.
Section 6.4 Voting of Stocks Owned by the Corporation. In the absence of a
resolution of the board of directors to the contrary, the President of the
Corporation or any Vice President acting within the scope of his or her
authority as provided in Section 4.4 of these bylaws, are authorized and
empowered on behalf of the Corporation to attend, vote, grant discretionary
proxies to be used at any meeting of shareholders of any corporation in which
this Corporation holds or owns shares of stock, and in that connection, on
behalf of this Corporation, to execute a waiver of notice of any such meeting.
The board of directors shall have authority to designate any officer or person
as a proxy or attorney-in-fact to vote shares of stock in any other corporation
in which this Corporation may own or hold shares of stock.
13
<PAGE>
Section 6.5 Shareholders' Right to Information.
(a) A shareholder of the Corporation is entitled to inspect and copy,
during regular business hours at the Corporation's principal office, any of the
following records of the Corporation, if the shareholder gives the Corporation
written notice of the shareholder's demand at least five business days before
the date on which the shareholder wishes to inspect and copy:
(1) Articles or Restated Articles of Incorporation and all amendments
currently in effect;
(2) Bylaws or Restated Bylaws and all amendments currently in effect;
(3) Resolutions adopted by the board of directors creating one or
more classes or series of shares and fixing their relative rights, preferences
and limitations, if shares issued pursuant to those resolutions are outstanding;
(4) Minutes of all shareholders' meetings and records of all action
taken by shareholders without a meeting, for the past three years;
(5) All written communications to shareholders generally within the
past three years, including the financial statement furnished for the past three
years;
(6) A list of the names and business addresses of the Corporation's
current directors and officers; and
(7) The Corporation's most recent annual report delivered to the Iowa
Secretary of State.
(b) If (i) a shareholder makes a demand in good faith and for a proper
purpose, (ii) the shareholder describes with reasonable particularity the
shareholder's purpose and the records the shareholder desires to inspect, and
(iii) the record requested is directly connected with the shareholder's stated
purpose, the shareholder shall also be entitled to inspect and copy, during
regular business hours at a reasonable location specified by the Corporation,
any of the following records of the Corporation provided the shareholder gives
the Corporation written notice of the shareholder's demand at least five
business days before the date on which the shareholder wishes to inspect and
copy any of the following:
(1) Excerpts from minutes of any meeting of the board of directors,
records of any actions of a committee of the board of directors while acting in
place of the board of directors on behalf of the Corporation, minutes of any
meeting of the shareholders, and records of action taken by the shareholders or
the board of directors without a meeting to the extent not subject to inspection
under the preceding subparagraph;
(2) Accounting records of the Corporation; and
14
<PAGE>
(3) The record of shareholders of the Corporation.
ARTICLE 7
INDEMNIFICATION OF DIRECTORS
Section 7.1 Mandatory Indemnity. Each individual who is or was a director
of the Corporation (and the heirs, executors, personal representatives or
administrators of such individual) who was or is made a party to, or is involved
in any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person is or was a director of the Corporation or is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise ("Indemnitee"), shall be indemnified and held
harmless by the Corporation to the fullest extent permitted by applicable law,
as the same exists or may hereafter be amended. In addition to the
indemnification conferred in this Article, the Indemnitee and any officer of the
Corporation shall also be entitled to have paid directly by the Corporation the
expenses reasonably incurred in defending any such proceeding against such
Indemnitee, or any similar type of proceeding against such officer, in advance
of its final disposition, to the fullest extent authorized by applicable law, as
the same exists or may hereafter be amended. The right to indemnification
conferred in this Article shall be a contract right.
Section 7.2 Non-Exclusivity of Rights. The rights to indemnification
conferred in this Article shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Articles of Incorporation or any agreement, vote of stockholders or
disinterested directors or otherwise.
ARTICLE 8
AMENDMENTS TO BYLAWS
These bylaws may be amended or repealed by the board of directors or by the
shareholders; provided, however, that the shareholders may from time to time
specify particular provisions of the bylaws which shall not be amended or
repealed by the board of directors.
15
<PAGE>
Exhibit 4.4
- --------------------------------------------------------------------------------
=================================================
AMENDED AND RESTATED DECLARATION OF TRUST
AMERICAN EQUITY CAPITAL TRUST I
Dated as of September 7, 1999
=================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
INTERPRETATION AND DEFINITIONS...................................................... 2
Section 1.1 Definitions................................................... 2
ARTICLE II
TRUST INDENTURE ACT................................................................. 8
Section 2.1 Trust Indenture Act; Application.............................. 8
Section 2.2 Lists of Holders of Securities................................ 8
Section 2.3 Reports by the Property Trustee............................... 9
Section 2.4 Periodic Reports to Property Trustee.......................... 9
Section 2.5 Evidence of Compliance with Conditions
Precedent..................................................... 9
Section 2.6 Declaration Events of Default; Waiver......................... 9
Section 2.7 Event of Default; Notice...................................... 12
ARTICLE III
ORGANIZATION........................................................................ 12
Section 3.1 Name.......................................................... 12
Section 3.2 Office........................................................ 12
Section 3.3 Purpose....................................................... 13
Section 3.4 Authority..................................................... 13
Section 3.5 Title to Property of the Trust................................ 14
Section 3.6 Powers and Duties of the Administrative Trustees.............. 14
Section 3.7 Prohibition of Actions by the Trust and the
Trustees...................................................... 16
Section 3.8 Powers and Duties of the Property Trustee..................... 18
Section 3.9 Certain Duties and Responsibilities of the
Property Trustee.............................................. 20
Section 3.10 Certain Rights of Property Trustee............................ 22
Section 3.11 Delaware Trustee.............................................. 25
Section 3.12 Not Responsible for Recitals or Issuance of
Securities.................................................... 25
Section 3.13 Duration of Trust............................................. 25
Section 3.14 Mergers....................................................... 25
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV
SPONSOR............................................................................. 27
Section 4.1 Sponsor's Purchase of Trust Common Securities................. 27
Section 4.2 Responsibilities of the Sponsor............................... 28
ARTICLE V
TRUSTEES............................................................................ 28
Section 5.1 Number of Trustees............................................ 28
Section 5.2 Delaware Trustee.............................................. 29
Section 5.3 Property Trustee; Eligibility................................. 29
Section 5.4 Qualifications of Administrative Trustees and
Delaware Trustee Generally.................................... 30
Section 5.5 Initial Administrative Trustees............................... 30
Section 5.6 Appointment, Removal and Resignation of
Trustees...................................................... 31
Section 5.7 Vacancies among Trustees...................................... 32
Section 5.8 Effect of Vacancies........................................... 33
Section 5.9 Meetings...................................................... 33
Section 5.10 Delegation of Power........................................... 33
Section 5.11 Merger, Conversion, Consolidation or
Succession to Business........................................ 34
ARTICLE VI
DISTRIBUTIONS....................................................................... 34
Section 6.1 Distributions................................................. 34
ARTICLE VII
ISSUANCE OF SECURITIES.............................................................. 35
Section 7.1 General Provisions Regarding Securities....................... 35
Section 7.2 Execution and Authentication.................................. 35
Section 7.3 Form and Dating............................................... 36
Section 7.4 Registrar, Paying Agent and Conversion Agent.................. 37
Section 7.5 Paying Agent to Hold Money in Trust........................... 37
Section 7.6 Replacement Securities........................................ 38
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.7 Outstanding Trust Preferred Securities........................ 38
Section 7.8 Trust Preferred Securities in Treasury........................ 39
Section 7.9 Temporary Securities.......................................... 39
Section 7.10 Cancellation.................................................. 39
ARTICLE VIII
TERMINATION OF TRUST................................................................ 39
Section 8.1 Termination of Trust.......................................... 39
ARTICLE IX
TRANSFER AND EXCHANGE............................................................... 41
Section 9.1 General....................................................... 41
Section 9.2 Transfer Procedures and Restrictions.......................... 42
(a) General.................................................. 42
(b) Transfer and Exchange of Definitive
Trust Preferred Securities............................... 42
(c) Legend................................................... 43
(d) Obligations with Respect to Transfers
and Exchanges of Trust Preferred
Securities............................................... 44
(e) No Obligation of the Property Trustee.................... 45
Section 9.3 Deemed Security Holders....................................... 46
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS........................................... 46
Section 10.1 Liability..................................................... 46
Section 10.2 Exculpation................................................... 47
Section 10.3 Fiduciary Duty................................................ 47
Section 10.4 Indemnification............................................... 49
Section 10.5 Outside Businesses............................................ 52
ARTICLE XI
ACCOUNTING.......................................................................... 53
Section 11.1 Fiscal Year................................................... 53
Section 11.2 Certain Accounting Matters.................................... 53
Section 11.3 Banking....................................................... 54
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 11.4 Withholding................................................... 54
ARTICLE XII
AMENDMENTS AND MEETINGS............................................................. 55
Section 12.1 Amendments.................................................... 55
Section 12.2 Meetings of the Holders of Securities; Action by Written
Consent..................................................................... 57
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE................................................................ 59
Section 13.1 Representations and Warranties of Property
Trustee....................................................... 59
Section 13.2 Representations and Warranties of Delaware
Trustee....................................................... 60
ARTICLE XIV
MISCELLANEOUS....................................................................... 61
Section 14.1 Notices....................................................... 61
Section 14.2 Governing Law................................................. 62
Section 14.3 Intention of the Parties...................................... 62
Section 14.4 Headings...................................................... 62
Section 14.5 Successors and Assigns........................................ 63
Section 14.6 Partial Enforce ability....................................... 63
Section 14.7 Counterparts.................................................. 63
ANNEXES AND EXHIBITS
- --------------------
ANNEX I TERMS OF 8% CONVERTIBLE TRUST PREFERRED SECURITIES 8% CONVERTIBLE
TRUST COMMON SECURITIES
EXHIBIT A-1 FORM OF TRUST PREFERRED SECURITY [FORM OF FACE OF SECURITY]
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
EXHIBIT A-2 FORM OF TRUST COMMON SECURITY [FORM OF FACE OF SECURITY]
EXHIBIT B SPECIMEN OF DEBENTURE
</TABLE>
v
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
AMERICAN EQUITY CAPITAL TRUST I
September 7, 1999
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration"), dated and
effective as of September 7, 1999, by the undersigned trustees (together with
all other Persons from time to time duly appointed and serving as trustees in
accordance with the provisions of this Declaration, the "Trustees"), American
Equity Investment Life Holding Company, an Iowa corporation, as trust sponsor
(the "Sponsor"), and by the holders, from time to time, of undivided beneficial
interests in the Trust issued pursuant to this Declaration.
WHEREAS, the Trustees and the Sponsor established American Equity Capital
Trust I (the "Trust"), a trust under the Business Trust Act (as defined herein)
pursuant to a Declaration of Trust dated as of July 9, 1999 (the "Original
Declaration") and a Certificate of Trust filed with the Secretary of State of
the State of Delaware on July 9, 1999, for the sole purpose of issuing and
selling certain securities representing undivided beneficial interests in the
assets of the Trust and investing the proceeds thereof in certain Debentures (as
defined herein) of the Debenture Issuer (as defined herein);
WHEREAS, as of the date hereof, no interests in the Trust have been issued;
and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration, amend
and restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto to continue
the Trust as a business trust under the Business Trust Act and that this
Declaration constitutes the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
INTERPRETATION AND DEFINITIONS
Section 1.1 Definitions.
-----------
Unless the context otherwise requires:
<PAGE>
(a) capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this Section
1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to
this Declaration as modified, supplemented or amended from time to time;
(d) all references in this Declaration to Articles and Sections and
Annexes and Exhibits are to Articles and Sections and Annexes and Exhibits to
this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same meaning
when used in this Declaration unless otherwise defined in this Declaration or
unless the context otherwise requires; and
(f) a reference to the singular includes the plural and vice versa.
"Additional Interest" means, if the Trust is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States or any other taxing authority,
such amounts as shall be required so that the net amounts received and retained
by the Trust after paying such taxes, duties, assessments and governmental
charges will not be less than the amounts the Trust would have received had no
such taxes, duties, assessments or governmental charges been imposed.
"Administrative Trustee" means any Trustee other than the Property Trustee
and the Delaware Trustee.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act or any successor rule thereunder.
"Agent" means any Registrar, Paying Agent, Conversion Agent or co-
registrar.
"Authorized Officer" of a Person means any Person that is authorized to
bind such Person.
"Business Day" means any day other than a Saturday, Sunday or day on which
banking institutions in West Des Moines, Iowa or in Wilmington, Delaware are
authorized or required by law to close.
2
<PAGE>
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code ss.3801 et seq., as it may be amended from time to time, or any
successor legislation.
"Certificate" means a certificate in definitive form representing a Trust
Common Security or a Trust Preferred Security.
"Closing Date" means September 7, 1999 and each other date upon which
Securities are issued pursuant to and in accordance with the terms of this
Declaration.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Company Indemnified Person" means (a) any Administrative Trustee; (b) any
Affiliate of any Administrative Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Administrative Trustee; or (d) any officer, employee or agent of the Trust or
its Affiliates.
"Compounded Interest" means interest compounded quarterly at the rate
specified for the Debentures to the extent permitted by applicable law upon
interest accrued and unpaid (including Additional Interest) at the end of each
Extension Period.
"Covered Person" means (a) any officer, director, shareholder, partner,
member, representative, employee or agent of (i) the Trust or (ii) the Trust's
Affiliates; and (b) any Holder of Securities.
"Debenture Issuer" means the Sponsor in its capacity as issuer of the
Debentures.
"Debentures" means the series of Convertible Junior Subordinated Debentures
to be issued by the Debenture Issuer under the Indenture to be held by the
Property Trustee, a specimen certificate for such series of Debentures being
Exhibit B.
"Declaration Event of Default" means, with respect to the Securities, that
an Indenture Event of Default has occurred and is continuing with respect to the
Debentures.
"Definitive Trust Preferred Securities" means the Restricted Definitive
Trust Preferred Security and any other Trust Preferred Securities in definitive
form issued by the Trust.
3
<PAGE>
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Distribution" means a distribution payable to Holders of Securities in
accordance with Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section
10.4(b).
"Fiscal Year" has the meaning set forth in Section 11.1.
"Holder" means a Person in whose name a Certificate representing a Security
is registered, such Person being a beneficial owner within the meaning of the
Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or a Fiduciary
Indemnified Person.
"Indenture" means the Indenture, dated as of September 7, 1999, between the
Debenture Issuer and the Indenture Trustee, and any indenture supplemental
thereto pursuant to which the Debentures are to be issued.
"Indenture Trustee" means West Des Moines State Bank, an Iowa banking
corporation, as trustee under the Indenture until a successor is appointed
thereunder, and thereafter means such successor trustee.
"Indenture Event of Default" means an "Indenture Event of Default" as
defined in the Indenture.
"Investment Company" means an investment company as defined in the
Investment Company Act.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, or any successor legislation.
"Investment Company Event" has the meaning set forth in the terms of the
Securities as set forth in Annex I hereto.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Majority in liquidation amount of the Securities" means, except as
provided in the terms of the Trust Preferred Securities or by the Trust
Indenture Act, Holder(s) of
4
<PAGE>
outstanding Securities voting together as a single class or, as the context may
require, Holders of outstanding Trust Preferred Securities or Holders of
outstanding Trust Common Securities voting separately as a class, who are the
record owners of more than 50% of the aggregate liquidation amount (including
the stated amount that would be paid on redemption, liquidation or otherwise,
plus accrued and unpaid Distributions to the date upon which the voting
percentages are determined) of all outstanding Securities of the relevant class.
"Ministerial Action" has the meaning set forth in the terms of the
Securities as set forth in Annex I hereto.
"No Recognition Opinion" has the meaning set forth in the terms of the
Securities as set forth in Annex I hereto.
"Offering Memorandum" means the confidential private placement memorandum,
dated July 12, 1999, relating to the issuance by the Trust of the Trust
Preferred Securities.
"Officers' Certificate" means, with respect to any Person, a certificate
signed by two Authorized Officers of such Person. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant provided for
in this Declaration shall include:
(i) a statement that each officer signing the Certificate has
read the covenant or condition and the definitions relating thereto;
(ii) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering the
Certificate;
(iii) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Paying Agent" has the meaning specified in Section 3.8(h).
5
<PAGE>
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Placement Agent" means EVEREN Securities, Inc.
"Property Trustee" means the Trustee meeting the eligibility requirements
set forth in Section 5.3.
"Property Trustee Account" has the meaning set forth in Section 3.8(c).
"Quorum" means a majority of the Administrative Trustees or, if there are
only two Administrative Trustees, both of them.
"Related Party" means, with respect to the Sponsor, any direct or indirect
wholly owned subsidiary of the Sponsor or any other Person that owns, directly
or indirectly, 100% of the outstanding voting securities of the Sponsor.
"Responsible Officer" means, with respect to the Property Trustee, any
vice-president, any assistant vice-president, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer or any other officer in
the Corporate Trust Department of the Property Trustee customarily performing
functions similar to those performed by any of the above designated officers and
also means, with respect to a particular corporate trust matter, any other
officer to whom such matter is referred because of that officer's knowledge of
and familiarity with the particular subject.
"Restricted Definitive Trust Preferred Security" has the meaning set forth
in Section 7.3.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act.
"Securities" means the Trust Common Securities and the Trust Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as amended from time to
time or any successor legislation.
"Special Event" has the meaning set forth in Annex I hereto.
"Sponsor" means American Equity Investment Life Holding Company, an Iowa
corporation, or any successor entity in a merger, consolidation or amalgamation,
in its capacity as sponsor of the Trust.
6
<PAGE>
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
"Tax Event" has the meaning set forth in Annex I hereto.
"10% in liquidation amount of the Securities" means, except as provided in
the terms of the Trust Preferred Securities or by the Trust Indenture Act,
Holders of outstanding Securities voting together as a single class or, as the
context may require, Holders of outstanding Trust Preferred Securities or
Holders of outstanding Trust Common Securities, voting separately as a class,
who are the record owners of 10% or more of the aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities of the relevant
class.
"Terms" has the meaning set forth in Section 7.1(a).
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trust Common Securities" has the meaning specified in Section 7.1(a).
"Trust Common Securities Guarantee" means the guarantee agreement, dated as
of September 7, 1999, of the Sponsor with respect to the Trust Common
Securities.
"Trust Preferred Securities" has the meaning specified in Section 7.1(a).
"Trust Preferred Securities Guarantee" means the guarantee agreement, dated
as of September 7, 1999, of the Sponsor with respect to the Trust Preferred
Securities.
"Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time to time, or any successor legislation.
7
<PAGE>
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.
--------------------------------
(a) Certain provisions of the Trust Indenture Act are incorporated by
reference in and made part of this Declaration and this Declaration shall, to
the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee which is a
"trustee" for the purposes of the provisions of the Trust Indenture Act
incorporated by reference herein.
(c) If and to the extent that any provision of this Declaration
limits, qualifies or conflicts with the duties imposed by any provisions of
ss.ss. 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties
shall control.
(d) The application of the provisions of the Trust Indenture Act
referred to above to this Declaration shall not affect the nature of the
Securities as equity securities representing undivided beneficial interests in
the assets of the Trust.
Section 2.2 Lists of Holders of Securities.
------------------------------
(a) Each of the Sponsor and the Administrative Trustees on behalf of
the Trust shall provide the Property Trustee (i) within 14 days after each
record date for payment of Distributions, a list, in such form as the Property
Trustee may reasonably require, of the names and addresses of the Holders of the
Securities ("List of Holders") as of such record date, provided that neither the
Sponsor nor the Administrative Trustees on behalf of the Trust shall be
obligated to provide such List of Holders at any time the List of Holders does
not differ from the most recent List of Holders given to the Property Trustee by
the Sponsor and the Administrative Trustees on behalf of the Trust, and (ii) at
any other time, within 30 days of receipt by the Trust of a written request for
a List of Holders as of a date no more than 14 days before such List of Holders
is given to the Property Trustee. The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in Lists
of Holders given to it or which it receives in the capacity as Paying Agent (if
acting in such capacity) provided that the Property Trustee may destroy any List
of Holders previously given to it on receipt of a new List of Holders.
8
<PAGE>
(b) The Property Trustee shall comply with its obligations under
ss.ss. 311(a), 311(b) and 312(b) of the Trust Indenture Act.
Section 2.3 Reports by the Property Trustee. Within 60 days after
-------------------------------
November 15 of each year, commencing November 15, 1999 the Property Trustee
shall provide to the Holders of the Trust Preferred Securities such reports as
are required by ss. 313 of the Trust Indenture Act, if any, in the form and in
the manner provided by ss. 313 of the Trust Indenture Act. The Property Trustee
shall also comply with the requirements of ss. 313(d) of the Trust Indenture
Act.
Section 2.4 Periodic Reports to Property Trustee. Each of the Sponsor
------------------------------------
and the Administrative Trustees on behalf of the Trust shall provide to the
Property Trustee such documents, reports and information as required by ss. 314
of the Trust Indenture Act (if any) and the compliance certificate required by
ss. 314 of the Trust Indenture Act in the form, in the manner and at the times
required by ss. 314 of the Trust Indenture Act.
Section 2.5 Evidence of Compliance with Conditions Precedent. Each of
------------------------------------------------
the Sponsor and the Administrative Trustees on behalf of the Trust shall provide
to the Property Trustee such evidence of compliance with any conditions
precedent, if any, provided for in this Declaration that relate to any of the
matters set forth in ss. 314(c) of the Trust Indenture Act. Any certificate or
opinion required to be given by an officer pursuant to ss. 314(c)(1) may be
given in the form of an Officers' Certificate.
Section 2.6 Declaration Events of Default; Waiver.
-------------------------------------
(a) The Holders of a Majority in liquidation amount of Trust
Preferred Securities may, by vote, on behalf of the Holders of all of the Trust
Preferred Securities, waive any past Declaration Event of Default in respect of
the Trust Preferred Securities and its consequences, provided that, if the
underlying Indenture Event of Default:
(i) is not waivable under the Indenture, the
Declaration Event of Default shall also not be waivable; or
(ii) requires the consent or vote of greater than
a majority in principal amount of the holders of the Debentures
(a "Super Majority") to be waived under the Indenture, the
Declaration Event of Default may only be waived by the vote of
the Holders of at least the proportion in liquidation amount of
the Trust Preferred Securities that the relevant Super Majority
represents of the aggregate principal amount of the Debentures
outstanding.
9
<PAGE>
The foregoing provisions of this Section 2.6(a) shall be in lieu of ss.
316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B) of the Trust
Indenture Act is hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Upon such waiver, any such
default shall cease to exist, and any Declaration Event of Default with respect
to the Trust Preferred Securities arising therefrom shall be deemed to have been
cured, for every purpose of this Declaration, but no such waiver shall extend to
any subsequent or other default or a Declaration Event of Default with respect
to the Trust Preferred Securities or impair any right consequent thereon. Any
waiver by the Holders of the Trust Preferred Securities of a Declaration Event
of Default with respect to the Trust Preferred Securities shall also be deemed
to constitute a waiver by the Holders of the Trust Common Securities of any such
Declaration Event of Default with respect to the Trust Common Securities for all
purposes of this Declaration without any further act, vote or consent of the
Holders of the Trust Common Securities.
(b) The Holders of a Majority in liquidation amount of the Trust
Common Securities may, by vote, on behalf of the Holders of all of the Trust
Common Securities, waive any past Declaration Event of Default with respect to
the Trust Common Securities and its consequences, provided that, if the
underlying Indenture Event of Default:
(i) is not waivable under the Indenture, except
where the Holders of the Trust Common Securities are deemed to
have waived such Declaration Event of Default as provided below
in this Section 2.6(b), the Declaration Event of Default shall
also not be waivable; or (ii) requires the consent or vote of a
Super Majority to be waived, except where the Holders of the
Trust Common Securities are deemed to have waived such
Declaration Event of Default as provided below in this Section
2.6(b), the Declaration Event of Default may only be waived by
the vote of the Holders of at least the proportion in liquidation
amount of the Trust Common Securities that the relevant Super
Majority represents of the aggregate principal amount of the
Debentures outstanding; provided further, that each Holder of
Trust Common Securities will be deemed to have waived any such
Declaration Event of Default and all Declaration Events of
Default with respect to the Trust Common Securities and its
consequences until all Declaration Events of Default with respect
to the Trust Preferred Securities have been cured, waived or
otherwise eliminated, and until such Declaration Events of
Default have been so cured, waived or otherwise eliminated, the
Property Trustee will be deemed to be acting solely on behalf of
the Holders of the Trust Preferred Securities and only
10
<PAGE>
the Holders of the Trust Preferred Securities will have the right
to direct the Property Trustee in accordance with the terms of
the Securities. The foregoing provisions of this Section 2.6(b)
shall be in lieu of ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the
Trust Indenture Act and such ss.ss. 316(a)(1)(A) and 316(a)(1)(B)
of the Trust Indenture Act are hereby expressly excluded from
this Declaration and the Securities, as permitted by the Trust
Indenture Act. Subject to the foregoing provisions of this
Section 2.6(b), upon such waiver, any such default shall cease to
exist and any Declaration Event of Default with respect to the
Trust Common Securities arising therefrom shall be deemed to have
been cured for every purpose of this Declaration, but no such
waiver shall extend to any subsequent or other default or
Declaration Event of Default with respect to the Trust Common
Securities or impair any right consequent thereon.
(c) A waiver of an Indenture Event of Default by the Property Trustee
at the direction of the Holders of the Trust Preferred Securities, constitutes a
waiver of the corresponding Declaration Event of Default. The foregoing
provisions of this Section 2.6(c) shall be in lieu of ss. 316(a)(1)(B) of the
Trust Indenture Act and such ss. 316(a)(1)(B) of the Trust Indenture Act is
hereby expressly excluded from this Declaration and the Securities, as permitted
by the Trust Indenture Act.
Section 2.7 Event of Default; Notice.
------------------------
(a) The Property Trustee shall, within 90 days after the occurrence
of a Declaration Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Securities, notices of all defaults with respect
to the Securities actually known to a Responsible Officer of the Property
Trustee, unless such defaults have been cured before the giving of such notice
(the term "defaults" for the purposes of this Section 2.7(a) being hereby
defined to be an Indenture Event of Default, not including any periods of grace
provided for therein and irrespective of the giving of any notice provided
therein); provided that, except for a default in the payment of principal of (or
premium, if any) or interest on any of the Debentures or in the payment of any
sinking fund installment established for the Debentures, the Property Trustee
shall be protected in withholding such notice if and so long as the board of
directors, the executive committee, or a trust committee of directors and/or
Responsible Officers of the Property Trustee in good faith determines that the
withholding of such notice is in the interests of the Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge of any
default except:
11
<PAGE>
(i) a default under Sections 501(1) and 501(2) of the
Indenture; or
(ii) any default as to which the Property Trustee
shall have received written notice or of which a Responsible
Officer of the Property Trustee charged with the administration
of the Declaration shall have actual knowledge.
ARTICLE III
ORGANIZATION
Section 3.1 Name. The Trust is named "American Equity Capital Trust I,"
----
as such name may be modified from time to time by the Administrative Trustees
following written notice to the Holders of Securities. The Trust's activities
may be conducted under the name of the Trust or any other name deemed advisable
by the Administrative Trustees.
Section 3.2 Office. The address of the principal office of the Trust is
------
c/o American Equity Investment Life Holding Company, 5000 Westown Parkway, Suite
440, West Des Moines, Iowa 50266, Attention: Chief Financial Officer. On 10
Business Days written notice to the Holders of Securities, the Administrative
Trustees may designate another principal office.
Section 3.3 Purpose. The exclusive purposes and functions of the Trust
-------
are (a) to issue and sell Securities and use the proceeds from such sale to
acquire the Debentures, and (b) except as otherwise limited herein, to engage in
only those other activities necessary or incidental thereto. The Trust shall not
borrow money, issue debt or reinvest proceeds derived from investments, pledge
any of its assets, or otherwise undertake (or permit to be undertaken) any
activity that would cause the Trust not to be classified for United States
federal income tax purposes as a grantor trust.
Section 3.4 Authority.
---------
(a) subject to the limitations provided in this Declaration and to
the specific duties of the Property Trustee, the Administrative Trustees shall
have exclusive and complete authority to carry out the purposes of the Trust. An
action taken by the Administrative Trustees in accordance with their powers
shall constitute the act of and serve to bind the Trust and an action taken by
the Property Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the Trustees
acting on behalf of the Trust, no person shall be
12
<PAGE>
required to inquire into the authority of the Trustees to bind the Trust.
Persons dealing with the Trust are entitled to rely conclusively on the power
and authority of the Trustees as set forth in this Declaration;
(b) except as expressly set forth in this Declaration and except
if a meeting of the Administrative Trustees is called with respect to any matter
over which the Administrative Trustees have power to act, any power of the
Administrative Trustees may be exercised by, or with the consent of, any one
such Administrative Trustee;
(c) unless otherwise determined by the Administrative Trustees,
and except as expressly set forth in this Declaration or as otherwise required
by the Business Trust Act or applicable law, any Administrative Trustee is
authorized to execute on behalf of the Trust any documents which the
Administrative Trustees have the power and authority to cause the Trust to
execute; and
(d) an Administrative Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21 his
or her power for the purposes of signing any documents which the Administrative
Trustees have power and authority to cause the Trust to execute pursuant to
Section 3.6.
Section 3.5 Title to Property of the Trust. Except as provided in Section
------------------------------
3.8 with respect to the Debentures and the Property Trustee Account or as
otherwise provided in this Declaration, legal title to all assets of the Trust
shall be vested in the Trust. The Holders shall not have legal title to any part
of the assets of the Trust, but shall have an undivided beneficial interest in
the assets of the Trust.
Section 3.6 Powers and Duties of the Administrative Trustees. The
------------------------------------------------
Administrative Trustees shall have the exclusive power, duty and authority to
cause the Trust to engage in the following activities:
(a) to issue and sell the Trust Preferred Securities and the Trust
Common Securities in accordance with this Declaration; provided, however, that
the Trust may issue no more than one series of Trust Preferred Securities and no
more than one series of Trust Common Securities, and, provided, further, that
there shall be no interests in the Trust other than the Securities, and the
issuance of Securities shall be limited to the simultaneous issuance of both
Trust Common Securities (as specified in Section 4.1) and Trust Preferred
Securities on the Closing Date;
(b) in connection with the issue and sale of the Trust Preferred
Securities, at the direction of the Sponsor, to:
13
<PAGE>
(i) prepare and deliver an Offering Memoran
dum, in final form prepared by the Sponsor, in relation to the
offering and sale of Trust Preferred Securities, to the Placement
Agent for distribution to selected "accredited investors" (as
defined in Rule 501(a) of Regulation D promulgated by the
Commission under the Securities Act); and
(ii) execute and enter into other related
agreements in connection with the sale of the Trust Preferred
Securities;
(c) to acquire the Debentures with the proceeds of the sale of the
Trust Preferred Securities and the Trust Common Securities; provided, however,
that the Administrative Trustees shall cause legal title to the Debentures to be
held of record in the name of the Property Trustee for the benefit of the
Holders of the Trust Preferred Securities and the Holders of the Trust Common
Securities;
(d) to give the Sponsor and the Property Trustee prompt written
notice of the occurrence of a Special Event; provided that the Administrative
Trustees shall consult with the Sponsor and the Property Trustee before taking
or refraining from taking any Ministerial Action in relation to a Special Event;
(e) to establish a record date with respect to all actions to be
taken hereunder that require a record date be established, including and with
respect to, for the purposes of ss.316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of the Trust Preferred Securities and the Holders of the
Trust Common Securities as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may be required
of the Administrative Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against the
Trust ("Legal Action"), unless, pursuant to Section 3.8(e), the Property Trustee
has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and pay reasonable compensation for such services;
14
<PAGE>
(i) to give the certificate required by ss. 314(a)(4) of the Trust
Indenture Act to the Property Trustee, which certificate may be executed by any
Administrative Trustee;
(j) to incur expenses that are necessary or incidental to carry
out any of the purposes of the Trust;
(k) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities;
(l) to give prompt written notice to the Holders of the Securities
of any notice received from the Debenture Issuer of its election to defer
payments of interest on the Debentures by extending the interest payment period
under the Indenture;
(m) to execute all documents or instruments, perform all duties
and powers, and do all things for and on behalf of the Trust in all matters
necessary or incidental to the foregoing;
(n) to take all action that may be necessary or appropriate for
the preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Trust Preferred
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(o) to take any action, not inconsistent with this Declaration or
with applicable law, that the Administrative Trustees determine in their
discretion to be necessary or desirable in carrying out the activities of the
Trust as set out in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to
be an Investment Company required to be registered under the
Investment Company Act;
(ii) causing the Trust to be classified for
United States federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer
to ensure that the Debentures will be treated as indebtedness of
the Debenture Issuer for United States federal income tax
purposes;
15
<PAGE>
provided that such action does not adversely affect the interests
of Holders; and
(p) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be filed with respect
to the Trust to be duly prepared and filed by the Administrative Trustees, on
behalf of the Trust.
The Administrative Trustees must exercise the powers set forth in this
Section 3.6 in a manner that is consistent with the purposes and functions of
the Trust set out in Section 3.3, and the Administrative Trustees shall not take
any action that is inconsistent with the purposes and functions of the Trust set
forth in Section 3.3.
Subject to this Section 3.6, the Administrative Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.
Any expenses incurred by the Administrative Trustees pursuant to this
Section 3.6 shall be reimbursed by the Debenture Issuer.
Section 3.7 Prohibition of Actions by the Trust and the Trustees.
----------------------------------------------------
(a) The Trust shall not, and the Trustees (including the Property
Trustee and the Delaware Trustee) shall not, engage in any activity other than
as required or authorized by this Declaration. In particular, the Trust shall
not and the Trustees (including the Property Trustee and the Delaware Trustee)
shall cause the Trust not to:
(i) invest any proceeds received by the
Trust from holding the Debentures, but shall distribute all such
proceeds to Holders of Securities pursuant to the terms of this
Declaration and of the Securities;
(ii) acquire any assets other than as
expressly provided herein;
(iii) possess Trust property for other than a
Trust purpose;
(iv) make any loans or incur any
indebtedness other than loans represented by the Debentures;
(v) possess any power or otherwise act in
such a way as to vary the Trust assets or the terms of the
Securities in any way whatsoever;
16
<PAGE>
(vi) issue any securities or other evidences
of beneficial ownership of, or beneficial interest in, the Trust
other than the Securities;
(vii) other than as provided in this
Declaration or Annex I hereto, (A) direct the time, method and
place of exercising any trust or power conferred upon the
Indenture Trustee with respect to the Debentures, (B) waive any
past default that is waivable under the Indenture, (C) exercise
any right to rescind or annul any declaration that the principal
of all the Debentures shall be due and payable, or (D) consent to
any amendment, modification or termination of the Indenture or
the Debentures where such consent shall be required unless the
Trust shall have received an opinion of counsel to the effect
that such amendment, modification or termination will not cause
more than an insubstantial risk that the Trust will be deemed an
Investment Company required to be registered under the Investment
Company Act; or
(viii) consent to any amendment, modification
or termination of the Indenture or the Debentures where such
consent shall be required unless the Trust shall have received an
opinion of counsel to the effect that such amendment,
modification or termination will not cause more than an
insubstantial risk that the Trust will not be classified as a
grantor trust for United States federal income tax purposes.
Section 3.8 Powers and Duties of the Property Trustee.
-----------------------------------------
(a) The legal title to the Debentures shall be owned by and held
of record in the name of the Property Trustee in trust for the benefit of the
Holders of the Securities. The right, title and interest of the Property Trustee
to the Debentures shall vest automatically in each Person who may hereafter be
appointed as Property Trustee in accordance with Section 5.6. Such vesting and
cessation of title shall be effective whether or not conveyancing documents with
regard to the Debentures have been executed and delivered.
(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Administrative Trustees or to the Delaware
Trustee (if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
17
<PAGE>
(i) establish and maintain a segregated non-
interest bearing trust account (the "Property Trustee Account")
in the name of and under the exclusive control of the Property
Trustee on behalf of the Holders of the Securities and, upon the
receipt of payments of funds made in respect of the Debentures
held by the Property Trustee, deposit such funds into the
Property Trustee Account and make payments to the Holders of the
Trust Preferred Securities and Holders of the Trust Common
Securities from the Property Trustee Account in accordance with
Section 6.1. Funds in the Property Trustee Account shall be held
uninvested until disbursed in accordance with this Declaration;
(ii) engage in such ministerial activities
as so directed and as shall be necessary or appropriate to effect
the redemption of the Trust Preferred Securities and the Trust
Common Securities to the extent the Debentures are redeemed or
mature; and
(iii) upon written notice of distribution
issued by the Administrative Trustees in accordance with the
terms of the Securities, engage in such ministerial activities as
so directed and as shall be necessary or appropriate to effect
the distribution of the Debentures to Holders of Securities upon
the occurrence of a Special Event arising from a change in law or
a change in legal interpretation or other specified circumstances
pursuant to the terms of the Securities.
(d) The Property Trustee shall take all actions and perform such
duties as may be specifically required of the Property Trustee pursuant to the
terms of the Securities.
(e) Subject to Section 3.9(a), the Property Trustee shall take any
Legal Action which arises out of or in connection with a Declaration Event of
Default of which a Responsible Officer of the Property Trustee has actual
knowledge or the Property Trustee's duties and obligations under this
Declaration or the provisions of the Trust Indenture Act which are incorporated
by reference herein.
(f) The Property Trustee shall not resign as a Trustee unless
either:
(i) the Trust has been completely
liquidated and the proceeds of the liquidation distributed to the
Holders of Securities pursuant to the terms of the Securities; or
18
<PAGE>
(ii) a Successor Property Trustee has been
appointed and has accepted that appointment in accordance with
Section 5.6.
(g) The Property Trustee shall have the legal power to exercise
all of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if a Declaration Event of Default actually known to a Responsible
Officer of the Property Trustee occurs and is continuing, the Property Trustee
shall, for the benefit of Holders of the Securities, enforce its rights as
holder of the Debentures subject to the rights of the Holders pursuant to the
terms of such Securities.
(h) The Property Trustee will act as Paying Agent and Registrar to
pay Distributions, redemption payments or liquidation payments on behalf of the
Trust with respect to all Securities and such Paying Agent shall comply with ss.
317(b) of the Trust Indenture Act. Any Paying Agent may be removed by the
Property Trustee at any time and a successor Paying Agent or additional Paying
Agents may be appointed at any time by the Property Trustee.
(i) Subject to this Section 3.8, the Property Trustee shall have
none of the duties, liabilities, powers or the authority of the Administrative
Trustees set forth in Section 3.6.
(j) Notwithstanding anything expressed or implied to the contrary
in this Declaration or any Annex or Exhibit hereto, (i) the Property Trustee
must exercise the powers set forth in this Section 3.8 in a manner that is
consistent with the purposes and functions of the Trust set out in Section 3.3,
and (ii) the Property Trustee shall not take any action that is inconsistent
with the purposes and functions of the Trust set out in Section 3.3.
Section 3.9 Certain Duties and Responsibilities of the Property Trustee.
-----------------------------------------------------------
(a) The Property Trustee, before the occurrence of any Declaration
Event of Default and after the curing of all Declaration Events of Default that
may have occurred, shall undertake to perform only such duties as are
specifically set forth in this Declaration and no implied covenants shall be
read into this Declaration against the Property Trustee. In case a Declaration
Event of Default has occurred (that has not been cured or waived pursuant to
Section 2.6) of which a Responsible Officer of the Property Trustee has actual
knowledge, the Property Trustee shall exercise such of the rights and powers
vested in it by this Declaration, and use the same degree of care and skill in
their exercise, as a prudent person would exercise or use under the
circumstances in the conduct of such person's own affairs.
19
<PAGE>
(b) No provision of this Declaration shall be construed to relieve
the Property Trustee from liability for its own negligent action, its own
negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of a
Declaration Event of Default and after the curing or waiving of
all such Declaration Events of Default that may have occurred:
(A) duties and obligations
of the Property Trustee shall be determined
solely by the express provisions of this
Declaration and the Property Trustee shall not
be liable except for the performance of such
duties and obligations as are specifically set
forth in this Declaration, and no implied
covenants or obligations shall be read into this
Declaration against the Property Trustee; and
(B) in the absence of bad
faith on the part of the Property Trustee, the
Property Trustee may conclusively rely, as to
the truth of the statements and the correctness
of the opinions expressed therein, upon any
certificates or opinions furnished to the
Property Trustee and conforming to the
requirements of this Declaration; but in the
case of any such certificates or opinions that
by any provision hereof are specifically
required to be furnished to the Property
Trustee, the Property Trustee shall be under a
duty to examine the same to determine whether or
not they conform to the requirements of this
Declaration;
(ii) the Property Trustee shall not be
liable for any error of judgment made in good faith by a
Responsible Officer of the Property Trustee, unless it shall be
proved that the Property Trustee was negligent in ascertaining
the pertinent facts;
(iii) the Property Trustee shall not be
liable with respect to any action taken or omitted to be taken by
it in good faith in accordance with the direction of the Holders
of not less than a Majority in liquidation amount of the
Securities relating to the time, method and place of conducting
any proceeding for any remedy
20
<PAGE>
available to the Property Trustee, or exercising any trust or
power conferred upon the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall
require the Property Trustee to expend or risk its own funds or
otherwise incur personal financial liability in the performance
of any of its duties or in the exercise of any of its rights or
powers, if it shall have reason able grounds for believing that
the repayment of such funds or liability is not reasonably
assured to it under the terms of this Declaration or indemnity
reasonably satisfactory to the Property Trustee against such risk
or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with
respect to the custody, safe keeping and physical preservation of
the Debentures and the Property Trustee Account shall be to deal
with such property in a similar manner as the Property Trustee
deals with similar property for its own account, subject to the
protections and limitations on liability afforded to the Property
Trustee under this Declaration and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty
or liability for or with respect to the value, genuineness,
existence or sufficiency of the Debentures or the payment of any
taxes or assessments levied thereon or in connection therewith;
(vii) the Property Trustee shall not be
liable for any interest on any money received by it except as it
may otherwise agree in writing with the Sponsor. Money held by
the Property Trustee need not be segregated from other funds held
by it except in relation to the Property Trustee Account
maintained by the Property Trustee pursuant to Section 3.8(c)(i)
and except to the extent otherwise required by law; and
(viii) the Property Trustee shall not be
responsible for monitoring the compliance by the Administrative
Trustees or the Sponsor with their respective duties under this
Declaration, nor shall the Property Trustee be liable for any
default or misconduct of the Adminis trative Trustees or the
Sponsor.
Section 3.10 Certain Rights of Property Trustee.
----------------------------------
(a) Subject to the provisions of Section 3.9:
21
<PAGE>
(i) the Property Trustee may rely and shall
be fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties;
(ii) any direction or act of the Sponsor or
the Administrative Trustees contemplated by this Declaration
shall be sufficiently evidenced by an Officers' Certificate;
(iii) whenever in the administration of this
Declaration, the Property Trustee shall deem it desirable that a
matter be proved or established before taking, suffering or
omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence
of bad faith on its part, request and rely upon an Officers'
Certificate which, upon receipt of such request, shall be
promptly delivered by the Sponsor or the Administrative Trustees;
(iv) the Property Trustee shall have no duty
to see to any recording, filing or registration of any instrument
(including any financing or continuation statement or any filing
under tax or securities laws) or any rerecording, refiling or
registration thereof;
(v) the Property Trustee may consult with
counsel of its choice or other experts and the advice or opinion
of such counsel and experts with respect to legal matters or
advice within the scope of such experts' area of expertise shall
be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion.
(vi) Such counsel may be counsel to the
Sponsor or any of its Affiliates, and may include any of its
employees. The Property Trustee shall have the right at any time
to seek instructions concerning the administration of this
Declaration from any court of competent jurisdiction;
(vii) the Property Trustee shall be under no
obligation to exercise any of the rights or powers vested in it
by this Declaration at the request or direction of any Holder,
unless such Holder
22
<PAGE>
shall have provided to the Property Trustee adequate security and
indemnity, reasonably satisfactory to the Property Trustee,
against the costs, expenses (including attorneys' fees and
expenses and the expenses of the Property Trustee's agents,
nominees or custodians) and liabilities that might be incurred by
it in complying with such request or direction, including such
reasonable advances as may be requested by the Property Trustee.
provided that, nothing contained in this Section 3.10(a)(vii) shall be taken to
relieve the Property Trustee, upon the occurrence of a Declaration Event of
Default, of its obligation to exercise the rights and powers vested in it by
this Declaration;
(viii) the Property Trustee shall not be bound
to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, security, bond,
debenture, note, other evidence of indebtedness or other paper or
document, but the Property Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters
as it may see fit;
(ix) the Property Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder
either directly or by or through agents or attorneys and the
Property Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with
due care by it hereunder;
(x) any action taken by the Property
Trustee or its agents hereunder shall bind the Trust and the
Holders of the Securities, and the signature of the Property
Trustee or its agents alone shall be sufficient and effective to
perform any such action and no third party shall be required to
inquire as to the authority of the Property Trustee to so act or
as to its compliance with any of the terms and provisions of this
Declaration, both of which shall be conclusively evidenced by the
Property Trustee's or its agent's taking such action;
(xi) whenever in the administration of this
Declaration the Property Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or
right or taking any other action hereunder the Property Trustee
(i) may request instructions from the Holders of the Securities
which instructions may only be given by the Holders of the same
proportion in liquidation amount of the Securities as would be
entitled to direct the Property Trustee under the
23
<PAGE>
terms of the Securities in respect of such remedy, right or
action, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received,
and (iii) shall be protected in acting in accordance with such
instructions;
(xii) except as otherwise expressly provided
by this Declaration, the Property Trustee shall not be under any
obligation to take any action that is discretionary under the
provisions of this Declaration; and
(xiii) the Property Trustee shall not be
liable for any action taken, suffered, or omitted to be taken by
it in good faith and reasonably believed by it to be authorized
or within the discretion or rights or powers conferred upon it by
this Declaration.
(b) No provision of this Declaration shall be deemed to impose
any duty or obligation on the Property Trustee to perform any act or acts or
exercise any right, power, duty or obligation conferred or imposed on it, in any
jurisdiction in which it shall be illegal, or in which the Property Trustee
shall be unqualified or incompetent in accordance with applicable law, to
perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
Section 3.11 Delaware Trustee.
----------------
(a) Notwithstanding any other provision of this Declaration other
than Section 5.2, the Delaware Trustee shall not be entitled to exercise any
powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Administrative Trustees or the Property Trustee
described in this Declaration. Except as set forth in Section 5.2, the Delaware
Trustee shall be a Trustee for the sole and limited purpose of fulfilling the
requirements of ss. 3807 of the Business Trust Act.
Section 3.12 Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
(a) The recitals contained in this Declaration and the Securities
shall be taken as the statements of the Sponsor, and the Trustees do not assume
any responsibility for their correctness. The Trustees make no representations
as to the value or condition of the property of the Trust or any part thereof.
The Trustees make no representations as to the validity or sufficiency of this
Declaration or the Securities.
Section 3.13 Duration of Trust. The Trust, unless terminated pursuant to
-----------------
the provisions of Article VIII hereof, shall exist until July 9, 2030.
24
<PAGE>
Section 3.14 Mergers.
-------
(a) The Trust may not consolidate, amalgamate, merge with or
into, or be replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other entity or body, except
as described in Section 3.14(b) and (c).
(b) The Trust may, with the consent of the Administrative
Trustees or, if there are more than two, a majority of the Administrative
Trustees and without the consent of the Holders of the Securities, the Delaware
Trustee or the Property Trustee, consolidate, amalgamate, merge with or into, or
be replaced by a trust organized as such under the laws of any State of the
United States; provided that:
(i) if the Trust is not the survivor, such
successor entity (the "Successor Entity") either:
(A) expressly assumes all of
the obligations of the Trust under the
Securities; or
(B) substitutes for the
Trust Preferred Securities other securities
having substantially the same terms as the Trust
Preferred Securities (the "Successor
Securities") so long as the Successor Securities
rank the same as the Trust Preferred Securities
with respect to Distributions, assets and
payments upon liquidation, redemption and
otherwise;
(ii) the Debenture Issuer expressly acknowl
edges a trustee of the Successor Entity that possesses the same
powers and duties as the Property Trustee as the Holder of the
Debentures;
(iii) such merger, consolidation,
amalgamation or replacement does not cause the Trust Preferred
Securities (including any Successor Securities) to be downgraded
by any nationally recognized statistical rating organization;
(iv) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights,
preferences and privileges of the Holders of the Trust Preferred
Securities (including any Successor Securities) in any material
respect;
25
<PAGE>
(v) such Successor Entity has a purpose
substantially identical to that of the Trust;
(vi) the Sponsor guarantees the obligations
of such Successor Entity under the Successor Securities at least
to the extent provided by the Trust Preferred Securities
Guarantee; and
(vii) prior to such merger, consolidation,
amalgamation or replacement, the Sponsor has received an opinion
of a nationally recognized independent counsel to the Trust
reasonably acceptable to the Property Trustee experienced in such
matters to the effect that:
(A) such merger,
consolidation, amalgamation or replacement will
not adversely affect the rights, preferences and
privileges of the Holders of the Securities
(including any Successor Securities) in any
material respect (other than with respect to any
dilution of the Holders' interest in the new
entity);
(B) following such merger,
consolidation, amalgamation or replacement,
neither the Trust nor the Successor Entity will
be required to register as an Investment
Company; and
(C) following such merger,
consolidation, amalgamation or replacement, the
Trust (or the Successor Entity) will be treated
as a grantor trust for United States federal
income tax purposes.
(c) Notwithstanding Section 3.14(b), the Trust shall not, except
with the consent of Holders of 100% in liquidation amount of the Trust Common
Securities, consolidate, amalgamate, merge with or into, or be replaced by any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger or
replacement would cause the Trust or Successor Entity to be classified as other
than a grantor trust for United States federal income tax purposes.
26
<PAGE>
ARTICLE IV
SPONSOR
Section 4.1 Sponsor's Purchase of Trust Common Securities. On the
---------------------------------------------
Closing Date , the Sponsor will purchase all of the Trust Common Securities
issued by the Trust on such date, in an amount that, when taken together with
all other Trust Common Securities then owned by the Sponsor, at least equals 3%
of the capital of the Trust, after giving effect to the issuance of Trust
Preferred Securities on such date.
Section 4.2 Responsibilities of the Sponsor. In connection with the issue
-------------------------------
and sale of the Trust Preferred Securities, the Sponsor shall have the exclusive
right and responsibility to engage in the following activities:
(a) to prepare the Offering Memorandum;
(b) to determine the States and foreign jurisdictions, if any, in
which to take appropriate action to qualify or register for sale all or part of
the Preferred Securities and to do any and all such acts, other than actions
that must be taken by the Trust, and advise the Trust of actions it must take,
and prepare for execution and filing any documents to be executed and filed by
the Trust, as the Sponsor deems necessary or advisable in order to comply with
the applicable laws of any such States and foreign jurisdictions; and
(c) to negotiate the terms of other related agreements in
connection with the sale of the Trust Preferred Securities.
ARTICLE V
TRUSTEES
Section 5.1 Number of Trustees. The number of Trustees shall be four (4),
------------------
and:
(a) at any time before the issuance of any Securities, the Sponsor
may, by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees
may be increased or decreased by vote of the Holders of a Majority in
liquidation amount of the Trust Common Securities voting as a class at a meeting
of the Holders of the Trust Common Securities; provided, however, that the
number of Trustees shall in no event be less than two; provided further that (1)
the Delaware Trustee, in the case of a natural person, shall be a person who is
a resident of the State of Delaware or that, if not
27
<PAGE>
a natural person, is an entity which has its principal place of business in the
State of Delaware; (2) at least one Administrative Trustee is an employee or
officer of, or is affiliated with, the Sponsor; and (3) one Trustee shall be the
Property Trustee, and such Trustee may also serve as Delaware Trustee if it
meets the applicable requirements.
Section 5.2 Delaware Trustee. If required by the Business Trust Act, one
----------------
Trustee (the "Delaware Trustee") shall be:
(a) a natural person who is resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal
place of business in the State of Delaware, and otherwise meets the requirements
of applicable law, provided that, if the Property Trustee has its principal
place of business in the State of Delaware and otherwise meets the requirements
of applicable law, then the Property Trustee shall also be the Delaware Trustee
and Section 3.11 shall have no application. The Delaware Trustee shall accept
service of process on the Trust in the State of Delaware and execute any
certificates presented to it in execution form and filed under the Business
Trust Act.
Section 5.3 Property Trustee; Eligibility.
-----------------------------
(a) There shall at all times be one Trustee which shall act as
Property Trustee which shall:
(i) not be an Affiliate of the Sponsor;
(ii) be a corporation organized and doing
business under the laws of the United States of America or any
State or Territory thereof or of the District of Columbia, or a
corporation or Person permitted by the Commission to act as an
institutional trustee under the Trust Indenture Act, authorized
under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least 50 million U.S. dollars
($50,000,000), and subject to supervision or examination by
Federal, State, Territorial or District of Columbia authority. If
such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of the
supervising or examining authority referred to above, then for
the purposes of this Section 5.3(a)(ii), the combined capital and
surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of
condition so published; and
(iii) if the Trust is excluded from the
definition of an Investment Company solely by means of Rule 3a-5
and to the
28
<PAGE>
extent Rule 3a-5 requires a trustee having certain qualifications
to hold title to the "eligible assets" of the trust, the Property
Trustee shall possess those qualifications.
(b) If at any time the Property Trustee shall cease to be eligible
to so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.6(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of ss. 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Trust Common Securities (as if it were
the obligor referred to in ss. 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of ss. 310(b) of the Trust Indenture Act.
(d) The Trust Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be set forth in Section 5.5
hereof.
Section 5.4 Qualifications of Administrative Trustees and Delaware
------------------------------------------------------
Trustee Generally. Each Administrative Trustee and the Delaware Trustee (unless
- -----------------
the Property Trustee also acts as Delaware Trustee) shall be either a natural
person who is at least 21 years of age or a legal entity that shall act through
one or more Authorized Officers.
Section 5.5 Initial Administrative Trustees.
-------------------------------
(a) The initial Administrative Trustees shall be:
Debra J. Richardson and Wendy L. Carlson
c/o American Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
The initial Delaware Trustee shall be:
First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King Street
29
<PAGE>
Wilmington, Delaware 19801
Attn: Corporate Trust Administration
The initial Property Trustee shall be:
West Des Moines State Bank
1601 22/nd/ Street
West Des Moines, Iowa 50266
Attn: Corporate Trust Administration
Section 5.6 Appointment, Removal and Resignation of Trustees.
------------------------------------------------
(a) Subject to Section 5.6(b), Trustees may be appointed or
removed without cause at any time:
(i) until the issuance of any Securities,
by written instrument executed by the Sponsor; and
(ii) after the issuance of any Securities,
by vote of the Holders of a Majority in liquidation amount of
Trust Common Securities voting as a class at a meeting of the
Holders of the Trust Common Securities.
(b) The Trustee that acts as Property Trustee shall not be removed
in accordance with Section 5.6(a) until a Successor Property Trustee has been
appointed and has accepted such appointment by written instrument executed by
such Successor Property Trustee and delivered to the Administrative Trustees and
the Sponsor; and
(c) The Trustee that acts as Delaware Trustee shall not be removed
in accordance with Section 5.6(a) until a successor trustee possessing the
qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Administrative Trustees and the Sponsor.
(d) A Trustee appointed to office shall hold office until his
successor shall have been appointed or until his death, removal or resignation.
Any Trustee may resign from office (without need for prior or subsequent
accounting) by an instrument in writing signed by the Trustee and delivered to
the Sponsor and the Trust, which resignation shall take effect upon such
delivery or upon such later date as is specified therein; provided, however,
that:
30
<PAGE>
(i) No such resignation of the Trustee that
acts as the Property Trustee shall be effective:
(A) until a Successor
Property Trustee has been appointed and has
accepted such appointment by written instrument
executed by such Successor Property Trustee and
delivered to the Trust, the Sponsor and the
resigning Property Trustee; or
(B) until the assets of the
Trust have been completely liquidated and the
proceeds thereof distributed to the holders of the
Securities; and
(ii) no such resignation of the Trustee that
acts as the Delaware Trustee shall be effective until a Successor
Delaware Trustee has been appointed and has accepted such
appointment by written instrument executed by such Successor
Delaware Trustee and delivered to the Trust, the Sponsor and the
resigning Delaware Trustee.
(e) The Holders of the Trust Common Securities shall use their
best efforts to promptly appoint a Successor Property Trustee or Successor
Delaware Trustee, as the case may be, if the Property Trustee or the Delaware
Trustee delivers an instrument of resignation or is removed in accordance with
this Section 5.6.
(f) If no Successor Property Trustee or Successor Delaware Trustee
shall have been appointed and accepted appointment as provided in this Section
5.6 within 60 days after delivery pursuant to this Section 5.6 of an instrument
of resignation or removal, the Property Trustee or Delaware Trustee resigning or
being removed, as applicable, may petition any court of competent jurisdiction
for appointment of a Successor Property Trustee or Successor Delaware Trustee.
Such court may thereupon, after prescribing such notice, if any, as it may deem
proper, appoint a Successor Property Trustee or Successor Delaware Trustee, as
the case may be.
(g) No Property Trustee or Delaware Trustee shall be liable for
the acts or omissions to act of any Successor Property Trustee or Successor
Delaware Trustee, as the case may be.
Section 5.7 Vacancies among Trustees. If a Trustee ceases to hold office
------------------------
for any reason and the number of Trustees is not reduced pursuant to Section
5.1, or if the number of Trustees is increased pursuant to Section 5.1, a
vacancy shall occur. A resolution certifying the existence of such vacancy by
the Administrative Trustees or, if there are more than two, a majority of the
Administrative Trustees shall be conclusive
31
<PAGE>
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.6.
Section 5.8 Effect of Vacancies. The death, resignation, retirement,
-------------------
removal, bankruptcy, dissolution, liquidation, incompetence or incapacity to
perform the duties of a Trustee shall not operate to annul the Trust. Whenever a
vacancy in the number of Administrative Trustees shall occur, until such vacancy
is filled by the appointment of an Administrative Trustee in accordance with
Section 5.6, the Administrative Trustees in office, regardless of their number,
shall have all the powers granted to the Adminis trative Trustees and shall
discharge all the duties imposed upon the Administrative Trustees by this
Declaration.
Section 5.9 Meetings. If there is more than one Administrative Trustee,
--------
meetings of the Administrative Trustees shall be held from time to time upon the
call of any Administrative Trustee. Regular meetings of the Administrative
Trustees may be held at a time and place fixed by resolution of the
Administrative Trustees. Notice of any in-person meetings of the Administrative
Trustees shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 48 hours before
such meeting. Notice of any telephonic meetings of the Administrative Trustees
or any committee thereof shall be hand delivered or otherwise delivered in
writing (including by facsimile, with a hard copy by overnight courier) not less
than 24 hours before a meeting. Notices shall contain a brief statement of the
time, place and anticipated purposes of the meeting. The presence (whether in
person or by telephone) of an Administrative Trustee at a meeting shall
constitute a waiver of notice of such meeting except where an Administrative
Trustee attends a meeting for the express purpose of objecting to the
transaction of any activity on the ground that the meeting has not been lawfully
called or convened. Unless provided otherwise in this Declaration, any action of
the Administrative Trustees may be taken at a meeting by vote of a majority of
the Administrative Trustees present (whether in person or by telephone) and
eligible to vote with respect to such matter, provided that a Quorum is present,
or without a meeting by the unanimous written consent of the Administrative
Trustees. In the event there is only one Administrative Trustee, any and all
action of such Administrative Trustee shall be evidenced by a written consent of
such Administrative Trustee.
Section 5.10 Delegation of Power.
-------------------
(a) Any Administrative Trustee may, by power of attorney
consistent with applicable law, delegate to any other natural person over the
age of 21 his or her power for the purpose of executing any documents
contemplated in Section 3.6, including any governmental filing; and
32
<PAGE>
(b) the Administrative Trustees shall have power to delegate from
time to time to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Administrative Trustees or otherwise as the
Administrative Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of the Trust, as set
forth herein.
Section 5.11 Merger, Conversion, Consolidation or Succession to Business.
-----------------------------------------------------------
Any corporation into which the Property Trustee or the Delaware Trustee, as the
case may be, may be merged or converted or with which either may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Property Trustee or the Delaware
Trustee, as the case may be, shall be the successor of the Property Trustee or
the Delaware Trustee, as the case may be, hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
ARTICLE VI
DISTRIBUTIONS
Section 6.1 Distributions. Holders shall receive Distributions (as
-------------
defined herein) in accordance with the applicable terms of the relevant Holder's
Securities. Distributions shall be made on the Trust Preferred Securities and
the Trust Common Securities in accordance with the preferences set forth in
their respective terms. If and to the extent that the Debenture Issuer makes a
payment of interest (including Compounded Interest and Additional Interest),
premium and/or principal on the Debentures held by the Property Trustee (the
amount of any such payment being a "Payment Amount"), the Property Trustee shall
and is directed, to the extent funds are available for that purpose, to make a
distribution (a "Distribution") of the Payment Amount to Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
Section 7.1 General Provisions Regarding Securities.
---------------------------------------
33
<PAGE>
(a) The Administrative Trustees shall on behalf of the Trust issue
one class of convertible trust preferred securities, representing undivided
beneficial interests in the assets of the Trust (the "Trust Preferred
Securities"), having such terms as are set forth in Annex I (the "Terms"), and
one class of convertible trust common securities, representing undivided
beneficial interests in the assets of the Trust (the "Trust Common Securities"),
having such terms as are set forth in the Terms. The Trust shall not issue any
securities or other interests in the assets of the Trust other than the Trust
Preferred Securities and the Trust Common Securities. The Trust shall not issue
any Securities in bearer form. The Trust may issue fractions of Securities.
(b) The consideration received by the Trust for the issuance of
the Securities shall constitute a contribution to the capital of the Trust and
shall not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and nonassessable.
(d) Every Person, by virtue of having become a Holder in
accordance with the terms of this Declaration, shall be deemed to have expressly
assented and agreed to the terms of, and shall be bound by, this Declaration.
(e) The Securities shall have no preemptive rights.
Section 7.2 Execution and Authentication.
----------------------------
(a) The Securities shall be signed on behalf of the Trust by an
Administrative Trustee. In case any Administrative Trustee of the Trust who
shall have signed any of the Securities shall cease to be such Administrative
Trustee before the Securities so signed shall be delivered by the Trust, such
Securities nevertheless may be delivered as though the person who signed such
Securities had not ceased to be such Administrative Trustee; and any Securities
may be signed on behalf of the Trust by such persons who, at the actual date of
execution of such Security, shall be the Administrative Trustees of the Trust,
although at the date of the execution and delivery of the Declaration any such
person was not such an Administrative Trustee.
(b) One Administrative Trustee shall sign the Trust Preferred
Securities for the Trust by manual or facsimile signature. Unless otherwise
determined by the Trust, such signature shall, in the case of Trust Common
Securities, be a manual signature.
34
<PAGE>
A Trust Preferred Security shall not be valid until authenticated by the
manual signature of an authorized signatory of the Property Trustee. The
signature shall be conclusive evidence that the Trust Preferred Security has
been authenticated under this Declaration.
Upon a written order of the Trust signed by one Administrative Trustee, the
Property Trustee shall authenticate and make available for delivery the Trust
Preferred Securities. The aggregate number of Trust Preferred Securities
outstanding at any time shall not exceed the number set forth in the Terms
except as provided in Section 7.6.
The Property Trustee may appoint an authenticating agent acceptable to the
Trust to authenticate Trust Preferred Securities. An authenticating agent may
authenticate Trust Preferred Securities whenever the Property Trustee may do so.
Each reference in this Declaration to authentication by the Property Trustee
includes authentication by such agent. An authenticating agent has the same
rights as the Property Trustee to deal with the Sponsor or an Affiliate.
Section 7.3 Form and Dating. The Trust Preferred Securities and the
---------------
Property Trustee's certificate of authentication shall be substantially in the
form of Exhibit A-1 and the Trust Common Securities shall be substantially in
the form of Exhibit A-2, each of which is hereby incorporated in and expressly
made a part of this Declaration. Certificates may be printed, lithographed or
engraved or may be produced in any other manner as is reasonably acceptable to
the Administrative Trustees, as evidenced by their execution thereof. The
Securities may have letters, numbers, notations or other marks of identification
or designation and such legends or endorsements required by law, agreements to
which the Trust is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Trust). The Trust, at the
direction of the Sponsor, shall furnish any such legend not contained in Exhibit
A-1 to the Property Trustee in writing. Each Trust Preferred Security shall be
dated the date of its authentication. The terms and provisions of the Securities
set forth in Annex I and the forms of Securities set forth in Exhibits A-1 and
A-2 are part of the terms of this Declaration and to the extent applicable, the
Property Trustee and the Sponsor, by their execution and delivery of this
Declaration, expressly agree to such terms and provisions and to be bound
thereby.
Except as provided in Section 7.9, Trust Preferred Securities shall be
issued initially in the form of individual certificates in definitive, fully
registered form without distribution coupons and shall bear the Restricted
Securities Legend set forth in Exhibit A-1 hereto (the "Restricted Definitive
Trust Preferred Securities"). Restricted Definitive Trust Preferred Securities
will bear the Restricted Securities
35
<PAGE>
Legend set forth on Exhibit A-1 unless removed in accordance with this Section
7.3 or Section 9.2.
Section 7.4 Registrar, Paying Agent and Conversion Agent. The Trust shall
--------------------------------------------
maintain in West Des Moines, Iowa (i) an office or agency where Trust Preferred
Securities may be presented for registration of transfer or exchange (the
"Registrar"), (ii) an office or agency where Trust Preferred Securities may be
presented for payment (the "Paying Agent") and an office or agency where Trust
Preferred Securities may be presented for conversion (the "Conversion Agent").
The Registrar shall keep a register of the Trust Preferred Securities and of
their transfer and exchange. The Trust may appoint the Registrar, the Paying
Agent and the Conversion Agent and may appoint one or more co-registrars, one or
more additional paying agents and one or more additional conversion agents in
such other locations as it shall determine. The term "Paying Agent" includes any
additional paying agent and the term "Conversion Agent" includes any additional
conversion agent. The Trust may change any Paying Agent, Registrar, co-registrar
or Conversion Agent without prior notice to any Holder. The Paying Agent shall
be permitted to resign as Paying Agent upon 30 days' written notice to the
Administrative Trustees. The Trust shall notify the Property Trustee of the name
and address of any Agent not a party to this Declaration. If the Trust fails to
appoint or maintain another entity as Registrar, Paying Agent or Conversion
Agent, the Property Trustee shall act as such. The Trust or any of its
Affiliates may act as Paying Agent, Registrar, or Conversion Agent. The Trust
shall act as Paying Agent, Registrar, co-registrar, and Conversion Agent for the
Trust Common Securities.
The Trust initially appoints the Property Trustee as Registrar, Paying
Agent and Conversion Agent for the Trust Preferred Securities.
Section 7.5 Paying Agent to Hold Money in Trust. The Trust shall require
-----------------------------------
each Paying Agent other than the Property Trustee to agree in writing that the
Paying Agent will hold in trust for the benefit of Holders or the Property
Trustee all money held by the Paying Agent for the payment of principal or
distribution on the Securities, and will notify the Property Trustee if there
are insufficient funds. While any such insufficiency continues, the Property
Trustee may require a Paying Agent to pay all money held by it to the Property
Trustee. The Trust at any time may require a Paying Agent to pay all money held
by it to the Property Trustee and to account for any money disbursed by it. Upon
payment over to the Property Trustee, the Paying Agent (if other than the Trust
or an Affiliate of the Trust) shall have no further liability for the money. If
the Trust or the Sponsor or an Affiliate of the Trust or the Sponsor acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
benefit of the Holders all money held by it as Paying Agent.
36
<PAGE>
Section 7.6 Replacement Securities. If the holder of a Security claims
----------------------
that the Security has been lost, destroyed or wrongfully taken or if such
Security is mutilated and is surrendered to the Trust or in the case of the
Trust Preferred Securities to the Property Trustee, the Trust shall issue and
the Property Trustee shall authenticate and make available for delivery a
replacement Security if the Property Trustee's and the Trust's requirements, as
the case may be, are met. If required by the Property Trustee or the Trust, an
indemnity bond must be sufficient in the judgment of both to protect the
Trustees, the Property Trustee, the Sponsor or any authenticating agent from any
loss which any of them may suffer if a Security is replaced. The Company may
charge for its expenses in replacing a Security.
In case any such mutilated, destroyed, lost or stolen Security has become
or is about to become due and payable, or is about to be purchased by the
Sponsor pursuant to Article III hereof, the Sponsor in its discretion may,
instead of issuing a new Security, pay or purchase such Security, as the case
may be.
Every replacement Security is an additional obligation of the Trust.
Section 7.7 Outstanding Trust Preferred Securities. The Trust Preferred
--------------------------------------
Securities outstanding at any time are all the Trust Preferred Securities
authenticated by the Property Trustee except for those canceled by it, those
delivered to it for cancellation, and those described in this Section as not
outstanding.
If a Trust Preferred Security is replaced, paid or purchased pursuant to
Section 7.6 hereof, it ceases to be outstanding unless the Property Trustee
receives proof satisfactory to it that the replaced, paid or purchased Trust
Preferred Security is held by a bona fide purchaser.
If Trust Preferred Securities are considered paid in accordance with the
terms of this Declaration, they cease to be outstanding and Distributions on
them shall cease.
A Trust Preferred Security does not cease to be outstanding because one of
the Trust, the Sponsor or an Affiliate of the Sponsor holds the Security.
Section 7.8 Trust Preferred Securities in Treasury. In determining whether
--------------------------------------
the Holders of the required amount of Securities have concurred in any
direction, waiver or consent, Trust Preferred Securities owned by the Trust, the
Sponsor or an Affiliate of the Sponsor, as the case may be, shall be disregarded
and deemed not to be outstanding, except that for the purposes of determining
whether the Property Trustee shall be fully protected in relying on any such
direction, waiver or consent, only Securities which the Property Trustee knows
are so owned shall be so disregarded.
37
<PAGE>
Section 7.9 Temporary Securities. Until definitive Securities are ready
--------------------
for delivery, the Trust may prepare and, in the case of the Trust Preferred
Securities, the Property Trustee shall authenticate temporary Securities.
Temporary Securities shall be substantially in the form of definitive Securities
but may have variations that the Trust considers appropriate for temporary
Securities. Without unreasonable delay, the Trust shall prepare and, in the case
of the Trust Preferred Securities, the Property Trustee shall authenticate
definitive Securities in exchange for temporary Securities.
Section 7.10 Cancellation. The Trust at any time may deliver Trust
------------
Preferred Securities to the Property Trustee for cancellation. The Registrar,
Paying Agent and Conversion Agent shall forward to the Property Trustee any
Trust Preferred Securities surrendered to them for registration of transfer,
redemption, conversion, exchange or payment. The Property Trustee shall promptly
cancel all Trust Preferred Securities surrendered for registration of transfer,
redemption, conversion, exchange, payment, replacement or cancellation and shall
dispose of canceled Trust Preferred Securities as the Trust directs. The
Property Trustee may, but shall not be required to, destroy any such canceled
Trust Preferred Securities. The Trust may not issue new Trust Preferred
Securities to replace the Trust Preferred Securities that it has paid or that
have been delivered to the Property Trustee for cancellation or that any holder
has converted.
ARTICLE VII
TERMINATION OF TRUST
Section 8.1 Termination of Trust.
--------------------
(a) The Trust shall dissolve:
(i) on July 9, 2030, the expiration date of
the Trust;
(ii) upon the bankruptcy of the Sponsor;
(iii) upon the filing of a certificate of
dissolu tion or its equivalent with respect to the Sponsor, or
the revocation of the charter of the Sponsor and the expiration
of 90 days after the date of revocation without a reinstatement
thereof;
38
<PAGE>
(iv) after having obtained the consent of at
least a Majority in liquidation amount of the Securities, voting
together as a single class, to dissolve;
(v) when all of the Securities shall have
been called for redemption and the amounts necessary for
redemption thereof, including any Additional Interest and
Compounded Interest, shall have been paid to the Holders in
accordance with the terms of the Securities;
(vi) upon the entry of a decree of judicial
dissolution of the Sponsor or the Trust;
(vii) upon the occurrence and continuation of
a Special Event pursuant to which the Trust shall have been
dissolved in accordance with the terms of the Securities and all
of the Debentures endorsed thereon shall have been distributed to
the Holders of Securities in exchange for all of the Securities;
provided, that if the Special Event is a Tax Event the
dissolution of the Trust and the distribution of the Debentures
pursuant to this clause (vii) shall be conditioned upon the
Administrative Trustees' receipt of a No Recognition Opinion; or
(viii) before the issuance of any Securities,
with the consent of all the Administrative Trustees and the
Sponsor.
(b) Subject to the Terms of the Securities and clause (vii) of
paragraph (a) above, following dissolution of the Trust, the Trustees shall
liquidate any remaining Trust property and pay or provide for all claims of
creditors of the Trust.
(c) As soon as is practicable after the occurrence of an event
referred to in Section 8.1(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware and the Trust
shall terminate.
(d) The provisions of Section 3.9 and Article X shall survive the
termination of the Trust.
ARTICLE IX
TRANSFER AND EXCHANGE
Section 9.1 General.
-------
39
<PAGE>
(a) Where Trust Preferred Securities are presented to the
Registrar or a co-registrar with a request to register a transfer or to exchange
them for an equal number of Trust Preferred Securities represented by different
certificates, the Registrar shall register the transfer or make the exchange if
its requirements for such transactions are met. To permit registrations of
transfers and exchanges, the Trust shall issue and the Property Trustee shall
authenticate Trust Preferred Securities at the Registrar's request.
(b) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
Subject to this Article IX, the Sponsor and any Related Party may only
transfer Trust Common Securities to the Sponsor or a Related Party of the
Sponsor; provided that, any such transfer is subject to the condition precedent
that the transferor obtain the written opinion of nationally recognized
independent counsel experienced in such matters that such transfer would not
cause more than an insubstantial risk that:
(i) the Trust would not be classified for
United States federal income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment
Company or the transferee would become an Investment Company.
(c) The Trust shall not be required to issue Trust Preferred
Securities during a period beginning at the opening of business 15 days before
the day of any selection of Trust Preferred Securities for redemption set forth
in the Terms and ending at the close of business on the day of selection.
(d) For so long as the Securities remain outstanding, the Sponsor
will covenant (i) to use its reasonable efforts to cause the Trust (A) to remain
a statutory business trust, except in connection with a distribution of
Debentures to the Holders of Securities in liquidation of the Trust, the
redemption of all Securities or certain mergers, consolidations or
amalgamations, each as permitted by this Declaration and (B) to continue to be
classified as a grantor trust, and not as an association taxable as a
corporation or a partnership, for United States federal income tax purposes and
(ii) to use its reasonable efforts to cause each Holder of Securities to be
treated as owning an undivided beneficial interest in the Debentures.
Section 9.2 Transfer Procedures and Restrictions.
------------------------------------
40
<PAGE>
(a) General. If Trust Preferred Securities are issued upon the
-------
transfer, exchange or replacement of Trust Preferred Securities bearing the
Restricted Securities Legend set forth in Exhibit A-1 hereto, or if a request is
made to remove such Restricted Securities Legend on Trust Preferred Securities,
the Trust Preferred Securities so issued shall bear the Restricted Securities
Legend, or the Restricted Securities Legend shall not be removed, as the case
may be, unless there is delivered to the Trust and the Property Trustee such
satisfactory evidence, which may include an opinion of counsel, as may be
required by the Company, that neither the legend nor the restrictions on
transfer set forth therein are required to ensure that transfers thereof comply
with the provisions of Rule 144 under the Securities Act or that such Securities
are not "restricted" within the meaning of Rule 144 under the Securities Act.
Upon provision of such satisfactory evidence, the Property Trustee, at the
written direction of the Trust, shall authenticate and deliver Trust Preferred
Securities that do not bear the legend.
(b) Transfer and Exchange of Definitive Trust Preferred Securities.
--------------------------------------------------------------
When Definitive Trust Preferred Securities are presented to the Registrar or co-
Registrar
(i) to register the transfer of such
Definitive Trust Preferred Securities; or
(ii) to exchange such Definitive Trust
Preferred Securities for an equal number of Definitive Trust
Preferred Securities of another number,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Trust Preferred Securities surrendered
for transfer or exchange:
(i) shall be duly endorsed or accompanied
by a written instrument of transfer in form reasonably
satisfactory to the Trust and the Registrar or co-Registrar, duly
executed by the Holder thereof or his attorney duly authorized in
writing; and
(ii) in the case of Definitive Preferred
Securities that are Restricted Definitive Preferred Securities,
are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act or, pursuant to
clause (A) or (B) below, and are accompanied by the following
additional information and documents, as applicable:
41
<PAGE>
(A) if such Restricted Preferred
Securities are being delivered to the Registrar by
a Holder for registration in the name of such
Holder, without transfer, a certification from
such Holder to that effect (in the form set forth
on the reverse of the Pre ferred Security); or
(B) if such Restricted Preferred
Securities are being transferred pursuant to an
exemption from registration in accordance with
Rule 144 under the Securities Act: (i) a
certification to that effect (in the form set
forth on the reverse of the Preferred Security)
and (ii) if the Trust or Registrar so requests,
evidence reasonably satisfactory to them as to the
compliance with the restrictions set forth in the
Restricted Securities Legend.
(c) Legend.
------
(i) Except as permitted by the following
paragraph (ii), each Trust Preferred Security certificate
(and all Trust Preferred Securities issued in exchange
therefor or substitution thereof) shall bear a legend (the
"Restricted Securities Legend") in substantially the
following form:
THIS SECURITY, ANY CONVERTIBLE DEBENTURE ISSUED IN
EXCHANGE FOR THIS SECURITY AND ANY COMMON STOCK ISSUED ON
CONVERSION THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, AS
SIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. BY THE
ACQUISITION HEREOF, THE HOLDER AGREES THAT SUCH HOLDER WILL
GIVE EACH PERSON TO WHOM THIS SECURITY IS
42
<PAGE>
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS
LEGEND. IN THE CASE OF ANY TRANSFER OR OTHER DISPOSITION
MADE OTHERWISE THAN PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT, THE HOLDER HEREOF SHALL
BE REQUIRED TO PROVIDE TO THE COMPANY AND THE TRANSFER
AGENT, PRIOR TO SUCH TRANSFER, AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES
ACT AND IN COMPLIANCE WITH ALL APPLICABLE STATE SECURITIES
LAWS.
(ii) Upon any sale or transfer of a
Restricted Trust Preferred Security pursuant to an effective
registration statement under the Securities Act or pursuant to
Rule 144 under the Securities Act, the Registrar shall permit the
Holder thereof to exchange such Restricted Trust Preferred
Security for a Definitive Trust Preferred Security that does not
bear the Restricted Securities Legend and rescind any restriction
on the transfer of such Restricted Trust Preferred Security.
(d) Obligations with Respect to Transfers and Exchanges of Trust
------------------------------------------------------------
Preferred Securities.
- --------------------
(i) To permit registrations of transfers
and exchanges, the Trust shall execute and the Property Trustee
shall authenticate Definitive Trust Preferred Securities at the
Registrar's or co-Registrar's request.
(ii) Registrations of transfers or exchanges
will be effected without charge, but only upon payment (with such
indemnity as the Trust or the Sponsor may require) in respect of
any tax or other governmental charge that may be imposed in
relation to it. Upon surrender for registration of transfer of
any Securities, the Administrative Trustees shall cause one or
more new Securities to be issued in the name of the designated
transferee or transferees. Every Security surrendered for
registration of transfer shall be accompanied by a written
instrument of transfer in form satisfactory to the Administrative
Trustees duly executed by the Holder or such Holder's attorney
duly authorized in writing. Each Security surrendered for
43
<PAGE>
registration of transfer shall be canceled by the Administrative
Trustees. A transferee of a Security shall be entitled to the
rights and subject to the obligations of a Holder hereunder upon
the receipt by such transferee of a Security. By acceptance of a
Security, each transferee shall be deemed to have agreed to be
bound by this Declaration.
(iii) The Registrar or co-registrar shall not
be required to register the transfer of or exchange of (a) any
Definitive Trust Preferred Security selected for redemption in
whole or in part pursuant to Article III, except the unredeemed
portion of any Definitive Trust Preferred Security being redeemed
in part, or (b) any Trust Preferred Security for a period
beginning 15 Business Days before the mailing of a notice of an
offer to repurchase or redeem Trust Preferred Securities or 15
Business Days before a quarterly distribution date.
(iv) Prior to the due presentation for
registrations of transfer of any Trust Preferred Security, the
Trust, the Property Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the person in whose name a
Trust Preferred Security is registered as the absolute owner of
such Trust Preferred Security for the purpose of receiving
Distributions on such Trust Preferred Security and for all other
purposes whatsoever, and none of the Trust, the Property Trustee,
the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
(v) All Trust Preferred Securities issued
upon any transfer or exchange pursuant to the terms of this
Declaration shall evidence the same security and shall be
entitled to the same benefits under this Declaration as the Trust
Preferred Securities surrendered upon such transfer or exchange.
(e) No Obligation of the Property Trustee. (i) All notices and
-------------------------------------
communications to be given to the Holders and all payments to be made
to Holders under the Trust Preferred Securities shall be given or made
only to or upon the order of the registered Holders.
(ii) The Property Trustee and Registrar
shall have no obligation or duty to monitor, determine or inquire
as to compliance with any restrictions on transfer imposed under
this Declaration or under applicable law with respect to any
transfer of any interest in any Trust Preferred Security other
than to require delivery of such certificates and other
documentation or evidence as are expressly required by, and to do
so if and when expressly
44
<PAGE>
required by, the terms of this Declaration, and to examine the
same to determine substantial compliance as to form with the
express requirements hereof.
Section 9.3 Deemed Security Holders. The Trustees may treat the
-----------------------
Person in whose name any Certificate shall be registered on the books and
records of the Trust as the sole holder of such Certificate and of the
Securities represented by such Certificate for purposes of receiving
Distributions and for all other purposes whatsoever and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such
Certificate or in the Securities represented by such Certificate on the part of
any Person, whether or not the Trust shall have actual or other notice thereof.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
Section 10.1 Liability.
---------
(a) Except as expressly set forth in this Declaration, the Trust
Preferred Securities Guarantee, the Trust Common Securities Guarantee and the
Terms, the Sponsor shall not be:
(i) personally liable for the return of any portion
of the capital contributions (or any return thereon) of the Holders of the
Securities which shall be made solely from assets of the Trust; or
(ii) required to pay to the Trust or to any Holder of
Securities any deficit upon dissolution of the Trust or otherwise.
(b) The Holder of the Trust Common Securities shall be liable for
all of the debts and obligations of the Trust (other than with respect to the
Securities) to the extent not satisfied out of the Trust's assets.
(c) Pursuant to ss. 3803(a) of the Business Trust Act, the
Holders of the Trust Preferred Securities shall be entitled to the same
limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of the State
of Delaware.
45
<PAGE>
Section 10.2 Exculpation.
-----------
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in a
manner such Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Indemnified Person by this Declaration or by law,
except that an Indemnified Person shall be liable for any such loss, damage or
claim incurred by reason of such Indemnified Person's gross negligence (or, in
the case of the Property Trustee, negligence) or willful misconduct with respect
to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in
good faith upon the records of the Trust and upon such information, opinions,
reports or statements presented to the Trust by any Person as to matters the
Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who, if selected by such Indemnified
Person, has been selected with reasonable care by or on behalf of the Trust,
including information, opinions, reports or statements as to the value and
amount of the assets, liabilities, profits, losses, or any other facts pertinent
to the existence and amount of assets from which Distributions to Holders of
Securities might properly be paid.
Section 10.3 Fiduciary Duty.
--------------
(a) To the extent that, at law or in equity, an Indemnified
Person has duties (including fiduciary duties) and liabilities relating thereto
to the Trust or to any other Covered Person, an Indemnified Person acting under
this Declaration shall not be liable to the Trust or to any other Covered Person
for its good faith reliance on the provisions of this Declaration. The
provisions of this Declaration, to the extent that they restrict the duties and
liabilities of an Indemnified Person otherwise existing at law or in equity
(other than the duties imposed on the Property Trustee under the Trust Indenture
Act), are agreed by the parties hereto to replace such other duties and
liabilities of such Indemnified Person.
(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists
or arises between an Indemnified Person and any Covered Person;
or
(ii) whenever this Declaration or any other
agreement contemplated herein or therein provides that an
Indemnified Person shall act in a manner that is, or provides
terms that are, fair and
46
<PAGE>
reasonable to the Trust or any Holder of Securities, the
Indemnified Person shall resolve such conflict of interest, take
such action or provide such terms, considering in each case the
relative interest of each party (including its own interest) to
such conflict, agreement, transaction or situation and the
benefits and burdens relating to such interests, any customary or
accepted industry practices, and any applicable generally
accepted accounting practices or principles. In the absence of
bad faith by the Indemnified Person, the resolution, action or
term so made, taken or provided by the Indemnified Person shall
not constitute a breach of this Declaration or any other
agreement contemplated herein or of any duty or obligation of the
Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person is
permitted or required to make a decision:
(i) in its "discretion" or under a grant of
similar authority, the Indemnified Person shall be entitled to
consider such interests and factors as it desires, including its
own interests, and shall have no duty or obligation to give any
consideration to any interest of or factors affecting the Trust
or any other Person; or
(ii) in its "good faith" or under another
express standard, the Indemnified Person shall act under such
express standard and shall not be subject to any other or
different standard imposed by this Declaration or by applicable
law.
Section 10.4 Indemnification.
---------------
(a) (i) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Company Indemnified Person against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Company Indemnified Person
did not act in good
47
<PAGE>
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Trust, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(ii) The Debenture Issuer shall indemnify,
to the full extent permitted by law, any Company Indemnified
Person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in
the right of the Trust to procure a judgment in its favor by
reason of the fact that he is or was a Company Indemnified Person
against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or
matter as to which such Company Indemnified Person shall have
been adjudged to be liable to the Trust unless and only to the
extent that the Court of Chancery of Delaware or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such
Court of Chancery or such other court shall deem proper.
(iii) To the extent that a Company
Indemnified Person shall be successful on the merits or otherwise
(including dismissal of an action without prejudice or the
settlement of an action without admission of liability) in
defense of any action, suit or proceeding referred to in
paragraphs (i) and (ii) of this Section 10.4(a), or in defense of
any claim, issue or matter therein, he shall be indemnified, to
the full extent permitted by law, against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(iv) Any indemnification under paragraphs
(i) and (ii) of this Section 10.4(a) (unless ordered by a court)
shall be made by the Debenture Issuer only as authorized in the
specific case upon a determination that indemnification of the
Company Indemnified Person is proper in the circumstances because
he has met the applicable standard of conduct set forth in
paragraphs (i) and (ii). Such determination shall be made (1) by
the Administrative Trustees by a majority vote of a quorum
consisting of such Administrative Trustees who were not parties
to such action, suit or proceeding, (2) if such a
48
<PAGE>
quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested Administrative Trustees so directs, by independent
legal counsel in a written opinion, or (3) by the Trust Common
Security Holder of the Trust.
(v) Expenses (including attorneys' fees)
incurred by a Company Indemnified Person in defending a civil,
criminal, administrative or investigative action, suit or
proceeding referred to in paragraphs (i) and (ii) of this Section
10.4(a) shall be paid by the Debenture Issuer in advance of the
final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such Company Indemnified
Person to repay such amount if it shall ultimately be determined
that he is not entitled to be indemnified by the Debenture Issuer
as authorized in this Section 10.4(a). Notwithstanding the
foregoing, no advance shall be made by the Debenture Issuer if a
determination is reasonably and promptly made (i) by the
Administrative Trustees by a majority vote of a quorum of
disinterested Administrative Trustees, (ii) if such a quorum is
not obtainable, or, even if obtainable, if a quorum of
disinterested Administrative Trustees so directs, by independent
legal counsel in a written opinion or (iii) the Trust Common
Security Holder of the Trust, that, based upon the facts known to
the Administrative Trustees, counsel or the Trust Common Security
Holder at the time such determination is made, such Company
Indemnified Person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best
interests of the Trust, or, with respect to any criminal
proceeding, that such Company Indemnified Person believed or had
reasonable cause to believe his conduct was unlawful. In no event
shall any advance be made in instances where the Adminis trative
Trustees, independent legal counsel or Trust Common Security
Holder reasonably determine that such person deliberately
breached his duty to the Trust or its Common or Trust Preferred
Security Holders.
(vi) The indemnification and advancement of
expenses provided by, or granted pursuant to, the other
paragraphs of this Section 10.4(a) shall not be deemed exclusive
of any other rights to which those seeking indemnification and
advancement of expenses may be entitled under any agreement, vote
of stockholders or disinterested directors of the Debenture
Issuer or Trust Preferred Security Holders of the Trust or
otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. All rights
to
49
<PAGE>
indemnification under this Section 10.4(a) shall be deemed to be
provided by a contract between the Debenture Issuer and each
Company Indemnified Person who serves in such capacity at any
time while this Section 10.4(a) is in effect. Any repeal or
modification of this Section 10.4(a) shall not affect any rights
or obligations then existing.
(vii) The Debenture Issuer or the Trust may
purchase and maintain insurance on behalf of any person who is or
was a Company Indemnified Person against any liability asserted
against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Debenture Issuer
would have the power to indemnify him against such liability
under the provisions of this Section 10.4(a).
(viii) For purposes of this Section 10.4(a),
references to "the Trust" shall include, in addition to the
resulting or surviving entity, any constituent entity (including
any constituent of a constituent) absorbed in a consolidation or
merger, so that any person who is or was a director, trustee,
officer or employee of such constituent entity, or is or was
serving at the request of such constituent entity as a director,
trustee, officer, employee or agent of another entity, shall
stand in the same position under the provisions of this Section
10.4(a) with respect to the resulting or surviving entity as he
would have with respect to such constituent entity if its
separate existence had continued.
(ix) The indemnification and advancement of
expenses provided by, or granted pursuant to, this Section
10.4(a) shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a Company
Indemnified Person and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(b) The Debenture Issuer agrees to indemnify the (i) Property
Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee
and the Delaware Trustee, and (iv) any officers, directors, shareholders,
members, partners, employees, representatives, custodians, nominees or agents of
the Property Trustee and the Delaware Trustee (each of the Persons in (i)
through (iv), including the Property Trustee and the Delaware Trustee in their
respective individual capacities, being referred to as a "Fiduciary Indemnified
Person") for, and to hold each Fiduciary Indemnified Person harmless against,
any and all loss, liability or expense including taxes (other than taxes based
on the income of such Fiduciary Indemnified Person) incurred without negligence
or bad faith on its part, arising out of or in connection with
50
<PAGE>
the acceptance or administration or the trust or trusts hereunder, including the
costs and expenses (including reasonable legal fees and expenses) of defending
itself against or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The obligation
to indemnify as set forth in this Section 10.4(b) shall survive the resignation
or removal of the Property Trustee or the Delaware Trustee and shall survive the
satisfaction and discharge of this Declaration.
Section 10.5 Outside Businesses. Any Covered Person, the Sponsor, the
------------------
Delaware Trustee and the Property Trustee may engage in or possess an interest
in other business ventures of any nature or description, independently or with
others, similar or dissimilar to the business of the Trust, and the Trust and
the Holders of Securities shall have no rights by virtue of this Declaration in
and to such independent ventures or the income or profits derived therefrom, and
the pursuit of any such venture, even if competitive with the business of the
Trust, shall not be deemed wrongful or improper. No Covered Person, the Sponsor,
the Delaware Trustee, or the Property Trustee shall be obligated to present any
particular investment or other opportunity to the Trust even if such opportunity
is of a character that, if presented to the Trust, could be taken by the Trust,
and any Covered Person, the Sponsor, the Delaware Trustee and the Property
Trustee shall have the right to take for its own account (individually or as a
partner or fiduciary) or to recommend to others any such particular investment
or other opportunity. Any Covered Person, the Delaware Trustee and the Property
Trustee may engage or be interested in any financial or other transaction with
the Sponsor or any Affiliate of the Sponsor, or may act as depositary for,
trustee or agent for, or act on any committee or body of holders of, securities
or other obligations of the Sponsor or its Affiliates.
Section 10.6 Compensation; Fees. The Sponsor agrees to pay to each of
------------------
the Property Trustee and the Delaware Trustee such compensation, as may be
agreed to by the Sponsor in writing, for all services rendered by such Trustee
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) including
compensation for services rendered up to the time of any removal or resignation
of such Trustee.
To the fullest extent permitted by law, the parties intend that the
provisions of Section 3561 of Title 12 of the Delaware Code shall not apply to
the Trust and that the compensation payable hereby shall not be subject to
review by any court of competent jurisdiction, whether pursuant to Section 3560
of Title 12 of the Delaware Code or otherwise.
51
<PAGE>
The provisions of this Section 10.6 shall survive the termination of the
Trust and the satisfaction and discharge of this Declaration and the removal or
resignation of any Trustee.
ARTICLE XI
ACCOUNTING
Section 11.1 Fiscal Year. The fiscal year ("Fiscal Year") of the Trust
-----------
shall be the calendar year, or such other year as is required by the Code.
Section 11.2 Certain Accounting Matters.
--------------------------
(a) At all times during the existence of the Trust, the
Administrative Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail, each
transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles, consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year by a firm of independent certified public accountants
selected by the Administrative Trustees.
(b) The Administrative Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end of
each Fiscal Year of the Trust, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss;
(c) The Administrative Trustees shall cause to be duly prepared
and delivered to each of the Holders of Securities, any annual United States
federal income tax information statement, required by the Code, containing such
information with regard to the Securities held by each Holder as is required by
the Code and the Treasury Regulations. Notwithstanding any right under the Code
to deliver any such statement at a later date, the Administrative Trustees shall
endeavor to deliver all such statements within 30 days after the end of each
Fiscal Year of the Trust.
(d) The Administrative Trustees shall cause to be duly prepared
and filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to be
filed by the Administrative Trustees on behalf of the Trust with any state or
local taxing authority.
52
<PAGE>
Section 11.3 Banking. The Trust shall maintain one or more bank accounts
-------
in the name and for the sole benefit of the Trust; provided, however, that all
payments of funds in respect of the Debentures held by the Property Trustee
shall be made directly to the Property Trustee Account and no other funds of the
Trust shall be deposited in the Property Trustee Account. The sole signatories
for such accounts shall be designated by the Administrative Trustees; provided,
however, that the Property Trustee shall designate the signatories for the
Property Trustee Account.
Section 11.4 Withholding. The Trust and the Administrative Trustees shall
-----------
comply with all withholding requirements under United States federal, state and
local law. The Trust shall request, and the Holders shall provide to the Trust,
such forms or certificates as are necessary to establish an exemption from
withholding with respect to each Holder, and any representations and forms as
shall reasonably be requested by the Trust to assist it in determining the
extent of, and in fulfilling, its withholding obligations. The Administrative
Trustee shall file required forms with applicable jurisdictions and, unless an
exemption from withholding is properly established by a Holder, shall remit
amounts withheld with respect to the Holder to applicable jurisdictions. To the
extent that the Trust is required to withhold and pay over any amounts to any
authority with respect to distributions or allocations to any Holder, the amount
withheld shall be deemed to be a distribution in the amount of the withholding
to the Holder. In the event of any claimed overwithholding, Holders shall be
limited to an action against the applicable jurisdiction. If the amount required
to be withheld was not withheld from actual Distributions made, the Trust may
reduce subsequent Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
Section 12.1 Amendments.
----------
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by:
(i) the Administrative Trustees (or, if
there are more than two Administrative Trustees a majority of the
Administrative Trustees);
53
<PAGE>
(ii) if the amendment affects the rights,
powers, duties, obligations or immunities of the Property
Trustee, the Property Trustee;
(iii) if the amendment affects the rights,
powers, duties, obligations or immunities of the Delaware
Trustee, the Delaware Trustee; and
(iv) if the amendment affects the rights,
powers, duties, obligations or immunities of the Sponsor, the
Sponsor.
(b) No amendment shall be made, and any such purported amendment
shall be void and ineffective:
(i) unless, in the case of any proposed
amendment, the Property Trustee shall have first received an
Officers' Certificate from each of the Trust and the Sponsor that
such amendment is permitted by, and conforms to, the terms of
this Declaration (including the terms of the Securities); and if
the proposed amendment affects the rights, powers, duties,
obligations or immunities of the Property Trustee, the Property
Trustee shall have first received an opinion of counsel (who may
be counsel to the Sponsor or the Trust) that such amendment is
permitted by, and conforms to, the terms of this Declaration
(including the terms of the Securities); and
(ii) to the extent the result of such
amendment would be to:
(A) cause the Trust to fail
to continue to be classified for purposes of
United States federal income taxation as a grantor
trust;
(B) reduce or otherwise
adversely affect the powers of the Property
Trustee in contravention of the Trust Indenture
Act; or
(C) cause the Trust to be
deemed to be an Investment Company that is
required to be registered under the Investment
Company Act;
(c) At such time after the Trust has issued any Securities that
remain outstanding, any amendment that would adversely affect the rights,
privileges or
54
<PAGE>
preferences of any Holder of Securities may be effected only with such
additional requirements as may be set forth in the terms of such Securities;
(d) Section 10.1(c) and this Section 12.1 shall not be amended
without the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent of the
Holders of a Majority in liquidation amount of the Trust Common Securities;
(f) The rights of the holders of the Trust Common Securities under
Article V to increase or decrease the number of, and appoint and remove Trustees
shall not be amended without the consent of the Holders of a Majority in
liquidation amount of the Trust Common Securities; and
(g) Subject to Section 12.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in
this Declaration that may be defective or inconsistent with any
other provision of this Declaration;
(iii) add to the covenants, restrictions or
obligations of the Sponsor;
(iv) conform to any change in Rule 3a-5 or
written change in interpretation or application of Rule 3a-5 by
any legislative body, court, government agency or regulatory
authority which amendment does not have a material adverse effect
on the rights, preferences or privileges of the Holders; and
(v) modify, eliminate or add to any
provisions of the Declaration to such extent as shall be
necessary to ensure that the Trust will be classified for United
States federal income tax purposes as a grantor trust at all
times that any Securities are outstanding or to ensure that the
Trust will not be required to register as an Investment Company
under the Investment Company Act;
provided, that in the case of clause (i) and clause (ii), such actions shall not
adversely affect in any material respect the interests of the Holders, and any
amendments of this Declaration shall become effective when notice thereof is
given to the Holders.
55
<PAGE>
Section 12.2 Meetings of the Holders of Securities; Action by Written
--------------------------------------------------------
Consent.
- -------
(a) Meetings of the Holders of any class of Securities may be called
at any time by the Administrative Trustees (or as provided in the terms of the
Securities) to consider and act on any matter on which Holders of such class of
Securities are entitled to act under the terms of this Declaration or the terms
of the Securities. The Administrative Trustees shall call a meeting of the
Holders of such class if directed to do so by the Holders of at least 10% in
liquidation amount of such class of Securities. Such direction shall be given by
delivering to the Administrative Trustees one or more calls in a writing stating
that the signing Holders of Securities wish to call a meeting and indicating the
general or specific purpose for which the meeting is to be called. Any Holders
of Securities calling a meeting shall specify in writing the Certificates held
by the Holders of Securities exercising the right to call a meeting and only
those Securities represented by the Certificates so specified shall be counted
for purposes of determining whether the required percentage set forth in the
second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Securities having a right to vote thereat at least 7 days and
not more than 60 days before the date of such meeting. Whenever a vote,
consent or approval of the Holders of Securities is permitted or required
under this Declaration or the rules of any stock exchange or over the
counter market on which the Trust Preferred Securities are listed or
admitted for trading, such vote, consent or approval may be given at a
meeting of the Holders of Securities. Any action that may be taken at a
meeting of the Holders of Securities may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by the
Holders of Securities owning not less than the minimum amount of Securities
in liquidation amount that would be necessary to authorize or take such
action at a meeting at which all Holders of Securities having a right to
vote thereon were present and voting. Prompt notice of the taking of action
without a meeting shall be given to the Holders of Securities entitled to
vote who have not consented in writing. The Administrative Trustees may
specify that any written ballot submitted to the Security Holders for the
purpose of taking any action without a meeting shall be returned to the
Trust within the time specified by the Administrative Trustees;
56
<PAGE>
(ii) each Holder of a Security may authorize any Person to
act for it by proxy on all matters in which a Holder of Securities is
entitled to participate, including waiving notice of any meeting, or voting
or participating at a meeting. No proxy shall be valid after the expiration
of 11 months from the date thereof unless otherwise provided in the proxy.
Every proxy shall be revocable at the pleasure of the Holder of Securities
executing it. Except as otherwise provided herein, all matters relating to
the giving, voting or validity of proxies shall be governed by the General
Corporation Law of the State of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a Delaware corporation and
the Holders of the Securities were stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities shall be
conducted by the Administrative Trustees or by such other Person that the
Administrative Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the
terms of the Securities or the Trust Indenture Act provide otherwise, the
Administrative Trustees, in their sole discretion, shall establish all
other provisions relating to meetings of Holders of Securities, including
notice of the time, place or purpose of any meeting at which any matter is
to be voted on by any Holders of Securities, waiver of any such notice,
action by consent without a meeting, the establishment of a record date,
quorum requirements, voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
ARTICLE XII
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
Section 13.1 Representations and Warranties of Property Trustee. The
--------------------------------------------------
Property Trustee that acts as initial Property Trustee represents and warrants
to the Trust and to the Sponsor at the date of this Declaration, and each
Successor Property Trustee represents and warrants to the Trust and the Sponsor
at the time of the Successor Property Trustee's acceptance of its appointment as
Property Trustee that:
(a) the Property Trustee is a banking corporation with trust powers,
duly organized, validly existing and in good standing under the laws of Iowa,
with trust
57
<PAGE>
power and authority to execute and deliver, and to carry out and perform its
obligations under the terms of, this Declaration.
(b) The execution, delivery and performance by the Property Trustee of
the Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee. The Declaration has been duly executed and
delivered by the Property Trustee, and constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law).
(c) The execution, delivery and performance of the Declaration by the
Property Trustee does not conflict with or constitute a breach of the
certificate of (d) At the Closing Date, the Property Trustee will be the record
holder of the Debentures and the Property Trustee has not knowingly created any
liens or encumbrances on such Debentures.
(e) No consent, approval or authorization of, or registration with or
notice to, any Iowa, State or Federal banking authority is required for the
execution, delivery or performance by the Property Trustee, of the Declaration.
Section 13.2 Representations and Warranties of Delaware Trustee. The
--------------------------------------------------
Trustee that acts as initial Delaware Trustee represents and warrants to the
Trust and to the Sponsor at the date of this Declaration and at the time of
Closing, and each Successor Delaware Trustee represents and warrants to the
Trust and the Sponsor at the time of the Successor Delaware Trustee's acceptance
of its appointment as Delaware Trustee that:
(a) The Delaware Trustee is a duly organized, validly existing and in
good standing as a national banking association under the federal laws of the
United States of America, with trust power and authority to execute and deliver,
and to carry out and perform its obligations under the terms of, the
Declaration.
(b) The execution, delivery and performance by the Delaware Trustee of
the Declaration has been duly authorized by all necessary corporate action on
the part of the Delaware Trustee. The Declaration has been duly executed and
delivered by the Delaware Trustee, and constitutes a legal, valid and binding
obligation of the Delaware Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency, and other similar laws
58
<PAGE>
affecting creditors' rights generally and to general principles of equity and
the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law).
(c) The execution, delivery and performance of the Declaration by the
Delaware Trustee does not conflict with or constitute a breach of the articles
of association or by-laws of the Delaware Trustee.
(d) No consent, approval or authorization of, or registration with or
notice to, any Delaware State or Federal banking authority is required to be
made, obtained or given, as the case may be, by the Delaware Trustee for the
execution, delivery or performance by the Delaware Trustee, of this Declaration.
(e) The Delaware Trustee is an entity which has its principal place of
business in the State of Delaware.
(f) The Delaware Trustee has been authorized to perform its
obligations under the Certificate of Trust and the Declaration.
ARTICLE XIV
MISCELLANEOUS
Section 14.1 Notices. All notices provided for in this Declaration shall be
-------
in writing, duly signed by the party giving such notice, and shall be delivered,
sent by facsimile or mailed by first class mail, as follows:
(a) if given to the Trust, in care of the Administrative Trustees at
the Trust's mailing address set forth below (or such other address as the Trust
may give notice of to the Holders of the Securities):
c/o American Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Phone: 515-457-1824
Fax: 515-221-9989
(b) if given to the Property Trustee, at the mailing address set forth
below (or such other address as the Property Trustee may give notice of to the
Holders of the Securities):
West Des Moines State Bank
1601 22/nd/ Street
West Des Moines, Iowa 50266
59
<PAGE>
Attention: Corporate Trust Administration
Phone: 515-222-2300
Fax: 515-222-2357
(c) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as the Delaware Trustee may give notice of to the
Holders of the Securities):
First Union Trust Company, National Association
One Rodney Square, Suite 102
920 King Street
Wilmington, DE 19801
Attn: Corporate Trust Administration
Phone: 302-888-7539
Fax: 302-888-7544
(d) if given to the Holder of the Trust Common Securities, at the
mailing address of the Sponsor set forth below (or such other address as the
Holder of the Trust Common Securities may give notice to the Trust):
c/o American Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Phone: 515-457-1824
Fax: 515-221-9989
(e) if given to any other Holder, at the address set forth on the
books and records of the Trust or the Registrar, as applicable.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid except that if a notice or other document is refused delivery or
cannot be delivered because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been delivered on the date
of such refusal or inability to deliver.
Section 14.2 Governing Law. This Declaration and the rights of the parties
-------------
hereunder shall be governed by and interpreted in accordance with the laws of
the State of Delaware and all rights and remedies shall be governed by such laws
without regard to principles of conflict of laws.
Section 14.3 Intention of the Parties. It is the intention of the parties
------------------------
hereto that the Trust be classified for United States federal income tax
purposes as a grantor
60
<PAGE>
trust. The provisions of this Declaration shall be interpreted to further this
intention of the parties.
Section 14.4 Headings. Headings contained in this Declaration are
--------
inserted for convenience of reference only and do not affect the interpretation
of this Declaration or any provision hereof.
Section 14.5 Successors and Assigns. Whenever in this Declaration any of
----------------------
the parties hereto is named or referred to, the successors and assigns of such
party shall be deemed to be included, and all covenants and agreements in this
Declaration by the Sponsor and the Trustees shall bind and inure to the benefit
of their respective successors and assigns, whether so expressed.
Section 14.6 Partial Enforce ability. If any provision of this
-----------------------
Declaration, or the application of such provision to any Person or circumstance,
shall be held invalid, the remainder of this Declaration, or the application of
such provision to persons or circumstances other than those to which it is held
invalid, shall not be affected thereby.
Section 14.7 Counterparts. This Declaration may contain more than one
------------
counterpart of the signature page and this Declaration may be executed by the
affixing of the signature of each of the Trustees to one of such counterpart
signature pages. All of such counterpart signature pages shall be read as though
one, and they shall have the same force and effect as though all of the signers
had signed a single signature page.
61
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these presents to be
executed as of the day and year first above written.
DEBRA J. RICHARDSON,
as Administrative Trustee
/s/ Debra J. Richardson
-----------------------------
WENDY L. CARLSON,
as Administrative Trustee
/s/ Wendy L. Carlson
-------------------------------
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION,
as Delaware Trustee
By: /s/ Sterling C. Correia
---------------------------
Name: Sterling C. Correia
Title: Vice President
WEST DES MOINES STATE BANK,
as Property Trustee
By: /s/ David V. Maurer
---------------------------
Name: Senior Vice President/Senior
Trust Officer
Title:
AMERICAN EQUITY INVESTMENT LIFE
HOLDING COMPANY,
as Sponsor
By: /s/ Terry A. Reimer
---------------------------
Name: Terry A. Reimer
Title: Executive Vice President
<PAGE>
TERMS OF
8% CONVERTIBLE TRUST PREFERRED SECURITIES
8% CONVERTIBLE TRUST COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of Trust,
dated as of September 7, 1999 (as amended from time to time, the "Declaration"),
the designation, rights, privileges, restrictions, preferences and other terms
and provisions of the Trust Preferred Securities and the Trust Common Securities
are set out below (each capitalized term used but not defined herein has the
meaning set forth in the Declaration or, if not defined in such Declaration, as
defined in the Offering Memoran dum referred to below):
(16) Designation and Number.
----------------------
(a) "Trust Preferred Securities." 750,669.67 (or up to an aggregate of
1,000,000 if additional Trust Preferred Securities are issued after the initial
Closing Date in accordance with the Declaration) Trust Preferred Securities of
the Trust with an aggregate liquidation amount with respect to the assets of the
Trust of $22,520,090 (or up to $30,000,000 in the aggregate if additional Trust
Preferred Securities are issued after the initial Closing Date in accordance
with the Declaration) and a liquidation amount with respect to the assets of the
Trust of $30 per Trust Preferred Security, are hereby designated for the
purposes of identification only as "8% Convertible Trust Preferred Securities
(liquidation amount $30 per Convertible Trust Preferred Security)" (the "Trust
Preferred Securities"). The Trust Preferred Security Certificates evidencing the
Trust Preferred Securities shall be substantially in the form of Exhibit A-1 to
the Declaration, with such changes and additions thereto or deletions therefrom
as may be required by ordinary usage, custom or practice.
(b) "Trust Common Securities." 23,216.59 (or up to an aggregate of 30,928
if additional Trust Common Securities are issued after the initial Closing Date
in accordance with the Declaration) Trust Common Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust of
$696,497.63 (or up to $927,840 in the aggregate if additional Trust Common
Securities are issued after the initial Closing Date in accordance with the
Declaration) and a liquidation amount with respect to the assets of the Trust of
$30 per Trust Common Security, are hereby designated for the purposes of
identification only as "8% Convertible Trust Common Securities (liquidation
amount $30 per Convertible Trust Common Security)" (the "Trust Common
Securities"). The Trust Common Security Certificates evidencing the Trust Common
Securities shall be substantially in the form of Exhibit A-2 to the Declaration,
with such changes and additions thereto or deletions therefrom as may be
required by ordinary usage, custom or practice.
(17) Distributions.
-------------
(a) Distributions payable on each Security will be fixed at a rate per
annum of 8% (the "Coupon Rate") of the stated liquidation amount of $30 per
Security, such
I-2
<PAGE>
rate being the rate of interest payable on the Debentures to be held by the
Property Trustee. Distributions in arrears will bear interest thereon compounded
quarterly at the Coupon Rate (to the extent permitted by applicable law). The
term "Distributions" as used herein includes any such interest including any
Additional Interest and Com pounded Interest payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in respect of
the Debentures held by the Property Trustee and to the extent the Property
Trustee has funds available therefor. The amount of Distributions payable for
any period will be computed for any full quarterly Distribution period on the
basis of a 360-day year of twelve 30-day months, and for any period shorter than
a full quarterly Distribution period for which Distributions are computed,
Distributions will be computed on the basis of the actual number of days
elapsed.
(b) Distributions on the Securities will be cumulative, will accrue from
August 30, 1999 and will be payable quarterly and in arrears, on the following
dates, which dates correspond to the interest payment dates on the Debentures:
March 31, June 30, September 30 and December 31 of each year, commencing on
December 31, 1999, when, as and if available for payment by the Property
Trustee, except as otherwise described below. The Debenture Issuer has the right
under the Indenture to defer payments of interest by extending the interest
payment period from time to time on the Debentures for successive periods not
exceeding 20 consecutive quarters (each an "Extension Period"), during which
Extension Period no interest shall be due and payable on the Debentures;
provided, that no Extension Period shall last beyond the maturity of the
Debentures. As a consequence of such extension, Distributions will also be
deferred. Despite such deferral, quarterly Distributions will continue to accrue
with interest thereon (to the extent permitted by applicable law but not at a
rate greater than the rate at which interest is then accruing on the Debentures)
at the Coupon Rate compounded quarterly during any such Extension Period. Prior
to the termination of any such Extension Period, the Debenture Issuer may
further extend such Extension Period; provided, that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters and that such Extension Period may not extend beyond the
stated maturity of the Debentures. Payments of accrued Distributions will be
payable to Holders as they appear on the books and records of the Trust on the
first record date after the end of the Extension Period. Upon the termination of
any Extension Period and the payment of all amounts then due, the Debenture
Issuer may commence a new Extension Period, subject to the above requirements.
(c) Distributions on the Securities will be payable to the Holders thereof
as they appear on the books and records of the Trust on the relevant record
dates. The relevant record dates shall be 15 days prior to the relevant payment
dates, except as otherwise described in this Annex I to the Declaration. Subject
to any applicable laws and regulations and the provisions of the Declaration,
each such payment in respect of the Trust Preferred Securities will be made as
described under the heading "Description of the Trust Preferred Securities--
Payment and Registrar, Transfer Agent, Paying Agent and Conversion Agent" in the
Offering Memorandum. The relevant record dates for the Trust Common Securities
shall be the same record dates as for the Trust
I-3
<PAGE>
Preferred Securities. Distributions payable on any Securities that are not
punctually paid on any Distribution payment date, as a result of the Debenture
Issuer having failed to make a payment under the Debentures, will cease to be
payable to the Person in whose name such Securities are registered on the
relevant record date, and such defaulted Distribu tion will instead be payable
to the Person in whose name such Securities are registered on the special record
date or other specified date determined in accordance with the Indenture. If any
date on which Distributions are payable on the Securities is not a Business Day,
then payment of the Distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any distribution or other
payment in respect of any such delay) except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
(d) In the event of an election by the Holder to convert its Securities
through the Conversion Agent into Common Stock of the Debenture Issuer pursuant
to the terms of the Securities as forth in this Annex I to the Declaration, no
payment, allowance or adjustment shall be made with respect to accumulated and
unpaid Distributions on such Securities, or be required to be made; provided
that Holders of Securities at the close of business on any record date for the
payment of Distributions will be entitled to receive the Distributions payable
on such Securities on the corresponding payment date notwithstanding the
conversion of such Securities into Common Stock of the Debenture Issuer
following such record date.
(e) In the event that there is any money or other property held by or for
the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the Securities.
(18) Liquidation Distribution Upon Dissolution.
-----------------------------------------
In the event of any voluntary or involuntary dissolution, winding-up or
termination of the Trust (each a "Liquidation") the then Holders of the
Securities on the date of the Liquidation will be entitled to receive out of the
assets of the Trust available for distribution to Holders of Securities after
satisfaction of liabilities of creditors, distributions in an amount equal to
the aggregate of the stated liquidation amount of $30 per Security plus accrued
and unpaid Distributions thereon to the date of payment (such amount being the
"Liquidation Distribution"), unless, in connection with a Liquidation related to
a Special Event, Debentures in an aggregate principal amount equal to the
aggregate stated liquidation amount of such Securities, with an interest rate
equal to the Coupon Rate of, and bearing accrued and unpaid interest in an
amount equal to the accrued and unpaid Distributions on, such Securities, shall
be distributed on a Pro Rata basis to the Holders of the Securities.
If, upon any such Liquidation (other than a Liquidation related to a
Special Event), the Liquidation Distribution can be paid only in part because
the Trust has insufficient assets available to pay in full the aggregate
Liquidation Distribution, then the amounts payable directly by the Trust on the
Securities shall be paid on a Pro Rata basis in accordance with paragraph 19
below.
I-4
<PAGE>
(19) Redemption and Distribution.
---------------------------
(a) Upon the repayment of the Debentures in whole or in part, whether at
maturity, upon acceleration, earlier redemption or otherwise, the proceeds from
such repayment or payment shall be simultaneously applied to redeem, in cash,
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Debentures so repaid or redeemed at a redemption price
equal to the redemption price of such repaid or redeemed Debentures (as
specified in the Indenture and the Offering Memorandum), together with accrued
and unpaid Distributions thereon through the date of the redemption (the
"Redemption Price"). Holders will be given not less than 30 nor more than 60
days' notice of such redemption.
(b) If fewer than all of the outstanding Securities are to be so redeemed,
the Trust Common Securities and the Trust Preferred Securities will be redeemed
Pro Rata and the Trust Preferred Securities to be redeemed will be as described
in paragraph 4(f)(ii) below.
(c) If, at any time, a Tax Event or an Investment Company Event (each as
defined below and each a "Special Event") shall occur and be continuing the
Adminis trative Trustees shall, unless the Debentures are redeemed in the
limited circumstances involving a Redemption Tax Event (as defined below),
dissolve the Trust and, after satisfaction of creditors of the Trust, if any,
cause Debentures held by the Property Trustee, having an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the Coupon Rate of, and accrued and unpaid Distributions on
equal to, and having the same record date for payment as, the Securities, to be
distributed to the Holders of the Securities in liquidation of such Holders'
interest in the Trust on a Pro Rata basis, within 90 days following the
occurrence of such Special Event (the "90 Day Period"); provided, however, that
in the case of a Tax Event, such dissolution and distribution shall be
conditioned on the Administrative Trustees' receipt of an opinion of a
nationally recognized independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on published revenue rulings of
the Internal Revenue Service, to the effect that the Holders of the Trust
Preferred Securities will not recognize any income, gain or loss for United
States federal income tax purposes as a result of such dissolution and
distribution of Debentures, and provided, further, that if at the time there is
available to the Trust the opportunity to eliminate, within the 90 Day Period,
the Special Event by taking some ministerial action, such as filing a form or
making an election, or pursuing some other similar reasonable measure which in
the sole judgment of the Sponsor, has or will cause no adverse effect on the
Trust, the Sponsor or the Holders of the Securities and will involve no material
cost ("Ministerial Action"), the Trust will pursue such Ministerial Action in
lieu of dissolution.
If in the event of a Tax Event, (i) the Administrative Trustees have
received an opinion (a "Redemption Tax Opinion") of a nationally recognized
independent tax counsel experienced in such matters that, as a result of a Tax
Event, there is more than an insubstantial risk that the Debenture Issuer would
be precluded from deducting the interest on the Debentures for United States
federal income tax purposes even if the
I-5
<PAGE>
Debentures were distributed to the Holders of Securities in liquidation of such
Holders' interest in the Trust as described in this paragraph 4(c), or (ii) the
Administrative Trustees shall have been informed by such tax counsel that a No
Recognition Opinion cannot be delivered to the Trust (each such case, a
"Redemption Tax Event"), the Debenture Issuer shall have the right, upon not
less than 30 nor more than 60 days' notice, to redeem the Debentures in whole
(but not in part) for cash within 90 days following the occurrence of such
Redemption Tax Event at a Redemption Price equal to 100% of the principal amount
of the Debentures so redeemed, plus any accrued and unpaid interest thereon to
the date fixed for redemption and promptly following such redemption, the
Securities shall be redeemed at the Redemption Price on a Pro Rata basis at $30
per Security plus accrued and unpaid distributions thereon to the date fixed for
redemption; provided, however, that if at the time there is available to the
Debenture Issuer or the Trust the opportunity to eliminate, within such 90 Day
Period, the Redemption Tax Event by taking some Ministerial Action which has no
adverse effect on the Trust, the Holders of Securities or the Debenture Issuer,
the Trust or the Debenture Issuer will pursue such Ministerial Action in lieu of
redemption.
"Tax Event" means that the Administrative Trustees shall have received an
opinion of a nationally recognized independent tax counsel experienced in such
matters (a "Dissolution Tax Opinion") to the effect that, as a result of (a)
any amendment to, or change (including any announced prospective change) in, the
laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, (b) any amendment to, or
change in, an interpretation or application of any such laws or regulations by
any legislative body, court, governmental agency or regulatory authority
(including the enactment of any legislation and the publication of any judicial
decision or regulatory determination), (c) any interpretation or pronounce ment
that provides for a position with respect to such laws or regulations that
differs from the theretofore generally accepted position or (d) any action taken
by any governmental agency or regulatory authority, which amendment or change is
enacted, promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in each case on
or after the date of the Offering Memorandum (collectively, a "Change in Tax
Law"), there is more than an insubstantial risk that (i) the Trust is, or will
be within 90 days of the date thereof, subject to United States federal income
tax with respect to interest accrued or received on the Debentures, (ii) the
Trust is, or will be within 90 days of the date thereof, subject to more than a
de minimis amount of other taxes, duties or other governmental charges, or (iii)
interest payable by the Debenture Issuer to the Trust on the Debentures is not,
or within 90 days of the date thereof will not be, deductible by the Debenture
Issuer for United States federal income tax purposes. Notwithstanding anything
in the previous sentence to the contrary, a Tax Event shall not include any
Change in Tax Law that requires the Debenture Issuer for United States federal
income tax purposes to defer taking a deduction for any original issue discount
("OID") that accrues with respect to the Debentures until the interest payment
related to such OID is paid by the Debenture Issuer in money; provided, that
such Change in Tax Law does not create more than an insubstantial risk that the
Debenture Issuer will be prevented from taking a deduction for OID accruing with
respect to the Debentures at a date that is no later than the date
I-6
<PAGE>
the interest payment related to such OID is actually paid by the Debenture
Issuer in money.
"Investment Company Event" means that the Administrative Trustees shall
have received an opinion of a nationally recognized independent counsel
experienced in practice under the Investment Company Act (an "Investment Company
Event Opinion") that, as a result occurrence of a change in law or regulation or
a change in interpretation or application of law or regulation by any
legislative body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), there is more than an insubstan tial risk that the Trust is
or will be considered an Investment Company which is required to be registered
under the Investment Company Act, which Change in 1940 Act Law becomes effective
on or after the date of the Offering Memorandum.
On the date fixed for any distribution of Debentures, upon dissolution of
the Trust: (i) the Securities will no longer be deemed to be outstanding and
(ii) certificates representing Securities will be deemed to represent beneficial
interests in Debentures having an aggregate principal amount equal to the stated
liquidation amount, and bearing accrued and unpaid interest equal to accrued and
unpaid Distributions, on such Securities until such certificates are presented
to the Debenture Issuer or its agent for transfer or reissuance.
(d) The Trust may not redeem fewer than all of the outstanding Securities
unless all accrued and unpaid Distributions have been paid on all Securities for
all quarterly Distribution periods terminating on or before the date of
redemption.
(e) Redemption or Distribution Procedures.
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for the Securities (a "Redemp tion/Distribution
Notice") will be given by the Trust by mail to each Holder of Securities to
be redeemed or exchanged not fewer than 30 nor more than 60 days before the
date fixed for redemption or exchange thereof which, in the case of a
redemption, will be the date fixed for redemption of the Debentures. For
purposes of the calculation of the date of redemption or exchange and the
dates on which notices are given pursuant to this paragraph 4(f)(i), a
Redemption/ Distribution Notice shall be deemed to be given on the day such
notice is first mailed by first-class mail, postage pre-paid, to Holders of
Securities. Each Redemption/Distribution Notice shall be addressed to the
Holders of Securities at the address of each such Holder appearing in the
books and records of the Trust. No defect in the Redemption/Distribution
Notice or in the mailing of either thereof with respect to any Holder shall
affect the validity of the redemption or exchange proceedings with respect
to any other Holder.
I-7
<PAGE>
(ii) In the event that fewer than all the outstanding Securities
are to be redeemed, the Securities to be redeemed shall be redeemed Pro
Rata from each Holder of Trust Preferred Securities.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice, which notice shall be irrevoca ble and may
only be issued if the Debentures are redeemed as set out in this Section 4
(which notice will be irrevocable), then (A) with respect to Preferred
Securities held in book-entry form, by 12:00 noon, Central time, on the
redemption date, provided that the Debenture Issuer has paid the Property
Trustee a sufficient amount of cash in connection with the related
redemption or maturity or otherwise of the Debentures, the Trust will
irrevocably deposit with the Paying Agent funds sufficient to pay the
amount payable on redemption or maturity or otherwise to the Holders of
such Securities upon surrender of their certificates. If a
Redemption/Distribution Notice shall have been given and funds deposited as
required, then on the date of such deposit, all rights of Holders of such
Securities so called for redemption will cease, except the right of the
Holders of such Securities to receive the Redemption Price, but without
interest on such Redemption Price. Neither the Administrative Trustees nor
the Trust shall be required to register or cause to be registered the
transfer of any Securities that have been so called for redemption. If any
date fixed for redemption of Securities is not a Business Day, then payment
of the amount payable on such date will be made on the next succeeding day
that is a Business Day (without any interest or other payment in respect of
any such delay) except that, if such Business Day falls in the next
calendar year, such payment will be made on the immediately preceding
Business Day, in each case with the same force and effect as if made on
such date fixed for redemption. If payment of the Redemption Price in
respect of any Securities is improperly withheld or refused and not paid
either by the Trust or by the Sponsor as guarantor pursuant to the Trust
Preferred Securities Guaran tee or the Trust Common Securities Guarantee,
as applicable, Distribu tions on such Securities will continue to accrue
at the then applicable rate, from the original redemption date to the date
of payment, in which case the actual payment date will be considered the
date fixed for redemption for purposes of calculating the amount payable
upon redemption (other than for purposes of calculating any premium).
(iv) In the event of any redemption in part, the Trust shall not
be required to (i) issue, register the transfer of or exchange of any Trust
Preferred Security during a period beginning at the opening of business 15
days before any selection for redemption of Trust Preferred Securities and
ending at the close of business on the earliest date in which the relevant
notice of redemption is deemed to have been
I-8
<PAGE>
given to all holders of Trust Preferred Securities to be so redeemed or
(ii) register the transfer of or exchange of any Trust Preferred Securities
so selected for redemption, in whole or in part, except for the unredeemed
portion of any Trust Preferred Securities being redeemed in part.
(v) Redemption/Distribution Notices shall be sent by the
Administrative Trustees on behalf of the Trust to (A) in the case of Trust
Preferred Securities, the Holders of such certificates and (B) in respect
of the Trust Common Securities, the Holder thereof.
(vi) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws), the Sponsor or
any of its subsidiaries may at any time and from time to time purchase
outstanding Trust Preferred Securities by tender, in the open market or by
private agreement.
(20) Conversion Rights.
-----------------
The Holders of Securities shall have the right at any time on or after the
earlier to occur of (i) September 30, 2002 and (ii) the 91/st/ day immediately
following the closing of an underwritten initial public offering of common stock
of the Company, or any other class of capital stock, rights, options or warrants
of the Company in respect of which common stock of the Company is issuable upon
the exercise, exchange or conversion thereof (the "Company's IPO"), and prior
to 5:00 p.m. (Central time) on the Business Day immediately preceding the date
of repayment of such Securities, whether at maturity or upon redemption, to
cause the Conversion Agent to convert Securities, on behalf of the converting
Holders, into shares of Common Stock of the Debenture Issuer in the manner
described herein on and subject to the following terms and conditions:
(a) The Securities will be convertible at the office of the Conversion
Agent into fully paid and nonassessable shares of Common Stock of the Debenture
Issuer pursuant to the Holder's direction to the Conversion Agent to exchange
such Securities for a portion of the Debentures theretofore held by the Trust at
an initial conversion price equal to the lesser of (i) $30 per share of Common
Stock (equivalent to a conversion rate of one share of Common Stock for each
Trust Preferred Security) and (ii) 90% of the initial price per share to the
public of Common Stock in the Company's IPO, subject to certain adjustments set
forth in the terms of the Debentures (as so adjusted, the "Conversion Price").
(b) In order to convert Securities into Common Stock of the Debenture
Issuer the Holder shall submit to the Conversion Agent at the office referred to
above an irrevocable request to convert Securities on behalf of such Holder (the
"Conversion Request"), together, with such certificates. The Conversion Request
shall (i) set forth the number of Securities to be converted and the name or
names, if other than the Holder, in which the shares of Common Stock of the
Debenture Issuer should be issued and (ii) direct the Conversion Agent (A) to
exchange such Securities for a portion of the
I-9
<PAGE>
Debentures held by the Trust (at the rate of exchange specified in the preceding
paragraph) and (B) to immediately convert such Debentures on behalf of such
Holder, into Common Stock of the Debenture Issuer (at the conversion rate
specified in the preceding paragraph). The Conversion Agent shall notify the
Trust of the Holder's election to exchange Securities for a portion of the
Debentures held by the Trust and the Trust shall, upon receipt of such notice,
deliver to the Conversion Agent the appropriate principal amount of Debentures
for exchange in accordance with this Section. The Conversion Agent shall
thereupon notify the Debenture Issuer of the Holder's election to convert such
Debentures into shares of Common Stock of the Debenture Issuer. Holders of
Securities at the close of business on a Distribution record date will be
entitled to receive the Distribution payable on such securities on the
corresponding Distribution payment date notwithstanding the conversion of such
Securities following such record date but prior to such distribution payment
date. Except as provided above, neither the Trust nor the Sponsor will make, or
be required to make, any payment, allowance or adjustment upon any conversion on
account of any accumulated and unpaid Distributions accrued on the Securities
(including any Additional Interest and Compounded Interest accrued thereon)
surrendered for conversion, or on account of any accumulated and unpaid
dividends on the shares of Common Stock of the Debenture Issuer issued upon such
conversion. The Debenture Issuer shall make no payment or allowance for
distributions on the shares of Common Stock of the Debenture Issuer issued upon
such conversion, except to the extent that such shares of Common Stock of the
Debenture Issuer are held of record on the record date for any such
distributions and except as provided in Section 1309 of the Indenture.
Securities shall be deemed to have been converted immediately prior to the close
of business on the day on which a Notice of Conversion relating to such
Securities is received the Trust in accordance with the foregoing provision (the
"Conversion Date"). The Person or Persons entitled to receive the Common Stock
of the Debenture Issuer issuable upon conversion of the Debentures shall be
treated for all purposes as the record holder or holders of such Common Stock of
the Debenture Issuer at such time. As promptly as practicable on or after the
Conversion Date, the Debenture Issuer shall issue and deliver at the office of
the Conversion Agent a certificate or certificates for the number of full shares
of Common Stock of the Debenture Issuer issuable upon such conversion, together
with the cash payment, if any, in lieu of any fraction of any share to the
Person or Persons entitled to receive the same, unless otherwise directed by the
Holder in the notice of conversion and the Conversion Agent shall distribute
such certificate or certificates to such Person or Persons.
(c) Each Holder of a Security by his acceptance thereof appoints West Des
Moines State Bank as "Conversion Agent" for the purpose of effecting the
conversion of Securities in accordance with this Section. In effecting the
conversion and transactions described in this Section, the Conversion Agent
shall be acting as agent of the Holders of Securities directing it to effect
such conversion transactions. The Conversion Agent is hereby authorized (i) to
exchange Securities from time to time for Debentures held by the Trust in
connection with the conversion of such Securities in accordance with this
Section and (ii) to convert all or a portion of the Debentures into Common Stock
of the Debenture Issuer and thereupon to deliver such shares of Common Stock of
the Debenture Issuer in accordance with the provisions of this
I-10
<PAGE>
Section and to deliver to the Trust a new Debenture or Debentures for any
resulting unconverted principal amount.
(d) No fractional shares of Common Stock of the Debenture Issuer will be
issued as a result of conversion, but in lieu thereof, such fractional interest
will be payable in cash (based on the applicable conversion price on the date
such Securities are surrendered for conversion) by the Debenture Issuer to the
Trust, which in turn will make such payment to the Holder or Holders of
Securities so converted.
(e) The Debenture Issuer shall at all times reserve and keep available out
of its authorized and unissued Common Stock of the Debenture Issuer, solely for
issuance upon the conversion of the Debentures, free from any preemptive or
other similar rights, such number of shares of Common Stock of the Debenture
Issuer as shall from time to time be issuable upon the conversion of all the
Debentures then outstanding. Notwith standing the foregoing, the Debenture
Issuer shall be entitled to deliver upon conversion of Debentures, shares of
Common Stock of the Debenture Issuer reacquired and held in the treasury of the
Debenture Issuer (in lieu of the issuance of authorized and unissued shares of
Common Stock of the Debenture Issuer), so long as any such treasury shares are
free and clear of all liens, charges, security interests or encum brances. Any
shares of Common Stock of the Debenture Issuer issued upon conversion of the
Debentures shall be duly authorized, validly issued and fully paid and
nonassessable. The Trust shall deliver the shares of Common Stock of the
Debenture Issuer received upon conversion of the Debentures to the converting
Holder free and clear of all liens, charges, security interests and
encumbrances, except for United States withholding taxes. Each of the Debenture
Issuer and the Trust shall prepare and shall use its best efforts to obtain and
keep in force such governmental or regulatory permits or other authorizations as
may be required by law in order to enable the Debenture Issuer to lawfully issue
Common Stock of the Debenture Issuer to the Trust upon conversion of the
Debentures and the Trust to lawfully deliver the Common Stock of the Debenture
Issuer to each Holder upon conversion of the Securities.
(f) The Debenture Issuer will pay any and all taxes that may be payable in
respect of the issue or delivery of shares of Common Stock of the Debenture
Issuer on conversion of Debentures and the delivery of the shares of Common
Stock of the Debenture Issuer by the Trust upon conversion of the Securities.
The Debenture Issuer shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock of the Debenture Issuer in a name other than that in which the
Securities so converted were registered, and no such issue or delivery shall be
made unless and until the person requesting such issue has paid to the Trust the
amount of any such tax, or has established to the satisfaction of the Trust that
such tax has been paid.
(g) Nothing in the preceding Paragraph (f) shall limit the requirement of
the Trust to withhold taxes pursuant to the terms of the Securities or set forth
in this Annex I to the Declaration or to the Declaration itself or otherwise
require the Property Trustee or the Trust to pay any amounts on account of such
withholdings.
(21) Voting Rights - Trust Preferred Securities.
------------------------------------------
I-11
<PAGE>
(a) Except as provided under paragraphs 6(b) and 7, in the Business Trust
Act and as otherwise required by law and the Declaration, the Holders of the
Trust Preferred Securities will have no voting rights.
Subject to the requirements set forth in this paragraph, the Holders of a
majority in liquidation amount of the Trust Preferred Securities, voting
separately as a class may direct the time, method, and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Debentures, to (i) exercise the remedies available to it under the Indenture
as a holder of the Debentures, (ii) waive any past default and its consequences
that is waivable under the Indenture, (iii) exercise any right to rescind or
annul a declaration that the principal of all the Debentures shall be due and
payable, or (iv) consent to any amendment, modification, or termination of the
Indenture or the Debentures where such consent shall be required; provided,
however, that where a consent or action under the Indenture would require the
consent or act of the Holders of greater than a majority of the Holders in
principal amount of Debentures affected thereby (a "Super Majority"), the
Property Trustee may only give such consent or take such action at the written
direction of the Holders of at least the proportion in liquidation amount of the
Trust Preferred Securities which the relevant Super Majority represents of the
aggregate principal amount of the Debentures outstanding. The Property Trustee
shall be under no obligation to revoke any action previously authorized or
approved by a vote of the Holders of the Trust Preferred Securities. Other than
with respect to directing the time, method and place of conducting any remedy
available to the Property Trustee or the Indenture Trustee as set forth above,
the Property Trustee shall be under no obligation to take any action in
accordance with the directions of the Holders of the Trust Preferred Securities
under this paragraph unless the Property Trustee has obtained an opinion of
independent tax counsel to the effect that, for United States federal income tax
purposes, the Trust will not be classified as other than a grantor trust on
account of such action and each Holder will be treated as owning an undivided
beneficial interest in the Debentures. If the Property Trustee fails to enforce
its rights under the Debentures after a Holder of Trust Preferred Securities has
made a written request, such Holder of Trust Preferred Securities may institute
a legal proceeding against the Debenture Issuer to enforce the Property
Trustee's rights under the Debentures without first instituting any legal
proceeding against the Property Trustee or any other Person. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Debenture Issuer to pay
interest or principal on the Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption on the redemption date), then
a Holder of Trust Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder (a "Direct Action") of the principal of or
interest on the Debenture having a principal amount equal to the aggregate
liquidation amount of the Trust Preferred Securities of such Holder on or after
the respective due date specified in the Debentures. Except as provided in the
preceding sentence, the holders of Trust Preferred Securities will not be able
to exercise directly any other remedy available to the holders of the
Debentures. In connection with
I-12
<PAGE>
such Direct Action, the Debenture Issuer will be subrogated to the rights of
such Holder of Trust Preferred Securities under the Declaration to the extent of
any payment made by the Debenture Issuer to such Holder of Trust Preferred
Securities in such Direct Action.
Any required approval or direction of Holders of Trust Preferred Securities
may be given at a separate meeting of Holders of Trust Preferred Securities
convened for such purpose, at a meeting of all of the Holders of Securities in
the Trust or pursuant to written consent. The Administrative Trustees will cause
a notice of any meeting at which Holders of Trust Preferred Securities are
entitled to vote, or of any matter upon which action by written consent of such
Holders is to be taken, to be mailed to each Holder of record of Trust Preferred
Securities. Each such notice will include a statement setting forth the
following information (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents. No vote or consent of the Holders of the Trust
Preferred Securities will be required for the Trust to redeem and cancel Trust
Preferred Securities or to distribute the Debentures in accordance with the
Declaration and the terms of the Securities.
Notwithstanding that Holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the Trust
Preferred Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of such
vote or consent, be treated as if such Trust Preferred Securities were not
outstanding.
(22 Voting Rights - Trust Common Securities.
---------------------------------------
(a) Except as provided under paragraphs 7(b), (c) and 8, in the Business
Trust Act and as otherwise required by law and the Declaration, the Holders of
the Trust Common Securities will have no voting rights.
(b) The Holders of the Trust Common Securities are entitled, in accordance
with Article V of the Declaration, to vote to appoint, remove or replace any
Property Trustee or to increase or decrease the number of Trustees.
(c) Subject to Section 2.6 of the Declaration and only after the
Declaration Event of Default with respect to the Trust Preferred Securities has
been cured, waived, or otherwise eliminated and subject to the requirements of
the second to last sentence of this paragraph, the Holders of a Majority in
liquidation amount of the Trust Common Securities, voting separately as a class,
may direct the time, method, and place of conducting any proceeding for any
remedy available to the Property Trustee, or exercising any trust or power
conferred upon the Property Trustee under the Declara tion, including (i)
directing the time, method, place of conducting any proceeding for any remedy
available to the Indenture Trustee, or exercising any trust or power conferred
on the Indenture Trustee with respect to the Debentures, (ii) waive any past
default and its consequences that is waivable under Section 606 of the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of
I-13
<PAGE>
all the Debentures shall be due and payable, or (iv) consent to any amendment,
modification, or termination of the Indenture or the Debentures where such
consent shall be required; provided that, where a consent or action under the
Indenture would require the consent or act of the Holders of greater than a
majority in principal amount of Debentures affected thereby (a "Super
Majority"), the Property Trustee may only give such consent or take such action
at the written direction of the Holders of at least the proportion in
liquidation amount of the Trust Common Securities which the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding. Pursuant to this paragraph 7(c), the Property Trustee shall not
revoke any action previously authorized or approved by a vote of the Holders of
the Trust Preferred Securities. Other than with respect to directing the time,
method and place of conducting any remedy available to the Property Trustee or
the Indenture Trustee as set forth above, the Property Trustee shall be under no
obligation to take any action in accordance with the directions of the Holders
of the Trust Common Securities under this paragraph unless the Property Trustee
has obtained an opinion of independent tax counsel to the effect that for United
States federal income tax purposes the Trust will not be classified as other
than a grantor trust on account of such action and each Holder will be treated
as owning an undivided beneficial interest in the Debentures. If the Property
Trustee fails to enforce its rights under the Debentures after a Holder of Trust
Common Securities has made a written request, such Holder of Trust Common
Securities may, to the extent permitted by law, institute a legal proceeding
directly against the Debenture Issuer or any other Person to enforce the
Property Trustee's rights under the Debentures, without first instituting any
legal proceeding against the Property Trustee or any other Person. Any approval
or direction of Holders of Trust Common Securities may be given at a separate
meeting of Holders of Trust Common Securities convened for such purpose, at a
meeting of all of the Holders of Securities in the Trust or pursuant to written
consent. The Administrative Trustees will cause a notice of any meeting at which
Holders of Trust Common Securities are entitled to vote, or of any matter upon
which action by written consent of such Holders is to be taken, to be mailed to
each Holder of record of Trust Common Securities. Each such notice will include
a statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed for
adoption at such meeting on which such Holders are entitled to vote or of such
matter upon which written consent is sought and (iii) instructions for the
delivery of proxies or consents.
No vote or consent of the Holders of the Trust Common Securities will be
required for the Trust to redeem and cancel Trust Common Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
(23) Amendments to Declaration and Indenture.
---------------------------------------
(a) In addition to any requirements under Section 12.1 of the Declaration,
if any proposed amendment to the Declaration provides for, or the Administrative
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Securities, whether by way of
amendment to the Declaration or otherwise, or (ii) the dissolution, winding-up
or termination of the Trust, other than as described in Section 8.1 of the
Declaration, then the Holders of
I-14
<PAGE>
Securities as a class, will be entitled to vote on such amendment or proposal
(but not on any other amendment or proposal) and such amendment or proposal
shall not be effective except with the approval of the Holders of at least a
Majority in liquidation amount of the Securities affected thereby, voting
together as a single class; provided, however, if any amendment or proposal
referred to in clause (i) above would adversely affect only the Trust Preferred
Securities or only the Trust Common Securities, then only the affected class
will be entitled to vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of a Majority in
liquidation amount of such class of Securities; provided, further, that no
amendment or proposal approved pursuant to this Section 23(a) shall become
effective unless the Administrative Trustees have received an opinion of counsel
to the effect that such amendment or proposal, or the exercise of any power
granted to the Trustees in accordance with such amendment or proposal, will not
adversely affect the Trust's status as a grantor trust for United States federal
income tax purposes or the Trust's exemption from status as an Investment
Company under the Investment Company Act.
(b) In the event the consent of the Property Trustee as the holder of the
Debentures is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the Property
Trustee shall request the written direction of the Holders of the Securities
with respect to such amendment, modification or termination and shall vote with
respect to such amendment, modifica tion or termination as directed by a
Majority in liquidation amount of the Securities voting together as a single
class; provided, however, that where a consent under the Indenture would require
the consent of the holders of greater than a majority in aggregate principal
amount of the Debentures (a "Super Majority"), the Property Trustee may only
give such consent at the written direction of the Holders of at least the same
proportion in aggregate stated liquidation preference of the Securities;
provided, further, that the Property Trustee shall not take any action in
accordance with the directions of the Holders of the Securities under this
Section 9(b) unless the Property Trustee has obtained an opinion of tax counsel
to the effect that, for United States federal income tax purposes, the Trust
will not be classified as other than a grantor trust on account of such action
and each Holder will be treated as owning an undivided beneficial interest in
the Debentures.
(24) Pro Rata.
--------
A reference in these terms of the Securities to any payment, distribution
or treatment as being "Pro Rata" shall mean pro rata to each Holder of
Securities according to the aggregate liquidation amount of the Securities held
by the relevant Holder in relation to the aggregate liquidation amount of all
Securities outstanding unless, in relation to a payment, a Declaration Event of
Default has occurred and is continuing, in which case any funds available to
make such payment shall be paid first to each Holder of the Trust Preferred
Securities pro rata according to the aggregate liquidation amount of Trust
Preferred Securities held by the relevant Holder relative to the aggregate
liquidation amount of all Trust Preferred Securities outstanding, and only after
satisfaction of all amounts owed to the Holders of the Trust Preferred
Securities, to each Holder of Trust Common Securities pro rata according to the
aggregate
I-15
<PAGE>
liquidation amount of Trust Common Securities held by the relevant Holder
relative to the aggregate liquidation amount of all Trust Common Securities
outstanding.
(25) Ranking.
-------
The Trust Preferred Securities rank pari passu and payment thereon shall be
made Pro Rata with the Trust Common Securities except that, where an Indenture
Event of Default occurs and is continuing with respect to the Debentures held by
the Property Trustee, the rights of Holders of the Trust Common Securities to
receive payments of Distributions and payments upon liquidation, redemption and
otherwise are subordi nated to the rights of the Holders of the Trust Preferred
Securities.
(26) Acceptance of Securities Guarantee and Indenture.
------------------------------------------------
Each Holder of Trust Preferred Securities and Trust Common Securities, by
the acceptance thereof, agrees to the provisions of the Trust Preferred
Securities Guarantee and the Trust Common Securities Guarantee, respectively,
including the subordination provisions therein, and to the provisions of the
Indenture.
(27) No Preemptive Rights.
--------------------
The Holders of the Securities shall have no preemptive rights to subscribe
for any additional securities.
(28) Miscellaneous.
-------------
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Trust Preferred
Securities Guarantee or the Trust Common Securities Guarantee (as may be
appropri ate), and the Indenture to a Holder without charge on written request
to the Sponsor at its principal place of business.
I-16
<PAGE>
EXHIBIT A-1
FORM OF TRUST PREFERRED SECURITY
[FORM OF FACE OF SECURITY]
THIS SECURITY, ANY CONVERTIBLE DEBEN TURE ISSUED IN
EXCHANGE FOR THIS SECURITY AND ANY COMMON STOCK ISSUED ON
CONVER SION THEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
ANY STATE SECURITIES LAWS. NEITHER THIS SECU RITY NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS
SUCH TRANSAC TION IS EXEMPT FROM, OR NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURI TIES ACT. BY THE
ACQUISITION HEREOF, THE HOLDER AGREES THAT SUCH HOLDER WILL
GIVE EACH PERSON TO WHOM THIS SECURITY IS TRANSFERRED A
NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN THE
CASE OF ANY TRANSFER OR OTHER DISPOSITION MADE OTHER WISE
THAN PURSUANT TO AN EFFECTIVE REGIS TRATION STATEMENT UNDER
THE SECURITIES ACT, THE HOLDER HEREOF SHALL BE REQUIRED TO
PROVIDE TO THE COMPANY AND THE TRANS FER AGENT, PRIOR TO SUCH
TRANSFER, AN OPIN ION OF COUNSEL SATISFACTORY TO THE COM PANY
THAT SUCH TRANSFER IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION UNDER THE SECURITIES ACT AND IN COMPLIANCE WITH
ALL APPLICABLE STATE SECURITIES LAWS.
A-1-1
<PAGE>
Certificate Number
Number of Trust Preferred Securities
[CUSIP NO.]
[ISIN NO.]
Trust Preferred Securities
of
American Equity Capital Trust I
8% Convertible Trust Preferred Securities
(liquidation amount $30 per Convertible Trust Preferred Security)
American Equity Capital Trust I, a statutory business trust formed under
the laws of the State of Delaware (the "Trust"), hereby certifies that
_______________ (the "Holder") is the registered owner of preferred securities
of the Trust representing undivided beneficial interests in the assets of the
Trust designated the 8% Convertible Trust Preferred Securities (liquidation
amount $30 per Convertible Trust Preferred Security) (the "Trust Preferred
Securities"). The Trust Preferred Securities are transferable on the books and
records of the Trust, in person or by a duly authorized attorney, upon surrender
of this certificate duly endorsed and in proper form for transfer. The
designation, rights, privileges, restrictions, preferences and other terms and
provisions of the Trust Preferred Securities represented hereby are issued and
shall in all respects be subject to the provisions of the Amended and Restated
Declaration of Trust of the Trust, dated as of September 7, 1999, as the same
may be amended from time to time (the "Declaration"), including the designation
of the terms of the Trust Preferred Securities as set forth in Annex I to the
Declaration. Capitalized terms used herein but not defined shall have the
meaning given them in the Declaration. The Holder is entitled to the benefits of
the Trust Preferred Securities Guarantee to the extent provided therein. The
Sponsor will provide a copy of the Declaration, the Trust Preferred Securities
Guarantee and the Indenture to a Holder without charge upon written request to
the Trust at its principal place of business.
Reference is hereby made to select provisions of the Trust Preferred
Securities set forth on the reverse hereof, which select provisions shall for
all purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the Declaration
and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal income
tax purposes, the Debentures as indebtedness and the Trust Preferred Securities
as evidence of indirect beneficial ownership in the Debentures.
A-1-2
<PAGE>
Unless the Property Trustee's Certificate of Authentication hereon has been
properly executed, these Trust Preferred Securities shall not be entitled to any
benefit under the Declaration or be valid or obligatory for any purpose.
A-1-3
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this ___ day of
____________, 199__.
American Equity Capital Trust I
By:__________________________
Name:
Title:
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Trust Preferred Securities referred to in the within-
mentioned Declaration.
Dated: _______________, ____
West Des Moines State Bank, as Property
Trustee
By:__________________________
Authorized Signatory
A-1-4
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Trust Preferred Security will be fixed at a
rate per annum of 8% (the "Coupon Rate") of the stated liquidation amount of $30
per Trust Preferred Security, such rate being the rate of interest payable on
the Debentures to be held by the Property Trustee. Distributions in arrears for
more than one quarter will bear interest thereon compounded quarterly at the
Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds available therefor. The
amount of Distributions payable for any period will be computed for any full
quarterly Distribution period on the basis of a 360-day year of twelve 30-day
months, and for any period shorter than a full quarterly Distribution period for
which Distributions are computed, Distributions will be computed on the basis of
the actual number of days elapsed per 30-day month.
Except as otherwise described below, distributions on the Trust Preferred
Securities will be cumulative, will accrue from August 30, 1999 and will be
payable quarterly and in arrears, on March 31, June 30, September 30 and
December 31 of each year, commencing on December 31, 1999, to Holders of record
fifteen (15) days prior to such payment dates, which payment dates shall
correspond to the interest payment dates on the Debentures. The Debenture Issuer
has the right under the Indenture to defer payments of interest by extending the
interest payment period from time to time on the Debentures for successive
periods not exceeding 20 consecutive quarters (each an "Extension Period")
during which Extension Period no interest shall be due and payable on the
Debentures; provided, that no Extension Period shall extend beyond the date of
maturity of the Debentures. As a consequence of such extension, Distributions
will also be deferred. Despite such extension, quarterly Distributions will
continue to accrue with interest thereon (to the extent permitted by applicable
law) at the Coupon Rate compounded quarterly during any such Extension Period.
Prior to the termination of any such Extension Period, the Debenture Issuer may
further extend such Extension Period; provided, that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters. Payments of accrued Distributions will be payable to
Holders as they appear on the books and records of the Trust on the first record
date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period, subject to the above requirements.
The Trust Preferred Securities shall be redeemable as provided in the
Declaration.
The Trust Preferred Securities shall be convertible into shares of Common
Stock of American Equity Investment Life Holding Company, through (i) the
exchange of Trust Preferred Securities for a portion of the Debentures and (ii)
the immediate conversion of such Debentures into Common Stock of American Equity
Investment
A-1-5
<PAGE>
Life Holding Company, in the manner and according to the terms set forth in the
Declaration.
A-1-6
<PAGE>
CONVERSION REQUEST
To: West Des Moines State Bank
as Property Trustee of
American Equity Capital Trust I
The undersigned owner of these Trust Preferred Securities hereby
irrevocably exercises the option to convert these Trust Preferred Securities, or
the portion below designated, into Common Stock of AMERICAN EQUITY INVESTMENT
LIFE HOLDING COMPANY (the "American Equity Common Stock") in accordance with the
terms of the Amended and Restated Declaration of Trust (the "Declaration"),
dated as of September 7, 1999, by Debra J. Richardson and Wendy L. Carlson, as
Administra tive Trustees, First Union Trust Company, National Association, as
Delaware Trustee, West Des Moines State Bank, as Property Trustee, American
Equity Investment Life Holding Company, as Sponsor, and by the Holders, from
time to time, of individual beneficial interests in the Trust to be issued
pursuant to the Declaration. Pursuant to the aforementioned exercise of the
option to convert these Trust Preferred Securities, the undersigned hereby
directs the Conversion Agent (as that term is defined in the Declaration) to (i)
exchange such Trust Preferred Securities for a portion of the Debentures (as
that term is defined in the Declaration) held by the Trust (at the rate of
exchange specified in the terms of the Trust Preferred Securities set forth as
Annex I to the Declaration) and (ii) immediately convert such Debentures on
behalf of the undersigned, into American Equity Common Stock (at the conversion
rate specified in the terms of the Trust Preferred Securities set forth as Annex
I to the Declaration).
The undersigned does also hereby direct the Conversion Agent that the
shares issuable and deliverable upon conversion, together with any check in
payment for fractional shares, be issued in the name of and delivered to the
undersigned, unless a different name has been indicated in the assignment below.
If shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer taxes payable with respect thereto.
Date: ____________, ____
in whole __ in part __
Number of Trust Preferred Securities to be converted:
_____________________
If a name or names other than the undersigned, please indicate in the
spaces below the name or names in which the shares of American Equity Common
Stock are to be issued, along with the address or addresses of such person or
persons.
________________________________________________________________________________
A-1-7
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature Guarantee:/*/_______________________________
____________________
/*/ (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
A-1-8
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Trust
Preferred Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
agent to transfer this Trust Preferred Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:______________________
Signature:_________________
(Sign exactly as your name appears on the other side of this Trust Preferred
Security Certificate)
Signature Guarantee:/*/
_________________
/*/ (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
A-1-9
<PAGE>
EXHIBIT A-2
-----------
FORM OF TRUST COMMON SECURITY
[FORM OF FACE OF SECURITY]
THIS TRUST COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN EFFECTIVE
REGISTRATION STATEMENT.
OTHER THAN AS PROVIDED IN THE DECLARATION (AS DEFINED HEREIN), THIS
SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT TO A
RELATED PARTY (AS DEFINED IN THE DECLARATION) OF AMERICAN EQUITY INVESTMENT LIFE
HOLDING COMPANY
Certificate Number
Number of Trust Common Securities
Trust Common Securities
of
American Equity Capital Trust I
8% Convertible Trust Common Securities
(liquidation amount $30 per Convertible Trust Common Security)
American Equity Capital Trust I, a statutory business trust formed under the
laws of the
State of Delaware (the "Trust"), hereby certifies that
________________________________________________________________________________
(the "Holder") is the registered owner of common securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the 8% Convertible Trust Common Securities (liquidation amount $30
per Convertible Trust Common Security) (the "Trust Common Securities"). The
Trust Common Securities are transferable on the books and records of the Trust,
in person or by a duly authorized attorney, upon surrender of this certificate
duly endorsed and in proper form for transfer. The designation, rights,
privileges, restrictions, preferences and other terms and provisions of the
Trust Common Securities represented hereby are issued and shall in all respects
be subject to the provisions of the Amended and Restated Declaration of
A-1-10
<PAGE>
Trust of the Trust, dated as of September 7, 1999, as the same may be amended
from time to time (the "Declaration"), including the designation of the terms of
the Trust Common Securities as set forth in Annex I to the Declaration.
Capitalized terms used herein but not defined shall have the meaning given them
in the Declaration. The Holder is entitled to the benefits of the Trust Common
Securities Guarantee to the extent provided therein. The Sponsor will provide a
copy of the Declaration, the Trust Common Securities Guarantee and the Indenture
to a Holder without charge upon written request to the Sponsor at its principal
place of business.
Reference is hereby made to select provisions of the Trust Common
Securities set forth on the reverse hereof, which select provisions shall for
all purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Sponsor is bound by the Declaration
and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat for United States federal income
tax purposes the Debentures as indebtedness and the Trust Common Securities as
evidence of indirect beneficial ownership in the Debentures.
A-1-11
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate this day of
_______________, ____.
American Equity Capital Trust I
By:___________________________________
Name:
Title:
A-1-12
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Trust Common Security will be fixed at a rate
per annum of 8% (the "Coupon Rate") of the stated liquidation amount of $30 per
Trust Common Security, such rate being the rate of interest payable on the
Debentures to be held by the Property Trustee. Distributions in arrears for more
than one quarter will bear interest thereon compounded quarterly at the Coupon
Rate (to the extent permitted by applicable law). The term "Distributions" as
used herein includes such cash distributions and any such interest payable
unless otherwise stated. A Distribution is payable only to the extent that
payments are made in respect of the Debentures held by the Property Trustee and
to the extent the Property Trustee has funds available therefor. The amount of
Distributions payable for any period will be computed for any full quarterly
Distribution period on the basis of a 360-day year of twelve 30-day months, and
for any period shorter than a full quarterly Distribution period for which
Distributions are computed, Distributions will be computed on the basis of the
actual number of days elapsed per 30-day month.
Except as otherwise described below, distributions on the Trust Common
Securities will be cumulative, will accrue from August 30, 1999 and will be
payable quarterly and in arrears, on March 31, June 30, September 30 and
December 31 of each year, commencing on December 31, 1999, to Holders of record
fifteen (15) days prior to such payment dates, which payment dates shall
correspond to the interest payment dates on the Debentures. The Debenture Issuer
has the right under the Indenture to defer payments of interest by extending the
interest payment period from time to time on the Debentures for successive
periods not exceeding 20 consecutive quarters (each an "Extension Period")
during which Extension Period no interest shall be due and payable on the
Debentures; provided, that no Extension Period shall last beyond the date of
maturity of the Debentures. As a consequence of such extension, Distributions
will also be deferred. Despite such extension, quarterly Distributions will
continue to accrue with interest thereon (to the extent permitted by applicable
law) at the Coupon Rate compounded quarterly during any such Extension Period.
Prior to the termination of any such Extension Period, the Debenture Issuer may
further extend such Extension Period; provided, that such Extension Period
together with all such previous and further extensions thereof may not exceed 20
consecutive quarters. Payments of accrued Distributions will be payable to
Holders as they appear on the books and records of the Trust on the first record
date after the end of the Extension Period. Upon the termination of any
Extension Period and the payment of all amounts then due, the Debenture Issuer
may commence a new Extension Period, subject to the above requirements.
The Trust Common Securities shall be redeemable as provided in the
Declaration.
The Trust Common Securities shall be convertible into shares of Common
Stock of American Equity Investment Life Holding Company, through (i) the
exchange of Trust Common Securities for a portion of the Debentures and (ii) the
immediate conversion of such Debentures into Common Stock of American Equity
Investment Life Holding Company, in the manner and according to the terms set
forth in the Declaration.
A-1-13
<PAGE>
CONVERSION REQUEST
To: West Des Moines State Bank
as Property Trustee of
American Equity Capital Trust I
The undersigned owner of these Trust Common Securities hereby irrevocably
exercises the option to convert these Trust Common Securities, or the portion
below designated, into Common Stock of AMERICAN EQUITY INVESTMENT LIFE HOLDING
COMPANY (the "American Equity Common Stock") in accordance with the terms of the
Amended and Restated Declaration of Trust (the "Declaration"), dated as of
September 7, 1999, 1999, by Debra J. Richardson and Wendy L. Carlson, as
Administrative Trustees, First Union Trust Company, National Association, as
Delaware Trustee, West Des Moines State Bank, as Property Trustee, American
Equity Investment Life Holding Company, as Sponsor, and by the Holders, from
time to time, of individual beneficial interests in the Trust to be issued
pursuant to the Declaration. Pursuant to the aforementioned exercise of the
option to convert these Trust Common Securities, the undersigned hereby directs
the Conversion Agent (as that term is defined in the Declaration) to (i)
exchange such Trust Common Securities for a portion of the Debentures (as that
term is defined in the Declaration) held by the Trust (at the rate of exchange
specified in the terms of the Trust Common Securities set forth as Annex I to
the Declaration) and (ii) immediately convert such Debentures on behalf of the
undersigned, into American Equity Common Stock (at the conversion rate specified
in the terms of the Trust Common Securities set forth as Annex I to the
Declaration).
The undersigned does also hereby direct the Conversion Agent that the shares
issuable and deliverable upon conversion, together with any check in payment for
fractional shares, be issued in the name of and delivered to the undersigned,
unless a different name has been indicated in the assignment below. If shares
are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto.
Date: ____________, ____
in whole __ in part __
Number of Trust Common Securities to be converted:
_____________________
If a name or names other than the undersigned, please indicate in the
spaces below the name or names in which the shares of American Equity Common
Stock are to be issued, along with the address or addresses of such person or
persons.
________________________________________________________________________________
A-1-15
<PAGE>
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Signature Guarantee:/*/_______________________
______________
/*/ (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
A-1-16
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Trust Common
Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
agent to transfer this Trust Common Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date:___________________
Signature:______________
(Sign exactly as your name appears on the other side of this Trust Common
Security Certificate)
Signature Guarantee:/*/
__________________
/*/ (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include membership
or participation in the Securities Transfer Agents Medallion Program ("STAMP")
or such other "signature guarantee program" as may be determined by the
Registrar in addition to, or in substitution for, STAMP, all in accordance with
the Securities Exchange Act of 1934, as amended.)
A-1-17
<PAGE>
EXHIBIT B
SPECIMEN OF DEBENTURE
See Exhibit A of Indenture
B-1
<PAGE>
Exhibit 10.1-A
- --------------------------------------------------------------------------------
================================
1999 GENERAL AGENCY
COMMISSION AND SERVICING AGREEMENT
dated as of June 30, 1999
between
AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY
and
AMERICAN EQUITY INVESTMENT SERVICE COMPANY
===============================
<PAGE>
TABLE OF CONTENTS
This Table of Contents is not part of the Agreement to
which it is attached but is inserted for convenience only.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 1. Definitions........................................................ 1
1.01 Definitions........................................................ 1
Section 2. Sales Agent Commissions............................................ 2
2.01 Obligation to Pay Sales Agent Commissions.......................... 2
2.02 Conditions for Payments of AEISC Amounts........................... 3
2.03 Replacement Contracts.............................................. 3
Section 3. Payment of General Agency Commissions.............................. 3
3.01 General Agency Current Commissions ................................ 3
3.02 General Agency Supplemental Commissions............................ 3
3.03 General Agency Reimbursement Commissions........................... 3
3.04 Termination of Commission Obligations.............................. 4
3.05 Payment of Commissions............................................. 4
3.06 Excess Commissions................................................. 5
Section 4. Servicer........................................................... 5
4.01 Appointment........................................................ 5
4.02 The Servicing Functions............................................ 5
4.03 Outside Professionals and Others................................... 5
4.04 Standard of Care................................................... 5
Section 5. Representations and Warranties of American Equity.................. 6
5.01 Corporate Existence................................................ 6
5.02 Financial Condition and Other Information.......................... 6
5.03 Litigation; Observance of Statutes, Regulations and Orders......... 6
5.04 No Breach.......................................................... 7
5.05 Corporate Action................................................... 7
5.06 Approvals.......................................................... 7
5.07 ERISA.............................................................. 7
5.08 Taxes.............................................................. 8
5.09 Investment Company Act............................................. 8
5.10 Public Utility Holding Company Act................................. 8
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
Section 6. Representations and Warranties of AEISC.............................. 8
6.01 Corporate Existence.................................................. 8
6.02 Financial Condition.................................................. 8
6.03 Litigation........................................................... 9
6.04 No Breach............................................................ 9
6.05 Corporate Action..................................................... 9
6.06 Approvals............................................................ 9
6.07 Insurance Agency Licenses............................................ 9
Section 7. Certain Covenants of AEISC........................................... 9
7.01 Delivery of Information, Etc......................................... 9
7.02 Corporate Existence, Etc............................................. 10
7.03 Insurance............................................................ 10
7.04 Prohibition of Fundamental Changes................................... 10
Section 8. Certain Covenants of American Equity................................. 10
8.01 Delivery of Information.............................................. 10
8.02 Litigation........................................................... 11
8.03 Corporation Existence, Etc........................................... 11
8.04 Insurance............................................................ 12
8.05 Correction of Errors................................................. 12
8.06 Amendment of Contract Forms.......................................... 12
Section 9. American Equity Option............................................... 12
Section 10. Termination.......................................................... 12
Section 11. Miscellaneous........................................................ 12
11.01 Waiver............................................................... 12
11.02 Notices.............................................................. 12
11.03 Amendments, Etc...................................................... 13
11.04 Successors and Assigns............................................... 13
11.05 Assignments.......................................................... 13
11.06 Captions............................................................. 13
11.07 Counterparts......................................................... 13
11.08 Governing Law; Submission to Jurisdiction............................ 13
11.09 Waiver of Jury Trial................................................. 13
</TABLE>
-ii-
<PAGE>
1999 GENERAL AGENCY COMMISSION AND SERVICING AGREEMENT, dated as of
June 30, 1999, between: AMERICAN EQUITY INVESTMENT LIFE INSURANCE COMPANY, an
Iowa insurance corporation ("American Equity"), and AMERICAN EQUITY INVESTMENT
SERVICE COMPANY, an Iowa corporation ("AEISC").
WHEREAS, the parties have previously engaged in a general agency
commission and servicing agreement pursuant to the Restated and Amended General
Agency Commission and Servicing Agreement dated as of June 30, 1997;
WHEREAS, the parties have determined to renew their respective agency
relationship pursuant to the terms and conditions of this 1999 General Agency
Commission and Servicing Agreement;
For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, each of the parties hereto agrees as follows:
Section 1. Definitions.
1.01 Definitions. As used herein, the following terms shall have the
following meanings (all terms defined in this Section 1.01 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
"Account Surrender Value" shall mean the Accumulated Value of any
-----------------------
Eligible Contract (or portion thereof) that has been terminated (whether in
whole or in part or by surrender, withdrawal or death).
"Accumulated Value" shall mean, with respect to any Eligible Contract
-----------------
as at any date of determination thereof, the accumulated value as defined in
such Eligible Contract.
"AEISC Amount" The term "AEISC Amount" shall mean, with respect to any
------------
Eligible Contract: (i) 50% of the Sales Agent Commission payable with respect to
all such Eligible Contracts issued during the period from July 1, 1999 through
and including August 31, 1999; and (ii) 30%of the Sales Agent Commission payable
with respect to all such Eligible Contracts issued from September 1, 1999 until
such time as this Agreement is terminated or modified by mutual agreement of the
parties.
"Affiliate" of American Equity shall mean any other person controlling
---------
or controlled by or under common control with American Equity. For the purposes
of this definition, "control" when used with respect to any specified person
means the power to direct the management and policies of such person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling and "controlled" have meanings
correlative to the foregoing.
-1-
<PAGE>
"Annual Statement" shall have the meaning assigned thereto in Section
-----------------
5.02 hereof.
"Commission Accumulated Value" shall mean, as at any Commission Payment
----------------------------
Date an amount equal to the aggregate of the Accumulated Values of all Eligible
Contracts that are in force on such Commission Payment Date.
"Commission Agreement": An agreement between American Equity and any
--------------------
Person (other than the Borrower) the terms of which govern the rights and
obligations of such Person with American Equity in respect of such Person's
acting as an agent of American Equity for the sale of Eligible Contracts.
"Commission Payment Dates" shall mean the last day of each calendar
------------------------
quarter beginning with the second calendar quarter of 2000.
"Eligible Contract" shall mean a deferred annuity contract, including
-----------------
either a fixed rate annuity or an equity index annuity issued by American Equity
and sold by a Sales Agent to a person in a jurisdiction in which American Equity
and AEISC (or its duly-appointed representative) are duly licensed to issue such
contracts or act as an insurance agency therein, as applicable, and is, and any
Replacement Contract issued with respect of any such contract.
"Gross Agent Commission Schedule" shall mean the Gross Agent Commission
-------------------------------
Schedule in effect with respect to Eligible Contracts as established by American
Equity from time to time.
"Order" shall mean any order, writ, injunction, decree, judgment, award
-----
or determination.
"Person": Any natural person, corporation, partnership, joint venture,
------
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision or any other entity, whether acting
in an individual, fiduciary or other capacity.
"Replacement Contract" shall mean any individual annuity contract with
--------------------
respect to which a Sales Agent earns a commission and which is (i) issued by
American Equity or an Affiliate to an insured coincident with, or within six
months (or such longer period as American Equity may determine in accordance
with its normal business procedures) after, the termination for any reason of an
Eligible Contract with the same insured, or (ii) any other individual annuity
contract issued by American Equity to an insured that American Equity in good
faith in accordance with its normal business procedures considers to be a
replacement for a terminated Eligible Contract with the same insured.
"Sales Agent" shall mean each person (other than American Equity or
-----------
AEISC) who is a party to a Commission Agreement.
"Sales Agent Commission": With respect to the initial sale of any
----------------------
Eligible Contract, the commission payable by American Equity in connection with
such sale to the Agent who
-2-
<PAGE>
sold such Eligible Contract, which commission shall not exceed, in respect of
such Eligible Contract, the greater of 15% or the commission rate indicated on
the Gross Agent Commission schedule.
"SAP" shall mean those accounting practices required or permitted by
---
the Division of Insurance, Department of Commerce of the State of Iowa
consistently applied throughout the specified period and in the immediately
prior comparable period.
Section 2. Sales Agent Commissions.
2.01 Obligation to Pay Sales Agent Commissions. Subject to Section 2.02
below, AEISC shall pay, or cause to be paid the AEISC Amount on each Eligible
Contract to the Sales Agent entitled to the Sales Agent Commission thereon at
the time such Sales Agent Commission is to be paid pursuant to the terms of such
Sales Agent's Commission Agreement.
2.02 Conditions for Payments of AEISC Amounts. AEISC's obligation to
pay the AEISC Amount under Section 2.01 hereof with respect to any Eligible
Contract is subject to the satisfaction of the following conditions:
(a) the presentment to AEISC by American Equity no later than
10:00 a.m., Central Standard Time, on the Business Day next preceding
the Business Day on which such AEISC Amount is to be paid (but no more
frequently than two times in any calendar week) of a Disbursement
Certificate in respect of such AEISC Amount, together with a copy of
the requisite disbursement schedule attached thereto duly completed;
(b) receipt by AEISC of evidence satisfactory to each of them
that the portion of such Sales Agent Commission to be funded by
American Equity has been made available by American Equity for payment
to the Sales Agent entitled to such Sales Agent Commission;
(c) no Event of Default shall have occurred and be
continuing.
(d) American Equity shall have a rating of "A-" or better by
A.M. Best & Company and "Api" or better by Standard & Poors.
2.03 Replacement Contracts. AEISC shall have no obligation to pay a
AEISC Amount in respect of any Replacement Contract.
Section 3. Payment of General Agency Commissions.
3.01 General Agency Current Commissions.American Equity shall pay to
AEISC general agency current commissions ("Current Commissions") no later than
10:00 a.m., Central Standard Time, on each Commission Payment Date in an amount
equal to (i) 0.325 % of the Commission Accumulated Value of all Eligible
Contracts produced on or before August 31, 1999; and 0.25% of the Commission
Accumulated Value of all Eligible
-3-
<PAGE>
Contracts produced on or after September 1, 1999. The determination of
Commission Accumulated Value for purposes of the preceding sentence shall made
in each case as of the preceding Commission Payment Date.
3.02 General Agency Supplemental Commissions.
(a) If (i) the aggregate amount of the Account Surrender Values of each
Eligible Contract (or portion thereof) that has been terminated (whether in
whole or in part or by surrender, withdrawal or death) during the calendar
quarter immediately preceding the Commission Payment Date equals or exceeds an
amount equal to 1.88% of the Commission Accumulated Value or (ii) American
Equity shall have a rating of less than "A-" by A.M. Best & Company or "Api" by
Standard & Poors, American Equity shall pay to AEISC general agency supplemental
commissions ("Supplemental Commissions"), no later than 10:00 a.m., Central
------------------------
Standard Time, on each Commission Payment Date in an amount equal to 50% of the
surrender charges paid to American Equity with respect to each such Eligible
Contract (or portion thereof) that has been terminated (whether in whole or in
part or by surrender, withdrawal or death) during such calendar quarter.
(b) American Equity shall pay to AEISC additional Supplemental
Commissions in an amount equal to .05% of the Commission Accumulated Value;
provided that no Supplemental Commissions shall be payable on any Commission
Payment Date unless (A) on such Commission Payment Date an Event of Default has
occurred and/or is continuing; (B) on such Commission Payment Date or on any
date prior thereto, American Equity has ceased to remain actively engaged in the
business of issuing Eligible Contracts; or (C) on such Commission Payment Date
or on any date prior thereto, American Equity, directly or indirectly,
unreasonably limits, impedes, hampers or restricts the ability of the Sales
Agents to sell Eligible Contracts.
3.03 General Agency Reimbursement Commissions. American Equity shall
pay to AEISC general agency reimbursement commissions ("Reimbursement
Commissions") with respect to all Voided Eligible Contracts (as defined below)
no later than 10:00 a.m., Central Standard Time, on each Commission Payment Date
in an amount equal to the aggregate of the AEISC Amounts of such Voided Eligible
Contracts. For the purposes of this Section 3.03, a "Voided Eligible Contract"
------------------------
shall mean, as at any Commission Payment Date, any Eligible Contract which was
voided during the calendar quarter ending on the preceding Commission Payment
Date because the owner of such Eligible Contract returned such Eligible Contract
to American Equity during the examination period therefor in accordance with the
terms of such Eligible Contract entitling such owner to a refund of the premium
paid thereon and with respect to which AEISC paid the AEISC Amount.
3.04 Termination of Commission Obligations. On June 30, 2005, no
further Current Commissions, Supplemental Commissions, or Reimbursement
Commissions will be due from American Equity to AEISC.
3.05 Payment of Commissions.
-4-
<PAGE>
(a) American Equity's obligation to make all payments referred to
in this Section 3, when such payments shall become due and payable in
accordance herewith, shall be absolute and unconditional and shall not be
subject to any abatement or diminution by set-off, deduction, claim,
counterclaim, recoupment, agreement, defense, suspension, deferment,
interruption or otherwise.
(b) American Equity shall have no right to be released, relieved
or discharged from its obligation to make such payments for any reason
whatsoever, including, without limitation, (i) any default,
misrepresentation, negligence, misconduct or other action or inaction of
any kind by AEISC, whether under or in connection with this or any other
agreement to which AEISC is a party; (ii) the invalidity, unenforceability,
impossibility of performance, illegality, termination or amendment of, or
any allegation or contest of invalidity, unenforceability, impossibility of
performance, illegality of, any agreement to which AEISC is a party; (iii)
any applicable law now or hereafter in force; (iv) the occurrence or
continuance of an event of default or any default or event of default under
any agreement to which AEISC is a party; (v) the compromise, settlement,
release, modification, amendment (whether material or otherwise) or
termination of any or all of the obligations, conditions, covenants or
agreements of any Person under or arising out of any agreement to which
AEISC is a party (other than any modification or amendment of this
Agreement made in accordance with the terms hereof); (vi) the failure by
any Person to give notice to American Equity of the occurrence of any
default or event of default under any agreement to which AEISC is a party;
(vii) the waiver of the payment, performance or observance of any of the
obligations, conditions, covenants or agreements of any Person contained in
any agreement to which AEISC is a party (including, without limitation, any
waiver of such obligations under this Agreement made in accordance with the
provisions hereof); (viii) the taking or the omission to take any of the
actions referred to in any agreement to which AEISC is a party; or (ix) any
other cause or circumstance foreseen or unforeseen, whether similar or
dissimilar to any of the foregoing.
(c) American Equity shall pursue any claims which it may now or
hereafter have against AEISC or any other Person independently of the
rights of AEISC to receive payments from American Equity pursuant to this
Section 3.
Section 4. Servicer.
4.01 Appointment. AEISC hereby, to the exclusion of any other Person
except to the extent provided in the Security Agreement, appoints American
Equity as the "Servicer" to perform the Servicing Functions in the name and on
behalf of AEISC, and the Servicer hereby accepts such appointment, all upon the
terms and conditions set forth in this Section 4.
4.02 The Servicing Functions . The Servicing Functions to be performed
by the Servicer on behalf of AEISC at no cost to AEISC shall be the management
and administrative functions that are described below:
-5-
<PAGE>
(a) the preparation and delivery of any payment, notice,
instrument, form, document, agreement, invoice or other item required to be
delivered to any Person pursuant to the terms of the this Agreement and the
accurate maintenance of all financial, business and corporate records of
AEISC; and
(b) all other administrative obligations, duties, and functions of
AEISC.
AEISC shall be entitled, upon request, to full access to and use of all computer
programs and software, training manuals, data, records, forms correspondence,
files, and other materials used by the Servicer in performing the Servicing
Functions.
4.03 Outside Professionals and Others. The Servicer shall be entitled,
in its sole discretion, to engage, at the expense of the Servicer, such outside
legal counsel, accountants, actuaries, consultants, other professionals, and
other Persons as the Servicer shall, from time to time, deem necessary or
appropriate in the performance of the Servicing Functions (collectively, the
"Outside Workers"). Such Outside Workers may, in the sole discretion of the
Servicer, be Outside Workers who perform such or similar functions for the
Servicer, and no conflict shall be deemed to exist on account thereof. In lieu
of or in addition to engaging Outside Workers, the Servicer may employ its own
or its affiliates' employees for purposes of the foregoing, and no conflict
shall be deemed to exist on account thereof.
4.04 Standard of Care. The Servicer will exercise and give the same
care and attention to its obligations hereunder as it gives to all other
corporate obligations of a comparable nature, provided it shall not be held
responsible for any losses arising from any action taken by it in good faith
absent misconduct or negligence.
Section 5. Representations and Warranties of American Equity. American Equity
represents and warrants to AEISC as of the date hereof as follows:
5.01 Corporate Existence. American Equity: (a) is an insurance
corporation duly organized and validly existing under the laws of the State of
Iowa; (b) has all requisite corporate power, and has all governmental licenses
and authorizations, consents and approvals necessary to own its assets and carry
on its business as now being or as proposed to be conducted; and (c) is
qualified to do business in all jurisdictions in which the nature of the
business conducted by it makes such qualifications necessary.
5.02 Financial Condition and Other Information.
(a) American Equity has delivered to AEISC a copy of: (i) the
annual statement of American Equity submitted to the Iowa Division of
Insurance (the "Annual Statement") for the year ended December 31, 1998
----------------
and (ii) the affirmative certification of its actuary as to the
adequacy of the reserves for liabilities determined in accordance with
SAP reflected on the Annual Statement for the year ended December 31,
1998. The Annual Statement and Actuarial Certification described above
in this paragraph (a) are hereinafter collectively called the
"Financial Statements." The Financial Statements
--------------------
-6-
<PAGE>
(including in each case, without limitation, the related schedules and
notes) fairly present the financial condition of American Equity. The
Financial Statements described in clause (i) have been prepared in
accordance with SAP consistently applied by American Equity throughout
the periods involved.
(b) There are no material liabilities, contingent or otherwise, of
American Equity as of December 31,1998 not reflected in the Annual
Statement of American Equity as of said date referred to in clause (i)
of paragraph (a). Since said date, there has been no change in the
financial condition, operations, business or prospects of American
Equity from that set forth in the Financial Statements as at said date,
other than changes in the ordinary course of business which have not,
either individually or in the aggregate, been materially adverse to the
financial condition, operations, business or prospects of American
Equity.
(c) American Equity has prior to the execution and delivery of
this Agreement delivered to AEISC a copy of the forms of the Commission
Agreements and the Eligible Contracts.
5.03 Litigation; Observance of Statutes, Regulations and Orders. There
are no legal or arbitral proceedings or any proceedings by or before any court,
arbitrator or Governmental Body, now pending or (to the knowledge of American
Equity) threatened against American Equity which, if adversely determined, could
be expected to have a material adverse effect on the financial condition,
operations, business or prospects of American Equity.
American Equity is not in default under any Order of any
court, arbitrator or Governmental Body. American Equity is not in violation of
any statute or other rule or regulation of any Governmental Body the violation
of which could be expected to have a material adverse effect on the financial
condition, operation, business or prospects of American Equity.
5.04 No Breach. Neither the execution and delivery of this Agreement,
the consummation of the transactions herein contemplated nor the compliance with
the terms and provisions hereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of American Equity, or any
statute, other rule or regulation or any Order of any Governmental Body, or any
agreement or instrument to which American Equity is a party or by which it is
bound or to which it is subject, or constitute a default under any such
agreement or instrument, or result in the creation or imposition of any Lien
upon any of the revenues or assets of American Equity pursuant to the terms of
any such agreement or instrument.
5.05 Corporate Action. American Equity has all necessary corporate
power and authority to execute, deliver and perform its obligations under this
Agreement; the execution, delivery and performance of this Agreement has been
duly authorized by all necessary corporate action on its part, and this
Agreement has been duly and validly executed and delivered by American Equity
and constitutes its legal, valid and binding obligation, enforceable in
accordance with its terms.
-7-
<PAGE>
5.06 Approvals. Except for the reports required under Chapter 521A of
the Iowa Code (1995) applicable to Insurance Holding Company Systems, no
authorization, approvals or consents of, and no filings or registrations with,
any Governmental Body are necessary for the execution, delivery or performance
by American Equity of this Agreement or for the validity and enforceability
thereof.
5.07 ERISA. No employee benefit plan established or maintained by
American Equity or to which American Equity has made contributions, which is
subject to Part 3 of Subtitle B of Title 1 of ERISA, or Section 412 of the Code,
including, without limitation, to the knowledge of American Equity, any
Multiemployer Plan, has an accumulated funding deficiency (as such term is
defined in Section 302 of ERISA or Section 412 of the Code), or had such a
deficiency as of the last day of the most recent fiscal year of such plan
heretofore ended, and each such plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and any applicable federal or
state law. No liability to PBGC (other than required insurance premiums, all of
which have been paid when due) has been incurred with respect to any such plan
and there has not been any reportable event within the meaning of ERISA, or any
other event or condition, which presents a material risk of termination of any
such plan by PBGC. To the knowledge of American Equity after due inquiry,
neither any such plan nor any trust created thereunder, nor any trustee or
administrator thereof, has engaged in a prohibited transaction (as such term is
defined in Section 4975 of the Code) nor will the transactions contemplated by
this Agreement constitute such a prohibited transaction, in any such case that
could subject any such plan, trust, trustee (to the extent indemnified by
American Equity), administrator or American Equity to any tax or penalty on
prohibited transactions imposed under Section 4975 or ERISA or by Section 502(i)
of ERISA which could have a material adverse effect on the business, operations
or properties of American Equity. No liability has been incurred by American
Equity with respect to any Multiemployer Plan, within the meaning of Section
4001(a)(3) of ERISA as a result of the complete or partial withdrawal by
American Equity from such Multiemployer Plan under Section 4201 or 4204 of ERISA
that could have a material adverse effect on the business, operations or
properties of American Equity; nor has American Equity been notified by any such
Multiemployer Plan that such Multiemployer Plan is in reorganization or
insolvency under and within the meaning of Section 4241 or 4245 of ERISA or that
such Multiemployer Plan intends to terminate or has been terminated under
Section 4041A or ERISA.
5.08 Taxes. American Equity has filed all United States Federal income
tax returns and all other tax returns that are required to have been filed in
any jurisdiction. American Equity has paid all taxes due pursuant to such
returns before they have become delinquent and pursuant to any assessment
received by American Equity. The charges, accruals and reserves on the books of
American Equity in respect of taxes and other governmental charges are, in the
opinion of American Equity, adequate.
5.09 Investment Company Act. American Equity is not an "investment
company", or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended.
-8-
<PAGE>
5.10 Public Utility Holding Company Act. American Equity is not a
"holding company," or an "affiliate" of a "holding company" or a "subsidiary
company" of "holding company," within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 6. Representations and Warranties of AEISC. AEISC represents and
warrants to American Equity as of the date hereof as follows:
6.01 Corporate Existence. Subject, in the case of clauses (a) and (b)
hereof, to Section 6.07 hereof, AEISC: (a) is a corporation duly organized and
validly existing under the laws of the State of Iowa; (b) has all requisite
corporate power, and has all governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted; and (c) is qualified to do business in all
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary. The Company has no Subsidiaries.
6.02 Financial Condition. The balance sheet of AEISC as at December 31,
1996 heretofore furnished to American Equity, is complete and correct and fairly
presents the financial condition of AEISC as at said date, all in accordance
with generally accepted accounting principles and practices. AEISC did not have
on said date any contingent liabilities, liabilities for taxes, unusual forward
or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments, except as referred to or reflected or provided for in
said balance sheet as at said date. Since December 31, 1996, there has been no
material adverse change in the financial condition, operations, business or
prospects of AEISC from that set forth in said financial statement as at said
date. AEISC has not paid any salary or any other form of compensation for
services to any Person; incurred any obligation, contractually or otherwise, to
any Person except as was necessary or advisable for the compliance with Section
6.01 hereof; or created or maintained any Plan or been a participant in any
Multiemployer Plan.
6.03 Litigation. There are no legal or arbitral proceedings or any
proceedings by or before any court, arbitrator or Governmental Body, now pending
or (to the knowledge of AEISC) threatened against AEISC.
6.04 No Breach. None of the execution and delivery of this Agreement,
the consummation of the transactions herein contemplated and compliance with the
terms and provisions hereof will conflict with or result in a breach of, or
require any consent under, the charter or by-laws of AEISC, or any applicable
statute, other rule or regulation, or any Order of any Governmental Body, or any
agreement or instrument to which AEISC is a party or by which it is bound or to
which it is subject, or constitute a default under any such agreement or
instrument, or (except for the Liens created pursuant to the Security Documents)
result in the creation or imposition of any Lien upon any other revenues or
assets of AEISC pursuant to the terms of any such agreement or instrument.
6.05 Corporate Action. AEISC has all necessary corporate power and
authority to execute, deliver and perform its obligations under this Agreement;
the execution, delivery and
-9-
<PAGE>
performance by AEISC of this Agreement has been duly authorized by all necessary
corporate action on its part; and this Agreement has been duly and validly
executed and delivered by AEISC and constitutes, when executed and delivered,
its legal, valid and binding obligation, enforceable in accordance with its
terms.
6.06 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Body are necessary for the
execution, delivery or performance by AEISC of this Agreement or for the
validity or enforceability thereof, except as provided in Section 6.07 hereof.
6.07 Insurance Agency Licenses. AEISC has made application to the
appropriate state authorities in each jurisdiction in which it anticipates it
will conduct business to enable it or its duly appointed representative to act
as a licensed insurance agency in such jurisdiction.
Section 7. Certain Covenants of AEISC.
7.01 Delivery of Information, Etc. AEISC will:
(a) furnish to American Equity, its counsel, accountants and
other representatives full access to all of its properties, books,
contracts, commitments, reports and records and shall furnish American
Equity with all information concerning its business and affairs as
American Equity may request; and
(b) pay and otherwise perform fully and in a timely manner all of
its obligations under this Agreement.
7.02 Corporate Existence, Etc. AEISC will:
(a) preserve and maintain its corporate existence and all of its
material rights, privileges and franchises;
(b) comply with the requirements of all applicable statutes,
other rules and regulations and Orders of any court, arbitrator or
Governmental Body if failure to comply with such requirements would not
adversely affect the financial condition, operations, business or
prospects of AEISC;
(c) pay and discharge all taxes, assessments and governmental
charges or levies imposed on it or on its income or profits or on any
of its property prior to the date on which penalties attach thereto,
except for any such tax, assessment, charge or levy the payment of
which is being contested in good faith and by proper proceedings and
against which adequate reserves are being maintained;
(d) maintain all of its properties used or useful in its business
in good working order and condition, ordinary wear and tear excepted;
and
-10-
<PAGE>
(e) permit representatives of American Equity, during normal
business hours, to examine, copy and make extracts from its books and
records, to inspect its properties, and to discuss its business and
affairs with its officers, all to the extent reasonably requested by
American Equity.
7.03 Insurance. AEISC will keep insured, by financially sound and
reputable insurers, all property of a character usually insured by corporations
engaged in the same or similar business similarly situated against loss or
damage of the kinds and in the amounts customarily insured against by such
corporations and carry such other insurance as is usually carried by such
corporations.
7.04 Prohibition of Fundamental Changes. AEISC will not enter into any
transaction of merger or consolidation or amalgamation, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution). AEISC will not
acquire any business or assets from, or capital stock of, or be a party to any
acquisition of, any Person. AEISC will not convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or a
substantial part of its business or assets, whether now owned or hereafter
acquired.
Section 8. Certain Covenants of American Equity.
8.01 Delivery of Information. American Equity will furnish to AEISC:
(a) on or prior to the last day of each Calendar Quarter, a
Settlement Statement in form and content satisfactory to the parties;
(b) within 60 days after the end of each of American Equity's
fiscal years, copies of the Annual Statement of American Equity;
(c) within 60 days after the end of each of American Equity's
fiscal quarters, copies of the quarterly financial statements of
American Equity prepared in accordance with SAP as filed with the Iowa
Division of Insurance for such accounting period;
(d) as soon as available and in any event within 120 days after
each calendar year, a report of Ernst & Young or other independent
accountants of recognized national standing selected by American Equity
and reasonably satisfactory to AEISC, which shall indicate that based
upon a review by such auditors of appropriate American Equity financial
records all amounts due from American Equity to AEISC hereunder were
properly computed and paid;
(e) at any time and from time to time upon the request of
AEISC, a report of an independent actuarial firm of recognized national
standing selected by American Equity and reasonably satisfactory to
AEISC containing a comparison of the actuarial experience with respect
to Eligible Contracts during any given calendar period with the
assumptions with respect thereto; and
-11-
<PAGE>
(f) such other documentation and information relating to Eligible
Contracts as AEISC shall reasonably request.
8.02 Litigation. American Equity will promptly give to AEISC notice of
all legal or arbitral proceedings, and of all proceedings by or before any
court, arbitrator or Governmental Body affecting American Equity except
proceedings which, if adversely determined, would not have a material adverse
effect on the financial condition, operations, business or prospects of American
Equity and any material development in respect of such legal or other
proceedings.
8.03. Corporate Existence, Etc. American Equity will: preserve and
maintain its corporate existence and all rights, privileges and franchises;
comply with the requirements of all applicable statutes, other rules and
regulations and orders of any court, arbitrator or Governmental Body if failure
to comply with such requirements would adversely affect the financial condition,
operations, business or prospects of American Equity; pay and discharge all
taxes, assessments and governmental charges or levies imposed on it or on its
income or profits or on any of its property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy the payment
of which is being contested in good faith and by proper proceedings and against
which adequate reserves are being maintained; maintain all of its properties
used or useful in its business in good working order and condition, ordinary
wear and tear excepted; and permit representatives of AEISC during normal
business hours to examine, copy and make extracts from its books and records
(which shall be maintained at the office of American Equity and shall include
all records that are necessary to comply with all of American Equity's
obligations under the Basic Documents, including manually maintained list,
computer generated printouts that identify all of the Eligible Contracts to
inspect its properties, and to discuss its business and affairs with its
officers, all to the extent reasonably requested by AEISC. American Equity will
not default or permit any event of default to occur or be continuing under any
indebtedness for borrowed money of American Equity or its parent company,
American Equity Investment Life Holding Company, a Delaware corporation.
8.04 Insurance. American Equity will keep insured by financially sound
and reputable insurers all property of a character usually insured by
corporations engaged in the same or similar business similarly situated against
loss or damage of the kinds and in the amounts customarily insured against by
such corporations and carry such other insurance as is usually carried by such
corporations.
8.05 Correction of Errors. As soon as reasonably practicable after
becoming aware of an error in any Settlement Statement previously delivered to
AEISC pursuant to Section 8.01(a) hereof, the effect of which error is that
American Equity shall have defaulted in the payment when due and payable of any
amount payable by it under this Agreement, American Equity will correct any such
error by making such payment in the prescribed manner.
8.06 Amendment of Contract Forms. American Equity will not, without the
prior written approval of AEISC (which consent shall not be unreasonably
withheld), amend, modify, supplement, terminate or waive any of the provisions
of the forms of Eligible Contracts as such forms exist on the date hereof.
-12-
<PAGE>
Section 9. American Equity Option. Notwithstanding anything in this Agreement to
the contrary, in the event of a default by AEISC under this Agreement or any
other agreement to which AEISC is a party, American Equity shall have the right
(but not the obligation) to take such action, on behalf of AEISC or on its own
behalf or otherwise, as it deems necessary or desirable to cure such default.
Section 10. Termination. The obligations of AEISC and American Equity shall
terminate on June 30, 2005.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of either party to this Agreement
to exercise and no delay in exercising, and no course of dealing with respect
to, any right, power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under this Agreement preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
11.02 Notices. All notices and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made by telex, telecopy, telegraph,
cable or in writing and telexed, telecopied, telegraphed, cabled, mailed or
delivered to the intended recipient at the "Address for Notices" specified below
its name on the signature pages hereof; or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telex or telecopier,
delivered to the telegraph or cable office or personally delivered or, in the
case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
11.03 Amendments, Etc. No provision of this Agreement may be amended
or modified except by an instrument in writing and signed by AEISC and American
Equity.
11.04 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
11.05 Assignments. Neither party to this Agreement may assign its
rights or obligations hereunder without the prior written consent of the other
party.
11.06 Captions. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Agreement.
11.07 Counterparts. This Agreement may be executed in any number of
counterparts, all of which all of taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart.
-13-
<PAGE>
11.08 Governing Law; Submission to Jurisdiction. This Agreement shall
be governed by, and construed in accordance with, the law of the State of Iowa.
11.09 Waiver of Jury Trial. EACH OF AEISC AND AMERICAN EQUITY HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
AMERICAN EQUITY INVESTMENT AMERICAN EQUITY INVESTMENT
LIFE INSURANCE COMPANY SERVICE COMPANY
By: /s/ Terry A. Reimer By: /s/ D.J. Noble
-------------------------- ---------------------------
Terry A. Reimer, Vice President D. J. Noble, President
-14-
<PAGE>
EXHIBIT 21
Subsidiaries of American Equity Investment Life Holding Company
State of
Incorporation
-------------
Insurance Subsidiary:
American Equity Investment Life Insurance Company .............. Iowa
Noninsurance Subsidiaries:
American Equity Investment Properties, L.C...................... Iowa
American Equity Capital, Inc.................................... Iowa
American Equity Capital Trust I................................. Delaware
American Equity Capital Trust II................................ Delaware
American Equity of Hawaii, Inc.................................. Hawaii
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 997,019,819
<DEBT-CARRYING-VALUE> 398,467,247
<DEBT-MARKET-VALUE> 0
<EQUITIES> 7,613,489
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,447,541,506
<CASH> 5,881,515
<RECOVER-REINSURE> 597,956
<DEFERRED-ACQUISITION> 126,684,495
<TOTAL-ASSETS> 1,665,503,450
<POLICY-LOSSES> 1,358,875,848
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 11,553,574
<NOTES-PAYABLE> 20,600,000
98,981,629
625,000
<COMMON> 4,712,310
<OTHER-SE> 28,986,981
<TOTAL-LIABILITY-AND-EQUITY> 1,665,503,450
13,746,532
<INVESTMENT-INCOME> 64,609,612
<INVESTMENT-GAINS> 1,454,417
<OTHER-INCOME> 0
<BENEFITS> 48,958,790
<UNDERWRITING-AMORTIZATION> 11,240,271
<UNDERWRITING-OTHER> 12,058,398
<INCOME-PRETAX> 3,095,870
<INCOME-TAX> (1,369,835)
<INCOME-CONTINUING> 2,443,346
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,443,346
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.42
<RESERVE-OPEN> 672,661
<PROVISION-CURRENT> 550,877
<PROVISION-PRIOR> (186,097)
<PAYMENTS-CURRENT> 319,145
<PAYMENTS-PRIOR> 124,112
<RESERVE-CLOSE> 594,184
<CUMULATIVE-DEFICIENCY> (186,097)
</TABLE>
