As filed with the Securities and Exchange Commission on October 17, 2003
Registration No. 333-108794
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
American Equity
Investment Life Holding Company
(Exact Name of Registrant as Specified in Its Charter)
Iowa
(State or Other Jurisdiction of Incorporation or Organization)
6311
(Primary Standard Industrial Classification Code Number)
42-1447959
(I.R.S. Employer Identification Number)
David J. Noble
Chairman, Chief Executive Officer, President and Treasurer
American Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
(515) 221-0002
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies To:
William R. Kunkel
Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 West Wacker Drive Chicago, Illinois 60606 (312) 407-0700 |
Michael Groll
Matthew M. Ricciardi LeBoeuf, Lamb, Greene & MacRae, L.L.P. 125 West 55th Street New York, New York 10019-5389 (212) 424-8000 |
Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated , 2003
P R O S P E C T U S
Shares
American Equity
Investment Life Holding Company
Common Stock
This is our initial public offering. We are selling all of the offered shares.
We expect the public offering price of the shares to be between $ and $ per share. Currently, no public market exists for our shares. We will apply to list our common stock on the New York Stock Exchange under the symbol "AEL."
Investing in our common stock involves risks that are described in the "Risk Factors" section beginning on page 7 of this prospectus.
|
Per Share
|
Total
|
||
---|---|---|---|---|
Public offering price | $ | $ | ||
Underwriting discount | $ | $ | ||
Proceeds, before expenses, to us | $ | $ |
The underwriters may also purchase up to an additional shares from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2003.
Merrill Lynch & Co. | Advest, Inc. |
The date of this prospectus is , 2003.
|
Page
|
|
---|---|---|
Prospectus Summary | 1 | |
Risk Factors | 7 | |
Forward-Looking Statements | 19 | |
Use of Proceeds | 19 | |
Dividend Policy | 19 | |
Capitalization | 21 | |
Dilution | 22 | |
Selected Consolidated Financial and Other Data | 23 | |
Management's Discussion and Analysis of Financial Condition and Results of Operations | 25 | |
Business | 47 | |
Management | 59 | |
Certain Relationships and Related Party Transactions | 70 | |
Principal Shareholders | 72 | |
Description of Capital Stock | 74 | |
Shares Eligible for Future Sale | 79 | |
Material U.S. Federal Tax Consequences to Non-U.S. Shareholders | 81 | |
Underwriting | 83 | |
Legal Matters | 86 | |
Experts | 86 | |
Where You Can Find More Information | 86 | |
Index to Consolidated Financial Statements | F-1 |
i
This summary highlights key aspects of our business and our common stock offering that are described more fully elsewhere in this prospectus. This summary does not contain all of the information that you should consider before making an investment decision. You should read this entire prospectus carefully, including "Risk Factors" and the consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this prospectus. In this prospectus, "we," "us," "our," "ours" and "our company" refer to American Equity Investment Life Holding Company and, where applicable, our life insurance subsidiaries, American Equity Investment Life Insurance Company and American Equity Investment Life Insurance Company of New York. "American Equity Life" refers to our life insurance subsidiary American Equity Investment Life Insurance Company.
Overview
We operate in one business segment as a full service underwriter of a broad line of annuity and insurance products. Our business consists primarily of the sale of fixed rate and index annuities. We develop, market, issue and administer these annuities and life insurance products through our life insurance subsidiaries, American Equity Investment Life Insurance Company and American Equity Investment Life Insurance Company of New York. We began selling annuities in November 1996. We have grown our annual deposits from the sale of new annuities from $141.9 million in 1997 to $2.4 billion before coinsurance in 2002 ($1.6 billion net of coinsurance). For the six months ended June 30, 2003, our deposits from sales of new annuities before coinsurance were $787.4 million ($492.4 million net of coinsurance). The reduction in annuity deposits in 2003 resulted from actions taken by us to manage our capital position, including reductions in our interest crediting rates on both new and existing annuities, reductions in sales commissions and suspension of sales of one of our higher commission annuity products and our most popular multi-year rate guaranteed annuity product. We will continue to monitor our levels of production and take such actions as we believe appropriate to help maintain our rate of production within the range that the statutory capital and surplus of our life insurance subsidiaries will support. The purpose of this offering is to raise capital to support future growth of our business. If it is successful, we anticipate increasing the level of our sales. For instance, we anticipate the reinstatement of our full marketing program and development of new products. As of June 30, 2003, our total consolidated assets were approximately $6.3 billion.
Our annuity product line includes fixed rate and index annuities, our primary focus, and to a lesser extent, variable annuities:
1
In addition to our annuity products, we also provide traditional ordinary and term, universal life and other interest-sensitive life insurance products. We are one of the largest providers of life insurance for members of the state National Guard Associations, with approximately $2.2 billion of life insurance in force for these organizations as of June 30, 2003. We acquired this business in 1995. We intend to continue offering a complete line of life insurance products for individual and group markets. However, as these products represented less than 1% of our premiums and deposits for the first six months of 2003 and for the year ended December 31, 2002, they are not reported as a separate business segment.
We market our products through a variable cost distribution network which consisted of approximately 70 national marketing organizations and 41,000 independent agents as of June 30, 2003. We aggressively recruit new agents and expect to continue to expand our independent agency force. In addition, we provide high quality service to our agents and policyholders along with the prompt payment of commissions to our agents. We believe that this has been significant in building excellent relationships with our independent agency force. Our relationships with these agents are largely maintained through our national marketing organizations.
We have developed what we believe to be one of the most experienced management teams in the industry. Our senior management team is led by David Noble, Chairman, Chief Executive Officer, President and Treasurer. Mr. Noble and the rest of the senior management team have worked together in the life insurance industry for the past 15 years. Overall, our senior management team and board of directors have more than 250 combined years of experience in the life insurance, annuity and financial services industries. Further, our executive officers and directors beneficially owned approximately 31% of our common stock as of June 30, 2003.
We market our products primarily to individuals in the United States ages 45-75 who are seeking to accumulate tax-deferred savings. As of June 30, 2003, the average age of our policyholders was approximately 67 years. Our fixed rate and index annuity products are particularly attractive to this group as a result of the guarantee of the principal with respect to those products, competitive rates of credited interest, tax-deferred growth and alternative payout options. We believe significant growth opportunities exist for annuity products because of favorable demographic and economic trends. According to the U.S. Census Bureau, there were 35.0 million Americans age 65 and older in 2000, representing 12% of the U.S. population. By 2030, this sector of the population is expected to increase to 22% of the total population. Individual fixed annuity premium income was $143 billion in 2001 (according to A.M. Best Company), having risen at a 13% compound annual rate during the prior five-year period.
Our Strategy
Our business strategy is to focus on our annuity business and earn predictable returns by managing investment spreads and investment risk. Elements of this strategy include the following:
2
Risks Related to Our Business Strategy
You should also consider risks we face in our business that could limit our ability to implement our business strategy, including that:
For a discussion of these and other factors that you should carefully consider before making an investment decision, see "Risk Factors" beginning on page 7 of this prospectus.
How to Contact Us
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. Our web site address is www.american-equity.com. Information contained on our website does not constitute part of this prospectus.
3
The Offering
Common stock offered by us | shares | |
Shares outstanding after the offering |
|
shares |
Use of proceeds |
|
We estimate that our net proceeds from this offering will be approximately $ million. We expect to contribute substantially all of the proceeds directly or indirectly to the capital and surplus of our life subsidiaries. |
Risk factors |
|
Please read "Risk Factors" and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of our common stock. |
Dividend policy |
|
In 2002 and 2001, we paid a cash dividend of $0.01 per share on our common 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. |
Proposed NYSE symbol |
|
"AEL" |
The number of shares of our common stock outstanding immediately after this offering is based on the number of shares outstanding at June 30, 2003. This number excludes (i) 2,157,375 shares of common stock issuable upon the exercise of outstanding management subscription rights, with an exercise price of $5.33 per share, (ii) 3,043,760 shares reserved for future issuances under our stock option plans, including 1,369,302 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $6.57 per share, (iii) 1,260,000 shares of common stock issuable upon the exercise of outstanding options under other stock option agreements with a weighted average exercise price of $4.63 per share, (iv) 2,084,728 shares of common stock reserved for issuance under the NMO Deferred Compensation Plan as described in note 10 to our audited consolidated financial statements and (v) 310,723 shares of common stock reserved for issuance under deferred compensation agreements with certain employees and consultants. Please read "Capitalization" for an explanation of the shares of common stock that will be outstanding immediately following the consummation of this offering.
Unless otherwise indicated, all information in this prospectus assumes:
4
Summary Consolidated Financial and Other Data
(Dollars in thousands, except per share data)
The following table sets forth our summary consolidated financial and other data. The summary consolidated statements of income and balance sheet data as of and for each of the five years in the period ended December 31, 2002 are derived from our audited consolidated financial statements and related notes, with 2002, 2001 and 2000 included elsewhere in this prospectus and 1999 and 1998 not included in this prospectus. The summary consolidated statements of income and balance sheet data as of June 30, 2003 and for the six months ended June 30, 2003 and 2002 are derived from our unaudited interim consolidated financial statements included in this prospectus. The adjusted balance sheet data as of June 30, 2003 reflects our receipt of the estimated net proceeds of $ million from this offering and the application of the proceeds therefrom. In the opinion of our management, all unaudited interim consolidated financial information presented in the table below reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our consolidated financial position and results of operations for such periods. The results of operations for the six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year.
The summary consolidated financial and other data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included in this prospectus. The results for past periods are not necessarily indicative of results that may be expected for future periods.
|
Six Months Ended
June 30, |
Year Ended December 31, |
|||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2002
|
2002
|
2001
|
2000
|
1999
|
1998
|
||||||||||||||||
Consolidated Statements of Income Data: | |||||||||||||||||||||||
Revenues | |||||||||||||||||||||||
Traditional life and accident and health insurance premiums | $ | 6,858 | $ | 7,320 | $ | 13,664 | $ | 13,141 | $ | 11,034 | $ | 10,294 | $ | 10,528 | |||||||||
Annuity and single premium universal life product charges | 11,225 | 6,476 | 15,376 | 12,520 | 8,338 | 3,452 | 642 | ||||||||||||||||
Net investment income | 174,824 | 144,178 | 308,548 | 209,086 | 100,060 | 66,679 | 26,357 | ||||||||||||||||
Realized gains (losses) on investments | 7,788 | (518 | ) | (122 | ) | 787 | (1,411 | ) | (87 | ) | 427 | ||||||||||||
Change in fair value of derivatives(a) | 19,091 | (43,986 | ) | (57,753 | ) | (55,158 | ) | (3,406 | ) | (528 | ) | | |||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Total revenues | 219,786 | 113,470 | 279,713 | 180,376 | 114,615 | 79,810 | 37,954 | ||||||||||||||||
Benefits and expenses | |||||||||||||||||||||||
Insurance policy benefits and change in future policy benefits | 5,584 | 5,024 | 9,317 | 9,762 | 8,728 | 7,232 | 6,085 | ||||||||||||||||
Interest credited to account balances | 109,815 | 79,023 | 177,633 | 97,923 | 56,529 | 41,727 | 15,838 | ||||||||||||||||
Change in fair value of embedded derivatives(a) | 41,234 | (17,411 | ) | (5,027 | ) | 12,921 | | | | ||||||||||||||
Interest expense on notes payable | 804 | 1,096 | 1,901 | 2,881 | 2,339 | 896 | 789 | ||||||||||||||||
Interest expense on General Agency Commission and Servicing Agreement | 1,713 | 1,999 | 3,596 | 5,716 | 5,958 | 3,861 | 1,652 | ||||||||||||||||
Interest expense on amounts due under repurchase agreements | 436 | | 734 | 1,123 | 3,267 | 3,491 | 1,529 | ||||||||||||||||
Other interest expense | 138 | 888 | 1,043 | 381 | | | | ||||||||||||||||
Amortization of deferred policy acquisition costs | 26,932 | 17,890 | 39,930 | 23,040 | 8,574 | 7,063 | 2,020 | ||||||||||||||||
Other operating costs and expenses | 12,827 | 9,966 | 21,635 | 17,176 | 14,602 | 12,445 | 9,037 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Total benefits and expenses | 199,483 | 98,475 | 250,762 | 170,923 | 99,997 | 76,715 | 36,950 | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Income before income taxes, minority interests and cumulative effect of change in accounting principle | 20,303 | 14,995 | 28,951 | 9,453 | 14,618 | 3,095 | 1,004 | ||||||||||||||||
Income tax expense (benefit) | 5,721 | 3,762 | 7,299 | 333 | 2,385 | (1,370 | ) | 760 | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Income before minority interests and cumulative effect of change in accounting principle | 14,582 | 11,233 | 21,652 | 9,120 | 12,233 | 4,465 | 244 | ||||||||||||||||
Minority interests in subsidiaries: | |||||||||||||||||||||||
Earnings attributable to company-obligated mandatorily redeemable preferred securities of subsidiary trusts | 3,722 | 3,724 | 7,445 | 7,449 | 7,449 | 2,022 | | ||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Income before cumulative effect of change in accounting principle | 10,860 | 7,509 | 14,207 | 1,671 | 4,784 | 2,443 | 244 | ||||||||||||||||
Cumulative effect of change in accounting for
derivatives(a) |
| | | (799 | ) | | | | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Net income(b) | $ | 10,860 | $ | 7,509 | $ | 14,207 | $ | 872 | $ | 4,784 | $ | 2,443 | $ | 244 | |||||||||
|
|
|
|
|
|
|
|||||||||||||||||
5
Per Share Data: | |||||||||||||||||||||||
Earnings per common share: | |||||||||||||||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.67 | $ | 0.46 | $ | 0.87 | $ | 0.10 | $ | 0.29 | $ | 0.15 | $ | 0.02 | |||||||||
Cumulative effect of change in accounting for derivatives(a) | | | | (0.05 | ) | | | | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per common share | $ | 0.67 | $ | 0.46 | $ | 0.87 | $ | 0.05 | $ | 0.29 | $ | 0.15 | $ | 0.02 | |||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per common shareassuming dilution: | |||||||||||||||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.57 | $ | 0.39 | $ | 0.76 | $ | 0.09 | $ | 0.26 | $ | 0.14 | $ | 0.02 | |||||||||
Cumulative effect of change in accounting for derivatives(a) | | | | (0.04 | ) | | | | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per common shareassuming dilution | $ | 0.57 | $ | 0.39 | $ | 0.76 | $ | 0.05 | $ | 0.26 | $ | 0.14 | $ | 0.02 | |||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Dividends declared per common share | $ | | $ | | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | |
|
|
At June 30, 2003 |
|
At December 31, |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Actual
|
As Adjusted
|
2002
|
2001
|
2000
|
1999
|
1998
|
||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||||
Total assets | $ | 6,332,943 | $ | $ | 6,042,266 | $ | 4,392,445 | $ | 2,528,126 | $ | 1,717,619 | $ | 708,110 | ||||||||
Policy benefit reserves | 5,867,125 | 5,867,125 | 5,452,365 | 3,993,945 | 2,099,915 | 1,358,876 | 541,082 | ||||||||||||||
Notes payable | 35,667 | 43,333 | 46,667 | 44,000 | 20,600 | 10,000 | |||||||||||||||
Amounts due to related party under General Agency Commission and Servicing Agreement | 30,977 | 30,977 | 40,345 | 46,607 | 76,028 | 62,119 | 27,536 | ||||||||||||||
Company-obligated mandatorily redeemable preferred securities issued by subsidiary trusts | 100,747 | 74,837 | 100,486 | 100,155 | 99,503 | 98,982 | | ||||||||||||||
Total stockholders' equity |
|
|
94,718 |
|
|
|
|
|
77,478 |
|
|
42,567 |
|
|
58,652 |
|
|
34,324 |
|
|
66,131 |
|
At and for the
Six Months Ended June 30, |
At and for the Year Ended December 31,
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2003 |
|
2002 |
|
2002 |
|
2001 |
|
2000 |
|
1999 |
|
1998 |
|||||||
Other Data: | |||||||||||||||||||||
Book value per share(c) | $ | 5.91 | $ | 3.78 | $ | 4.67 | $ | 2.24 | $ | 3.35 | $ | 1.72 | $ | 4.08 | |||||||
Return on equity(d) | 22.0% | 7.9% | 23.7% | 1.7% | 10.3% | 4.9% | 0.4% | ||||||||||||||
Number of agents | 41,418 | 39,828 | 41,396 | 33,894 | 21,908 | 17,855 | 10,525 | ||||||||||||||
Life subsidiaries' statutory capital and surplus |
|
|
234,898 |
|
|
174,359 |
|
|
227,199 |
|
|
177,868 |
|
|
145,048 |
|
|
139,855 |
|
|
80,948 |
Life subsidiaries' statutory net gain (loss) from operations before income taxes and realized capital gains (losses) | 7,090 | 6,382 | 53,535 | (5,675 | ) | 9,190 | 30,498 | 10,072 | |||||||||||||
Life subsidiaries' statutory net income (loss)(b)(e) | 7,584 | 479 | 26,010 | (17,187 | ) | 10,420 | 17,837 | 4,804 |
6
An investment in our common stock involves a number of risks. You should carefully consider each of the risks described below, together with all of the other information contained in this prospectus, before deciding to invest in shares of our common stock. If any of the following risks develop into actual events, our business, financial condition and results of operations could be negatively affected, the market price of your shares could decline and you may lose all or part of your investment. These are not the only risks we face, but are the ones we believe may be material.
Risks Relating to Our Company
We face competition from companies that have greater financial resources, broader arrays of products, higher ratings and stronger financial performance, which may impair our ability to retain existing customers, attract new customers and maintain our profitability and financial strength.
We operate in a highly competitive industry. Many 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 index, fixed rate and variable annuities sold by other insurance companies and also with mutual fund products, traditional bank investments and other retirement funding alternatives offered by asset managers, banks and broker-dealers. Our insurance products compete with those of 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 commission structures. While we compete with numerous other companies, we view the following as our most significant competitors:
Our ability to compete depends in part on product pricing which is driven by our investment performance. We will not be able to accumulate and retain assets under management for our products if our investment results underperform the market or the competition, since such underperformance likely would result in asset withdrawals and reduced sales.
We compete for distribution sources for our products. We believe that our success in competing for distributors depends on factors such as our financial strength, the services we provide to, and the relationships we develop with, these distributors and offering competitive commission structures. Our distributors are generally free to sell products from whichever providers they wish, which makes it important for us to continually offer distributors products and services they find attractive. If our products or services fall short of distributors' needs, we may not be able to establish and maintain satisfactory relationships with distributors of our annuity and life insurance products. Our ability to compete in the past has also depended in part on our ability to develop innovative new products and bring them to market more quickly than our competitors. In order for us to compete in the future, we will need to continue to bring innovative products to market in a timely fashion. Otherwise, our revenues and profitability could suffer.
National banks, with pre-existing customer bases for financial services products, may increasingly compete with insurers, as a result of legislation removing restrictions on bank affiliations with insurers. This legislation, the Gramm-Leach-Bliley Act of 1999, permits mergers that combine
7
commercial banks, insurers and securities firms under one holding company. Until passage of the Gramm-Leach-Bliley Act, prior legislation had limited the ability of banks to engage in securities- related businesses and had restricted banks from being affiliated with insurance companies. The ability of banks to increase their securities-related business or to affiliate with insurance companies may materially and adversely affect sales of all of our products by substantially increasing the number and financial strength of our potential competitors.
A downgrade in our financial strength ratings may reduce new sales, adversely affect relationships with distributors, and increase policy surrenders and withdrawals.
Financial strength ratings are important factors in establishing the competitive position of life insurance and annuity companies. A ratings downgrade, or the potential for a ratings downgrade, could have a number of adverse effects on our business. For example, distributors and sales agents for life insurance and annuity products use the ratings as one factor in determining which insurer's annuities to market. A ratings downgrade could cause those distributors and agents to seek alternative carriers. In addition, a ratings downgrade could materially increase the number of policy or contract surrenders we experience.
Financial strength ratings generally involve quantitative and qualitative evaluations by rating agencies 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 agents, policyholders and intermediaries and are not directed toward the protection of investors and are not recommendations to buy, sell or hold securities.
American Equity Life has received financial strength ratings of "B++" (Very Good) with a negative outlook from A.M. Best Company and "BBB+" with a negative outlook from Standard & Poor's. A.M. Best has indicated that the negative outlook reflects the decline in risk-adjusted capitalization of our insurance operations due to the rapid growth of our core individual annuity operations. Standard & Poor's has indicated that the negative outlook reflects the risk on executing our short term initiative to improve our capitalization and our interest rate risk exposure. Standard & Poor's has also indicated that once these issues are resolved within the expected time frame, the outlook could be revised to stable. A.M. Best ratings currently range from "A++" (Superior) to "F" (In Liquidation), and include 16 separate ratings categories. Within these categories, "A++" (Superior) and "A+" (Superior) are the highest, followed by "A" (Excellent), "A-" (Excellent), B++ (Very Good) and B+ (Very Good). Publications of A.M. Best indicate that the "B++" rating is assigned to those companies that, in A.M. Best's opinion, have demonstrated a good ability to meet their ongoing obligations to policyholders. Standard & Poor's insurer financial strength ratings currently range from "AAA" to "NR", and include 21 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 strong financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are higher rated insurers.
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 adverse effect on the sales of our products and the persistency of our existing business.
In July 2002, A.M. Best Company and Standard & Poor's adjusted our financial strength ratings from "A-"(Excellent) to "B++"(Very Good) and "A-" to "BBB+", respectively. The adjustments initially had no impact on sales of new annuity products or on lapses of existing balances. Beginning in November 2002, our monthly sales volumes began to decline primarily as a result of
8
certain actions by us, including reductions in crediting rates and suspension of sales of one of our higher commission annuity products and our most popular multi-year rate guaranteed annuity product. The degree to which ratings adjustments also contributed to this decline is unknown. Our ability to grow sales of new annuities and the level of surrenders of our existing annuity contracts in force during 2003 may be affected by, among other things, the current ratings and our levels of statutory capital and surplus.
General economic conditions, including changing interest rates and market volatility, affect both the risks and the returns on both our products and our investment portfolio.
The market value of our investments and our investment performance, including yields and realization of gains or losses, may vary depending on economic and market conditions. Such conditions include the shape of the yield curve, the level of interest rates and recognized equity and bond indices, including, without limitation, the S&P 500 Index®, the Dow Jones Index SM and the NASDAQ-100 Index® (the "Indices"). Interest rate risk is our primary market risk exposure. Substantial and sustained increases and decreases in market interest rates can materially and adversely affect the profitability of our products, the market value of our investments and the reported value of stockholders' equity. Please read "Management's Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosures about Market Risk" for a further discussion of our interest rate risk exposure.
From time to time, for business or regulatory reasons, we may be required to sell certain of our investments at a time when their market value is less than the carrying value of these investments. Rising interest rates may cause declines in the value of our fixed maturity securities. With respect to our available for sale fixed maturity securities, such declines (net of income taxes and certain adjustments for assumed changes in amortization of deferred policy acquisition costs) reduce our reported stockholders' equity and book value per share. We have a portfolio of held for investment securities which consists principally of long duration bonds issued by U.S. government agencies, the value of which is also sensitive to interest rate changes.
We may also have difficulty selling our commercial mortgage loans because they are less liquid than our publicly traded securities. As of June 30, 2003, our commercial mortgage loans represented approximately 8% of the value of our invested assets. If we require significant amounts of cash on short notice, we may have difficulty selling these loans at attractive prices or in a timely manner, or both.
A key component of our net income is the investment spread. A narrowing of investment spreads may adversely affect operating results. Although we have the right to adjust interest crediting rates (referred to as "participation," "asset fee" or "cap" rates for index annuities) on most products, changes to crediting rates may not be sufficient to maintain targeted investment spreads in all economic and market environments. In general, our ability to lower crediting rates is subject to a minimum crediting rate filed with and approved by state regulators. In addition, competition and other factors, including the potential for increases in surrenders and withdrawals, may limit our ability to adjust or maintain crediting rates at levels necessary to avoid the narrowing of spreads under certain market conditions. Our policy structure generally provides for resetting of policy crediting rates at least annually and imposes withdrawal penalties for withdrawals during the first three to 16 years a policy is in force.
Our spreads may be compressed in declining interest rate environments. A substantial portion of our fixed income securities have call features and are subject to redemption currently or in the near future. We have reinvestment risk related to these redemptions to the extent we cannot reinvest the net proceeds in assets with credit quality and yield characteristics similar to or better than those of the redeemed bonds.
9
Managing the investment spread on our index annuities is more complex than it is for fixed rate annuity products. Index products are credited with a percentage (known as the "participation rate") of gains in the Indices. Some of our index products have an annual asset fee which is deducted from the amount credited to the policy. In addition, caps are set on some products to limit the maximum amount which may be credited on a particular product. To fund the earnings to be credited to the index products, we purchase options on the Indices. The price of such options increases with increases in the volatility in the Indices and interest rates, which may either narrow the spread or cause us to lower participation rates. Thus, the volatility of the Indices adds an additional degree of uncertainty to the profitability of the index products. We attempt to mitigate this risk by resetting participation rates and asset fees annually and adjusting the applicable caps.
Our investment portfolio is also subject to credit quality risks which may diminish the value of our invested assets and affect our sales, profitability and reported book value per share.
We are subject to the risk that the issuers of our fixed maturity securities and other debt securities (other than our U.S. agency securities), and borrowers on our commercial mortgages, will default on principal and interest payments, particularly if a major downturn in economic activity occurs. At June 30, 2003, 89% of our invested assets consisted of fixed maturity securities, of which 1% were below investment grade. At June 30, 2003, there were no delinquencies in our commercial mortgage loan portfolio. An increase in defaults on our fixed maturity securities and commercial mortgage loan portfolios could harm our financial strength and reduce our profitability.
We use derivative instruments to fund the annual credits on our index annuities. We purchase derivative instruments, consisting primarily of one-year call options, from a number of counterparties. Our policy is to acquire such options only from counterparties rated BBB+ or better by a nationally recognized rating agency. If, however, our counterparties fail to honor their obligations under the derivative instruments, we will have failed to provide for crediting to policyholders related to the appreciation in the applicable indices. Any such failure could harm our financial strength and reduce our profitability.
Our reinsurance program involves risks because we remain liable with respect to the liabilities ceded to reinsurers if the reinsurers fail to meet the obligations assumed by them.
Our life subsidiaries cede insurance to other insurance companies through reinsurance. In particular, effective August 1, 2001, American Equity Life entered into a coinsurance agreement with Equitrust Life Insurance Company, or Equitrust, an affiliate of Farm Bureau Life Insurance Company, or Farm Bureau, covering 70% of our non-multi year rate guarantee fixed annuities and index annuities issued from August 1, 2001 through December 31, 2001, and 40% of those contracts for 2002 and 2003. At June 30, 2003, the aggregate policy benefit reserve transferred to Equitrust was approximately $1.6 billion. Equitrust is rated "A" by A.M. Best Company. We remain liable with respect to the policy liabilities ceded to Equitrust should it fail to meet the obligations assumed by it. As of June 30, 2003, Farm Bureau beneficially owned 33% of our common stock.
In addition, we have entered into other types of reinsurance transactions including indemnity and financial reinsurance. Should any of these reinsurers fail to meet the obligations assumed under such reinsurance, we remain liable with respect to the liabilities ceded.
We may experience volatility in net income due to changes in standards for accounting for derivatives.
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards, or SFAS No. 133, which became effective for us on January 1, 2001. Under SFAS No. 133, as amended, all derivative instruments (including certain derivative instruments embedded in other contracts) are recognized in the balance sheet at their fair values and changes in fair value are
10
recognized immediately in earnings. This impacts the items of revenue and expense we report on our equity index business in three ways.
The application of SFAS No. 133 in future periods to the revenues and expenses related to our index annuity business may cause volatility in our reported net income.
If we do not manage our growth effectively, our financial performance could be adversely affected; our historical growth rates may not be indicative of our future growth.
We have experienced rapid growth since our formation in December 1995. Our annuity deposits have grown from approximately $141.9 million in 1997 to $2.4 billion before coinsurance ($1.6 billion net of coinsurance) in 2002. For the six months ended June 30, 2003, our deposits from sales of new annuities before coinsurance were $787.4 million ($492.4 million net of coinsurance). Our work force has grown from approximately 65 employees and 4,000 independent agents as of December 31, 1997 to approximately 200 employees and 41,000 independent agents as of June 30, 2003. We intend to continue to grow by recruiting new independent agents, increasing the productivity of our existing agents, expanding our insurance distribution network, making strategic acquisitions, developing new products, expanding into new product lines, becoming licensed in all 50 states and continuing to develop new incentives for our sales agents. Future growth will impose significant added responsibilities on our management, including the need to identify, recruit, maintain and integrate additional employees, including management. There can be no assurance that our systems, procedures and controls will be adequate to support our operations as they expand. In addition, due to our rapid
11
growth and resulting increased size, it may be necessary to expand the scope of our investing activities to asset classes in which we historically have not invested or have not had significant exposure. If we are unable to adequately manage our investments in these classes, our financial condition and operating results in the future could be less favorable than in the past. Further, we have utilized reinsurance to support our growth and the future availability of reinsurance is uncertain. Our failure to manage growth effectively, or our inability to recruit, maintain and integrate additional qualified employees and independent agents, could have a material adverse effect on our business, financial condition and results of operations. In addition, due to our rapid growth, our historical growth rates are not likely to accurately reflect our future growth rates or our growth potential. We cannot assure you that our future revenues will increase or that we will continue to be profitable.
We must retain and attract key employees or else we may not grow or be successful.
We are dependent upon our executive management for the operation and development of our business. Our executive management team includes:
Although we have change in control agreements with members of our executive management team, we do not have employment contracts with any of the members of our executive management team. Although none of our executive management team has indicated that they intend to terminate their employment with us, there can be no assurance that these employees will remain with us for any particular period of time. Also, we do not maintain "key person" life insurance for any of our personnel.
If we are unable to attract and retain national marketing organizations and independent agents, sales of our products may be reduced.
We distribute our annuity products through a variable cost distribution network which included approximately 70 national marketing organizations and 41,000 independent agents as of June 30, 2003. We must attract and retain such marketers and agents to sell our products. Insurance companies compete vigorously for productive agents. We compete with other life insurance companies for marketers and agents primarily on the basis of our financial position, support services, compensation and product features. Such marketers and agents may promote products offered by other life insurance companies that may offer a larger variety of products than we do. Our competitiveness for such marketers and agents also depends upon the long-term relationships we develop with them. If we are unable to attract and retain sufficient marketers and agents to sell our products, our ability to compete and our revenues would suffer.
We may require additional capital to support sustained future growth which may not be available when needed or may be available only on unfavorable terms.
Our long-term strategic capital requirements will depend on many factors including the accumulated statutory earnings of our life subsidiaries and the relationship between the statutory
12
capital and surplus of our life subsidiaries and (i) the rate of growth in sales of our products; and (ii) the levels of credit risk and/or interest rate risk in our invested assets. To support long-term capital requirements, we may need to increase or maintain the statutory capital and surplus of our life subsidiaries through additional financings, which could include debt, equity, financial reinsurance and/or other surplus relief transactions. Such financings, if available at all, may be available only on terms that are not favorable to us. In the case of additional equity offerings, dilution to our shareholders could result, and/or such securities may have rights, preferences and privileges that are senior to those of the common stock offered hereby. In the case of debt offerings or placements, the holders of the debt will have rights preferences and privileges that are senior to those of the common stock offered hereby. If we cannot maintain adequate capital, we may be required to limit growth in sales of new annuity products, and such action could adversely affect our business, financial condition and results of operations.
Changes in state and federal regulation may affect our profitability.
We are subject to regulation under applicable insurance statutes, including insurance holding company statutes, in the various states in which our life subsidiaries write insurance. Our life subsidiaries are domiciled in New York and Iowa. We are currently licensed to sell our products in 46 states and the District of Columbia.
Insurance regulation is intended to provide safeguards for policyholders rather than to protect shareholders of insurance companies or their holding companies. Regulators oversee matters relating to trade practices, policy forms, claims practices, guaranty funds, types and amounts of investments, reserve adequacy, insurer solvency, minimum amounts of capital and surplus, transactions with related parties, changes in control and payment of dividends.
State insurance regulators and the National Association of Insurance Commissioners, or NAIC, continually reexamine existing laws and regulations, and may impose changes in the future.
Our life subsidiaries are subject to the NAIC's risk-based capital requirements which 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. Our life subsidiaries also may be required, under solvency or guaranty laws of most states in which they do business, to pay assessments up to certain prescribed limits to fund policyholder losses or liabilities of insolvent insurance companies.
Although the federal government does not directly regulate the insurance business, 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. As increased scrutiny has been placed upon the insurance regulatory framework, a number of state legislatures have considered or enacted legislative proposals that alter, and in many cases increase, state authority to regulate insurance companies and holding company systems. In addition, legislation has been introduced in Congress which could result in the federal government assuming some role in the regulation of the insurance industry. The regulatory framework at the state and federal level applicable to our insurance products is evolving. The changing regulatory framework could affect the design of such products and our ability to sell certain products. Any changes in these laws and regulations could materially and adversely affect our business, financial condition and results of operations.
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 the legislation were enacted to eliminate the tax deferral for annuities, such a change would have a material adverse effect on our ability to sell non-qualified annuities.
13
Changes in federal income taxation laws, including recent reductions in individual income tax rates, may affect sales of our products and profitability.
The annuity products that we market generally offer tax advantages to the policyholders, as compared to other savings instruments such as certificates of deposit and taxable bonds. This tax preference is the deferral of income tax on the earnings during the accumulation period of the annuity as opposed to the current taxation of other savings instruments. From time to time, Congress has considered proposals to revise or eliminate this tax deferral. There is no such proposal currently pending in Congress, nor has the current Administration announced any consideration of such a proposal. Legislation eliminating the tax deferral for certain annuities would have a material adverse effect on our ability to sell non-qualified annuities. Non-qualified annuities are annuities that are sold to a policyholder other than an individual retirement account or other qualified retirement plan.
In June 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 (the "2001 Act") was signed into law. The 2001 Act contains provisions that will, over time, significantly lower individual income tax rates. The 2001 Act will have the effect of reducing the benefits of deferral on the build-up of value of annuities and life insurance products. Some of these changes might hinder sales of our annuities and result in the increased surrender of annuities. We cannot predict the overall effect on the sales or surrenders of our products of the tax law changes included in the 2001 Act.
In May 2003, the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the "2003 Act") was signed into law. The 2003 Act provisions accelerate the individual income tax rate reductions passed in the 2001 Act. The 2003 Act will have the effect of reducing the benefits of deferral on the build-up of value of annuities and life insurance products. In addition, the 2003 Act significantly reduced the individual income tax rate on corporate dividends which might cause investors to view annuities as somewhat less attractive when compared to investments in equity securities that pay dividends than they were prior to the 2003 Act. Therefore, these changes could have the result of reducing sales of our annuities.
We face risks relating to litigation, including the costs of such litigation, management distraction and the potential for damage awards, which may adversely impact our business.
We are occasionally involved in litigation, both as a defendant and as a plaintiff. In addition, state regulatory bodies, such as state insurance departments, the SEC, the National Association of Securities Dealers, Inc., the Department of Labor, and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, the Employee Retirement Income Security Act of 1974, as amended, and laws governing the activities of broker-dealers. Companies in the life insurance and annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. We are currently a defendant in two purported class action lawsuits filed in state courts alleging improper sales practices. In both lawsuits, the plaintiffs are seeking returns of premiums and other compensatory and punitive damages. In neither case has the class been certified at this time. Although we have denied all allegations in these lawsuits and intend to vigorously defend against them, the lawsuits are in the early stages of litigation and their outcomes cannot at this time be determined. There can be no assurance that such litigation, or any future litigation, will not have a material adverse effect, whether financially, through distraction of our management or otherwise, on our business, financial condition and results of operations.
Risks Relating to This Offering
An active trading market may not develop for our common stock.
You may find it difficult to sell your shares of common stock because an active trading market for our common stock may not develop. There is no existing trading market for our common stock, and there can be no assurance regarding the future development of a market for our common stock, or the ability of the holders of our common stock to sell their shares of common stock or the price at which such holders may be able to sell their shares of common stock. If such a market were to develop, our
14
common stock could trade at prices that may be higher or lower than the initial offering price of our common stock depending on many factors, including the number of holders of our common stock, our future operating results and financial condition, the interest of securities dealers in making a market in our common stock, the market for similar securities and general economic and market conditions. We cannot predict the effects these factors will have on future trading prices of our common stock offered pursuant to this prospectus.
We will apply to list our common stock on the New York Stock Exchange under the symbol "AEL." We do not know the extent to which investor interest will lead to the development of a trading market or how liquid that market might be. Although the underwriters have informed us that they intend to make a market in our common stock, they are not obligated to do so, and any market-making may be discontinued at any time without notice. Therefore, there can be no assurance as to the liquidity of any trading market for our common stock or that an active market for our common stock will develop or, if developed, that it will continue. As a result, the market price of our common stock, as well as your ability to sell our common stock, could be adversely affected.
The value of your investment may be subject to sudden decreases due to the potential volatility of the price for our common stock.
The market price of our common stock may be highly volatile and subject to wide fluctuations in response to numerous factors, including the following:
In addition, the stock markets from time to time experience extreme price and volume fluctuations that may be unrelated or disproportionate to the operating performance of companies. These broad fluctuations may adversely affect the trading price of our common stock, regardless of our actual operating performance.
In the past, some shareholders have brought securities class action lawsuits against companies following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and divert management's attention and resources.
Possible future sales of our common stock by our officers and others could cause the market price of our common stock to decrease and make equity capital raising more difficult.
Sales of significant amounts of our common stock after this offering or the perception that such sales will occur could adversely affect the market price of our common stock or our future ability to raise capital through an offering of equity securities. After this offering, we will have outstanding shares of common stock. All of the shares of common stock to be sold in this offering will be freely tradable without restriction or further registration under the federal securities laws unless purchased by our "affiliates" within the meaning of Rule 144 under the Securities Act. The remaining shares of outstanding common stock upon completion of this offering, will be "restricted securities" under the Securities Act, subject to restrictions on the timing, manner and volume of sales of those shares.
15
All of our directors and officers and certain shareholders, including Farm Bureau and the NMO Deferred Compensation Trust, holding an aggregate of % of our outstanding common stock prior to this offering have entered into 180-day lock-up agreements as described in "Shares Eligible for Future Sale" and "Underwriting". Each of the remaining shareholders that have entered into these lock-up agreements held less than 3% of our outstanding common stock prior to this offering. Subject to these lock-up agreements, holders of up to shares of common stock will have the right to request the registration of their shares under the Securities Act. Upon the effectiveness of that registration, all shares covered by that registration statement will be freely transferable. Following the closing of this offering, we also intend to file a registration statement on Form S-8 under the Securities Act covering approximately shares of common stock reserved for issuance under the . Accordingly, subject to applicable vesting requirements and exercise with respect to options, shares registered under that registration statement will be available for sale in the open market immediately after the 180-day lock-up agreements expire. For a more detailed description of additional shares that may be sold in the future, please refer to "Shares Eligible for Future Sale" on page 79 and "Underwriting" on page 83.
Our ability to meet our payment obligations is dependent upon distributions from our subsidiaries, but our subsidiaries' ability to make distributions is limited by law and several contractual agreements.
We are a holding company and, by virtue of our holding company structure, our common stock in effect will be junior in right of payment to all existing and future liabilities of our life subsidiaries. Our principal assets are the shares of the capital stock and surplus notes of our life subsidiaries and a note receivable from American Equity Investment Service Company, or the Service Company. As a holding company without independent means of generating operating revenues, we depend on dividends, interest on surplus notes, investment advisory fees and other payments from our life subsidiaries to fund our obligations and meet our cash needs. We also receive principal and interest payments on our note receivable from the Service Company. For a more detailed description of our note receivable from the Service Company, please refer to "Management's Discussion and Analysis of Financial Condition and Results of OperationsLiquidity of Parent Company" on page 42.
The transfer of funds by American Equity Life is restricted by certain covenants in our loan agreement which, among other things, require American Equity Life to maintain statutory capital and surplus (including the asset valuation and interest maintenance reserves) of $140 million plus 25% of statutory net income and 75% of the capital contributions to American Equity Life for periods subsequent to December 31, 1999. Under the most restrictive of these limitations, $25.9 million of our earned surplus at June 30, 2003 and December 31, 2002 was available for distribution by American Equity Life to the parent company in the form of dividends or other distributions. As disclosed in the unaudited and audited consolidated financial statements included elsewhere in this prospectus, our loan agreement has been amended from time to time to maintain our continuing compliance with these and other restrictive covenants.
The payment of dividends or distributions, including surplus note payments, by our life subsidiaries is subject to regulation by each such subsidiary's state of domicile's insurance department. Currently, our life subsidiaries may pay dividends or make other distributions without the prior approval of their state of domicile's insurance department, unless such payments, together with all other such payments within the preceding twelve months, exceed, in Iowa, the greater of, and in New York, the lesser of (1) the life subsidiary's net gain from operations for the preceding calendar year, or (2) 10% of the life subsidiary's statutory surplus at the preceding December 31. For 2003, up to approximately $25.9 million can be distributed as dividends or surplus note payments by American Equity Life without prior approval of the Iowa insurance department. 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 in the life subsidiary's state of domicile. American
16
Equity Life had approximately $55.1 million and $47.4 million of earned surplus at June 30, 2003 and December 31, 2002, respectively.
In addition, our life subsidiaries are subject to the NAIC's risk-based capital, or RBC, requirement set forth in the Risk-Based Capital for Insurers Model Act, or the Model Act. The main purpose of the Model Act is to provide a tool for insurance regulators to evaluate the capital of insurers relative to the risks assumed by them and determine whether there is a need for possible corrective action. U.S. insurers and reinsurers are required to report the results of their RBC calculations as part of the statutory annual statements filed with state insurance regulatory authorities.
The Model Act provides for four different levels of regulatory actions based on annual statements, each of which may be triggered if an insurer's total adjusted capital, as defined in the Model Act, is less than a corresponding RBC.
As of June 30, 2003, the total adjusted capital of our life subsidiaries exceeded the company action level.
Although we believe our current sources of funds provide adequate cash flow to us to meet our current and reasonably forseeable future obligations, there can be no assurance that we will continue to have access to these sources in the future.
Anti-takeover provisions affecting us could prevent our shareholders from obtaining a change of control premium for their shares of our common stock and could impede an attempt to replace or remove our board of directors or management.
Our articles of incorporation, as amended, our amended and restated bylaws and Iowa law contain anti-takeover provisions that could have the effect of delaying or preventing changes in control that a shareholder may consider favorable. The provisions in our charter documents include the following:
17
The foregoing provisions could have the effect of entrenching our board of directors or management, or delaying, deferring or preventing a change in control of our company; discourage bids for our common stock at a premium over the market price; or adversely affect the market price of, and the voting and other rights of the holders of, our common stock. We are subject to certain Iowa laws that could have similar effects. One of these laws, Section 490.1110 of the Iowa Business Corporation Act, prohibits us from engaging in a business combination with any interested shareholder for a period of three years from the date the person became an interested shareholder unless certain conditions are met.
You will incur immediate and substantial dilution in net tangible book value.
We expect that the initial public offering price of our common stock will be substantially higher than the net tangible book value of each outstanding share of common stock. If you purchase common stock in this offering, you will suffer immediate and substantial dilution. The dilution will be $ per share in the net tangible book value of the common stock from the initial public offering price. This means that investors who purchase shares in this offering will:
For a more detailed discussion of dilution, please refer to "Dilution" on page 22.
After the offering, our executive officers, directors, and parties related to them, in the aggregate, will control % of our voting stock and may have the ability to control matters requiring shareholder approval.
Our executive officers, directors and parties related to them own a large enough stake in us to have an influence on the matters presented to shareholders. As a result, these shareholders may have the ability to control matters requiring shareholder approval, including the election and removal of directors, the approval of significant corporate transactions, such as any merger, consolidation or sale of all or substantially all of our assets, and the control of our management and affairs. Accordingly, this concentration of ownership may have the effect of delaying, deferring or preventing a change in control of us, impede a merger, consolidation, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could have an adverse effect on the market price of our common stock.
Our management will have broad discretion in allocating proceeds from this offering.
The net proceeds to us from this offering, after deducting underwriting commissions and expenses payable by us, are estimated to be approximately $ million. The primary purpose of this offering is to increase the capital and surplus of our life subsidiaries to support future growth of our business. Our management will retain broad discretion as to the allocation of the proceeds of this offering. The failure of management to apply these funds effectively could negatively impact our business and prospects. See "Use of Proceeds."
18
All statements, trend analyses and other information contained in this prospectus 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. We caution that these statements may and often do vary from actual results and the differences between these statements and actual results can be material. Accordingly, we cannot assure you that actual results will not differ materially from those expressed or implied by the forward-looking statements. Factors that could contribute to these differences include, among other things:
You should not place undue reliance on any forward-looking statements. These statements speak only as of the date of this prospectus. Except as otherwise required by applicable laws, we undertake no obligation to publicly update or revise any forward-looking statements or the risk factors described in this prospectus, whether as a result of new information, future events, changed circumstances or any other reason after the date of this prospectus.
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.
We estimate that we will receive net proceeds of approximately $ million from the sale of shares of our common stock in this offering, after deducting underwriting discounts and commissions and estimated offering expenses. If the underwriters' over-allotment option is exercised in full, we estimate that our net proceeds will be aproximately $ million.
We expect to contribute substantially all of the proceeds directly or indirectly to the capital and surplus of our life subsidiaries.
In 2002 and 2001, we paid a cash dividend of $0.01 per share on our common stock and $0.03 on our series 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
19
most of our future earnings, if any, for use in our operations and the expansion of our business. 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.
Our credit agreement contains a restrictive covenant which limits our ability to declare or pay dividends in any fiscal year to 25% of our consolidated net income for the prior year. 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.
The transfer of funds by American Equity Life is restricted by certain covenants in our loan agreement which, among other things, require American Equity Life to maintain statutory capital and surplus (including the asset valuation and interest maintenance reserves) of $140 million plus 25% of statutory net income and 75% of the capital contributions to American Equity Life for periods subsequent to December 31, 1999. Under the most restrictive of these limitations, $25.9 million of our earned surplus at June 30, 2003 and December 31, 2002 was available for distribution by American Equity Life to the parent company in the form of dividends or other distributions. As disclosed in the unaudited and audited consolidated financial statements included elsewhere in this prospectus, our loan agreement has been amended from time to time to maintain our continuing compliance with these and other restrictive covenants.
The payment of dividends or distributions, including surplus note payments, by our life subsidiaries is subject to regulation by each such subsidiary's state of domicile's insurance department. Currently, our life subsidiaries may pay dividends or make other distributions without the prior approval of their state of domicile's insurance department, unless such payments, together with all other such payments within the preceding twelve months, exceed, in Iowa, the greater of, and in New York, the lesser of (1) the life subsidiary's net gain from operations for the preceding calendar year, or (2) 10% of the life subsidiary's statutory surplus at the preceding December 31. For 2003, up to approximately $25.9 million can be distributed as dividends or surplus note payments by American Equity Life without prior approval of the Iowa insurance department. 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 in the life subsidiary's state of domicile. American Equity Life had approximately $55.1 million and $47.4 million of earned surplus at June 30, 2003 and December 31, 2002, respectively.
20
The following table sets forth our capitalization as of June 30, 2003 and as adjusted to reflect our receipt of the estimated net proceeds of $ million from this offering, the application of the proceeds therefrom and the conversion of company-obligated convertible mandatorily redeemable preferred securities of our subsidiary trust, which we refer to as the 8% trust preferred securities, net of deferred issuance costs of $1.6 million and our series preferred stock into shares of common stock. The table set forth below should be read in conjunction with our consolidated financial statements, related notes and other financial information included elsewhere in this prospectus.
The table above excludes (i) 2,157,375 shares of common stock issuable upon the exercise of outstanding management subscription rights and (ii) 4,303,760 shares reserved for future issuances under our stock option plans and other stock option agreements including shares of common stock issuable upon the exercise of outstanding options. See "ManagementExecutive Compensation". The table above also excludes 2,084,728 shares reserved for issuance under the NMO Deferred Compensation Plan as described in note 10 to our audited consolidated financial statements and 310,723 shares reserved for issuance under deferred compensation agreements with certain employees and consultants.
Ratio of debt to total capitalization | 15.4 | % | ||
Ratio of debt and minority interests to total capitalization | 59.0 | % |
21
Purchasers of our common stock in this offering will suffer an immediate and substantial dilution in net tangible book value per share. Dilution is the amount by which the offering price paid by the purchasers of our common stock to be sold in this offering exceeds the net tangible book value per share of our common stock after the offering. Net tangible book value per share is determined by subtracting our total liabilities from the total book value of our tangible assets and dividing the difference by the number of shares of our common stock deemed to be outstanding on the date the book value is determined.
Our net tangible book value as of June 30, 2003 was approximately $84.1 million, or $5.87 per share of common stock taking into effect the liquidation preference of our series preferred stock. After giving effect to this offering, and after deducting estimated underwriting discounts and commissions and estimated offering expenses and after giving effect to the application of the estimated net proceeds, our net tangible book value as of June 30, 2003, would have been $ million or $ per share. This represents an immediate increase in net tangible book value of $ per share to the existing shareholders and an immediate dilution of $ per share to new investors purchasing shares in this offering. The following table illustrates this per share dilution:
Assumed initial public offering price per share | $ | ||||||
Net tangible book value per share before this offering | $ | 5.87 | |||||
Pro forma increase in net tangible book value per share attributable to new investors | $ | ||||||
|
|||||||
Pro forma net tangible book value per share after this offering | $ | ||||||
|
|||||||
Dilution per share to new investors | $ | ||||||
|
The following table summarizes, as of June 30, 2003, the differences between existing shareholders and the new investors with respect to the number of shares of common stock purchased from us, the total consideration paid and the average price per share paid before deducting estimated underwriting discounts, commissions and other expenses payable by us.
|
Shares Purchased
|
Total Consideration
|
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
Average Price
Per Share |
||||||||||
|
Number
|
Percent
|
Amount
|
Percent
|
|||||||
Existing shareholders | |||||||||||
New investors | |||||||||||
|
|
|
|
||||||||
Total | 100 | % | 100 | % | |||||||
|
|
|
|
The table and calculations above for existing shareholders include shares of common stock issuable upon the conversion of the 8% trust preferred securities and our series preferred stock. The tables and calculations above exclude (i) 2,157,375 shares of common stock issuable upon the exercise of outstanding management subscription rights, with an exercise price of $5.33 per share, (ii) 3,043,760 shares reserved for future issuances under our stock option plans, including 1,369,302 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $6.57 per share, (iii) 1,260,000 shares of common stock issuable upon the exercise of outstanding options under other stock option agreements with a weighted average exercise price of $4.63 per share, (iv) 2,084,728 shares reserved for issuance under the NMO Deferred Compensation Plan as described in note 10 to our audited consolidated financial statements and (v) 310,723 shares of common stock reserved for issuance under deferred compensation agreements with certain employees and consultants. To the extent that these options are exercised or these shares are issued under the NMO Deferred Compensation Plan, there will be further dilution to new investors. See "ManagementExecutive Compensation."
22
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in thousands except per share data)
The following table sets forth our selected consolidated financial and other data. The selected consolidated statements of income and balance sheet data as of and for each of the five years in the period ended December 31, 2002 are derived from our audited consolidated financial statements and related notes, with 2002, 2001 and 2000 included elsewhere in this prospectus and 1999 and 1998 not included in this prospectus. The selected consolidated statements of income and balance sheet data as of June 30, 2003 and for the six months ended June 30, 2003 and 2002 are derived from our unaudited interim consolidated financial statements included in this prospectus. The adjusted balance sheet data as of June 30, 2003 reflects our receipt of the estimated net proceeds of $ million from this offering and the application of the proceeds therefrom. In the opinion of our management, all unaudited interim consolidated financial information presented in the table below reflects all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of our consolidated financial position and results of operations for such periods. The results of operations for the six months ended June 30, 2003 are not necessarily indicative of the results to be expected for the full year.
The summary consolidated financial and other data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes included in this prospectus. The results for past periods are not necessarily indicative of results that may be expected for future periods.
23
Per Share Data: | |||||||||||||||||||||||
Earnings per common share: | |||||||||||||||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.67 | $ | 0.46 | $ | 0.87 | $ | 0.10 | $ | 0.29 | $ | 0.15 | $ | 0.02 | |||||||||
Cumulative effect of change in accounting for derivatives(a) | | | | (0.05 | ) | | | | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per common share | $ | 0.67 | $ | 0.46 | $ | 0.87 | $ | 0.05 | $ | 0.29 | $ | 0.15 | $ | 0.02 | |||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per common shareassuming dilution: | |||||||||||||||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.57 | $ | 0.39 | $ | 0.76 | $ | 0.09 | $ | 0.26 | $ | 0.14 | $ | 0.02 | |||||||||
Cumulative effect of change in accounting for derivatives(a) | | | | (0.04 | ) | | | | |||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Earnings per common shareassuming dilution | $ | 0.57 | $ | 0.39 | $ | 0.76 | $ | 0.05 | $ | 0.26 | $ | 0.14 | $ | 0.02 | |||||||||
|
|
|
|
|
|
|
|||||||||||||||||
Dividends declared per common share | $ | | $ | | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | 0.01 | $ | |
|
|
At June 30, 2003 |
|
At December 31, |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Actual
|
As Adjusted
|
2002
|
2001
|
2000
|
1999
|
1998
|
||||||||||||||
Consolidated Balance Sheet Data: | |||||||||||||||||||||
Total assets | $ | 6,332,943 | $ | $ | 6,042,266 | $ | 4,392,445 | $ | 2,528,126 | $ | 1,717,619 | $ | 708,110 | ||||||||
Policy benefit reserves | 5,867,125 | 5,867,125 | 5,452,365 | 3,993,945 | 2,099,915 | 1,358,876 | 541,082 | ||||||||||||||
Notes payable | 35,667 | 43,333 | 46,667 | 44,000 | 20,600 | 10,000 | |||||||||||||||
Amounts due to related party under General Agency Commission and Servicing Agreement | 30,977 | 30,977 | 40,345 | 46,607 | 76,028 | 62,119 | 27,536 | ||||||||||||||
Company-obligated mandatorily redeemable preferred securities issued by subsidiary trusts | 100,747 | 74,837 | 100,486 | 100,155 | 99,503 | 98,982 | | ||||||||||||||
Total stockholders' equity |
|
|
94,718 |
|
|
|
|
|
77,478 |
|
|
42,567 |
|
|
58,652 |
|
|
34,324 |
|
|
66,131 |
|
At and for the
Six Months Ended June 30, |
At and for the Year Ended December 31,
|
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
2003 |
|
2002 |
|
2002 |
|
2001 |
|
2000 |
|
1999 |
|
1998 |
|||||||
Other Data: | |||||||||||||||||||||
Book value per share(c) | $ | 5.91 | $ | 3.78 | $ | 4.67 | $ | 2.24 | $ | 3.35 | $ | 1.72 | $ | 4.08 | |||||||
Return on equity(d) | 22.0% | 7.9% | 23.7% | 1.7% | 10.3% | 4.9% | 0.4% | ||||||||||||||
Number of agents | 41,418 | 39,828 | 41,396 | 33,894 | 21,908 | 17,855 | 10,525 | ||||||||||||||
Life subsidiaries' statutory capital and surplus |
|
|
234,898 |
|
|
174,359 |
|
|
227,199 |
|
|
177,868 |
|
|
145,048 |
|
|
139,855 |
|
|
80,948 |
Life subsidiaries' statutory net gain (loss) from operations before income taxes and realized capital gains (losses) | 7,090 | 6,382 | 53,535 | (5,675 | ) | 9,190 | 30,498 | 10,072 | |||||||||||||
Life subsidiaries' statutory net income (loss)(b)(e) | 7,584 | 479 | 26,010 | (17,187 | ) | 10,420 | 17,837 | 4,804 |
24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and accompanying notes included in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under the caption "Risk Factors".
Overview
We commenced business on January 1, 1996, shortly after our formation and incorporation. As a foundation for beginning our business, we acquired two existing blocks of 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 existing 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 46 states and the District of Columbia. On June 5, 2001, we formed a New York domiciled insurance company named American Equity Investment Life Insurance Company of New York.
We specialize in the sale of individual annuities (primarily deferred annuities) and, to a lesser extent, we also sell life insurance policies. Under accounting principles generally accepted in the United States, or GAAP, premium collections for deferred annuities are reported as deposit liabilities instead of as revenues. Sources of revenues for products accounted for as deposit liabilities are net investment income, surrender charges deducted from the account balances of policyholders in connection with withdrawals, realized gains and losses on investments and changes in fair value of derivatives. Components of expenses for products accounted for as deposit liabilities are interest credited to account balances, changes in fair value of embedded derivatives, amortization of deferred policy acquisition costs, other operating costs and expenses and income taxes.
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". In the case of index annuities, the investment spread consists of net investment income in excess of the cost of the options purchased to fund the index-based component of the policyholder's return and amounts credited as a result of minimum guarantees.
Our investment spread is summarized as follows:
The weighted average crediting rate and investment spread are computed without the impact of first year bonuses paid to policyholders. Generally such bonuses are offset by a reduction in the commissions paid to agents on such products and deferred as policy acquisition costs. The weighted average crediting rate and investment spread for fixed rate annuity liabilities include the impact of higher crediting rates on multi-year rate guaranteed policies for which the targeted investment spread is lower than the targeted investment spread for annually adjustable fixed rate annuity liabilities. With
25
respect to our index annuities, index costs represent the expenses we incur to fund the annual index credits through the purchase of options and minimum guaranteed interest credited on the index business. Gains realized on such options are recorded as part of the change in fair value of derivatives, and are largely offset by an expense for interest credited to annuity policyholder account balances.
Our profitability depends in large part upon the amount of assets under our management, investment spreads we earn on our policyholders' account balances, our ability to manage our investment portfolio to maximize returns and minimize risks such as interest rate charges, defaults or impairment of assets, our ability to manage costs of the options purchased to fund the interest credits on our index annuities, our ability to manage the costs of acquiring new business (principally commissions to agents) and our ability to manage our operating expenses.
Critical Accounting Policies
The increasing complexity of the business environment and applicable authoritative accounting guidance require us to closely monitor our accounting policies. We have identified four critical accounting policies that are complex and require significant judgment. The following summary of our critical accounting policies is intended to enhance your ability to assess our financial condition and results of operations and the potential volatility due to changes in estimates.
Valuation of Investments
Our fixed maturity securities (bonds and redeemable preferred stocks maturing more than one year after issuance) and equity securities (common and non-redeemable preferred stocks) classified as available for sale are reported at estimated fair value. Unrealized gains and losses, if any, on these securities are included directly in a separate component of shareholders' equity, net of income taxes and certain adjustments for assumed changes in amortization of deferred policy acquisition costs. Fair values for securities that are actively traded are determined using quoted market prices. For fixed maturity securities that are not actively traded, fair values are estimated using price matrices developed using yield data and other factors relating to instruments or securities with similar characteristics. The carrying amounts of all our investments are reviewed on an ongoing basis for credit deterioration. If this review indicates a decline in market value that is other than temporary, our carrying amount in the investment is reduced to its fair value and a specific writedown is taken. Such reductions in carrying amount are recognized as realized losses and charged to income.
Our periodic assessment of our ability to recover the amortized cost basis of investments that have materially lower quoted market prices requires a high degree of management judgment and involves uncertainty. Factors considered in evaluating whether a decline in value is other than temporary include:
26
In addition, for securities expected to be sold, an other than temporary impairment charge is recognized if we do not expect the fair value of a security to recover to cost or amortized cost prior to the expected date of sale. Once an impairment charge has been recorded, we then continue to review the other than temporarily impaired securities for appropriate valuation on an ongoing basis. Realized losses through a charge to earnings may be recognized in future periods should we later conclude that the decline in market value below amortized cost is other than temporary pursuant to our accounting policy described above.
At June 30, 2003, December 31, 2002 and December 31, 2001 the amortized cost and estimated fair value of fixed maturity securities and equity securities that were in an unrealized loss position were as follows:
The amortized cost and estimated fair value of fixed maturity securities at June 30, 2003, December 31, 2002 and December 31, 2001 by contractual maturity, that were in an unrealized loss position 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 our
27
mortgage-backed and asset-backed securities provide for periodic payments throughout their lives, and are shown below as a separate line.
Approximately 76%, 80% and 69% of our total invested assets at June 30, 2003, December 31, 2002 and December 31, 2001, respectively, were in United States Government agency fixed maturity securities including government guaranteed mortgage-backed securities. Corporate securities represented approximately 6%, 8% and 15% at June 30, 2003, December 31, 2002 and December 31, 2001, respectively, of our total invested assets. There are no other significant concentrations in our portfolio by type of security or by industry.
28
At June 30, 2003, December 31, 2002 and December 31, 2001, the fair value of investments we owned that were non-investment grade or not rated were $58.1 million, $51.9 million and $52.5 million, respectively. The unrealized losses on investments we owned that were non-investment grade or not rated at June 30, 2003, December 31, 2002 and December 31, 2001, were $15.5 million, $19.8 million and $7.2 million, respectively.
At June 30, 2003, December 31, 2002 and December 31, 2001, we identified certain invested assets which have characteristics (i.e., significant unrealized losses compared to book value and industry trends) creating uncertainty as to our future assessment of other than temporary impairments which are listed below by length of time these invested assets have been in an unrealized loss position. We have excluded from this list securities with unrealized losses which are related to market movements in interest rates.
We have reviewed these investments and concluded that there was no other than temporary impairment on these investments at June 30, 2003, December 31, 2002 and December 31, 2001. We took writedowns on certain other investments that we concluded did have other than temporary impairments during the first six months of 2003 and during 2002 and 2001 of $2.9 million, $13.0 million and $7.8 million, respectively.
29
Derivative InstrumentsIndex Products
We offer a variety of index annuities with crediting strategies linked to several equity market indices, including the S&P 500, the Dow Jones Industrial Average and the NASDAQ 100. Several of these products also offer a bond strategy linked to the Lehman Aggregate Bond Index or the Lehman U.S. Treasury Bond Index. These products allow policyholders to earn returns linked to equity or bond index appreciation without the risk of loss of their principal. Most of these products allow policyholders to transfer funds once a year among several different crediting strategies, including one or more of the index based strategies, a traditional fixed rate strategy and a multi-year rate guaranteed strategy. Substantially all of our index products require annual crediting of interest and an annual reset of the applicable index on the contract anniversary date. The computation of the annual index credit is based upon either a one year point-to-point calculation (i.e., the gain in the applicable index from the beginning of the applicable contract year to the next anniversary date) or a monthly averaging of the index during the contract year.
The annuity contract value is equal to the premiums paid plus annual index credits based upon a percentage, known as the "participation rate," of the annual appreciation (based in some instances on monthly averages) in a recognized index or benchmark. The participation rate, which we may reset annually, generally varies among the index products from 50% to 100%. Some of the products have an "asset fee" ranging 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 limits. In addition, some products apply an overall limit, or "cap," ranging from 7% to 13%, 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 range from 80% to 100% of the premium collected plus interest credited on the minimum guaranteed contract value at an annual rate of 3%.
We purchase one-year call options on the applicable indices as an investment to provide the income needed to fund the amount of the annual index credits on the index products. New one-year options are purchased at the outset of each contract year. We budget a specific amount to the purchase price of the specific options needed to fund the annual credits, and the cost of the options represents our cost of providing the credits. The amount we budget to the purchase of index call options is based on our interest spread targets and is comparable to the credited rates of interest we offer on fixed rate annuities. For example, if the yield on our invested assets is 6.50% and our targeted spread is 2.50%, we allocate up to 4.00% of the premium in the first year or account balance after the first year to the purchase of one-year call options on the index products. Participation rates, which define the policyholder's level of participation in index gains each year, are determined by option costs. For example, if, based on current market conditions, the amount allocated to the purchase of options is sufficient to purchase an option that will provide a return equal to 70% of the annual gain in the applicable index, we will set the policyholder's participation rate at 70%. We have the ability to modify participation rates each year when a new option is purchased. In general, if option costs increase, participation rates may be decreased, and if option costs decrease, participation rates may be increased. We purchase call options weekly based upon new and renewing index account values during the applicable week, and the purchases are made by category according to the particular products and indices applicable to the new or renewing account values. Any gains on the options at the expiration of the one-year term offset the related interest credits to the index option holders. If there is no gain in an option, the policyholder receives a zero index credit on the policies, and we incur no costs beyond the option cost, except in cases where the minimum guaranteed value of a contract exceeds its index value.
Our primary risk associated with the current options we hold is limited to the cost of such options. Market value changes associated with those investments are reported as an increase or decrease in revenues in our consolidated statements of income in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The risk associated with prospective
30
purchases of future one-year options is the uncertainty of the cost, which will determine whether we are able to earn our spread on our index business. All our index products permit us to modify participation rates, asset fees or annual income caps at least once a year. This feature is comparable to our fixed rate annuities which allow us to adjust crediting rates annually. By modifying our participation rates or other features, we can limit our costs of purchasing the related one-year call options, except in cases where contractual features would prevent further modifications. Based upon actuarial testing which we conduct as a part of the design of our index products and on an ongoing basis, we believe the risk that contractual features would prevent us from controlling option costs is not material.
After the purchase of the one-year call options and payment of acquisition costs, we invest the balance of index premiums as a part of our general account invested assets. With respect to the index products, our spread is measured as the difference between the aggregate yield on the relevant portion of our invested assets, less the aggregate option costs and the costs associated with minimum guarantees. If the minimum guaranteed value of an index product exceeds the index value (computed on a cumulative basis over the life of the contract) then the general account earnings are available to satisfy the minimum guarantees. If there were little or no gains in the entire series of one-year options purchased over the expected life of an index annuity (typically 10 to 15 years), then we would incur expenses for credited interest over and above our option costs, causing our spread to tighten and reducing our profits or potentially resulting in losses on these products.
The Financial Accounting Standards Board issued, then subsequently amended, SFAS No. 133 which became effective for us on January 1, 2001. Under SFAS No. 133, as amended, all derivative instruments (including certain derivative instruments embedded in other contracts) are recognized in the balance sheet at their fair values and changes in fair value are recognized immediately in earnings. This impacts the items of revenue and expense we report on our index business in three ways:
31
The amounts reported with respect to our index business for SFAS No. 133 are summarized as follows:
|
Six Months Ended
June 30, |
Year Ended
December 31, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2003
|
2002
|
2002
|
2001
|
||||||||||
|
(Dollars in thousands)
|
|||||||||||||
Change in fair value of derivatives: | ||||||||||||||
Gains received at expiration or recognized upon early termination | $ | 14,097 | $ | 4,626 | $ | 9,735 | $ | 3,085 | ||||||
Cost of money for index annuities | (34,448 | ) | (33,428 | ) | (68,861 | ) | (71,797 | ) | ||||||
Change in difference between fair value and remaining option cost at beginning and end of period | 39,442 | (15,184 | ) | 1,373 | 13,554 | |||||||||
|
|
|
|
|||||||||||
$ | 19,091 | $ | (43,986 | ) | $ | (57,753 | ) | $ | (55,158 | ) | ||||
|
|
|
|
|||||||||||
Change in fair value of embedded derivatives |
|
$ |
41,234 |
|
$ |
(17,411 |
) |
$ |
(5,027 |
) |
$ |
12,921 |
|
|
Related increase (decrease) in amortization of deferred policy acquisition costs |
|
$ |
(198 |
) |
$ |
636 |
|
$ |
1,447 |
|
$ |
846 |
|
Deferred Policy Acquisition Costs
Commissions and certain other costs relating to the production of new business are not expensed when incurred but instead are capitalized as deferred policy acquisition costs. These costs for annuities are amortized into expense with the emergence of gross profits. Only costs which are expected to be recovered from future policy revenues and gross profits may be deferred. These costs consist principally of commissions, first-year bonus interest and certain costs of policy issuance. Deferred policy acquisition costs totaled $618.3 million, $595.5 million and $492.8 million at June 30, 2003, December 31, 2002 and December 31, 2001, respectively. For annuity and single premium universal life products, these costs are being amortized generally in proportion to expected gross profits from investments, and, to a lesser extent, from surrender charges and mortality and expense margins. Current period amortization must be adjusted retrospectively if changes occur in estimates of future gross profits/margins (including the impact of realized investment gains and losses). Our estimates of future gross profits/margins are based on actuarial assumptions related to the underlying policies terms, lives of the policies, yield on investments supporting the liabilities and level of expenses necessary to maintain the polices over their entire lives.
Deferred Income Tax Assets
As of June 30, 2003, December 31, 2002 and December 31, 2001, we had $40.3 million, $50.7 million and $51.2 million, respectively, of net deferred income tax assets related principally to book-to-tax temporary differences in the recording of policy benefit reserves. The realization of these assets is based upon estimates of future taxable income, which requires management judgment. Based upon future projections of sufficient taxable income of our life subsidiaries, and the adoption of plans and policies related to our net (non-life) operating loss carryforwards, we have not recorded a valuation allowance against these assets.
32
Interim Results of Operations
Annuity deposits (before and net of coinsurance) collected during the six months ended June 30, 2003 and 2002, by product type, were as follows:
|
Before coinsurance
Six months ended June 30, |
Net of coinsurance
Six months ended June 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Product Type
|
|||||||||||||
2003
|
2002
|
2003
|
2002
|
||||||||||
|
(Dollars in thousands)
|
(Dollars in thousands)
|
|||||||||||
Index Annuities: | |||||||||||||
Index Strategies | $ | 307,148 | $ | 456,064 | $ | 187,212 | $ | 275,628 | |||||
Fixed Strategy | 163,813 | 328,109 | 99,846 | 198,297 | |||||||||
|
|
|
|
||||||||||
470,961 | 784,173 | 287,058 | 473,925 | ||||||||||
Fixed Rate Annuities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-Year Rate Guaranteed | 283,240 | 288,868 | 172,088 | 174,833 | |||||||||
Multi-Year Rate Guaranteed | 33,210 | 193,238 | 33,210 | 193,238 | |||||||||
|
|
|
|
||||||||||
316,450 | 482,106 | 205,298 | 368,071 | ||||||||||
|
|
|
|
||||||||||
$ | 787,411 | $ | 1,266,279 | $ | 492,356 | $ | 841,996 | ||||||
|
|
|
|
For information related to our coinsurance agreement, see note 5 to our audited consolidated financial statements.
The reduction in annuity deposits in the first six months of 2003 resulted from actions taken by us to manage our capital position, including reductions in our interest crediting rates on both new and existing annuities, reductions in sales commissions and suspension of sales of one of our higher commission annuity products and our most popular multi-year rate guaranteed annuity product. We will continue to monitor our levels of production and take such actions as we believe appropriate to help maintain our rate of production within the range that the statutory capital and surplus of our life subsidiaries will support. The purpose of this offering is to raise capital to support future growth of our business. If it is successful, we anticipate increasing the level of our sales. For example, we anticipate the reinstatement of our full marketing program and development of new products.
Net income increased 45% to $10.9 million for the six months ended June 30, 2003, compared to $7.5 million for the same period in 2002. The growth in net income was directly tied to: (i) growth in our assets, (ii) decreases in interest crediting rates and (iii) realized gains on sales of investments.
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 72% to $11.2 million for the six months ended June 30, 2003, compared to $6.5 million for the same period in 2002. This increase was principally attributable to the growth in our annuity business and, correspondingly, an increase in annuity policy withdrawals subject to surrender charges. Withdrawals from annuity and single premium universal life policies were $236.8 million for the six months ended June 30, 2003, compared to $145.1 million for the same period in 2002.
Net investment income increased 21% to $174.8 million for the six months ended June 30, 2003 compared to $144.2 million for the same period in 2002. This increase was principally attributable to the growth in our annuity business and corresponding increases in our invested assets. Invested assets (on an amortized cost basis) increased 20% to $5,499.4 million at June 30, 2003 compared to $4,574.0 million at June 30, 2002, while the weighted average yield earned on average invested assets was 6.72% for the six months ended June 30, 2003 compared to 6.92% for the same period in 2002,
33
primarily as a result of the proceeds of calls on securities and new annuity deposits being invested at lower rates.
Realized gains on investments were $7.8 million for the six months ended June 30, 2003 compared to realized losses of $0.5 million for the same period in 2002. In the first six months of 2003, realized gains of $7.8 million included: (i) net realized gains of $10.7 million on the sale of certain corporate fixed maturity and equity securities and (ii) the write down of $2.9 million in the fair value of a security in recognition of an "other than temporary" impairment.
Change in fair value of derivatives that we hold to fund the annual index credits on our index annuities was an increase of $19.1 million for the six months ended June 30, 2003 compared to a decline of $44.0 million for the same period in 2002. The difference between the change in fair value of the derivatives in these periods was primarily due to an increase to $39.4 million from $(15.2) million in the difference between the fair value of the derivatives and the remaining option cost at the beginning and end of these periods. This change was caused by the general increase in the underlying equity market indices on which our call options are based, including primarily the S&P 500 Index, which increased 10.8% during the six months ended June 30, 2003. See "Critical Accounting PoliciesDerivative InstrumentsIndex Products" and note 1 to our audited consolidated financial statements.
Interest credited to account balances increased 39% to $109.8 million for the six months ended June 30, 2003 compared to $79.0 million for the same period in 2002. This increase was principally attributable to the increase in annuity liabilities, and also to the increased costs of funding the minimum guaranteed interest credited on our index policies. The estimated weighted average cost of credits to policyholder accounts for these minimum guarantees on these contracts during the six months ended June 30, 2003 and 2002 was 0.27% and 0.24% of account balances, respectively. See "Critical Accounting PoliciesDerivative InstrumentsIndex Products" and note 1 to our audited consolidated financial statements. This increase was offset in part by several reductions in interest crediting rates that we implemented in 2003 and 2002 in connection with our spread management process.
Change in fair value of embedded derivatives was an increase of $41.2 million for the six months ended June 30, 2003 compared to a decline of $17.4 million for the same period in 2002. Under SFAS No. 133, the future annual index credits on our index annuities are treated as a "series of embedded derivatives" over the expected life of the applicable contracts. We are required to estimate the fair value of the future index reserve liabilities by valuing the "host" (or guaranteed) component of the liabilities and projecting (i) the expected index credits on the next policy anniversary dates and (ii) the net cost of the annual options we will purchase in the future to fund index credits. The increase in this expense to $41.2 million primarily resulted from the increase in expected index credits on the next policy anniversary dates, which are related to the change in the fair value of the call options acquired to fund these index credits and discussed above for the "change in fair value of derivatives." In addition, the host value of the index reserve liabilities increased primarily as a result of increases in index annuity premium deposits. See "Critical Accounting PoliciesDerivative InstrumentsIndex Products" and note 1 to our audited consolidated financial statements.
Amortization of deferred policy acquisition costs increased 50% to $26.9 million for the six months ended June 30, 2003, compared to $17.9 million for the same period in 2002. This increase was due to growth in our annuity business as discussed above. Additional amortization associated with realized gains on investments sold during the first six months of 2003 was $3.7 million. See notes 1 and 4 to our audited consolidated financial statements.
Other operating costs and expenses increased 29% to $12.8 million for the six months ended June 30, 2003 compared to $9.9 million for the same period in 2002. This increase was principally attributable to increases in marketing expenses, employees and related salaries and costs of
34
employment due to growth in our annuity business. In addition, during the first six months of 2002, we received a refund of approximately $0.5 million as a result of the cancellation of our agents' convention scheduled for the week of September 11, 2001, which reduced our other operating costs and expenses for that period.
Income tax expense increased 50% to $5.7 million for the six months ended June 30, 2003 compared to $3.8 million for the same period in 2002. The increase was principally due to an increase in pretax income. Our effective tax rate for the six months ended June 30, 2003 was 28% compared to 25% for the same period in 2002. These effective income tax rates varied from the applicable statutory federal income tax rate of 35% principally due to (i) the impact of earnings attributable to company-obligated mandatorily redeemable preferred securities of subsidiary trusts; and (ii) the impact of state taxes on the federal income tax expense. See note 6 to our audited consolidated financial statements.
Annual Results of Operations
Annuity deposits (before and net of coinsurance) collected in 2002, 2001 and 2000, by product type, were as follows:
|
Before coinsurance
Year ended December 31, |
Net of coinsurance
Year ended December 31, |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Product Type
|
|||||||||||||||||||
2002
|
2001
|
2000
|
2002
|
2001
|
2000
|
||||||||||||||
|
(Dollars in thousands)
|
(Dollars in thousands)
|
|||||||||||||||||
Index Annuities: | |||||||||||||||||||
Index Strategies | $ | 867,880 | $ | 656,731 | $ | 593,070 | $ | 523,224 | $ | 431,571 | $ | 593,070 | |||||||
Fixed Strategy | 614,549 | 237,824 | 37,030 | 370,496 | 156,553 | 37,030 | |||||||||||||
|
|
|
|
|
|
||||||||||||||
1,482,429 | 894,555 | 630,100 | 893,720 | 588,124 | 630,100 | ||||||||||||||
Fixed Rate Annuities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-Year Rate Guaranteed | 629,945 | 391,470 | 207,069 | 380,772 | 279,598 | 207,069 | |||||||||||||
Multi-Year Rate Guaranteed | 322,856 | 1,139,160 | 6,171 | 322,856 | 1,139,160 | 6,171 | |||||||||||||
|
|
|
|
|
|
||||||||||||||
952,801 | 1,530,630 | 213,240 | 703,628 | 1,418,758 | 213,240 | ||||||||||||||
|
|
|
|
|
|
||||||||||||||
$ | 2,435,230 | $ | 2,425,185 | $ | 843,340 | $ | 1,597,348 | $ | 2,006,882 | $ | 843,340 | ||||||||
|
|
|
|
|
|
For information related to our coinsurance agreement, see note 5 to our audited consolidated financial statements.
Our annuity reserves continued to show strong growth throughout 2002, primarily as a result of the growth in our agency force. Annuity reserves and the approximate number of our appointed agents have grown as follows during the last three years:
|
Annuity Reserves
|
Agents
|
|||
---|---|---|---|---|---|
|
(Dollars in thousands)
|
|
|||
2000 | $ | 2,079,561 | 22,000 | ||
2001 | $ | 3,968,455 | 34,000 | ||
2002 | $ | 5,419,276 | 41,000 |
The growth in our annuity business resulted in a sizeable increase in our earnings from invested assets for 2002 and 2001. 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. Production decreased in the last two months of 2002 due to actions (i.e. crediting rate reductions and suspension of sales of one of our higher commission
35
annuity products and our most popular multi-year rate guaranteed annuity product) taken by us throughout the year to manage our capital position. We intend to manage our production throughout 2003 at levels the statutory capital and surplus of our life subsidiaries will support. The purpose of this offering is to raise capital to support future growth of our business. If it is successful, we anticipate increasing the level of our sales. For instance, we anticipate the reinstatement of our full marketing program and development of new products.
Net income was $14.2 million in 2002, $0.9 million in 2001 and $4.8 million in 2000. The strong growth in net income was directly tied to the growth of our assets from the sales of annuities. In addition, net income in 2001 was lower than expected due to our decision to maintain a greater portion of our investment portfolio in lower yielding short-term cash investments (cash equivalents) following the September 11 th terrorist attacks. We estimate that net income for 2001 was reduced by approximately $5.7 million due to the high level of liquidity maintained between September 11, 2001 and the end of the year.
Traditional life and accident and health insurance premiums increased 5% to $13.7 million in 2002 and increased 19% to $13.1 million in 2001 from $11.0 million in 2000. The majority of our traditional life and accident and health insurance premiums consist of group policies. These changes are principally attributable to corresponding changes in direct sales of life products.
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 23% to $15.4 million in 2002, and 51% to $12.5 million in 2001 from $8.3 million in 2000. These increases were principally attributable to the growth in our annuity business and, correspondingly, increases in annuity policy withdrawals subject to surrender charges. Withdrawals from annuity and single premium universal life policies were $332.0 million, $223.2 million and $144.1 million for 2002, 2001 and 2000, respectively.
Net investment income increased 48% to $308.5 million in 2002 and 109% to $209.1 million in 2001 from $100.1 million in 2000. 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 44% to $5,299.1 million at December 31, 2002 and 88% to $3,682.7 million at December 31, 2001 compared to $1,960.3 million at December 31, 2000, while the weighted average yield earned on average invested assets was 6.91%, 7.08% and 7.78% for 2002, 2001, and 2000, respectively. Prior to the adoption of SFAS No. 133 on January 1, 2001, net investment income for 2000 included amounts related to the options we hold to fund the annual index credits on our index annuities. This included gains received on such options, which were passed on to the index policyholders and the amortization of such options. Gains received on options held for index policies were $13.2 million for 2000. Costs of amortization of such options were $55.9 million for 2000.
Realized losses on investments amounted to $0.1 million in 2002, compared to realized gains of $0.8 million in 2001 and realized losses of $1.4 million in 2000. In 2002, net realized losses of $0.1 million consisted of gains of $19.9 million, offset by losses of $7.0 million on the sale of securities and write downs of approximately $13.0 million in the fair value of certain securities in recognition of "other than temporary" impairments. In 2001, net realized gains of $0.8 million consisted of gains of $13.0 million, offset by losses of $4.4 million on the sale of securities and write downs of approximately $7.8 million in the fair value of certain securities in recognition of "other than temporary" impairments. In 2000, net realized losses of $1.4 million were entirely comprised of losses related to the sale of certain corporate fixed maturity and equity securities.
Change in fair value of derivatives was $(57.8) million for the year ended December 31, 2002 compared to $(55.2) million in 2001 and $(3.4) million in 2000. The difference between the change in fair value of the derivatives in 2002 and 2001 was primarily due to a decrease to $1.4 million from
36
$13.6 million in the difference between the fair value of the derivatives and the remaining option cost at the beginning and end of these years. This change, which was caused by the general decrease in the underlying equity market indices on which our call options are based, was offset in part by (i) an increase to $9.7 million from $3.1 million in the gains received at expiration of the options; and (ii) and a decrease to $(68.9) million from $(71.8) million in the cost of money for index annuities. For the year ended December 31, 2002, the S&P 500 Index (upon which the majority of our call options are based) decreased by 23.4%. See "Critical Accounting PoliciesDerivative InstrumentsIndex Products" and note 1 to our audited consolidated financial statements. The change in fair value of derivatives of $(3.4) million in 2000 is related to the change in fair value of total return exchange agreements that we entered into during 2000. See note 3 to our audited consolidated financial statements.
Insurance policy benefits and changes in future policy benefits decreased 5% to $9.3 million in 2002 and increased 13% to $9.8 million in 2001 compared to $8.7 million in 2000. These increases were attributable to an increase in death benefits and surrenders.
Interest credited to account balances increased 81% to $177.6 million in 2002 and 73% to $97.9 million in 2001 from $56.5 million in 2000. These increases were principally attributable to increases in annuity liabilities, and also to the increased costs of funding the minimum guaranteed interest credited on our index policies. The estimated weighted average cost of funding these minimum guarantees on these contracts during 2002, 2001 and 2000 was 0.42%, 0.35% and 0.26% of account balances, respectively. See "Critical Accounting PoliciesDerivative InstrumentsIndex Products" and note 1 to our audited consolidated financial statements. The amounts were also impacted by changes in the weighted average crediting rates for our annuity liabilities.
Weighted average crediting rates on our fixed rate annuities were lower in 2002 compared to 2001 and 2000 primarily as a result of a decrease in crediting rates on new and renewal business.
Change in fair value of embedded derivatives was $(5.0) million for the year ended December 31, 2002 compared to $12.9 million in 2001. Under SFAS No. 133, the future annual index credits on our index annuities are treated as a "series of embedded derivatives" over the expected life of the applicable contracts. We are required to estimate the fair value of the future index reserve liabilities by valuing the "host" (or guaranteed) component of the liabilities and projecting (i) the expected index credits on the next policy anniversary dates and (ii) the net cost of the annual options we will purchase in the future to fund index credits. The decrease in this expense to $(5.0) million in 2002 from $12.9 million in 2001 primarily resulted from a decrease in expected index credits on the next policy anniversary dates, which are related to the change in the fair value of the call options acquired to fund these index credits and discussed above in the "change in fair value of derivatives." This decrease was offset in part by an increase in the host value of the index reserve liabilities which resulted primarily from an increase in index annuity premium deposits during 2002. See "Critical Accounting PoliciesDerivative InstrumentsIndex Products" and note 1 to our audited consolidated financial statements.
Interest expense on General Agency Commission and Servicing Agreement decreased 37% to $3.6 million in 2002 and 5% to $5.7 million in 2001 from $6.0 million in 2000. These changes were principally attributable to corresponding decreases in the amount due to related party under the General Agency Commission and Servicing Agreement, which resulted from payments of renewal commissions by American Equity Life under this agreement. See note 8 to our audited consolidated financial statements.
Interest expense on notes payable decreased 34% to $1.9 million in 2002 and increased 26% to $2.9 in 2001 from $2.3 million in 2000. The decrease from 2001 to 2002 was due to a decrease in the balance outstanding under the notes and a decrease in the average applicable interest rate. The increase from 2000 to 2001 was due to increases in the outstanding borrowings, offset in part by a
37
decrease in the average applicable interest rate. The applicable interest rate was 4.36%, 6.28% and 7.99% for 2002, 2001 and 2000, respectively.
Interest expense on amounts due under repurchase agreements decreased 36% to $0.7 million in 2002 and 67% to $1.1 million in 2001 from $3.3 million in 2000. These changes were principally attributable to a decrease in the average balances outstanding. See note 7 to our audited consolidated financial statements.
Other interest expense increased $0.6 million to $1.0 million in 2002 from $0.4 million in 2001, and resulted from the financial reinsurance transactions we entered into with a subsidiary of Swiss Reinsurance Company, or Swiss Re, effective January 1, 2001 and net interest expense on the short sale of $150.0 million of U.S. Treasury Securities. See notes 3 and 5 to our audited consolidated financial statements.
Amortization of deferred policy acquisition costs increased 73% to $39.9 million in 2002 and 167% to $23.0 million in 2001 from $8.6 million in 2000. These increases were primarily due to (i) the growth in our annuity business as discussed above, (ii) the introduction of multi-year rate guaranteed products with shorter expected lives; and (iii) an increase of $1.4 million in 2002 resulting from our application of SFAS No. 133. See notes 1 and 4 to our audited consolidated financial statements.
Other operating costs and expenses increased 26% to $21.6 million in 2002 and 18% to $17.2 million in 2001 from $14.6 million in 2000. These increases were principally attributable to increases in marketing expenses, number of employees and related salaries and costs of employment due to growth in our annuity business.
Income tax expense was $7.3 million, $0.3 million, and $2.4 million in 2002, 2001, and 2000, respectively. Our effective tax rates for 2002, 2001 and 2000 were 25%, 4% and 16%, respectively. These effective income tax rates varied from the applicable statutory federal income tax rates of 35% principally due to (i) the impact of earnings attributable to company-obligated mandatorily redeemable preferred securities of subsidiary trusts and (ii) the impact of state taxes on the federal income tax expense. See note 6 to our audited consolidated financial statements.
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 notes 6 and 9 to our audited consolidated financial statements.
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 return through active investment management. Consistent with this strategy, our investments principally consist of fixed maturity securities and short-term investments. We also had approximately 1.6% and 1% of our invested assets at June 30, 2003 and December 31, 2002, respectively, in derivative instruments (primarily equity market index call options) purchased in connection with the issuance of index annuities. Such options represented approximately 3.5% and 1.5% at June 30, 2003 and December 31, 2002, respectively, of the related index reserves.
Insurance statutes regulate the type of investments that our life subsidiaries are 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
38
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. Available for sale securities are reported at market value and unrealized gains and losses, if any, on these securities (net of income taxes and certain adjustments for changes in amortization of deferred policy acquisition costs) are included directly in a separate component of stockholders' equity, thereby exposing stockholders' equity to 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.
Cash and investments increased to $5,585.5 million at June 30, 2003 compared to $5,327.8 million at December 31, 2002 as a result of the growth in our annuity business discussed above and a decrease in the unrealized loss on our available for sale fixed maturity and equity securities. At June 30, 2003, the fair value of our available for sale fixed maturity and equity securities was $19.0 million less than the amortized cost of those investments, compared to $44.8 million at December 31, 2002. At June 30, 2003, the amortized cost of our fixed maturity securities held for investment exceeded the market value by $2.5 million, compared to $1.8 million at December 31, 2002. The decrease in the net unrealized investment losses at June 30, 2003 compared to December 31, 2002 was related to a decrease of approximately 30 basis points in market interest rates.
The composition of our investment portfolio is summarized in the table below:
39
The table below presents our total fixed maturity securities by NAIC designation and the equivalent ratings of a nationally recognized securities rating organization.
During 2001, we began a commercial mortgage loan program. At June 30, 2003 and December 31, 2002, we held $465.3 million and $334.3 million, respectively, of mortgage loans with commitments outstanding amounting to $40.0 million at June 30, 2003. These mortgage loans are diversified as to property type, location, and loan size, and are collateralized by the related properties. Our mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. As of June 30, 2003, there were no delinquencies in our mortgage portfolio. The commercial mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:
|
|
|
December 31,
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
June 30, 2003
|
2002
|
2001
|
||||||||||||||
|
Carrying
Amount |
Percent
|
Carrying
Amount |
Percent
|
Carrying
Amount |
Percent
|
|||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
Geographic distribution | |||||||||||||||||
East | $ | 79,420 | 17.1 | % | $ | 51,785 | 15.5 | % | $ | 25,218 | 23.3 | % | |||||
Middle Atlantic | 57,159 | 12.3 | % | 40,879 | 12.2 | % | 18,352 | 17.0 | % | ||||||||
Mountain | 55,393 | 11.9 | % | 26,478 | 7.9 | % | | | |||||||||
New England | 24,761 | 5.3 | % | 13,242 | 4.0 | % | 3,496 | 3.2 | % | ||||||||
Pacific | 33,710 | 7.2 | % | 20,499 | 6.1 | % | | | |||||||||
South Atlantic | 103,659 | 22.3 | % | 96,401 | 28.8 | % | 39,260 | 36.3 | % | ||||||||
West | 111,176 | 23.9 | % | 85,055 | 25.5 | % | 21,855 | 20.2 | % | ||||||||
|
|
|
|
|
|
||||||||||||
Total mortgage loans | $ | 465,278 | 100.0 | % | $ | 334,339 | 100.0 | % | $ | 108,181 | 100.0 | % | |||||
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
June 30, 2003
|
2002
|
2001
|
||||||||||||||
|
Carrying
Amount |
Percent
|
Carrying
Amount |
Percent
|
Carrying
Amount |
Percent
|
|||||||||||
|
(Dollars in thousands)
|
||||||||||||||||
Property type distribution | |||||||||||||||||
Office | $ | 154,450 | 33.2 | % | $ | 98,271 | 29.4 | % | $ | 23,917 | 22.1 | % | |||||
Retail | 133,737 | 28.7 | % | 102,362 | 30.6 | % | 18,561 | 17.2 | % | ||||||||
Industrial/Warehouse | 134,638 | 28.9 | % | 97,811 | 29.3 | % | 48.423 | 44.8 | % | ||||||||
Hotel | 21,020 | 4.5 | % | 21,218 | 6.4 | % | 13,135 | 12.1 | % | ||||||||
Apartments | 4,146 | 1.0 | % | 4,176 | 1.2 | % | 3,200 | 3.0 | |||||||||
Mixed use/other | 17,287 | 3.7 | % | 10,501 | 3.1 | % | 945 | 0.8 | % | ||||||||
|
|
|
|
|
|
||||||||||||
Total mortgage loans | $ | 465,278 | 100.0 | % | $ | 334,339 | 100.0 | % | $ | 108,181 | 100.0 | % | |||||
|
|
|
|
|
|
40
Liabilities
Our liability for policy benefit reserves increased $414.7 million, $1,458.5 million and $1,894.0 million during the six months ended June 30, 2003 and the years ended December 31, 2002 and 2001, respectively, to $5,867.1 million at June 30, 2003, $5,452.4 million at December 31, 2002 and $3,993.9 million at December 31, 2001, primarily due to increases in annuity sales as discussed above. Substantially all of our annuity products have a surrender charge feature designed to reduce the risk of early withdrawal or surrender of the policies and to 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 and other factors.
We have a credit agreement with three banks. The amount outstanding under this agreement was $35.7 million at June 30, 2003 and $43.3 million at December 31, 2002, of which $10.0 million was borrowed in December 2002, and contributed to the surplus of American Equity Life. Principal and interest under this agreement are paid quarterly. The notes bear interest (3.67% at June 30, 2003) at prime or LIBOR plus a specified margin of up to 2.25%. Under this agreement, we are required to maintain minimum capital and surplus levels at American Equity Life 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 25% of our consolidated net income for the prior fiscal year. See note 7 to our audited consolidated financial statements.
Stockholders' Equity
We were initially capitalized in 1995 and 1996 through the issuance of shares of common stock for cash. Subsequent to our initial capitalization, we issued additional shares of common stock, warrants to purchase shares of common stock and shares of preferred stock convertible into shares of common stock in several private placement offerings.
In 1997, in connection with a rights offering of shares of our common stock, we issued subscription rights to purchase an aggregate of 2,157,375 shares of our common stock to certain officers and directors. The subscription rights have an exercise price of $5.33 per share and are fully exercisable. During 2002, the board of directors extended the expiration date of the subscription rights from December 1, 2002 to December 1, 2005 and in conjunction therewith, we recognized compensation expense of $0.3 million.
During 1998, we issued 625,000 shares of 1998 Series A Participating Preferred Stock. These shares have participating dividend rights with the shares of our common stock when and as such dividends are declared, are convertible into 1,875,000 shares common stock upon the earlier of the initial public offering of our common stock or December 31, 2003, are non-voting and have an aggregate liquidation preference of $10.0 million.
During 1999, two wholly-owned subsidiary trusts issued preferred securities in private placement offerings. In September 1999, American Equity Capital Trust I, or Trust I, issued $26.0 million of 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 $26.8 million in principal amount of our 8% debentures to Trust I. In October 1999, American Equity Capital Trust II, or Trust II, issued 97,000 shares of company obligated mandatorily redeemable preferred securities, or the 5% trust preferred securities. The 5% trust preferred securities have a liquidation value of $100 per share ($97.0 million in the aggregate). In connection with Trust II's issuance of the 5% trust preferred securities and the related purchase by us of all of Trust II's common securities, we issued $100.0 million in principal amount of our 5% debentures to Trust II. The terms of the preferred securities issued by Trust I and Trust II parallel the terms of the debentures which represent all of the trust assets. Our obligations under the debentures and related agreements provide a full and unconditional guarantee of payments due under the preferred securities. The net proceeds to us from the issuance of our subordinated debentures to the subsidiary trusts were used to fund capital contributions to American Equity Life.
41
The preferred securities issued by Trust I are convertible into 863,671 shares of our common stock. The consideration received by Trust II in connection with the issuance of its preferred securities consisted of fixed income trust preferred securities of equal value issued by the parent company of Farm Bureau. See note 9 to our audited consolidated financial statements for additional information concerning the preferred securities of the subsidiary trusts.
During 2002, we purchased 112,750 shares of our common stock at a total cost of $0.9 million ($7.60 per share) and issued 34,228 shares of our common stock for total proceeds of $0.1 million ($4.00 per share). During 2002, one of our subsidiaries purchased 2,000 shares of the trust preferred securities described above that are convertible into shares of our common stock at a total cost of $0.1 million.
During 2003, we purchased 1,369,500 shares of our common stock at a total cost of $8.9 million ($6.50 per share) and issued 1,262,136 shares of our common stock to a rabbi trust established for the benefit of agents who have earned shares of our common stock under the American Equity Investment NMO Deferred Compensation Plan. See note 5 to our June 30, 2003 unaudited consolidated financial statements and note 10 to our audited consolidated financial statements.
Liquidity for Insurance Operations
Our life subsidiaries generally receive adequate cash flow from premium collections and investment income to meet their 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 June 30, 2003 and December 31, 2002, approximately 99.9% of our annuity liabilities were subject to penalty upon surrender, with a weighted average remaining surrender charge period of 8.5 years and 8.7 years, respectively, and a weighted average surrender charge rate of 12%.
We believe that the diversity of our investment portfolio and the concentration of investments in high-quality securities provides sufficient liquidity to meet foreseeable cash requirements. The investment portfolio at June 30, 2003 and December 31, 2002 included $2,812.3 million and $3,503.7 million (on an amortized cost basis), respectively, of investment grade bonds. Although there is no present need or intent to dispose of such investments, our life subsidiaries could readily liquidate portions of their investments, if such a need arose. Please read "Quantitative and Qualitative Disclosures about Market Risk" for a further discussion of the related interest rate risk exposure. 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 subsidiaries from time to time to increase our return on investments and to improve liquidity.
Liquidity of Parent Company
We, as the parent company, are a legal entity separate and distinct from our subsidiaries, and have no business operations. We need liquidity primarily to service our debt, including the subordinated debentures issued to subsidiary trusts, pay operating expenses and pay dividends to shareholders. The primary sources of funds for these payments are: (i) principal and interest payments received on our note receivable from American Equity Investment Service Company (see discussion that follows); (ii) dividends on capital stock and surplus note interest payments from American Equity Life; (iii) investment advisory fees from our life subsidiaries; and (iv) cash on hand ($0.7 million at June 30, 2003). These sources provide adequate cash flow to us to meet our current and reasonably forseeable future obligations. We may also obtain cash by issuing debt or equity securities.
The payment of dividends or distributions, including surplus note payments, by our life subsidiaries is subject to regulation by each such subsidiary's state of domicile's insurance department. Currently, our life subsidiaries may pay dividends or make other distributions without the prior
42
approval of their state of domicile's insurance department, unless such payments, together with all other such payments within the preceding twelve months, exceed, in Iowa, the greater of, and in New York, the lesser of (1) the life subsidiary's net gain from operations for the preceding calendar year, or (2) 10% of the life subsidiary's statutory surplus at the preceding December 31. For 2003, up to approximately $25.9 million can be distributed as dividends or surplus note payments by American Equity Life without prior approval of the Iowa insurance department. 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 in the life subsidiary's state of domicile. American Equity Life had approximately $55.1 million and $47.4 million of earned surplus at June 30, 2003 and December 31, 2002, respectively.
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, state insurance laws and regulations require that the statutory surplus of our life subsidiaries following any dividend or distribution must be reasonable in relation to their outstanding liabilities and adequate for their financial needs.
The transfer of funds by American Equity Life is also restricted by certain covenants in our loan agreement which, among other things, require American Equity Life to maintain statutory capital and surplus (including the asset valuation and interest maintenance reserves) of $140 million plus 25% of statutory net income and 75% of the capital contributions to American Equity Life for periods subsequent to December 31, 1999. Under the most restrictive of these limitations, $25.9 million of our earned surplus at June 30, 2003 and December 31, 2002 was available for distribution by American Equity Life to the parent company in the form of dividends or other distributions. As disclosed in the unaudited and audited consolidated financial statements included elsewhere in this prospectus, our loan agreement has been amended from time to time to maintain our continuing compliance with these and other restrictive covenants.
Statutory accounting practices prescribed or permitted for our life subsidiaries differ in many respects from those governing the preparation of financial statements under 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 subsidiaries as of December 31, 2002 and 2001 and for the years ended December 31, 2002, 2001 and 2000 is included in note 11 to our audited consolidated financial statements.
American Equity Life has entered into a General Agency Commission and Servicing Agreement with American Equity Investment Service Company, or the Service Company, an affiliated company wholly-owned by our chairman, chief executive officer, president and treasurer, whereby the affiliate acts as a national supervisory agent with responsibility for paying commissions to our agents. This agreement initially benefits American Equity Life's statutory surplus by extending the payment of a portion of the first year commissions on new annuity business written by American Equity Life over a longer period of time, and thereby enabling American Equity Life to conduct a comparatively greater volume of business. In subsequent periods, American Equity Life'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 8 to our audited consolidated financial statements). During the years ended December 31, 2002 and 2000, the Service Company paid $11.8 million and $28.4 million, respectively, to agents of American Equity Life. The Service Company made no payments to the agents of American Equity Life during the year ended December 31, 2001. American Equity Life paid renewal commissions to the Service Company of $11.1 million,
43
$21.7 million, $23.2 million and $22.4 million, respectively, during the six months ended June 30, 2003 and the years ended December 31, 2002, 2001 and 2000.
From time to time the Service Company has borrowed money from us as a source of funds for the commissions it paid to American Equity Life's agents. At June 30, 2003 and December 31, 2002 and 2001, the amount receivable from the Service Company was $15.8 million, $20.5 million and $29.1 million, respectively. Principal and interest are payable quarterly over five years from the date of each advance.
Future payments by American Equity Life on business in force at June 30, 2003 are dependent upon the account balances of the annuities remaining in force on each remaining quarterly renewal commission payment date.
Cash Flow Obligations
In the normal course of business, we enter into financing transactions, lease agreements, or other commitments. These commitments may obligate us to certain cash flows during future periods. The following table summarizes such obligations as of June 30, 2003.
|
Payments Due by Period
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Total
|
Less Than
1 Year |
13
Years |
45
Years |
||||||||
|
(Dollars in thousands)
|
|||||||||||
Notes payable | $ | 35,667 | $ | 15,333 | $ | 19,334 | $ | 1,000 | ||||
Amounts due to related party under General Agency Commission and Servicing Agreement | 30,977 | 20,645 | 10,332 | | ||||||||
Swiss Re (See note 5 to our audited consolidated financial statements) | 682 | 682 | | | ||||||||
2002 Hannover Transaction (See note 5 to our audited consolidated financial statements) | 2,430 | 570 | 1,860 | | ||||||||
2003 Hannover Transaction (See note 3 to our unaudited consolidated financial statements) | 4,055 | 337 | 3,041 | 677 | ||||||||
Operating leases | 3,005 | 1,015 | 1,955 | 35 | ||||||||
Mortgage loan funding | 39,583 | 39,583 | | | ||||||||
|
|
|
|
|||||||||
Total | $ | 116,399 | $ | 78,165 | $ | 36,522 | $ | 1,712 | ||||
|
|
|
|
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, if any, have had on our operating results.
Quantitative and Qualitative Disclosures about Market Risk
We seek to invest our available funds in a manner that will maximize shareholder value and fund future obligations to policyholders and debtors, subject to appropriate risk considerations. We seek to meet this objective through investments that: (i) consist predominately of investment grade fixed maturity securities; (ii) have projected returns which satisfy our spread targets; and (iii) have characteristics which support the underlying liabilities. Many of our products incorporate surrender charges, market interest rate adjustments or other features to encourage persistency.
44
We seek to maximize the total return on our available for sale investments through active investment management. Accordingly, we have determined that our available for sale portfolio of fixed maturity securities is available to be sold in response to: (i) changes in market interest rates; (ii) changes in relative values of individual securities and asset sectors; (iii) changes in prepayment risks; (iv) changes in credit quality outlook for certain securities; (v) liquidity needs; and (vi) other factors. We have a portfolio of held for investment securities which consists principally of long duration bonds issued by U.S. government agencies. These securities are purchased to secure long-term yields which meet our spread targets and support the underlying liabilities.
Interest rate risk is our primary market risk exposure. Substantial and sustained increases and decreases in market interest rates can affect the amount of interest we pay on our notes payable, the profitability of our products and the market value of our investments. Our notes payable bear interest at prime or LIBOR plus a specified margin of up to 2.25%. Our outstanding balance of notes payable at June 30, 2003 and December 31, 2002 was $35.7 million and $43.3 million, respectively. 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 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 June 30, 2003 and December 31, 2002, the effective duration of our fixed maturity securities and short-term investments was approximately 7.76 years and 7.92 years, respectively, and the estimated duration of our insurance liabilities was approximately 6.44 years and 6.58 years, respectively.
If interest rates were to increase 10% (35 basis points) from levels at June 30, 2003, we estimate that the fair value of our fixed maturity securities would decrease by approximately $166.0 million. If interest rates were to increase 50 basis points from the levels at June 30, 2003, the effective duration of our cash and invested assets backing our insurance liabilities would be approximately 11 years. The computer models used to estimate the impact of a 10% or 50 basis points 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. However, any such decreases in the fair value of our fixed maturity securities (unless related to credit concerns of the issuer requiring recognition of an other than temporary impairment) would generally be realized only if we were required to sell such securities at losses prior to their maturity to meet our liquidity needs,
45
which we manage using the surrender and withdrawal provisions of our annuity contracts and through other means as discussed earlier. Please read "Liquidity for Insurance Operations" in the preceding section for a further discussion of the liquidity risk.
At June 30, 2003 and December 31, 2002, 80.6% and 86.7%, respectively, of our fixed income securities had call features and 11.8% and 2.0%, respectively, are subject to current redemption. Another 47.9% will become subject to call redemption through December 31, 2003. During the six months ended June 30, 2003 and the year ended December 31, 2002, we received $1,853.5 million and $1,541.6 million, respectively, in net redemption proceeds related to the exercise of such call options. We have reinvestment risk related to these redemptions to the extent we cannot reinvest the net proceeds in assets with credit quality and yield characteristics similar to or better than those of the redeemed bonds. Such reinvestment risk typically occurs in a declining rate environment. Should rates decline to levels which tighten the spread between our average portfolio yield and average cost of interest credited on our annuity liabilities, we have the ability to reduce crediting rates on most of our annuity liabilities to maintain the spread at our targeted level. At June 30, 2003 and December 31, 2002, approximately 72% and 71%, respectively, of our annuity liabilities were subject to annual adjustment of the applicable crediting rates at our discretion, limited by minimum guaranteed crediting rates of 3% to 4%.
With respect to our index annuities, we purchase call options on the applicable indices to fund the annual index credits on such annuities. These options are primarily one-year instruments purchased to match the funding requirements of the underlying policies. Our primary risk associated with the options we currently hold is limited to the cost of such options. Market value changes associated with those investments are substantially offset by an increase or decrease in the amounts added to policyholder account balances for index products. For the six months ended June 30, 2003 and the year ended December 31, 2002, we realized gains of $11.0 million and $9.7 million, respectively, on our index options at their expiration, and we credited $9.8 million and $10.6 million, respectively, to policyholders on their respective policy anniversaries. On the respective anniversary dates of the index policies, we purchase new one-year call options to fund the next annual index credits. The risk associated with these prospective purchases is the uncertainty of the cost, which will determine whether we are able to earn our spread on our index business. This is a risk we attempt to manage through the terms of our index annuities, which permit us to change annual participation rates, asset fees, and caps, subject to contractual features. By modifying participation rates, asset fees or caps, we can limit option costs to budgeted amounts, except in cases where the contractual features would prevent further modifications. Based upon actuarial testing which we conduct as a part of the design of our index products and on an ongoing basis, we believe the risk that contractual features would prevent us from controlling option costs is not material.
46
History
We were formed on December 15, 1995, to develop, market, issue and administer annuities and life insurance. We are a full service underwriter of a broad array of annuity and insurance products. Our business consists primarily of the sale of fixed rate and index annuities and, accordingly, we have only one business segment. 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 existing blocks of insurance from American Life and Casualty Insurance Company, or American Life and Casualty, the principal operating subsidiary of The Statesman Group, Inc., or Statesman, of which certain of our executive officers, David J. Noble, John M. Matovina, Kevin R. Wingert, James M. Gerlach, Terry A. Reimer and Debra J. Richardson, 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."
On June 5, 2001, we formed a New York domiciled insurance company named American Equity Investment Life Insurance Company of New York. We are currently licensed to sell our products in 46 states and the District of Columbia.
Annuity Market Overview
Our target market includes the group of individuals ages 45-75 who seek 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 35.0 million Americans age 65 and older in 2000, representing 12% of the U. S. population. By 2030, this sector of the population is expected to increase to 22% of the total population. Our fixed rate and index annuity products are particularly attractive to this group as a result of the guarantee of principal with respect to those products, competitive rates of credited interest, tax-deferred growth and alternative payout options.
According to LIMRA International, sales of individual annuities were $185.3 billion in 2001 and $190.5 billion in 2000. In 2001 (last year in which actual data is available), fixed annuity sales, which include equity index and fixed rate annuities, increased 41% to $74.3 billion from $52.7 billion in 2000. Sales of index annuities grew to $6.8 billion in 2001, an increase of 24% from $5.5 billion in 2000. Further, from 1997 through 2001, index annuity sales have grown from $3.0 billion to $6.8 billion. We believe index annuities, which have a crediting rate linked to the change in various indices, appeal to policyholders interested in participating in returns linked to equity and/or bond markets without the risk of loss of principal. Our wide range of fixed rate annuity products has enabled us to enjoy favorable growth during volatile equity and bond markets.
Strategy
Our business strategy is to focus on our annuity business and earn predictable returns by managing investment spreads and investment risk. Key elements of this strategy include the following:
47
Products
Our products include fixed rate annuities, index annuities, a variable annuity and life insurance.
Fixed Rate Annuities
These products, which accounted for approximately 40% of our total annuity deposits collected for the six months ended June 30, 2003 and approximately 39% during the year ended December 31, 2002, 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. We also sell SPDAs, under which the annual crediting rate is guaranteed for either a three-year or a five-year period. FPDAs are similar to SPDAs in many respects, except that the FPDA allows additional deposits in varying amounts by the policyholder without a new application.
Our SPDAs and FPDAs (excluding the multi-year rate guaranteed products) 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 once annually to any rate at or above a guaranteed minimum rate. The guaranteed rate on our non-multi-year rate guaranteed
48
policies in force and new issues ranges from 3% to 4%. The guaranteed rate on our multi-year rate guaranteed policies in force ranges from 3.05% to 6.50% for the three-year rate guaranteed product and from 3.25% to 7.0% for the five-year rate guaranteed product. The initial crediting rate is largely a function of the interest rate we can earn on invested assets acquired with new annuity 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 93% and 70% of our fixed rate annuity sales during the six months ended June 30, 2003 and the year ended December 31, 2002, respectively, were "bonus" products. The initial crediting rate on these products specifies a bonus crediting rate ranging from 1% to 7% of the annuity deposit. 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 acknowledgment from the policyholder, upon policy issuance, that a specified portion of the first year interest will not be paid in renewal years. As of June 30, 2003, crediting rates on our outstanding SPDAs and FPDAs generally ranged from 3.05% to 7.00%, excluding interest bonuses guaranteed for the first year. The average crediting rate on FPDAs and SPDAs including interest bonuses at June 30, 2003 was 5.15%, and the average crediting rate on those products excluding bonuses was 4.58%.
Policyholders are typically permitted to withdraw all or a part of the premium paid, plus accrued 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 three to 16 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. At June 30, 2003, approximately 99.9% of our annuity liabilities were subject to penalty upon surrender, with a weighted average remaining surrender charge period of 8.5 years and a weighted average surrender charge rate of 12%. Surrender charges are set at levels aimed at protecting us from loss on early terminations and reducing 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 implicit interest rate on SPIAs is based on market conditions when the policy is issued. The implicit interest rate on our outstanding SPIAs averaged 4.58% and 4.93% at June 30, 2003 and December 31, 2002, respectively.
Index Annuities
Index annuities accounted for approximately 60% of the total annuity deposits collected for the six months ended June 30, 2003 and approximately 61% during the year ended December 31, 2002. These products allow policyholders to link returns to the performance of a particular index without the risk of loss of their principal. Several of these products allow policyholders to transfer funds once a year among several different crediting strategies, including one or more index based strategies, a traditional fixed rate strategy and/or a multi-year rate guaranteed strategy.
49
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 index products from 50% to 100%. Some of the products also have an "asset fee" ranging 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 limits. In addition, some products apply an overall limit (or "cap"), ranging from 7% to 13%, 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%. We purchase call options on the applicable indices as an investment to provide the income needed to fund the amount of the index credits on the index products. The setting of the participation rates, asset fees and caps is a function of the interest rate we can earn on the invested assets acquired with annuity fund deposits, cost of call options and features offered on similar products by competitors. Approximately 39.4% of our index annuity sales for the six months ended June 30, 2003 and approximately 30.8% during the year ended December 31, 2002, were "premium bonus" products. The initial annuity deposit on these policies is increased at issuance by the specified premium bonus ranging from 3% to 6%. Generally, there is a compensating adjustment in the commission paid to the agent to offset the premium bonus.
The index 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 ranging from five to 16 years. During the applicable surrender charge period, the surrender charges on some index products remain level, while on other 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, a combination of these payment options, or enter into a new contract term.
Variable Annuities
Variable annuities differ from fixed rate and index annuities in that the policyholder, rather than the insurance company, bears the investment risk and the policyholder's return of principal and rate of return are dependent upon the performance of the particular investment option selected by the policyholder. Profits on variable annuities are derived from the fees charged to contract owners rather than from the investment spread.
In December 1997, we entered into a strategic alliance with Farm Bureau for the development, marketing and administration of variable annuity products. This alliance, which consists of the reinsurance and related administrative agreements discussed hereafter, 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 the reinsurance arrangement. See "Reinsurance" for additional information regarding this arrangement as well as Farm Bureau's beneficial ownership of our common stock.
Life Insurance
These products include traditional ordinary and term, universal life and other interest-sensitive life insurance products. We had approximately $2.2 billion of life insurance in force as of June 30, 2003. We acquired this business in 1995. We intend to continue offering a complete line of life insurance products for individual and group markets. Premiums related to this business accounted for 3% and 5%
50
of the revenues in the six months ended June 30, 2003 and the year ended December 31, 2002, respectively.
Investments
Investment activities are an integral part of our business, and net 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 non-multi-year rate guaranteed SPDAs and FPDAs may be changed annually, subject to minimum guarantees, 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. For the six months ended June 30, 2003, the weighted average yield, computed on the average amortized cost basis of our investment portfolio, was 6.72%; the weighted average cost of our liabilities at June 30, 2003, excluding interest bonuses guaranteed for the first year of the annuity contract, was 4.58%.
We manage the index-based risk component of our index annuities by purchasing call options on the applicable indices to fund the annual index credits on these annuities and by 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). All of such options are purchased to fund the index credits on our index annuities at their respective anniversary dates, and new options are purchased at each of the anniversary dates to fund the next annual index credits.
For additional information regarding the composition of our investment portfolio and our interest rate risk management, see "Management's Discussion and Analysis of Financial Condition and Results of OperationsQuantitative and Qualitative Disclosures About Market Risk" and note 3 to our audited consolidated financial statements.
Marketing
We market our products through a variable cost distribution network of approximately 70 national marketing organizations and 41,000 independent agents as of June 30, 2003. We emphasize high quality service to our agents and policyholders along with the prompt payment of commissions to our agents. We believe this has been significant in building excellent relationships with our existing agency force.
Our independent agents and agencies range 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 also have favorable relationships with our national marketing organizations, which have enabled us to efficiently sell through an expanded number of independent agents. We are currently licensed to sell our products in 46 states and the District of Columbia. We have applied or anticipate applying for licenses to sell our products in the remaining states.
The insurance distribution system is comprised of insurance brokers and marketing organizations. We are pursuing a strategy to increase the size of our distribution network by developing additional 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 policy sales generated by the agents recruited
51
in such organizations. We also conduct other incentive programs for agents from time to time, including equity-based programs for our leading national marketers. See note 10 to our audited consolidated financial statements. We generally do not enter into exclusive arrangements with these marketing organizations.
One of our national marketing organizations accounted for approximately 16% and 10% of the annuity deposits and insurance premium collections during the six months ended June 30, 2003 and the year ended December 31, 2002, respectively. The states with the largest share of direct premiums collected in the first six months of 2003 were California (13.4%), Florida (10.1%), Texas (9.4%), Illinois (7.7%) and Michigan (6.7%). The states with the largest share of direct premiums collected in 2002 were: California (14.5%), Texas (11.4%), Florida (9.7%), Illinois (7.1%) and Michigan (5.4%).
Competition and Ratings
We operate in a highly competitive industry. Many 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 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 offered by asset managers, banks, and broker-dealers. Our insurance products compete with those of other insurance companies, financial intermediaries and other institutions based on a number of features, including crediting rates, policy terms and conditions, service provided to distribution channels and policyholders, ratings, reputation and broker compensation.
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. American Equity Life has received financial strength ratings of "B++" (Very Good) with a negative outlook from A.M. Best Company and "BBB+" with a negative outlook from Standard & Poor's. In July 2002, A.M. Best Company and Standard & Poor's adjusted our financial strength ratings from "A-"(Excellent) to "B++"(Very Good) and "A-" to "BBB+", respectively. A.M. Best has indicated that the negative outlook reflects the decline in risk-adjusted capitalization of our insurance operations due to the rapid growth of our core individual annuity operations. Standard & Poor's has indicated that the negative outlook reflects the risk on executing our short term initiative to improve our capitalization and our interest rate risk exposure. Standard & Poor's has also indicated that once these issues are resolved within the expected time frame, the outlook could be revised to stable. The adjustments initially had no impact on sales of new annuity products or on lapses of existing balances. Beginning in November 2002, our monthly sales volumes began to decline primarily as a result of certain actions by us, including reductions in crediting rates and suspension of sales of one of our higher commission annuity products and our most popular multi-year rate guaranteed annuity product. The degree to which ratings adjustments also contributed to this decline is unknown. Our ability to grow sales of new annuities and the level of surrenders of our existing annuity contracts in force during 2003 may be affected by, among other things, the current ratings and our levels of statutory capital and surplus.
Financial strength ratings generally involve quantitative and qualitative evaluations by rating agencies 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 Company ratings currently range from "A++" (Superior) to "F" (In Liquidation), and include 16 separate ratings categories. Within these categories, "A++" (Superior) and "A+"
52
(Superior) are the highest, followed by "A" (Excellent) and "A-" (Excellent) then followed by "B++" (Very Good) and "B+" (Very Good). Publications of A.M. Best Company indicate that the "B++" rating is assigned to those companies that, in A.M. Best Company's opinion, have demonstrated a good ability to meet their ongoing obligations to policyholders.
Standard & Poor's insurer financial strength ratings currently range from "AAA" to "NR", and include 21 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 strong financial security characteristics, but is somewhat more likely to be affected by adverse business than are higher rated insurers.
A.M. Best Company 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 adjusted again for any reason, we could experience a material decline in the sales of our products and the persistency of our existing business.
Reinsurance
Coinsurance
Effective August 1, 2001, American Equity Life entered into a coinsurance agreement with Equitrust, an affiliate of Farm Bureau, covering 70% of certain of our non-multi-year rate guarantee fixed annuities and index annuities issued from August 1, 2001 through December 31, 2001, and 40% of those contracts for 2002 and 2003. Equitrust has received a financial strength rating of "A" from A.M. Best Company. As of June 30, 2003, Farm Bureau beneficially owned 33% of our common stock. Total annuity deposits ceded were approximately $295.2 million, $837.9 million and $418.3 million for the six months ended June 30, 2003 and the years ended December 31, 2002 and 2001, respectively. We received expense allowances of approximately $30.9 million, $99.4 million and $51.2 million under this agreement for the six months ended June 30, 2003 and the years ended December 31, 2002 and 2001, respectively. The balance due under this agreement to Equitrust was $27.1 million at June 30, 2003 and $1.5 million of December 31, 2002, and represents the market value of the call options related to the ceded business held by us to fund the index credits and cash due to or from Equitrust related to the transfer of ceded annuity deposits. At June 30, 2003, the aggregate policy benefit reserves transferred to Equitrust under this agreement was $1.6 billion. We remain liable with respect to the policy liabilities ceded to Equitrust should it fail to meet the obligations assumed by it.
During 1998, American Equity Life also entered into a modified coinsurance agreement to cede 70% of its variable annuity business to Equitrust. Separate account deposits ceded under this agreement during the six months ended June 30, 2003 and for the years ended December 31, 2002 and 2001 were immaterial. Under this agreement and related administrative services agreements, we paid Equitrust $0.2 million for each of the years ended December 31, 2002 and 2001. 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.
Financial Reinsurance
American Equity Life has entered into two reinsurance transactions with Hannover Life Reassurance Company of America ("Hannover") which are treated as reinsurance under statutory accounting practices and as financial reinsurance under GAAP. Hannover has received a financial strength rating of A+ from A.M. Best Company. The first transaction became effective November 1, 2002 (the "2002 Hannover Transaction") and the second transaction will become effective
53
September 30, 2003 (the "2003 Hannover Transaction"). The agreements for these transactions include a coinsurance segment and a yearly renewable term segment reinsuring a portion of death benefits payable on certain annuities issued from January 1, 2002 to December 31, 2002 (2002 Hannover Transaction) and issued from January 1, 2003 to September 30, 2003 (the 2003 Hannover Transaction). The coinsurance segments provide reinsurance to the extent of 6.88% (2002 Hannover Transaction) and 13.39% (2003 Hannover Transaction) of all risks associated with our annuity policies covered by these reinsurance agreements. The 2002 Hannover Transaction provided approximately $29.8 million in statutory surplus benefit during 2002 and $2.5 million in statutory surplus reduction during the first six months of 2003. Risk charges attributable to the 2002 transaction of $0.7 million were incurred during the six months ended June 30, 2003. The 2003 Hannover Transaction is expected to provide approximately $30 million in statutory surplus benefit during the third quarter of 2003.
The statutory surplus benefit provided by the 2003 Hannover Transaction will replace the statutory surplus benefit previously provided by a financial reinsurance agreement with a subsidiary of Swiss Re. The Company has terminated this agreement and has recaptured all reserves subject to this agreement effective September 30, 2003. This agreement was effective January 1, 2001, and provided an initial statutory surplus benefit of $35.0 million in 2001. The statutory surplus benefit remaining at January 1, 2003 was $30.9 million, all of which will be eliminated in 2003 as of September 30. Risk charges and interest expense incurred on the cash portion of the surplus benefit provided by the agreement were $0.2 million, $0.6 million and $0.5 million for the six months ended June 30, 2003, and the years ended December 31, 2002 and 2001, respectively.
Indemnity Reinsurance
Consistent with the general practice of the life insurance industry, American Equity Life 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. The maximum loss retained by us on all life insurance policies we have issued was $0.1 million or less as of June 30, 2003. Indemnity reinsurance does not discharge the original insurer's primary liability to the insured. Reinsurance related to our life and accident and health insurance that was ceded by us primarily to two reinsurers was immaterial. We believe the assuming companies will be 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.
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:
54
State insurance regulators and the National Association of Insurance Commissioners, or NAIC, continually reexamine existing laws and regulations, and may impose changes in the future.
Our life subsidiaries are subject to periodic examinations by state regulatory authorities. In 2002, the Iowa Insurance Division completed an examination of American Equity Life, as of December 31, 2000. No adjustments to our financial statements were recommended or required as a result of this examination.
The payment of dividends or the distributions, including surplus note payments, by our life subsidiaries is subject to regulation by each subsidiary's state of domicile's insurance department. Currently, our life subsidiaries may pay dividends or make other distributions without the prior approval of their state of domicile's insurance department, unless such payments, together with all other such payments within the preceding twelve months, exceed the greater of (1) the life subsidiary's net gain from operations for the preceding calendar year, or (2) 10% of the life subsidiary's statutory surplus at the preceding December 31. For 2003, up to approximately $25.9 million can be distributed as dividends or surplus note payments by American Equity Life without prior approval of its state of domicile's insurance department. 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. American Equity Life had approximately $55.1 million and $47.4 million of earned surplus at June 30, 2003 and December 31, 2002, respectively.
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 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 and New York where our life subsidiaries are 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
55
government assuming some role in regulating insurance companies and which allows combinations between insurance companies, banks and other entities.
In 1998, the SEC requested comments as to whether 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. No action has been taken by the SEC on this issue.
State insurance regulators and the NAIC are continually reexamining existing laws and regulations and developing new legislation for the passage by state legislatures and new regulations for adoption by insurance authorities. Proposed laws and regulations or those still under development pertain to insurer solvency and market conduct and in recent years have focused on:
For example, the NAIC has promulgated proposed changes to statutory accounting standards. These initiatives may be adopted by the various states in which we are licensed, but the ultimate content, timing and impact of any statutes and regulations adopted by the states cannot be determined at this time.
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, 2002, indicate that the ratio of total adjusted capital to RBC for us exceeded the highest level at which regulatory action might be triggered by approximately 1.9 times. We received the approval of the Iowa Insurance Division to exclude from our RBC ratio for the year 2002, the impact of a rule change requiring the inclusion of additional amounts based on the results of certain cash flow testing scenarios in the calculation. Our RBC ratio for the year 2002, including cash flow testing scenarios, was 1.8 times the highest level at which regulatory action might be triggered.
Our life subsidiaries also may be required, under the solvency or guaranty laws of most states in which they do 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
56
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 a federal income tax advantage, as compared to other savings investments such as certificates of deposit and taxable bonds, in that federal 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 taxed as earned (i.e., realized). 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 that tend to accelerate taxable income into earlier years.
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 annuities that are not sold to an individual retirement account or other qualified retirement plan.
In June 2001, the 2001 Act was enacted. The 2001 Act contains provisions that will, over time, significantly lower individual income tax rates. The 2001 Act will have the effect of reducing the benefits of deferral on the build-up of value of annuities and life insurance products. Some of these changes might hinder our annuities and result in the increased surrender of annuities.
In May 2003, the 2003 Act was enacted. The 2003 Act provisions accelerate the individual income tax rate reductions passed in the 2001 Act. In addition, the 2003 Act significantly reduced the individual income tax rate on corporate dividends. The 2003 Act will have the effect of reducing the benefits of deferral on the build-up of value of annuities and life insurance products. Some of these changes might hinder our sales of annuities and result in the increased surrender of annuities.
Our life subsidiaries are taxed under the life insurance company provisions of the Internal Revenue Code of 1986, as amended (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 being immediately deducted in the year incurred. This provision increases the income tax for statutory accounting purposes, which reduces statutory net income and surplus and, accordingly, may decrease the amount of cash dividends that may be paid by our life subsidiaries.
Employees
As of June 30, 2003, we had approximately 200 full-time employees, of which approximately 190 are located in West Des Moines, Iowa, and 10 are located in the Pell City, Alabama office. 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 operations are conducted. The building was sold in 1998, and American Equity Investment Properties, L.C. now holds
57
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 Investment 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.
On July 9, 1999, we formed American Equity Capital Trust I, a Delaware statutory trust. On October 25, 1999, we formed American Equity Capital Trust II, a Delaware statutory 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 9 to our audited consolidated financial statements.
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 45,000 square feet. The leases expire on June 30, 2006 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. This lease expires on December 31, 2004.
Legal Proceedings
We are occasionally involved in litigation, both as a defendant and as a plaintiff. In addition, state regulatory bodies, such as state insurance departments, the SEC, the National Association of Securities Dealers, Inc., the Department of Labor, and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, the Employee Retirement Income Security Act of 1974, as amended, and laws governing the activities of broker-dealers.
Companies in the life insurance and annuity business have faced litigation, including class action lawsuits, alleging improper product design, improper sales practices and similar claims. We are currently a defendant in two purported class action lawsuits filed in state courts alleging improper sales practices. In both lawsuits, the plaintiffs are seeking returns of premiums and other compensatory and punitive damages. In neither case has the class been certified at this time. Although we have denied all allegations in these lawsuits and intend to vigorously defend against them, the lawsuits are in the early stages of litigation and their outcomes cannot at this time be determined. However, we do not believe that these lawsuits will have a material adverse effect on our financial condition or results of operations.
In addition, we are from time to time subject to other legal proceedings and claims in the ordinary course of business, none of which we believe are likely to have a material adverse effect on our financial position, results of operations or cash flows. There can be no assurance that such litigation, or any future litigation, will not have a material adverse effect on our financial condition or results of operations.
58
Directors and Executive Officers
Set forth below is information regarding our directors and executive officers as of June 30, 2003. There are no family relationships among any directors or executive officers.
Name
|
Age
|
Position
|
||
---|---|---|---|---|
David J. Noble(1)(4) | 71 | Chairman of the Board, Chief Executive Officer, President and Treasurer | ||
John M. Matovina | 49 | Vice Chairman and Director | ||
Kevin R. Wingert | 45 | President of American Equity Life and Director | ||
James M. Gerlach(1)(4) | 61 | Executive Vice President and Director | ||
John C. Anderson | 40 | Director | ||
Robert L. Hilton(2) | 75 | Director | ||
Ben T. Morris | 57 | Director | ||
David S. Mulcahy(3) | 50 | Director | ||
A. J. Strickland, III(2) | 61 | Director | ||
Harley A. Whitfield(2)(3) | 72 | Director | ||
Terry A. Reimer | 58 | Executive Vice President | ||
Debra J. Richardson | 46 | Senior Vice President and Secretary | ||
Wendy L. Carlson | 42 | Chief Financial Officer and General Counsel |
David J. Noble has served as our Chairman, Chief Executive Officer, President and Treasurer and as Chairman of American Equity Life since their formation in 1995. He has also served as Chief Executive Officer of American Equity Life since March 2001, and he served as President of American Equity Life from 1995 until March, 2001. Mr. Noble was Chief Executive Officer of Statesman from 1982 through 1994 and was a director of Statesman (from 1975) and its President (from 1979) until he left to form our company at the end of 1995. Mr. Noble has been active in the insurance industry for over 50 years. Mr. Noble is a director of Twenty Services, Inc.
John M. Matovina has served as our Vice Chairman since June 2003 and has been a director of our company since 2000. Prior to being appointed Vice Chairman, Mr. Matovina was a private investor since 1997 and a financial consultant to us from 1997 to 2000. From November 1983 through November 1996, he was a senior financial officer of Statesman and many of its subsidiaries, and, prior to Statesman's acquisition in September 1994, he served as Statesman's Chief Financial Officer, Treasurer and Secretary. Mr. Matovina is a certified public accountant and has over 13 years of experience as a financial officer in the insurance industry.
Kevin R. Wingert was appointed President of American Equity Life in March 2001 and has been a director of our company since 2002. He served as Vice President of Marketing of that subsidiary since 1996. He served as Regional Vice President of Marketing for American Life and Casualty from 1988 to 1996. Mr. Wingert has been active in the insurance industry for over 20 years.
James M. Gerlach has served as a director and Executive Vice President of our company since 1997 and as a director, Executive Vice President and Chief Marketing Officer of American Equity Life
59
since 1996. Prior to joining us, Mr. Gerlach served as Executive Vice President and Secretary of American Life and Casualty and as Executive Vice President and Treasurer of Vulcan Life Insurance Company, a subsidiary of American Life and Casualty. Mr. Gerlach has been active in the insurance industry for over 35 years.
John C. Anderson has been a director of our company since 1998. He is the Associate Medical Director for American Equity Life. Dr. Anderson is a member of the Southbrooke Health Center, Pell City, Alabama, where he has practiced chiropractic medicine since 1990. He is on the staff at St. Clair Regional Hospital, and has served on the Physician Advisory Committee for Blue Cross/Blue Shield of Alabama. Dr. Anderson holds a certification in disability and impairment rating, and is a member of the Academy of MUA Physicians and the American Academy of Pain Management.
Robert L. Hilton has been a director of our company since 1996. Mr. Hilton served as Executive Vice President of Government Relations and Marketing of Amtrust Financial Services Inc. from October 2000 to April 2001. Mr. Hilton served as Executive Vice President of Insurance Data Resources Statistical Services, Inc., Boca Raton, Florida from 1997 until December 1999. From 1992 to 1996, he served as President of TIDE Consulting Co., Destin, Florida. Mr. Hilton was retired from December 1999 until October 2000 and has been retired since May 2001. Mr. Hilton is a former director of Statesman, and served for over 40 years as Senior Vice President of the National Council of Compensation Insurance, Boca Raton, Florida.
Ben T. Morris has been a director of our company since 1997. Mr. Morris has served as Chief Executive Officer of Sanders Morris Harris Group, Inc. (formerly Sanders Morris Mundy), a financial services firm, since May 2002 and served as President of that company from July 1996 to May 2002. Mr. Morris is also a director of Capital Title Group and Tyler Technologies, Inc. He previously served as Chief Operating Officer of Tatham Corporation and Chief Financial Officer and President of Mid American Oil Company.
David S. Mulcahy has been a director of our company and of American Equity Life since 1996. Mr. Mulcahy is an active investor in private companies, and, since 1987, he has been the Chairman of Monarch Manufacturing Company, Waukee, Iowa. Mr. Mulcahy is a certified public accountant who acted as a senior tax partner in the Des Moines office of Ernst & Young LLP, where he was employed from 1976 through 1994.
A. J. Strickland III has been a director of our company since 1996. Since 1968, Dr. Strickland has been a Professor at the University of Alabama School of Business. Dr. Strickland is a director of Twenty Services, Inc., and a former director of Statesman.
Harley A. Whitfield has been a director of our company since 1996. Mr. Whitfield is an attorney who is of counsel to Whitfield & Eddy, P.L.C., Des Moines, Iowa. Mr. Whitfield was a partner with Whitfield & Eddy, P.L.C. from 1956 through 1994. Mr. Whitfield served as general corporate counsel for Statesman for over 30 years.
Terry A. Reimer has served as Executive Vice President of our company and as a director, Executive Vice President, Chief Operating Officer and Treasurer of American Equity Life since November, 1996. Mr. Reimer was Executive Vice President, Treasurer and Chief Operating Officer of American Life and Casualty from 1988 through November 1996. Mr. Reimer is a certified public accountant and has been involved in the insurance industry for over 30 years.
Debra J. Richardson has served as Senior Vice President and Secretary of our company and as a director, Senior Vice President and Secretary of American Equity Life since June 1996. Ms. Richardson was employed by Statesman from 1977 through April 1996, serving in various positions including Vice President of Shareholder/Investor Relations and Assistant Secretary. Ms. Richardson has been involved in the insurance industry for 20 years.
60
Wendy L. Carlson has served as Chief Financial Officer and General Counsel of our company and as General Counsel of American Equity Life since June 1999. Before becoming an employee, she served as outside corporate counsel for our company from its inception in 1995. Ms. Carlson was previously a partner in the firm of Whitfield & Eddy, P.L.C., Des Moines, Iowa, where she practiced law from 1985 until June 1999. She served as one of the corporate attorneys for Statesman for over 10 years. Ms. Carlson is also a certified public accountant.
Committees of the Board of Directors
We currently have four permanent board committees described below.
Executive Committee. The executive committee performs the following functions, among others:
Audit Committee. The audit committee performs the following functions, among others:
The audit committee is governed by a written charter approved by the board. The charter was included as an appendix to the Proxy Statement for the Annual Meeting of Shareholders held June 7, 2001.
The Audit Committee is comprised of three independent directors, including , David S. Mulcahy and Harley A. Whitfield. John M. Matovina served on the Audit Committee until his appointment as Vice Chairman in June 2003. The Audit Committee must include only directors who are independent of management and free from any relationships that would interfere with the exercise of independent judgment. The Board has determined that all members of the Audit Committee meet such standards, and further that is an "audit committee financial expert," as that term is defined in SEC regulations.
Compensation Committee. The compensation committee performs the following functions, among others:
Investment Committee. The investment committee performs the following functions, among others:
61
These committees are comprised of the following members and held the following number of meetings in 2002:
Committee:
|
Members:
|
2002 Meetings:
|
||
---|---|---|---|---|
Executive |
|
Noble Gerlach |
|
12 |
Audit |
|
Mulcahy Whitfield Matovina(1) |
|
5 |
Compensation |
|
Hilton Strickland Whitfield |
|
-- |
Investment |
|
Noble Gerlach |
|
12 |
Each of the committee members attended at least 75% of the committee meetings.
Compensation of the Board of Directors
Each member of the board of directors who is not an officer of our company receives $500 per day for attending meetings of the board of directors or meetings of committees of the board of directors, plus reimbursement of expenses for attending those meetings. Under the 2000 Director Stock Option Plan, directors who are not our employees may receive options to purchase shares of our common stock; however, no such grants have been made.
Compensation Committee Interlocks and Insider Participation
The board of directors has established a compensation committee, the members of which are directors who were not our officers or employees during 2002 and were formerly not our officers.
Corporate Governance
We expect to adopt any changes recommended by the board of directors with respect to corporate governance policies and practices for us. We will adopt changes, as appropriate, to comply with the Sarbanes-Oxley Act of 2002 and any rule changes made by the Securities and Exchange Commission and the New York Stock Exchange.
Executive Compensation
The following table sets forth certain information with respect to the annual and long-term compensation of our Chief Executive Officer and our highest paid executive officers whose total salary and bonus for 2002 services exceeded $100,000. The amounts shown are aggregate compensation from our company and our subsidiaries.
62
Summary Compensation Table
|
|
|
|
|
Long-Term
Compensation |
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
Annual Compensation
|
Awards
|
|
|||||||||||||
Name and Principal Position
|
Year
|
Salary(1)
|
Bonus
|
Other annual
compensation(2) |
Securities
Underlying Options/SARS(#)(3) |
All Other
Compensation(4) |
|||||||||||
David J. Noble
Chairman, Chief Executive Officer, President and Treasurer |
2002
2001 2000 |
$
|
60,000
77,865 60,000 |
$
|
--
-- -- |
$
|
--
-- -- |
--
-- -- |
$
|
193,708
194,065 1,200 |
(5)
(5) |
||||||
John M. Matovina(6) Vice Chairman |
|
2002 2001 2000 |
|
|
-- -- -- |
|
|
-- -- -- |
|
|
-- -- -- |
|
-- -- -- |
|
|
-- -- -- |
|
Kevin R. Wingert President, American Equity Life |
|
2002 2001 2000 |
|
|
135,000 128,750 75,000 |
|
|
36,633 44,302 25,277 |
|
|
8,790 1,099 -- |
|
-- -- 60,000 |
|
|
3,408 4,498 2,006 |
|
James M. Gerlach Executive Vice President |
|
2002 2001 2000 |
|
|
135,000 128,750 120,000 |
|
|
36,633 34,303 6,382 |
|
|
6,934 6,858 7,445 |
|
-- -- 47,250 |
|
|
3,372 3,398 2,676 |
|
Terry A. Reimer Executive Vice President |
|
2002 2001 2000 |
|
|
135,000 128,750 120,000 |
|
|
36,633 34,303 11,382 |
|
|
10,476 10,476 10,341 |
|
-- -- 47,250 |
|
|
3,642 3,400 2,834 |
|
Debra J. Richardson Senior Vice President and Secretary |
|
2002 2001 2000 |
|
|
135,000 108,333 65,000 |
|
|
36,633 24,303 15,055 |
|
|
9,567 10,546 8,972 |
|
-- -- 47,250 |
|
|
3,375 2,708 1,625 |
|
Wendy L. Carlson Chief Financial Officer and General Counsel |
|
2002 2001 2000 |
|
|
135,000 128,750 120,000 |
|
|
36,633 34,303 6,341 |
|
|
-- -- -- |
|
-- -- 45,000 |
|
|
2,700 2,575 2,527 |
|
63
Options Granted in Last Fiscal Year
No options were granted to our chief executive officer or other executive officers during the fiscal year ended December 31, 2002.
Aggregated Option Exercises and Fiscal Year-end Values
The following table sets forth information concerning the exercise of stock options during the fiscal year ended December 31, 2002, by our chief executive officer and our other most highly compensated executive officers and the fiscal year-end value of the unexercised options.
Name
|
Shares
Acquired on Exercise(#) |
Value
Realized($) |
Number of Securities
Underlying Unexercised Options/SARs at Fiscal Year-End(#)(1) Exercisable (E)/ Unexercisable (U) |
Value of Unexercised
In-The-Money Options/SARs at Fiscal Year-End($)(2) Exercisable (E)/ Unexercisable (U) |
||||||
---|---|---|---|---|---|---|---|---|---|---|
David J. Noble | -- | -- |
(E)
(U) |
2,640,000(3)
-- |
(E)
(U) |
$1,473,600(4)
-- |
||||
John M. Matovina | -- | -- |
(E)
(U) |
--(3)
-- |
(E)
(U) |
--
-- |
||||
Kevin R. Wingert | -- | -- |
(E)
(U) |
112,500(3)
-- |
(E)
(U) |
67,950
-- |
||||
James M. Gerlach | -- | -- |
(E)
(U) |
254,250(3)
-- |
(E)
(U) |
183,825(4)
-- |
||||
Terry A. Reimer | -- | -- |
(E)
(U) |
251,250(3)
-- |
(E)
(U) |
177,465(4)
-- |
||||
Debra J. Richardson | -- | -- |
(E)
(U) |
177,375(3)
-- |
(E)
(U) |
123,637(4)
-- |
||||
Wendy L. Carlson | -- | -- |
(E)
(U) |
97,500(3)
-- |
(E)
(U) |
--
-- |
64
Stock Incentive Plans
2000 Employee Stock Option Plan
Our 2000 Employee Stock Option Plan was adopted by our board of directors in April 2000, and was approved by our shareholders in June 2000. The 2000 Employee Stock Option Plan provides for the issuance of options to purchase a maximum of 1,800,000 shares of our common stock to our employees. Options granted under the 2000 Employee Stock Option Plan may be exercised for a period of no more than ten years from the date of grant. Unless sooner terminated by the board of directors, the 2000 Employee Stock Option Plan will terminate on June 30, 2010, and no additional awards may be made under the 2000 Employee Stock Option Plan after that date. As of June 30, 2003, there were 350,542 options outstanding under the 2000 Employee Stock Option Plan.
Options granted under the 2000 Employee Stock Option Plan may be either "incentive stock options" within the meaning of Section 422 of the Code or nonqualified stock options and entitle the optionee, upon exercise, to purchase shares of common stock from us at a specified exercise price per share. Incentive stock options must have a per-share exercise price of no less than the fair market value of a share of common stock on the date of grant or, if the optionee owns or is treated as owning (under Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of our stock, 110% of the fair market value of a share of common stock on the date of the grant. Nonqualified stock options granted under the 2000 Employee Stock Option Plan must have a per-share exercise price of no less than the fair market value of a share of common stock on the date of the grant. Options are not transferable other than by laws of descent and distribution and will generally be exercisable during an optionee's lifetime only by the optionee.
Our Compensation Committee administers the 2000 Employee Stock Option Plan and has the authority, subject to the provisions of the 2000 Employee Stock Option Plan, to determine who will receive awards under the 2000 Employee Stock Option Plan and the terms of such awards. The maximum number of shares which may be granted to any employee in any one year is 225,000. The Compensation Committee has the authority to determine whether to include a vesting schedule for any option grant; provided that, in the absence of such a schedule, all options vest six months after the date of grant. The Compensation Committee has the authority to adjust the number of shares available for options, the number of shares subject to outstanding options and the exercise price for options following the occurrence of events such as stock splits, dividends, distributions and recapitalizations. However, without the approval of our shareholders, and except in connection with a stock split, stock dividend or similar event, the Compensation Committee will not lower the exercise price for any outstanding options or issue any replacement options for options previously granted at a higher exercise price.
The Compensation Committee may provide that the exercise price of an option may be paid in cash, common stock or by a promissory note. The Compensation Committee may also permit a "cashless exercise" arrangement whereby an optionee delivers an exercise notice and irrevocable instructions to an approved registered broker to sell shares and deliver the exercise price in cash to us.
If an optionee's employment with our company is terminated for any reason other than the optionee's death or disability, any outstanding options granted under the 2000 Employee Stock Option Plan will expire unless exercised within 60 days from the date of employment termination. If an optionee's employment with our company is terminated because the optionee dies or becomes disabled, any outstanding options granted under the 2000 Employee Stock Option Plan will expire unless exercised within one year after the date of employment termination. In the event of a change of control of our company, or upon the death or disability of the optionee, any outstanding options under the 2000 Employee Stock Option Plan will be immediately fully exercisable by an optionee or his or her designated beneficiary. A change of control includes the acquisition by any person of more than 20% of our outstanding voting stock, the election of two or more directors in opposition to the director
65
nominees proposed by management, the transfer of all or substantially all of our assets or a merger or share exchange in which we are not the surviving corporation.
The 2000 Employee Stock Option Plan may be amended by the board of directors, except that the board may not (i) change any option previously made under the 2000 Employee Stock Option Plan in a manner which would impair the recipients' rights without their consent or (ii) amend the 2000 Employee Stock Option Plan without approval of our shareholders, if required by law.
2000 Director Stock Option Plan
Our 2000 Director Stock Option Plan was adopted by our board of directors in April 2000, and was approved by our shareholders in June 2000. The 2000 Director Stock Option Plan provides for the issuance of options to purchase a maximum of 225,000 shares of common stock to nonemployee directors of our company. Options granted under the 2000 Director Stock Option Plan may be exercised for a period of no more than ten years from the date of grant. Unless sooner terminated by our board of directors, the 2000 Director Stock Option Plan will terminate on June 30, 2010, and no additional awards may be made under the 2000 Director Stock Option Plan after that date. As of June 30, 2003, there were no options outstanding under the 2000 Director Stock Option Plan.
Options granted under the 2000 Director Stock Option Plan will be nonqualified stock options under the Code and entitle the optionee, upon exercise, to purchase shares of common stock from us at an exercise price per share no less than the fair market value of a share of common stock on the date of the grant. Options will not be transferable other than by laws of descent, and will generally be exercisable during an optionee's lifetime only by the optionee.
Our board of directors administers the 2000 Director Stock Option Plan and has the authority, subject to the provisions of the 2000 Director Stock Option Plan, to determine who will receive awards under the 2000 Director Stock Option Plan and the terms of such awards. The maximum number of shares which may be granted to any director in any one year is 10,500. The board has the authority to determine whether to include a vesting schedule for any option granted; provided that, in the absence of such a schedule, all options vest six months after the date of grant. The board has the authority to adjust the number of shares available for options, the number of shares subject to outstanding options and the exercise price for options following the occurrence of events such as stock splits, dividends, distributions and recapitalizations. However, without the approval of our shareholders, and except in connection with a stock split, stock dividend or similar event, the board will not lower the exercise price for any outstanding options or issue any replacement options for options previously granted at a higher exercise price.
If an optionee's directorship is terminated for any reason other than the optionee's death or disability, any outstanding options granted under the 2000 Director Stock Option Plan will expire unless exercised within 60 days from the date of directorship termination. If an optionee's directorship is terminated because the optionee dies or becomes disabled, any outstanding options granted under the 2000 Director Stock Option Plan will expire unless exercised within one year after the date of directorship termination. In the event of a change of control of our company, or upon the death or disability of the optionee, any outstanding options under the 2000 Director Stock Option Plan will be immediately fully exercisable by an optionee or his or her designated beneficiary. A change of control includes the acquisition by any person of more than 20% of our outstanding voting stock, the election of two or more directors in opposition to the director nominees proposed by management, the transfer of all or substantially all of our assets or a merger or share exchange in which we are not the surviving corporation.
The 2000 Director Stock Option Plan may be amended by the board of directors, except that the board may not (i) change any option previously made under the 2000 Director Stock Option Plan
66
in a manner which would impair the recipients' rights without their consent or (ii) amend the 2000 Director Stock Option Plan without approval of our shareholders, if required by law.
Other Compensation Plans
We sponsor a bonus plan for all employees based upon total receipts of premiums from new annuity sales. Senior managers of the Company, with the exception of Mr. Noble, participate in this plan on a pro rata basis with all other employees. The bonus pool consists of 5 basis points (0.05%) of new premiums received during the six-month periods preceding each semi-annual distribution date. Distributions are made as cash bonuses on a pro rata basis equal to the ratio which each employee's gross salary bears to our total payroll expense for the relevant period. In addition, officers of the Company may receive annual discretionary cash bonuses in amounts determined by Mr. Noble.
We also have a qualified 401(k) plan for all employees after 30 days of employment and attainment of age 21. We match 50% of employee contributions to the plan to the extent of 4% of total compensation, subject to the limitations specified in the Code.
In 2002, we offered to senior officers a non-qualified deferred compensation plan and trust. Under this plan, any of our senior officers may elect to defer all or a portion of their salary and/or cash bonuses until their separation from service due to death, disability or retirement, or until the Board authorizes the release of the deferred amounts. Each officer electing to defer salary under this plan has a deferred compensation account where the investment of such account is subject to his/her direction. All assets held to fund such accounts are held in trust and would be returned to the Company only in the event of its insolvency.
Change in Control Arrangements
We have entered into change in control severance agreements with Messrs. Matovina, Wingert, Gerlach, and Reimer and Ms. Richardson and Ms. Carlson, which provide for payment of certain benefits to these executives if they are terminated following a change in control (defined below). The term of each agreement continues through December 31, 2004. However, each January 1 (beginning January 1, 2005), the term of each agreement will automatically extend one year unless we have given 90 days notice that we will not extend the term of the agreement. Upon the occurrence of a change in control, the term of each agreement shall be extended until the date that is 36 months following the change in control, or, with respect to Messrs. Gerlach and Reimer, 24 months.
An executive is entitled to payments under the change in control severance agreement if, following a change in control and during the 36-month period (or with respect to Messrs. Gerlach and Reimer, 24-month period) following the change in control, (i) we terminate the executive's employment other than for "cause" (defined below), or (ii) the executive terminates his or her employment with us for "good reason" (defined below).
Upon an executive's termination of employment as described above, the executive is entitled to the following:
67
Additionally, with respect to Messrs. Matovina and Wingert and Ms. Richardson and Ms. Carlson, if the executive is subject to the "golden parachute" excise tax imposed by Internal Revenue Code Sections 280G and 4999, the executive is entitled to receive an additional "gross-up" payment that is sufficient to pay the golden parachute excise tax and all other taxes, interest and penalties associated with the excise tax and gross-up payment.
With respect to Messrs. Gerlach and Reimer, if the executive is subject to the golden parachute excise tax, it will be determined whether a reduction in the amount of payments to the executive would result in a greater after-tax benefit to the executive than if the executive received all payments and paid all applicable taxes, including the golden parachute excise tax. If such a reduction would result in a greater after-tax benefit to the executive, the executive's payments will be reduced accordingly.
During the term of the agreement and during the period in which the executive is entitled to continued salary payments, the executive may not (i) solicit or entice any other employee to leave us or our affiliates to go to work for any competitor, or (ii) request or advise a customer or client of ours or our affiliates to curtail or cancel its business relationship with us or our affiliates.
The term "change in control" is defined in the agreements, but generally means the occurrence of any of the following events:
68
The term "cause" is defined in the agreements, but generally means any of the following:
The term "good reason" is defined in the agreements, but generally means, unless the executive has consented in writing, the occurrence of any of the following:
69
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
General Agency Commission and Servicing Agreement
We have a General Agency Commission and Servicing Agreement with American Equity Investment Service Company, or the Service Company, which is wholly-owned by Mr. Noble, our chairman, chief executive officer, president and treasurer, whereby the Service Company acts as a national supervisory agent with responsibility for paying commissions to our agents. Under the terms of the original agreement, the Service Company was required to pay the greater of (a) 5% of the premiums we collected on the sale of certain annuity products, or (b) 50% of the agent's commissions payable by us on the sale of those same policies. In return, we agreed to pay quarterly renewal commissions to the Service Company equal to .3875% of the premiums received by us on policies that still remain in force.
On December 31, 1997, we 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, we agreed to pay the Service Company quarterly renewal commissions of .7% of the premiums received by us 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, we pay renewal commissions of .3875% of the premiums received on such policies which remain in force.
On June 30, 1999, we amended the agreement to provide for the payment of 30% of the agents' commissions by the Service Company for policies issued on or after September 1, 1999. In return, we agreed to pay the Service Company quarterly renewal commissions of .25% of the premiums received thereafter.
On October 1, 2002, we amended the agreement to provide for the payment of 35% of the agents' commissions by the Service Company for policies issued from October 1, 2002 through December 31, 2002. In return, we agreed to pay the Service Company quarterly renewal commissions of .325% of the premiums received on in-force policies thereafter. Effective October 1, 2002, we also agreed to pay the Service Company quarterly renewal commissions of .325% of in-force amounts on policies issued from January 1, 1998 through August 31, 1999 and .7% of in-force amounts on policies issued prior to January 1, 1998. The termination date of the agreement was extended to December 31, 2008.
In connection with the General Agency Commission and Servicing Agreement, we record commissions and related payables for amounts paid by the Service Company. Interest expense is recorded based upon estimated future payments to the Service Company pursuant to an imputed interest rate (approximately 9.0%) for each of the periods presented. Estimated future payments are evaluated regularly and the imputed interest rate will be adjusted when deemed necessary. During the years ended December 31, 2002 and 2000, the Service Company paid $11.8 million and $28.4 million, respectively, to our agents. The Service Company made no payments to the agents of American Equity Life during the year ended December 31, 2001. We paid renewal commissions to the Service Company of $11.1 million, $21.7 million, $23.2 million and $22.4 million during the six months ended June 30, 2003 and the years ended December 31, 2002, 2001 and 2000, respectively.
Estimated future payments under the General Agency Commission and Servicing Agreement at June 30, 2003 and December 31, 2002 are as follows (dollars in thousands):
70
As a source of funding its portion of agents' commission payments, the Service Company borrowed funds from Mr. Noble. The amount payable to Mr. Noble by the Service Company at June 30, 2003, December 31, 2002 and 2001 was $19.7 million, $24.1 million and $22.4 million, respectively. As an alternate source of funds for such first year commissions, the Service Company borrowed funds from us. At June 30, 2003, December 31, 2002 and 2001, amounts receivable from the Service Company totaled $15.8 million, $20.5 million and $29.1 million, respectively. Principal and interest on all loans to the Service Company are payable quarterly over five years from the date of each advance. The Service Company repays the above described indebtedness from the renewal commissions paid to it under the General Agency Commission and Servicing Agreement. Interest on such indebtedness accrues at the "reference rate" of the financial institution that is the Company's principal lender. This rate averaged 8.70% in 2002, and 8.64% in 2001 and 2000.
Equitrust Transactions
Effective August 1, 2001, American Equity Life entered into a coinsurance agreement with Equitrust, an affiliate of Farm Bureau, covering 70% of certain of our non-multi-year rate guaranteed fixed annuities and index annuities issued from August 1, 2001 through December 31, 2001 and 40% of those contracts for 2002 and 2003. As of June 30, 2003, Farm Bureau beneficially owned 33% of our common stock. Total annuity deposits ceded were approximately 418.3 million and expense allowance received was approximately $51.2 million under this agreement for the year ended December 31, 2001. Total annuity deposits ceded were approximately $837.9 million and expense allowance received was approximately $99.4 million under this agreement for the year ended December 31, 2002. Total annuity deposits ceded were approximately $ 295.2 million and expense allowance received was approximately $30.9 million under the agreement during the first six months of 2003. The balance due at June 30, 2003 under this agreement to Equitrust was $27.1 million, and represents the market value of the call options related to the ceded business we hold to fund the index credits and cash due to or from Equitrust related to the transfer of annuity deposits. We remain liable with respect to policy liabilities ceded to Equitrust should it fail to meet the obligations assumed by it.
5% Trust Preferred Securities
In October 1999, Trust II issued 97,000 shares of company obligated mandatorily redeemable preferred securities of subsidiary trust, or the 5% trust preferred securities. The 5% trust preferred securities have a liquidation value of $100 per share ($97,000,000 in the aggregate). 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. Farm Bureau beneficially owned 33% of our common stock as of June 30, 2003. We receive an annual dividend of $4,850,000 on the fixed income trust preferred securities issued by the parent of Farm Bureau, and Trust II pays an equivalent annual dividend on the 5% trust preferred securities.
Other Relationships
Harley A. Whitfield, a member of our board of directors, and Wendy L. Carlson, our Chief Financial Officer and General Counsel, are each of counsel to Whitfield & Eddy, P.L.C. We have retained Whitfield & Eddy from time to time to perform legal services.
71
The following table sets forth information known to us with respect to beneficial ownership of our common stock as of June 30, 2003, by (A) each shareholder known by us to be a beneficial owner of more than 5% of our common stock; (B) each director and nominee for director of us; (C) our chief executive officer and each of our other most highly compensated executive officers; and (D) all executive officers, directors and nominees for directors as a group.
|
Shares Beneficially Owned(1) |
Options and
Subscription Rights Included in Number of Shares Beneficially Owned(2) |
|||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
|||||||
Number
|
Percent
|
||||||
David J. Noble(3)(4) | 3,477,625 | 21.27 | % | 2,018,125 | |||
John M. Matovina(5) | 68,000 | * | 50,000 | ||||
Kevin R. Wingert(6) | 250,600 | 1.72 | 212,500 | ||||
James M. Gerlach(5)(6) | 347,250 | 2.38 | 254,250 | ||||
John C. Anderson | 10,650 | * | | ||||
Robert L. Hilton | 3,750 | * | | ||||
Ben T. Morris | 68,019 | * | 18,750 | ||||
David S. Mulcahy(4)(6) | 96,000 | * | 30,000 | ||||
A. J. Strickland, III(5) | 234,000 | 1.61 | 105,000 | ||||
Harley A. Whitfield | 36,000 | * | 15,000 | ||||
Terry A. Reimer(5)(6) | 345,750 | 2.35 | 251,250 | ||||
Debra J. Richardson(4)(5) | 269,097 | 1.84 | 254,250 | ||||
Wendy L. Carlson | 211,300 | 1.45 | 197,500 | ||||
All executive officers, directors and nominees for directors as a group (13 persons) | 5,418,041 | 30.55 | 3,406,625 | ||||
5% Owners |
|
|
|
|
|
|
|
Farm Bureau Life Insurance Company(4)
5400 University Avenue West Des Moines, Iowa 50266 |
4,687,500 | 32.71 | |||||
NMO Deferred Compensation Trust | 1,262,136 | 8.81 | |||||
c/o Mr. Dan Kelly, trustee
4401 Westown Parkway West Des Moines, Iowa 50263 |
72
deposited in the voting trust, while Farm Bureau retains the economic rights to those shares. The voting trustees are David J. Noble, David S. Mulcahy and Debra J. Richardson, each of whom is a director or an executive officer of us. Each of the voting trustees disclaims any beneficial ownership with respect to these shares. Farm Bureau has a "right of first refusal" to maintain a 20% ownership interest in our issued and outstanding equity securities in certain circumstances, including in connection with this offering.
In addition to our equity securities reflected in the table above, certain of the directors and executive officers beneficially own shares of the 8% trust preferred securities issued by one of our subsidiary trusts. Messrs. Noble, Gerlach, Mulcahy and Reimer and Ms. Richardson beneficially own 6,000, 1,000, 4,000, 1,000 and 1,000 of such securities, respectively, and the directors and executive officers as a group (13 persons) own 13,000 of such securities. With respect to Messrs. Noble and Gerlach and Ms. Richardson, 4,000, 1,000 and 1,000 of such securities, respectively, are held in our 401(k) savings plan. The 8% trust preferred securities are convertible into our common stock.
The address of each of the beneficial owners other than Ben T. Morris, Farm Bureau and the NMO Deferred Compensation Trust is c/o American Equity Investment Life Holding Company, 5000 Westown Parkway, Suite 440, West Des Moines, Iowa 50266. The address for Ben T. Morris is c/o Sanders Morris Harris, 3100 Chase Tower, Houston, Texas 77002. The addresses for Farm Bureau and the NMO Deferred Compensation Trust are provided above.
73
Our authorized capital stock consists of 77,000,000 shares, of which 75,000,000 shares are common stock, par value $1 per share, and 2,000,000 shares are preferred stock, par value $1 per share. Upon completion of this offering, there will be issued and outstanding shares of common stock and shares of preferred stock.
Common Stock
Each outstanding share of our common stock is entitled to one vote per share on each matter submitted to the vote of shareholders. Cumulative voting for the election of directors is not permitted, and the holders of a majority of shares voting for the election of directors can elect all members of the board of directors. Subject to the rights of holders of preferred stock, holders of our common stock have equal ratable rights to dividends from funds legally available therefor, when, as, and if declared by the board of directors. Holders of our common stock are entitled to share ratably in all of our assets available for distribution upon our liquidation, dissolution or winding up. Holders of our common stock have no preemptive, conversion, redemption, or subscription rights.
In 2002 and 2001 we paid a cash dividend of $0.01 per share on our common stock and $0.03 on our participating series 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. 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.
Our credit agreement contains a restrictive covenant which limits our ability to declare or pay dividends in any fiscal year to 25% of our consolidated net income for the prior year. 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. Financial covenants under our existing or future loan agreements and reinsurance agreements, or provisions of the laws of the states where we or our subsidiaries are organized, may limit our subsidiaries' ability to make sufficient distributions to us to permit us to pay cash dividends on our common stock.
As of June 30, 2003, there were approximately 292 holders of our common stock.
Preferred Stock
Preferred stock may be issued from time to time in one or more series with such rights and preferences as may be determined by the board of directors. As of June 30, 2003, 625,000 shares of 1998 Series A Participating Preferred Stock were issued and outstanding. The preferred shares rank on parity with our common stock as to the payment of dividends when, as and if dividends are declared. The preferred shares rank senior to our common stock as to the distribution of assets upon liquidation, dissolution or winding up. Upon liquidation, the preferred shares would have a liquidation preference equal to the greater of: (a) $16 per share ($10,000,000 in the aggregate) plus accrued and unpaid dividends and distributions which have been declared; and (b) the amount per share payable to holders of our common stock. The preferred shares have no voting rights and are convertible, at the option of the holder, into shares of our common stock on a three for one basis upon the closing of this offering. Certain anti-dilution rights for the 1998 Series A Participating Preferred Stock are specified in the resolutions creating the series.
74
Options and Management Subscription Rights
As of June 30, 2003, (a) options to purchase a total of 2,629,302 shares of common stock were outstanding and (b) up to 1,674,458 additional shares of common stock may be subject to options granted in the future. All of the options contain standard anti-dilution provisions.
In connection with our subscription rights offering and private placement of our common stock in December 1997, we issued management subscription rights to purchase an aggregate of 2,157,375 shares of our common stock to nine officers and directors. These management subscription rights have an exercise price of $5.33 per share and may be exercised at any time prior to December 1, 2005.
8% Convertible Trust Preferred Securities
In September 1999, Trust I issued $25,970,000 of 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% debentures to Trust I. The sole assets of Trust I are the 8% debentures and any interest accrued thereon. The 8% trust preferred securities are convertible, at the option of the holder, at any time, into shares of our common stock at a conversion price equal to the lesser of (i) $10 per share or (ii) 90% of the price per share of our common stock sold to the public in connection with this offering.
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 June 30, 2003, 863,671 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.
5% Trust Preferred Securities
In October, 1999, Trust II issued 97,000 shares of company obligated mandatorily redeemable preferred securities of subsidiary trust, or the 5% trust preferred securities. The 5% trust preferred securities have a liquidation value of $100 per share ($97,000,000 in the aggregate). 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. Farm Bureau beneficially owned 33% of our common stock as of June 30, 2003.
In connection with Trust II's issuance of the 5% trust 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% 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. As of June 30, 2003, 97,000 shares of 5% trust preferred securities were outstanding, all of which are unconditionally guaranteed by us to the extent of the assets of Trust II.
Registration Rights
As of the completion of this offering, the holders of an aggregate number of shares of common stock will be entitled to two types of registration rights. These rights are provided under the terms of a registration rights agreement, dated as of April 30, 1997, between us and the holders of the registrable securities thereunder, who include . This agreement provides one-time demand registration rights to the holders of substantially all of such registrable securities. In addition, the holders of all of such registrable securities are entitled under the agreement, subject to certain limitations, to require us to include their registrable securities in future registration statements that we
75
file. Registration of shares of common stock pursuant to the rights granted in this agreement will result in such shares becoming freely tradeable without restriction under the Securities Act. We will bear all registration expenses incurred in connection with the above registrations.
Farm Bureau Right of First Refusal
Under an agreement, dated as of December 4, 1997, between Farm Bureau and us, Farm Bureau has a "right of first refusal" to purchase additional equity securities of us sufficient to maintain a 20% ownership interest in us in the event of (a) any offering or other proposed issuance of equity securities, or securities convertible into equity securities, of us or (b) any exercise of options or warrants to purchase equity securities of us or any conversion of securities convertible into equity securities of us which, in each case, would cause Farm Bureau's aggregate ownership interest in equity securities of us to decrease to less than 20% of all then outstanding equity securities. Upon completion of this offering, Farm Bureau's ownership interest in us would be reduced to approximately of our total outstanding equity securities. Accordingly, Farm Bureau will have the right to purchase up to approximately of the common stock offered hereby.
Indemnification of Directors and Executive Officers and Limitation of Liability
Section 490.202(d) of the Iowa Business Corporation Act authorizes a corporation's board of directors to grant indemnity to directors in terms sufficiently broad to permit indemnification and reimbursement of expenses incurred by directors for liabilities arising under the Securities Act.
Our amended articles of incorporation provide that each individual who was or is a director of the company 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 company, or is or was serving at the request of the company as a director, officer, partner, trustee, employee or agent of another corporation shall be indemnified and held harmless by the company to the fullest extent permitted by applicable law, except liability for:
Our bylaws also provide that each person who was or is a party or is threatened to be made a party to any threatened, pending or completed civil or criminal action or proceeding by reason of the fact that such person is or was a director of the company or is or was serving at our request as a director of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by us to the fullest extent permitted by Iowa law. This right to indemnification shall also include the right to be paid by us the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Iowa law. This right to indemnification shall be a contract right. We may, by action of our board of directors, provide indemnification to our officers, employees and agents to the extent and to the effect as the board of directors determines to be appropriate and authorized by Iowa law.
Our bylaws also authorize us to purchase insurance for our directors, officers and employees and persons who serve at our request as directors, officers, members, employees, fiduciaries or agents of other enterprises, against any expense, liability or loss incurred in such capacity, whether or not we would have the power to indemnify such persons against such expense or liability under the bylaws. We
76
maintain insurance coverage for our officers and directors as well as insurance coverage to reimburse us for potential costs for indemnification of directors and officers.
Selected Articles of Incorporation and Bylaws Provisions
Our amended articles of incorporation and bylaws include provisions that may have the effect of discouraging, delaying or preventing (a) a change in control of us or (b) an unsolicited acquisition proposal that a shareholder might consider favorable, including a proposal that might result in the payment of a premium over the market price for the shares held by shareholders. These provisions are summarized in the following paragraphs.
Classified Board of Directors. Our amended articles of incorporation and bylaws provide for our board of directors to be divided into three classes of directors serving staggered, three year terms. The classification of the board of directors has the effect of requiring at least two annual shareholder meetings to replace a majority of the members of the board of directors.
Notice Procedures. Our bylaws establish advance notice procedures with regard to all shareholder proposals to be brought before meetings of our shareholders, including proposals relating to the nomination of candidates for election as directors, the removal of directors and amendments to our amended articles of incorporation and bylaws.
Shareholder Meetings. Our bylaws provide that special meetings may be called only by the board of directors, our President or shareholders owning 90% of all the votes entitled to be cast on any issue proposed at the special meeting.
Authorized but Unissued or Undesignated Capital Stock. Our amended articles of incorporation grant the board of directors broad power to establish the rights and preferences of authorized and unissued preferred stock. The issuance of shares of preferred stock pursuant to the board of director's authority could (a) decrease the amount of earnings and assets available for distribution to holders of common stock, (b) adversely affect the rights and powers, including voting rights, of such holders and (c) have the of effect delaying, deferring or preventing a change in control of us. The board of directors does not currently intend to seek shareholder approval prior to any issuance of preferred stock, unless otherwise required by law or the rules of any exchange on which the securities are then traded.
Iowa Takeover Statute
We are subject to Section 490.1110 of the Iowa Business Corporation Act which prohibits certain "business combination" transactions between an Iowa corporation and any "interested shareholder" for a period of three years after the date on which such shareholder became an interested shareholder, unless:
77
shares of the corporation's voting stock other than shares held by the interested shareholder.
Section 490.1110 defines "business combination" to include:
In general, an "interested shareholder" is any person beneficially owning 10% or more of the outstanding voting stock of the corporation and any person affiliated with or controlled by such person. "Person" means any individual, corporation, partnership, unincorporated association or other entity.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Equiserve Trust Company, N.A.
78
SHARES ELIGIBLE FOR FUTURE SALE
General
Prior to this offering there has been no public market for our common stock, and no predictions can be made regarding the effect, if any, that sales of substantial amounts of our common stock, or the perception that such sales may occur, will have on the prevailing market price of our common stock. Sales of substantial amounts of our common stock in the public market after the restrictions lapse, or are waived, could adversely affect the prevailing market price.
Upon the consummation of this offering, we expect to have shares of common stock outstanding. The shares of common stock being sold in this offering will be freely tradable without restriction or registration under the Securities Act, except for shares, if any, held by our "affiliates," as that term is defined in the Securities Act. Persons who may be deemed to be our affiliates generally include individuals or entities that control, are controlled by, or are under common control with, our company, and may include our directors and officers, as well as our significant shareholders. The remaining shares of our common stock held by our other shareholders are "restricted securities," as that term is defined in the Securities Act. These shares are eligible for public sale only if registered under the Securities Act or sold in accordance with Rules 144 or 144(k) under the Securities Act.
No Sales of Similar Securities
We and all of our officers and directors and certain shareholders, including Farm Bureau and the NMO Deferred Compensation Trust, holding an aggregate of % of our oustanding common stock prior to this offering have agreed, with exceptions, not to sell or transfer any of our common stock for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Each of the remaining shareholders that have entered into these lock-up agreements held less than 3% of our outstanding common stock prior to this offering. Specifically, we and these other persons have agreed not to, directly or indirectly
This lockup provision applies to common stock and to securities convertible into or exchangeable or exercisable for common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
79
While Merrill Lynch has no specific criteria for the waiver of this lockup provision and currently has no intention to waive this provision, if requested to, Merrill Lynch may, in certain instances, waive this provision after consideration of, among other things, the current price of our common stock, the current trading volume of our common stock and general market conditions.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after the date of this prospectus, a person, including one of our affiliates, who beneficially owns "restricted securities" may not sell those securities until they have been beneficially owned for at least one year. Thereafter, the person would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:
Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us.
Rule 144(k)
Under Rule 144(k), a person who is not, and has not been at any time during the 90 days preceding a sale, one of our affiliates and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except one of our affiliates, is entitled to sell these shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Benefit Plans
Following the consummation of this offering, we intend to file a registration statement on Form S-8 under the Securities Act covering shares of our common stock reserved for issuance under our stock option plans. We expect the registration statement to be filed soon after the date of this prospectus and to become effective automatically upon filing. Accordingly, our common stock registered under the registration statement will, subject to vesting provisions and volume limitations applicable to our affiliates under the Securities Act, be available for sale in the open market immediately, subject to the 180-day lock-up agreements described above.
80
MATERIAL U.S. FEDERAL TAX CONSEQUENCES
TO NON-U.S. SHAREHOLDERS
The following is a general summary of the material United States federal income and estate tax consequences expected to result under current law from the purchase, ownership and taxable disposition of shares of our common stock by a Non-U.S. Shareholder, which for the purpose of this summary is a person or entity who is not
This summary does not address all of the United States federal income tax and estate tax considerations that may be relevant to a Non-U.S. Shareholder in light of its particular circumstances or to Non-U.S. Shareholders that may be subject to special treatment under United States federal income tax laws. Furthermore, this summary does not discuss any aspects of state, local or foreign taxation. This summary assumes that a Non-U.S. Shareholder holds our common stock as a capital asset as determined for United States federal income tax purposes (generally property held for investment). This summary is based on current provisions of the Internal Revenue Code of 1986, as amended, Treasury regulations, judicial opinions, published positions of the Internal Revenue Service and other applicable authorities, all of which are subject to change or differing interpretations, possibly with retroactive effect.
Each prospective purchaser of our common stock is advised to consult its tax adviser with respect to the U.S. federal, state, local and foreign income and other tax consequences of acquiring, holding and disposing of our common stock.
Dividends
In general, if we pay a dividend, we will have to withhold United States federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) from the gross amount of any dividend paid to a Non-U.S. Shareholder of our common stock, unless the dividend is effectively connected with the conduct of a trade or business of the Non-U.S. Shareholder within the United States. If the dividend is effectively connected with the conduct of a trade or business of the Non-U.S. Shareholder within the United States, the dividend will not be subject to United States withholding tax if the Non-U.S. Shareholder files certain forms, including Internal Revenue Service Form W-8ECI (or any successor form), with the payor of the dividend, and generally will be subject to United States federal income taxation on a net income basis in the same manner as if the Non-U.S. Shareholder were a resident of the United States. If the Non-U.S. Shareholder is a corporation, such effectively connected income may also be subject to an additional "branch profits tax" at the rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on the repatriation or deemed repatriation from the United States of its "effectively connected earnings and profits," subject to certain adjustments and exceptions.
Sale or Disposition of Common Stock
A Non-U.S. Shareholder generally will not be subject to United States federal income tax on any gain realized upon the sale or other disposition of our common stock unless (i) such gain is
81
effectively connected with a United States trade or business of the Non-U.S. Shareholder, (ii) the Non-U.S. Shareholder is an individual who holds our common stock as a capital asset and who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which such sale or disposition occurs and certain other conditions are met or (iii) the Non-U.S. Shareholder is subject to tax under the provisions of United States federal income tax law applicable to certain United States expatriates. In addition, if we are or have been a "United States real property holding corporation" for United States federal income tax purposes, a Non-U.S. Shareholder who is otherwise not subject to United States federal income tax on gain realized on a sale or other disposition of our common stock would not be subject to such taxation, but only if our common stock continues to be "regularly traded on an established securities market" for United States federal income tax purposes and such Non-U.S. Shareholder does not own, directly or indirectly, at any time during the five-year period ending on the date of disposition or such shorter period the shares were held, more than 5 percent of the outstanding shares of our common stock. We do not believe that we are or will become a United States real property holding corporation for United States federal income tax purposes.
Backup Withholding and Information Reporting
Generally, dividends paid to Non-U.S. Shareholders that are subject to the 30% United States federal withholding tax described above under "Dividends" are not subject to backup withholding. We must report annually to the Internal Revenue Service and to each Non-U.S. Shareholder the amount of dividends paid to such shareholder and the amount, if any, of tax withheld with respect to such dividends. This information may also be made available to the tax authorities in the Non-U.S. Shareholder's country of residence.
The payment of the proceeds of the sale or other taxable disposition of our common stock to or through the United States office of a broker is subject to information reporting and backup withholding unless the Non-U.S. Shareholder properly certifies its non-United States status under penalties of perjury or otherwise establishes an exemption and the broker has no actual knowledge to the contrary. Generally, a Non-U.S. Shareholder will provide such certification on Internal Revenue Service Form W-8BEN. Information reporting requirements, but not backup withholding, will also generally apply to payments of the proceeds of a sale of our common stock by foreign offices of United States brokers or foreign brokers with certain types of relationships to the United States unless the Non-U.S. Shareholder establishes an exemption.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from payments made to a shareholder may be refunded or credited against such shareholder's United States federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service.
Non-U.S. Shareholders should consult their own tax advisors regarding the application of information reporting and backup withholding to them, including the availability of and procedure for obtaining an exemption from backup withholding.
Federal Estate Tax
An individual Non-U.S. Shareholder who owns shares of our common stock at the time of his death or who made certain lifetime transfers of an interest in our common stock will be required to include the value of such common stock in his gross estate for United States federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. Legislation enacted in the spring of 2001 provides for reductions in the United States federal estate tax through 2009 and the elimination of the estate tax entirely in 2010. Under the legislation, the United States federal estate tax would be fully reinstated, as in effect prior to the reductions, in 2011. On July 18, 2003, the United States House of Representatives passed a bill that would permanently extend the estate tax repeal after it expires in 2010 under the 2001 legislation. No assurance can be given, however, that the bill passed by the House of Representatives will be enacted in its present form or at all.
82
General
We intend to offer the shares through the underwriters. Merrill Lynch, Pierce, Fenner & Smith Incorporated and Advest, Inc. are acting as representatives of the underwriters named below. Subject to the terms and conditions described in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from us, the number of shares listed opposite their names below.
Underwriter
|
Number
of Shares |
||
---|---|---|---|
Merrill Lynch, Pierce, Fenner & Smith
Incorporated |
|||
Advest, Inc. | |||
Total | |||
|
The underwriters have agreed to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.
We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make in respect of those liabilities.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officer's certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
Commissions and Discounts
The representatives have advised us that the underwriters propose initially to offer the shares to the public at the initial public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After the initial public offering, the public offering price, concession and discount may be changed.
The following table shows the public offering price, underwriting discount and proceeds before expenses to our company. The information assumes either no exercise or full exercise by the underwriters of their over-allotment options.
|
Per Share
|
Without Option
|
With Option
|
||||||
---|---|---|---|---|---|---|---|---|---|
Public offering price | $ | $ | $ | ||||||
Underwriting discount | $ | $ | $ | ||||||
Proceeds, before expenses, to us | $ | $ | $ |
The expenses of the offering, not including the underwriting discount, are estimated at $ and are payable by us.
83
Over-allotment Option
We have granted options to the underwriters to purchase up to additional shares at the public offering price less the underwriting discount. The underwriters may exercise these options from time to time on one or more occasions for days from the date of this prospectus solely to cover any over-allotments. If the underwriters exercise these options, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriter's initial amount reflected in the above table.
Reserved Shares
At our request, the underwriters have reserved for sale, at the initial public offering price, up to % of the shares offered by this prospectus for sale to some of our directors, officers, employees, distributors, dealers, business associates and related persons. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not orally confirmed for purchase within one day of the pricing of this offering will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
No Sales of Similar Securities
We and all of our officers and directors and certain shareholders, including Farm Bureau and the NMO Deferred Compensation Trust, holding an aggregate of % of our outstanding common stock prior to this offering have agreed, with exceptions, not to sell or transfer any of our common stock for 180 days after the date of this prospectus without first obtaining the written consent of Merrill Lynch. Each of the remaining shareholders that have entered into these lock-up agreements held less than 3% of our outstanding common stock prior to this offering. Specifically, we and these other persons have agreed not to, directly or indirectly
This lockup provision applies to common stock and to securities convertible into or exchangeable or exercisable for common stock. It also applies to common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
While Merrill Lynch has no specific criteria for the waiver of this lockup provision and currently has no intention to waive this provision, if requested to, Merrill Lynch may, in certain instances, waive this provision after consideration of, among other things, the current price of our common stock, the current trading volume of our common stock and general market conditions.
84
New York Stock Exchange Listing
We will apply to list our common stock on the New York Stock Exchange under the symbol "AEL". In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.
Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us and the representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:
An active trading market for the shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the initial public offering price.
Price Stabilization, Short Positions and Penalty Bid
Until the distribution of the shares is completed, SEC rules may limit underwriters from bidding for and purchasing our common stock. However, the representatives may engage in transactions that stabilize the price of the common stock, such as bids or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the common stock in connection with the offering, i.e., if they sell more shares than are listed on the cover of this prospectus, the representatives may reduce that short position by purchasing shares in the open market. The representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. Purchases of the common stock to stabilize its price or to reduce a short position may cause the price of the common stock to be higher than it might be in the absence of such purchases.
The representatives may also impose a penalty bid on the underwriters. This means that if the representatives purchase shares in the open market to reduce the underwriters' short position or to stabilize the price of such shares, they may reclaim the amount of the selling concession from the underwriters who sold those shares. The imposition of a penalty bid may also affect the price of the shares in that it discourages resales of those shares.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that those transactions, once commenced, will not be discontinued without notice.
Internet Distribution
Merrill Lynch will be facilitating Internet distribution for this offering to certain of its Internet subscription customers. Merrill Lynch intends to allocate a limited number of shares for sale to its
85
online brokerage customers. An electronic prospectus is available on the Internet website maintained by Merrill Lynch. Other than the prospectus in electronic format, the information on the Merrill Lynch website is not part of this prospectus.
In addition, a prospectus in electronic format may be made available on the website maintained by Advest, Inc. and may also be made available on websites maintained by other underwriters. The underwriters may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the lead managers to underwriters that may make internet distributions on the same basis as other allocations.
The validity of the securities offered hereby and certain matters relating thereto will be passed upon on our behalf by Wendy L. Carlson, our General Counsel, and Skadden, Arps, Slate, Meagher & Flom (Illinois). Ms. Carlson is a full-time employee and officer of our company, and she currently owns 13,800 shares of our common stock and holds options and management subscription rights to purchase an additional 197,500 shares of our common stock. Certain legal matters will be passed upon on behalf of the underwriters by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability partnership including professional corporations, New York, New York.
Our consolidated financial statements and schedules as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, have been audited by Ernst & Young LLP, independent auditors, as described in their reports. We have included our consolidated financial statements in this prospectus and schedules in the registration statement in reliance upon the reports of Ernst & Young LLP, independent auditors, given on their authority as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC with respect to this offering. This prospectus, which is part of the registration statement, does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. When we complete this offering, we will also continue to file annual, quarterly and special reports, proxy statements and other information with the SEC.
You may read and copy the registration statement, the related exhibits and schedules and any document we file with the SEC at the SEC's Public Reference Room at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the operation of the Public Reference Room. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also maintains an Internet site, http://www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may also request a copy of these filings, at no cost, by writing or telephoning us as follows: Shareholder Relations, American Equity Investment Life Holding Company, 5000 Westown Parkway, Suite 440, West Des Moines, Iowa 50266, Attention Shareholder Relations, (515) 221-0002. Upon our listing with the New York Stock Exchange, reports, proxy and information statements and other information about us may be inspected at the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
86
Audited Consolidated Financial Statements | ||
Report of Independent Auditors |
|
F-2 |
Consolidated Balance Sheets as of December 31, 2002 and 2001 | F-3 | |
Consolidated Statements of Income for the years ended December 31, 2002, 2001, and 2000 | F-5 | |
Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2002, 2001, and 2000 | F-6 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000 | F-7 | |
Notes to Consolidated Financial Statements | F-9 | |
Unaudited Consolidated Financial Statements |
|
|
Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 |
|
F-38 |
Consolidated Statements of Income for the six months ended June 30, 2003 and 2002 | F-40 | |
Consolidated Statements of Changes in Stockholders' Equity for the six months ended June 30, 2003 and 2002 | F-41 | |
Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 | F-42 | |
Notes to Consolidated Financial Statements | F-44 |
F-1
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, 2002 and 2001, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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, 2002 and 2001, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States.
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative instruments and hedging activities in response to a new accounting standard that became effective January 1, 2001.
/s/ ERNST & YOUNG LLP | |
Des Moines, Iowa March 14, 2003, except for paragraph 38 of Note 1 and Note 13, as to which the date is September 10, 2003 |
|
F-2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
|
December 31,
|
|||||||
---|---|---|---|---|---|---|---|---|
|
2002
|
2001
|
||||||
Assets | ||||||||
Cash and investments: | ||||||||
Fixed maturity securities: | ||||||||
Available for sale, at market (amortized cost:
2002$3,796,914; 2001$3,101,040) |
$ | 3,753,144 | $ | 2,974,761 | ||||
Held for investment, at amortized cost (market:
2002$1,151,337; 2001$412,378) |
1,149,510 | 454,605 | ||||||
Equity securities, available for sale, at market (cost:
2002$18,051; 2001$18,609) |
17,006 | 18,245 | ||||||
Mortgage loans on real estate | 334,339 | 108,181 | ||||||
Derivative instruments | 52,313 | 40,052 | ||||||
Policy loans | 295 | 291 | ||||||
Cash and cash equivalents | 21,163 | 184,130 | ||||||
|
|
|||||||
Total cash and investments | 5,327,770 | 3,780,265 | ||||||
Premiums due and uncollected |
|
|
1,371 |
|
|
1,386 |
||
Accrued investment income | 36,716 | 22,100 | ||||||
Receivables from related parties | 20,949 | 29,978 | ||||||
Property, furniture and equipment, less allowances for depreciation of
$4,011 in 2002 and $3,150 in 2001 |
1,675 | 1,622 | ||||||
Deferred policy acquisition costs | 595,450 | 492,757 | ||||||
Deferred income tax asset | 50,711 | 51,244 | ||||||
Federal income taxes recoverable | | 4,224 | ||||||
Other assets | 4,814 | 5,011 | ||||||
Assets held in separate account | 2,810 | 3,858 | ||||||
|
|
|||||||
Total assets | $ | 6,042,266 | $ | 4,392,445 | ||||
|
|
See accompanying notes.
F-3
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS (Continued)
(Dollars in thousands, except per share data)
|
December 31,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2002
|
2001
|
|||||||
Liabilities and Stockholders' Equity | |||||||||
Liabilities: | |||||||||
Policy benefit reserves: | |||||||||
Traditional life and accident and health insurance products | $ | 33,089 | $ | 25,490 | |||||
Annuity and single premium universal life products | 5,419,276 | 3,968,455 | |||||||
Other policy funds and contract claims | 35,644 | 22,046 | |||||||
Amounts due to related party under General Agency Commission and Servicing Agreement | 40,345 | 46,607 | |||||||
Other amounts due to related parties | 4,363 | 22,990 | |||||||
Notes payable | 43,333 | 46,667 | |||||||
Amount due to reinsurer | 10,908 | 14,318 | |||||||
Amounts due under repurchase agreements | 241,731 | | |||||||
Amounts due on securities purchased | 103 | 66,504 | |||||||
Federal income taxes payable | 8,187 | | |||||||
Other liabilities | 24,513 | 32,788 | |||||||
Liabilities related to separate account | 2,810 | 3,858 | |||||||
|
|
||||||||
Total liabilities | 5,864,302 | 4,249,723 | |||||||
Minority interests in subsidiaries: |
|
|
|
|
|
|
|
||
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts | 100,486 | 100,155 | |||||||
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 | 625 | |||||||
Common Stock, par value $1 per share, 75,000,000 shares authorized; issued and outstanding
200214,438,452 shares; 200114,516,974 shares |
14,438 | 14,517 | |||||||
Additional paid-in capital | 56,811 | 57,452 | |||||||
Accumulated other comprehensive loss | (11,944 | ) | (33,531 | ) | |||||
Retained earnings | 17,548 | 3,504 | |||||||
|
|
||||||||
Total stockholders' equity | 77,478 | 42,567 | |||||||
|
|
||||||||
Total liabilities and stockholders' equity | $ | 6,042,266 | $ | 4,392,445 | |||||
|
|
See accompanying notes.
F-4
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
|
Year ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2001
|
2000
|
||||||||
Revenues: | |||||||||||
Traditional life and accident and health insurance premiums | $ | 13,664 | $ | 13,141 | $ | 11,034 | |||||
Annuity and single premium universal life product charges | 15,376 | 12,520 | 8,338 | ||||||||
Net investment income | 308,548 | 209,086 | 100,060 | ||||||||
Realized gains (losses) on investments | (122 | ) | 787 | (1,411 | ) | ||||||
Change in fair value of derivatives | (57,753 | ) | (55,158 | ) | (3,406 | ) | |||||
|
|
|
|||||||||
Total revenues | 279,713 | 180,376 | 114,615 | ||||||||
Benefits and expenses: |
|
|
|
|
|
|
|
|
|
|
|
Insurance policy benefits and changes in future policy benefits | 9,317 | 9,762 | 8,728 | ||||||||
Interest credited to account balances | 177,633 | 97,923 | 56,529 | ||||||||
Change in fair value of embedded derivatives | (5,027 | ) | 12,921 | | |||||||
Interest expense on notes payable | 1,901 | 2,881 | 2,339 | ||||||||
Interest expense on General Agency Commission and Servicing Agreement | 3,596 | 5,716 | 5,958 | ||||||||
Interest expense on amounts due under repurchase agreements | 734 | 1,123 | 3,267 | ||||||||
Other interest expense | 1,043 | 381 | | ||||||||
Amortization of deferred policy acquisition costs | 39,930 | 23,040 | 8,574 | ||||||||
Other operating costs and expenses | 21,635 | 17,176 | 14,602 | ||||||||
|
|
|
|||||||||
Total benefits and expenses | 250,762 | 170,923 | 99,997 | ||||||||
|
|
|
|||||||||
Income before income taxes, minority interests and cumulative effect of change in accounting principle | 28,951 | 9,453 | 14,618 | ||||||||
Income tax expense | 7,299 | 333 | 2,385 | ||||||||
|
|
|
|||||||||
Income before minority interests and cumulative effect of change in accounting principle | 21,652 | 9,120 | 12,233 | ||||||||
Minority interests in subsidiaries: | |||||||||||
Earnings attributable to company-obligated mandatorily redeemable preferred securities of subsidiary trusts | 7,445 | 7,449 | 7,449 | ||||||||
|
|
|
|||||||||
Income before cumulative effect of change in accounting principle | 14,207 | 1,671 | 4,784 | ||||||||
Cumulative effect of change in accounting for derivatives | | (799 | ) | | |||||||
|
|
|
|||||||||
Net income | $ | 14,207 | $ | 872 | $ | 4,784 | |||||
|
|
|
|||||||||
Earnings per common share: | |||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.87 | $ | 0.10 | $ | 0.29 | |||||
Cumulative effect of change in accounting for derivatives | | (0.05 | ) | | |||||||
|
|
|
|||||||||
Earnings per common share | $ | 0.87 | $ | 0.05 | $ | 0.29 | |||||
|
|
|
|||||||||
Earnings per common shareassuming dilution: | |||||||||||
Income before cumulative effect of change in accounting principle | $ | 0.76 | $ | 0.09 | $ | 0.26 | |||||
Cumulative effect of change in accounting for derivatives | | (0.04 | ) | | |||||||
|
|
|
|||||||||
Earnings per common shareassuming dilution | $ | 0.76 | $ | 0.05 | $ | 0.26 | |||||
|
|
|
See accompanying notes.
F-5
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
|
Preferred
Stock |
Common
Stock |
Additional
Paid-in Capital |
Accumulated
Other Comprehensive Loss |
Retained
Earnings (Deficit) |
Total
Stockholders' Equity |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at January 1, 2000 | $ | 625 | $ | 4,712 | $ | 66,058 | $ | (35,235 | ) | $ | (1,836 | ) | $ | 34,324 | ||||||
Issuance of 9,424,620 shares of common stock pursuant to 3-for-1 stock split | | 9,425 | (9,425 | ) | | | | |||||||||||||
Comprehensive income: | ||||||||||||||||||||
Net income for year | | | | | 4,784 | 4,784 | ||||||||||||||
Change in net unrealized investment gains/losses | | | | 18,359 | | 18,359 | ||||||||||||||
|
||||||||||||||||||||
Total comprehensive income | 23,143 | |||||||||||||||||||
Issuance of 477,687 shares of common stock | | 478 | 1,478 | | | 1,956 | ||||||||||||||
Acquisition of 84,375 shares of common stock | | (85 | ) | (534 | ) | | | (619 | ) | |||||||||||
Dividends on preferred stock ($.01 per share) | | | | | (6 | ) | (6 | ) | ||||||||||||
Dividends on common stock ($.01 per share) | | | | | (146 | ) | (146 | ) | ||||||||||||
|
|
|
|
|
|
|||||||||||||||
Balance at December 31, 2000 | 625 | 14,530 | 57,577 | (16,876 | ) | 2,796 | 58,652 | |||||||||||||
Comprehensive loss: | ||||||||||||||||||||
Net income for year | | | | | 872 | 872 | ||||||||||||||
Change in net unrealized investment gains/losses | | | | (16,655 | ) | | (16,655 | ) | ||||||||||||
|
||||||||||||||||||||
Total comprehensive loss | (15,783 | ) | ||||||||||||||||||
Issuance of 5,052 shares of common stock | | 5 | 34 | | | 39 | ||||||||||||||
Acquisition of 18,320 shares of common stock | | (18 | ) | (159 | ) | | | (177 | ) | |||||||||||
Dividends on preferred stock ($.03 per share) | | | | | (19 | ) | (19 | ) | ||||||||||||
Dividends on common stock ($.01 per share) | | | | | (145 | ) | (145 | ) | ||||||||||||
|
|
|
|
|
|
|||||||||||||||
Balance at December 31, 2001 | 625 | 14,517 | 57,452 | (33,531 | ) | 3,504 | 42,567 | |||||||||||||
Comprehensive income: | ||||||||||||||||||||
Net income for year | | | | | 14,207 | 14,207 | ||||||||||||||
Change in net unrealized investment gains/losses | | | | 21,587 | | 21,587 | ||||||||||||||
|
||||||||||||||||||||
Total comprehensive income | 35,794 | |||||||||||||||||||
Issuance of 34,228 shares of common stock | | 34 | 103 | | | 137 | ||||||||||||||
Acquisition of 112,750 shares of common stock | | (113 | ) | (744 | ) | | | (857 | ) | |||||||||||
Dividends on preferred stock ($0.03 per share) | | | | | (19 | ) | (19 | ) | ||||||||||||
Dividends on common stock ($0.01 per share) | | | | | (144 | ) | (144 | ) | ||||||||||||
|
|
|
|
|
|
|||||||||||||||
Balance at December 31, 2002 | $ | 625 | $ | 14,438 | $ | 56,811 | $ | (11,944 | ) | $ | 17,548 | $ | 77,478 | |||||||
|
|
|
|
|
|
See accompanying notes.
F-6
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
|
Year ended December 31,
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2001
|
2000
|
|||||||||
Operating activities | ||||||||||||
Net income | $ | 14,207 | $ | 872 | $ | 4,784 | ||||||
Cumulative effect of change in accounting for derivatives | | 799 | | |||||||||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||||||
Adjustments related to interest sensitive products: | ||||||||||||
Interest credited to account balances | 177,633 | 97,923 | 56,529 | |||||||||
Annuity and single premium universal life product charges | (15,376 | ) | (12,520 | ) | (8,338 | ) | ||||||
Change in fair value of embedded derivatives | (5,027 | ) | 12,921 | | ||||||||
Increase in traditional life and accident and health insurance reserves | 7,599 | 5,136 | 5,294 | |||||||||
Policy acquisition costs deferred | (152,144 | ) | (154,451 | ) | (77,056 | ) | ||||||
Amortization of deferred policy acquisition costs | 39,930 | 23,040 | 8,574 | |||||||||
Provision for depreciation and other amortization | 981 | 970 | 854 | |||||||||
Amortization of discount and premiums on fixed maturity securities | (134,590 | ) | (50,462 | ) | 12,933 | |||||||
Realized losses (gains) on investments | 122 | (787 | ) | 1,411 | ||||||||
Change in fair value of derivatives | 57,753 | 55,158 | 3,406 | |||||||||
Deferred income taxes | (11,091 | ) | (5,794 | ) | (2,840 | ) | ||||||
Reduction of amounts due to related party under General Agency Commission and Servicing Agreement | (18,058 | ) | (29,422 | ) | (14,491 | ) | ||||||
Changes in other operating assets and liabilities: | ||||||||||||
Accrued investment income | (14,616 | ) | (702 | ) | (7,215 | ) | ||||||
Receivables from related parties | 9,029 | 17,265 | (28,346 | ) | ||||||||
Federal income taxes recoverable/payable | 12,411 | (4,274 | ) | 1,713 | ||||||||
Other policy funds and contract claims | 13,598 | 5,376 | 5,116 | |||||||||
Other amounts due to related parties | (4,412 | ) | 15,927 | 4,000 | ||||||||
Other liabilities | (8,275 | ) | 4,861 | 1,221 | ||||||||
Other | 1,544 | 414 | (1,679 | ) | ||||||||
|
|
|
||||||||||
Net cash used in operating activities | (28,782 | ) | (17,750 | ) | (34,130 | ) | ||||||
Investing activities | ||||||||||||
Sales, maturities, or repayments of investments: | ||||||||||||
Fixed maturity securitiesavailable for sale | 3,527,658 | 1,734,890 | 628,847 | |||||||||
Equity securitiesavailable for sale | 10,352 | 7,820 | 1,588 | |||||||||
Mortgage loans on real estate | 3,160 | | | |||||||||
Derivative instruments | 9,735 | | (3,406 | ) | ||||||||
|
|
|
||||||||||
3,550,905 | 1,742,710 | 627,029 | ||||||||||
Acquisition of investments: | ||||||||||||
Fixed maturity securitiesavailable for sale | (4,634,925 | ) | (3,214,768 | ) | (1,092,492 | ) | ||||||
Fixed maturity securitiesheld for investment | (215,161 | ) | | (7,246 | ) | |||||||
Equity securitiesavailable for sale | (10,055 | ) | (18,844 | ) | (1,437 | ) | ||||||
Mortgage loans on real estate | (229,318 | ) | (108,181 | ) | | |||||||
Derivative instruments | (93,963 | ) | (76,569 | ) | (68,088 | ) | ||||||
Policy loans | (4 | ) | (27 | ) | (33 | ) | ||||||
|
|
|
||||||||||
(5,183,426 | ) | (3,418,389 | ) | (1,169,296 | ) | |||||||
Purchases of property, furniture and equipment | (914 | ) | (1,370 | ) | (424 | ) | ||||||
|
|
|
||||||||||
Net cash used in investing activities | (1,633,435 | ) | (1,677,049 | ) | (542,691 | ) | ||||||
F-7
See accompanying notes.
F-8
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002
1. Organization and Significant Accounting Policies
Organization
American Equity Investment Life Holding Company (the Company), through its wholly-owned subsidiaries, American Equity Investment Life Insurance Company ("American Equity Life") and American Equity Investment Life Insurance Company of New York ("American Equity Life of New York"), is licensed to sell insurance products in 46 states and the District of Columbia at December 31, 2002. The Company offers a broad array of annuity and insurance products. The Company's business consists primarily of the sale of 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 Life, American Equity Life of New York (formed in 2001), American Equity Investment Capital, Inc., American Equity Capital Trust I, American Equity Capital Trust II, and American Equity Investment Properties, L.C. All significant intercompany 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 deferred policy acquisition costs, policyholder liabilities and accruals, valuation of embedded derivatives on index reserves and valuation allowances on deferred tax assets and investments. It is reasonably possible that actual experience could differ from the estimates and assumptions utilized.
Reclassifications
Certain amounts in the 2001 and 2000 consolidated financial statements have been reclassified to conform to the 2002 financial statement presentation.
Investments
Fixed maturity securities (bonds and redeemable preferred stocks maturing 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, for assumed changes in amortization of deferred policy acquisition costs. 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
F-9
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 classified as available for sale and are reported at market value. Unrealized gains and losses are included directly in a separate component of stockholders' equity, net of income taxes.
Mortgage loans on real estate are reported at cost, adjusted for amortization of premiums and accrual of discounts. If the Company determines that the value of any mortgage loan is impaired, the carrying amount of the mortgage loan will be reduced to its fair value, based upon the present value of expected future cash flows from the loan discounted at the loan's effective interest rate, or the fair value of the underlying collateral.
Policy loans are reported at unpaid principal.
The carrying amounts 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 amount in the investment is reduced to its estimated fair value and a specific writedown is taken. Such reductions in carrying amount 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.
Derivative Instruments
The Financial Accounting Standards Board issued, then subsequently amended, Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and Hedging Activities , which became effective for the Company on January 1, 2001. Under SFAS No. 133, as amended, all derivative instruments (including certain derivative instruments embedded in other contracts) are recognized in the balance sheet at their fair values and changes in fair value are recognized immediately in earnings, unless the derivatives qualify as hedges of future cash flows. For derivatives qualifying as hedges of future cash flows, the effective portion of the changes in fair value is recorded temporarily in equity, then recognized in earnings along with the related effects of the hedged items. Any "ineffective" portion of a hedge is reported in earnings as it occurs.
The Company has index annuity products that guarantee the return of principal to the policyholder and credit interest based on a percentage of the gain in a specified market index. A portion of the premium from each policyholder is invested to cover the minimum guaranteed value due the policyholder at the end of the contract term. A portion of the premium is used to purchase derivatives consisting of call options on the applicable market indices to fund the index credits due to index annuity holders. Substantially all of such call options are one year options which are closely matched to the annual crediting liabilities on such policies. In addition, the call options are marked to market with the change in fair value included as a component of our revenues. On the respective anniversary dates of the index policies, the index used to compute such annual crediting liabilities is reset and the Company purchases new one-year call options to fund the next annual index credit. The Company manages the cost of these purchases through the terms of its index annuities, which permits
F-10
the Company to change annual participation rates, asset fees, and/or caps, subject to contractual features. By modifying participation rates, asset fees or caps, the Company can limit option costs to budgeted amounts except in cases where the contractual features prevent further modifications in these contract terms.
The Company's 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, 2002, 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.
Under SFAS No. 133, the annual crediting liabilities on the Company's index annuities are treated as a "series of embedded derivatives" over the life of the applicable contract. The Company does not purchase call options to fund the index liabilities which may arise after the next policy anniversary date. The Company must value both the call options and the related forward embedded options in the policies at fair value. The change in fair value for the call options is included in change in fair value of derivatives and the change in fair value adjustment of the embedded options is included in change in fair value of embedded derivatives in the Consolidated Statements of Income.
For the year ended December 31, 2002 and 2001, change in fair value of derivatives of $(57.8) million and $(55.2) million, respectively, represents the change in fair value on call options used to fund the next-year income credit to the index annuities. The change in fair value of options embedded within the index products (including the forward options) was $(5.0) million and $12.9 million for the year ended December 31, 2002 and 2001, respectively. Amortization of deferred policy acquisition costs was increased by $1.4 million for the year ended December 31, 2002 and decreased by $0.8 million for the year ended December 31, 2001 as a result of the impact of SFAS No. 133.
At January 1, 2001, the Company's financial statements were adjusted to record a cumulative effect of adopting this accounting change, as follows (in thousands):
Prior to the adoption of SFAS No. 133, the Company recorded the options at amortized cost plus intrinsic value, if any. Changes in the intrinsic value of the options were offset by changes to the policy benefit liabilities in the consolidated statements of income. This amount was ($21.7) million during the year ended December 31, 2000.
F-11
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 $4.1 million in 2002, $4.9 million in 2001 and $2.7 million in 2000) 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.
Intangibles
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets . Under the new Statements, goodwill and intangibles with indefinite lives will no longer be amortized but will be subject to impairment tests at least on an annual basis. Intangible assets with finite lives will continue to be amortized over their estimated useful lives. The adoption of these Statements on January 1, 2002 did not have a material impact to the Company. The Company's intangible assets at December 31, 2002, which are included in other assets, consist of deferred debt and trust preferred security issue costs of $1.8 million and other intangible assets not subject to amortization of $0.3 million related to insurance licenses acquired in connection with the purchase of an inactive life insurance company in 1996.
Property, Furniture and Equipment
Property, 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
F-12
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 income. 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 income.
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 2002 and 2001 and from 3.0% to 12.5% in 2000. A portion of this amount ($28.2 million, $17.4 million and $10.0 million during the years ended December 31, 2002, 2001 and 2000, 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.
Certain group policies include provisions for annual experience refunds of premiums equal to net premiums received less a 16% administrative fee and less claims incurred. Such amounts (2002$0.3 million; 2001$0.6 million; and 2000$0.3 million) are reported as a reduction of traditional life and accident and health insurance premiums in the consolidated statements of income.
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
F-13
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
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. During 2000, 170,625 warrants were exercised at a price of $4.00 per share. During 2002, 34,125 warrants were exercised at a price of $4.00 per share.
The Company issued 625,000 shares of 1998 Series A Participating Preferred Stock, at par, under a private placement offering in 1998 in exchange for cash of $10 million. 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 three-for-one basis, have no voting rights and have an aggregate liquidation preference of $10 million.
Recognition of Premium Revenues and Costs
Revenues for annuity and single premium universal life products include 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 are recognized as expenses over the life of the policy by means of the provision for future policy benefits.
All insurance-related revenues, benefits, losses and expenses are reported net of reinsurance ceded.
Premiums and Deposits by Product Type
The Company markets index annuities, fixed rate annuities, a variable annuity and life insurance. In connection with its reinsured group life business, the Company also collects renewal
F-14
premiums on certain accident and health insurance policies. Premiums and deposits (after cancellations and net of reinsurance) collected in 2002, 2001 and 2000, by product category were as follows:
Stock-Based Compensation
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. 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.
Pro forma information regarding net income is required by SFAS No. 123 as amended by SFAS No. 148, 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:
|
2002
|
2001
|
2000
|
|||
---|---|---|---|---|---|---|
Risk-free interest rate | 1.45% | 2.44% | 6.70% | |||
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.
F-15
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:
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 included in net income which merely represent transfers from unrealized to realized gains and losses. These amounts totaled $(0.1) million, $0.4 million and $4.2 million in 2002, 2001 and 2000, 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 $(0.1) million in 2002, $0.4 million in 2001 and $1.5 million in 2000.
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.
F-16
Mortgage loans on real estate: Discounted expected cash flows using interest rates currently being offered for similar loans.
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 benefit 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) adjusted as required under SFAS No. 133. 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.
Amounts due to related party under General Agency Commission and Servicing Agreement and 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-17
The following sets forth a comparison of the fair values and carrying amounts of the Company's financial instruments:
|
December 31,
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2001
|
|||||||||||
|
Carrying
Amount |
Estimated Fair Value
|
Carrying
Amount |
Estimated Fair Value
|
|||||||||
|
(Dollars in thousands)
|
||||||||||||
Assets | |||||||||||||
Fixed maturity securities: | |||||||||||||
Available for sale | $ | 3,753,144 | $ | 3,753,144 | $ | 2,974,761 | $ | 2,974,761 | |||||
Held for investment | 1,149,510 | 1,151,337 | 454,605 | 412,378 | |||||||||
Equity securities, available for sale | 17,006 | 17,006 | 18,245 | 18,245 | |||||||||
Mortgage loans on real estate | 334,339 | 359,447 | 108,181 | 109,806 | |||||||||
Derivative instruments | 52,313 | 52,313 | 40,052 | 40,052 | |||||||||
Policy loans | 295 | 295 | 291 | 291 | |||||||||
Cash and cash equivalents | 21,163 | 21,163 | 184,130 | 184,130 | |||||||||
Separate account assets | 2,810 | 2,810 | 3,858 | 3,858 | |||||||||
Liabilities | |||||||||||||
Annuity and single premium
universal life policy benefit reserves |
5,419,276 | 4,703,588 | 3,968,455 | 3,498,954 | |||||||||
Amounts due to related party under
General Agency Commission and Servicing Agreement |
40,345 | 40,345 | 46,607 | 49,600 | |||||||||
Notes payable | 43,333 | 43,333 | 46,667 | 46,667 | |||||||||
Amounts due under repurchase agreements | 241,731 | 241,731 | | | |||||||||
Liabilities related to separate account | 2,810 | 2,810 | 3,858 | 3,858 | |||||||||
Company-obligated mandatorily redeemable preferred securities of subsidiary trusts | 100,486 | 97,243 | 100,155 | 104,962 |
F-18
At December 31, 2002 and 2001, the amortized cost and estimated fair value of fixed maturity securities and equity securities were as follows:
F-19
The amortized cost and estimated fair value of fixed maturity securities at December 31, 2002, 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.
F-20
Net unrealized 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, 2002 and 2001:
Components of net investment income are as follows:
Proceeds from sales of available for sale fixed maturity securities for the years ended December 31, 2002, 2001 and 2000 were $1,821.1 million, $603.9 million and $6.5 million, respectively. Scheduled principal repayments, calls and tenders for available for sale fixed maturity securities for the years ended December 31, 2002, 2001 and 2000 were $1,706.6 million, $1,131.0 million and $622.4 million, respectively.
F-21
Net realized gains (losses) included in revenues for the years ended December 31, 2002, 2001 and 2000 are as follows:
Changes in unrealized appreciation (depreciation) on investments for the years ended December 31, 2002, 2001 and 2000 are as follows:
During 2002, we transferred fixed maturity securities at fair value of $436.7 million (amortized cost of $435.7 million) from available for sale to held for investment to match our investment objectives, which are to hold these investments to maturity. The unrealized gain on these securities on the date of transfer ($1.0 million) is included as a separate component of accumulated other comprehensive loss, and will be amortized over the lives of the securities.
The Company's mortgage loan portfolio totaled $334.3 million and $108.2 million at December 31, 2002 and 2001, respectively, with commitments outstanding of $49.3 million at December 31, 2002. The portfolio consists of commercial mortgage loans diversified as to property type, location and loan size. The loans are collateralized by the related properties. The Company's
F-22
mortgage lending policies establish limits on the amount that can be loaned to one borrower and require diversification by geographic location and collateral type. The commercial mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:
During 2002, the Company entered into a transaction relating to the short-sale of $150.0 million of U.S. Treasury Securities. The transaction was intended to address interest rate exposure and generate capital gains that could be used to offset previously incurred capital losses. This transaction settled on November 14, 2002 and the net effect of $0.6 million is included in the consolidated statement of income as other interest expense.
During 2000, the Company purchased financial futures instruments and total return exchange agreements as a part of its asset-liability management activities. 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
F-23
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 was terminated early and resulted in payments based on the change in value of the underlying asset, any resulting gain or loss was deferred and amortized as an adjustment to the yield of the designated asset over its remaining life as long as the transaction qualified for hedge accounting. The effectiveness of the hedge was 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 ceased to exist, hedge accounting would have been terminated and gains or losses recorded in income. During 2000, high correlation was achieved. Deferred losses of $2.3 million for 2000 are included in held-for-investment fixed maturities and are being amortized as an adjustment to interest income over the life of the hedged instrument.
For total return exchange agreements, the change in fair value of these agreements was recognized as a component of our revenues. In 2000, the change in fair value of these agreements totaled $(3.4) million.
The Company did not purchase or enter into any financial futures instruments or total return exchange agreements during 2002 or 2001 and all agreements were terminated or matured as of December 31, 2000.
At December 31, 2002, fixed maturity securities and short-term investments with an amortized cost of $5,293.5 million were on deposit with state agencies to meet regulatory requirements. There are no restrictions on these assets. At December 31, 2002, 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:
F-24
4. Deferred Policy Acquisition Costs
An analysis of deferred policy acquisition costs is presented below for the years ended December 31, 2002 and 2001:
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.
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 subsidiaries 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 $0.6 million, $0.2 million and $0.2 million and insurance benefits have been reduced by $0.1 million, $0.2 million and $0.4 million during the years ended December 31, 2002, 2001 and 2000, 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.
Financial Reinsurance. Effective January 1, 2001, American Equity Life entered into a transaction treated as reinsurance under statutory accounting requirements and as financial reinsurance under accounting principles generally accepted in the United States (GAAP) with a subsidiary of Swiss Reinsurance Company ("Swiss Re") which includes a coinsurance segment on a 2% quota share basis and a yearly renewable term segment reinsuring a portion of death benefits payable on annuities produced after January 1, 2001 through approximately July 31, 2001. The coinsurance segment provides reinsurance to the extent of 2% of all risks associated with the Company's annuity policies covered by this reinsurance agreement. The Company received a 2% expense allowance for this segment which is being repaid over a five-year period from the profits emerging from the reinsured block of policies. This segment of the reinsurance agreement provided $20 million in statutory surplus benefit during 2001.
The second segment is yearly renewable term reinsurance whereby Swiss Re's subsidiary reinsures risks associated with the death benefits on the Company's annuity products to the extent such benefits exceed the cash surrender values of the applicable contracts. The Company has received the
F-25
maximum expense allowance allowable under this agreement of $15 million during 2001 which was equal to 2.25%3% of the first year premiums on annuities issued after January 2001 through approximately July 31, 2001. This amount is to be paid ratably over a five-year period. The balance at December 31, 2002 and 2001 was $10.9 million and $14.3 million, respectively. This agreement bears interest at the ninety day London Interbank Offered Rate plus 140 basis points (2.78% at December 31, 2002) and interest incurred was $0.4 million for each of the years ended December 31, 2002 and 2001.
Under the Swiss Re agreement, the Company is required to meet certain financial ratio requirements. The Company currently does not meet the risk-based capital and A.M. Best Company rating requirements under the agreement. Discussions with Swiss Re are on going in regards to the issue of a waiver or transfer of the agreement to another reinsurance company. If an agreement cannot be reached, the Company will no longer receive experience refunds under the agreement and an acceleration of the repayment/recapture of the agreement will occur.
American Equity Life entered into a reinsurance transaction effective November 1, 2002, with Hannover Life Reassurance Company of America which is treated as reinsurance under statutory accounting requirements and as financial reinsurance under GAAP. This agreement includes a coinsurance segment and a yearly renewable term segment reinsuring a portion of death benefits payable on certain annuities issued from January 1, 2002 to December 31, 2002. The coinsurance segment provides reinsurance to the extent of 6.88% of all risks associated with our annuity policies covered by this reinsurance agreement. This agreement provided approximately $29.8 million in statutory surplus benefit during 2002. Risk charges of $0.2 million were incurred during the year ended December 31, 2002, related to this agreement.
Coinsurance. Effective August 1, 2001, American Equity Life entered into a coinsurance agreement with Equitrust Life Insurance Company ("Equitrust"), an affiliate of Farm Bureau Life Insurance Company ("Farm Bureau") covering 70% of certain of the Company's non-multi-year guarantee fixed annuities and index annuities issued from August 1, 2001 through December 31, 2001 and 40% of those contracts for 2002 and 2003. As of December 31, 2002, Farm Bureau beneficially owned 32.47% of the Company's common stock. Total annuity deposits ceded were approximately $837.9 million and $418.3 million for the year ended December 31, 2002 and the period from August 1, 2001 to December 31, 2001, respectively. Expense allowances received were approximately $99.4 million and $51.2 million under this agreement for the year ended December 31, 2002 and the period from August 1, 2001 to December 31, 2001, respectively. The balance due under this agreement to Equitrust was $1.5 million at December 31, 2002 and $22.9 million at December 31, 2001, and represents the market value of the call options related to the ceded business held by the Company to fund the index credits and cash due to or from Equitrust related to the transfer of ceded annuity deposits.
During 1998, the Company entered into a modified coinsurance agreement to cede 70% of its variable annuity business to Equitrust. Under this agreement, the Company paid Equitrust $0.2 million, $0.2 million and $0.1 million for the years ended December 31, 2002, 2001 and 2000, 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-26
6. Income Taxes
The Company will file a consolidated federal income tax return with all its subsidiaries for 2002. For 2001 and 2000, the Company filed a consolidated income tax return with all its subsidiaries except American Equity Life and American Equity Life of New York, which filed separate consolidated federal income tax returns.
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.
The Company's income tax expense is as follows:
Income tax expense differed from that computed at the applicable statutory federal income tax rate (35%) as follows.
F-27
The tax effect of individual temporary differences at December 31, 2002 and 2001, is as follows:
The Company regularly reviews its need for a valuation allowance against its deferred income tax assets. At December 31, 2002, no valuation allowance against its deferred income taxes has been established due to the Company's adoption of plans and policies relative to future taxable income or loss of non-life entities.
At December 31, 2002, the Company has non-life net operating loss carryforwards for tax purposes of $14.4 million which expire in 2010 through 2022.
7. Notes Payable and Amounts Due Under Repurchase Agreements
The Company has a credit agreement with three banks. The amount outstanding under this agreement was $43.3 million at December 31, 2002, of which $10.0 million was borrowed in December, 2002 and contributed to the surplus of American Equity Life. The amount outstanding under this agreement at December 31, 2001 was $46.7 million. Principal and interest under this agreement are paid quarterly. The notes bear interest (4.36% at December 31, 2002) at prime or LIBOR plus a specified margin of up to 2.25%. Under this agreement, the Company is required to maintain minimum capital and surplus levels at American Equity Life and meet certain other financial and operating ratio requirements. The Company is also prohibited from incurring other indebtedness for borrowed money without obtaining a waiver from the lenders and from paying dividends on its capital stock in excess of 25% of consolidated net income for the prior fiscal year. At December 31, 2002, the annual maturities
F-28
of the notes payable are as follows: 2003$15.3 million; 2004$15.3 million; 2005$8.7 million; 2006$2.0 million; 2007$2.0 million.
As part of its investment strategy, the Company enters into securities repurchase agreements (short-term collateralized borrowings). These borrowings are collateralized by investment securities with fair market values approximately equal to the amount due. Such borrowings averaged approximately $137.8 million, $100.0 million, $50.4 million for the years ended December 31, 2002, 2001 and 2000, respectively. The weighted average interest rate on amounts due under repurchase agreements was 1.59%, 6.51% and 6.49% for the years ended December 31, 2002, 2001 and 2000, respectively.
8. General Agency Commission and Servicing Agreement
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 .3875% of the premiums received by the Company on policies that still remain in force.
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 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.
On October 1, 2002, the Service Company and the Company amended their agreement to provide for the payment of 35% of the agents' commissions payable by the Service Company for policies issued from October 1, 2002 through December 31, 2002, and the Company agreed to pay the Service Company quarterly renewal commissions of .325% of in-force amounts received thereafter. Effective October 1, 2002, the Company also agreed to pay the Service Company quarterly renewal commissions of .325% of in-force amounts on policies issued from January 1, 1998 through August 31, 1999 and .7% of in-force amounts on policies issued prior to January 1, 1998. The termination date of the agreement was extended to December 31, 2008.
F-29
In connection with the General Agency Commission and Servicing Agreement, the Company records commissions and a related payable for amounts paid by the Service Company. Interest expense is recorded based upon estimated future payments to the Service Company based upon an imputed interest rate (approximately 9.0%) for each of the periods presented. Estimated future payments are evaluated regularly and the imputed interest rate will be adjusted when deemed necessary. During the years ended December 31, 2002 and 2000, the Service Company paid $11.8 million and $28.4 million, respectively, to agents of the Company. The Company paid renewal commissions to the Service Company of $21.7 million, $23.2 million, and $20.5 million during the years ended December 31, 2002, 2001 and 2000, respectively.
Estimated future payments under the General Agency Commission and Servicing Agreement at December 31, 2002 are as follows (Dollars in thousands):
Year ending December 31: | |||||
2003 | $ | 25,247 | |||
2004 | 14,887 | ||||
2005 | 4,106 | ||||
2006 | 255 | ||||
|
|||||
44,495 | |||||
Amounts representing interest | (4,150 | ) | |||
|
|||||
Net amount | $ | 40,345 | |||
|
As a source of funding its portion of producing agents' commission payments, the Service Company borrowed funds from David J. Noble, Chairman, Chief Executive Officer and President of the Company. The amount payable to Mr. Noble by the Service Company at December 31, 2002 and 2001 was $24.1 million and $22.4 million, respectively. As an alternate source of funds for such first year commissions, the Service Company borrowed funds from the Company. At December 31, 2002 and 2001, amounts receivable from the Service Company totaled $20.5 million and $29.1 million, respectively. Principal and interest on all loans to the Service Company are payable quarterly over five years from the date of each advance. The Service Company repays the above described indebtedness from the renewal commissions paid to it under the General Agency Commission and Servicing Agreement. Interest on such indebtedness accrues at "reference rate" of the financial institution that is the Company's principal lender. This rate averaged 8.70% in 2002, and 8.64% in 2001 and 2000.
9. Minority Interests in Subsidiary Trusts
During 1999, American Equity Capital Trust I ("Trust I"), a wholly-owned subsidiary of the Company, issued $26.0 million 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 $26.8 million 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 shares of common stock of the Company at a conversion price equal to the lesser of (i) $10 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
F-30
offering of such common stock. 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 $10 per share plus accrued and unpaid distributions, mature simultaneously with the 8% Debentures. At December 31, 2002, 863,671 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") to Iowa Farm Bureau Federation, which owns more than 50% of the voting capital stock of FBL Financial Group, Inc. ("FBL"), parent company of Farm Bureau.
The 5% Trust Preferred Securities, which have a liquidation value of $100 per share ($97.0 million in the aggregate), have been assigned a fair value of $78.6 million (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 FBL.
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 $100.0 million 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.
10. 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 $11,000 in 2002 and $10,500 in 2001 and 2000) 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 $0.1 for each of the years ended December 31, 2002, 2001 and 2000.
The Company has entered into deferred compensation arrangements with certain officers, directors, and consultants, whereby these individuals agreed to take common stock of the Company at a future date in lieu of 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, 2002 and 2001, these individuals have earned, and the Company has reserved for future issuance, 288,329 shares of common stock pursuant to these arrangements. The Company has also accrued $1.2 million as an other liability at December 31, 2002 and 2001, representing the value associated with the shares earned.
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.
F-31
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, 2002, 2001 and 2000, agents earned the right to receive 692,439, 563,637 and 262,395 shares, respectively. These shares will be awarded at the end of the vesting period of 4 years. 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, 2002, 2001 and 2000, agents vested in 476,918; 351,717 and 216,402 shares of common stock, respectively, and the Company recorded commission expense (which was subsequently capitalized as deferred policy acquisition costs) of $2.6 million, $2.5 million and $1.6 million, respectively, under these plans. Amounts accrued are reported as other liabilities until the stock has been issued. At December 31, 2002, the Company has reserved 2,086,000 shares for future issuance under the plans. One of the Company's national marketing organizations accounted for more than 10% of the annuity deposits and insurance premium collections during 2002 and 2001. Two of the Company's national marketing organizations each accounted for more than 10% of the annuity deposits and insurance premium collections during 2000.
As there is no publicly quoted market value for the Company's stock, the Company performs an internal valuation which involves estimates by management to determine a market value. Those estimates are based upon various factors including past stock transactions with third parties, growth in the Company's revenues, comparison of the Company's growth pattern to other companies and annual valuations completed by investment bankers familiar with the operations of the Company. The results of the internal valuation affect the amount of commission expense recognized (which is capitalized as deferred policy acquisition costs) in connection with the American Equity Investment NMO Deferred Compensation Plan as described in the preceding paragraph. The results of the internal valuation of the Company's stock also affect the calculation of earnings (loss) per common shareassuming dilution by affecting the number of dilutive securities used in the calculation (see Note 13).
The Company has a Stock Option and Warrant Agreement with the Company's Chairman (and owner of 10% of its outstanding common stock at December 31, 2002) which allows the purchase of 1,200,000 shares of the Company's common stock. Included in this amount are warrants to purchase 240,000 shares of common stock at $3.33 per share that were exercised in 2000 and options expiring in 2007 to purchase 600,000 shares of common stock at $3.33 per share and 360,000 shares of common stock at $7.33 per share.
During 2000, as a separate deferred compensation agreement, the Company loaned the Chairman $0.8 million pursuant to a forgivable loan agreement. The forgivable loan agreement is with full recourse, and although the proceeds of the loan were used for the exercise of warrants described in the preceding paragraph, the loan is not collateralized by the shares issued in connection with the exercise of these warrants. Further, these warrants were not issued in connection with the Company's employee stock option plan, but were issued to Mr. Noble, the Company's founding shareholder, as part of his initial capitalization of the Company. This loan is repayable in five equal annual installments of principal and interest, each of which may be forgiven if Mr. Noble remains continuously employed by the Company in his present capacity, subject to specified exceptions.
The Company's 1996 Stock Option Plan authorizes the grants of options to officers, directors and employees for up to 1,200,000 shares of the Company's common stock. All 1996 options granted have 10 year terms, and vest and become fully exercisable immediately. In 2000, the Company adopted
F-32
the 2000 Employee Stock Option Plan which authorizes grants of options to officers and employees on up to 1,800,000 shares of the Company's common stock. Also in 2000, the Company adopted the 2000 Directors Stock Option Plan which authorizes grants of options to directors on up to 225,000 shares. All 2000 options granted have 10 year terms, and have a six month vesting period after which they become fully exercisable immediately.
Changes in the number of stock options outstanding during the years ended December 31, 2002, 2001 and 2000 are as follows:
Stock options outstanding at December 31, 2002 (all currently exercisable) are as follows:
F-33
At December 31, 2002, the Company had no shares of common stock available for future grant under the 1996 Stock Option Plan; 1,449,458 shares of common stock available for future grant under the 2000 Employee Stock Option Plan; and 225,000 shares of common stock available for future grant under the 2000 Directors 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 2,157,375 shares of the Company's common stock to certain officers and directors. The subscription rights have an exercise price of $5.33 per share, were fully exercisable immediately, and expire on December 1, 2005. The subscription rights originally were to expire on December 1, 2002. The expiration was extended during 2002 to December 1, 2005 and the Company recognized compensation expense of $0.2 million.
11. Life Insurance Subsidiaries
Prior approval of regulatory authorities is required for the payment of dividends to the Company by its life insurance subsidiaries which exceed an annual limitation. During 2003, American Equity Life could pay dividends to its parent of $25.9 million, without prior approval from regulatory authorities.
Statutory accounting practices prescribed or permitted by regulatory authorities for the Company's life insurance subsidiary differ from generally accepted accounting principles. Combined net income (loss) for the Company's life insurance subsidiaries as determined in accordance with statutory accounting practices was $26.0 million, $(17.2) million and $10.4 million in 2002, 2001 and 2000, respectively, and total statutory capital and surplus of the Company's life insurance subsidiaries was $227.2 million and $177.9 million at December 31, 2002 and 2001, respectively.
The National Association of Insurance Commissioners (NAIC) revised the Accounting Practices and Procedures Manual in a process referred to as Codification. The revised manual was effective January 1, 2001. Statutory capital and surplus increased $2.4 million during 2001 due to the adoption of accounting changes resulting from the codification of statutory accounting principles.
Life and health insurance companies are subject to certain risk-based capital (RBC) requirements as specified by the NAIC. Under those requirements, the amount of capital and surplus maintained by a life and health insurance company is to be determined based on the various risk factors related to it. At December 31, 2002, the Company's life subsidiaries meet the RBC requirements.
12. Commitments and Contingencies
The Company leases its home office space and certain equipment under operating leases which expire through June 2007. During the years ended December 31, 2002, 2001 and 2000, rent expense totaled $1.0 million, $0.5 million and $0.6 million, respectively. At December 31, 2002, minimum rental
F-34
payments due under all noncancellable operating leases with initial terms of one year or more are (dollars in thousands):
Assessments are, from time to time, levied on the Company by life and health guaranty associations in 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. Management believes that assessments against the Company for failures known to date will be minimal.
In recent years, companies in the life insurance and annuity business have faced increased litigation, including class action lawsuits alleging improper design, improper sales practices and similar claims. The Company is currently a defendant in a purported class action lawsuit alleging improper sales practices. The Company's motion for dismissal of this claim was recently granted and class certification was denied. However, the plaintiff may re-file the claim within a specified period of time.
In addition, the Company is from time to time subject to other legal proceedings and claims in the ordinary course of business, none of which management believe are likely to have a material adverse effect on our financial position, results of operations or cash flows. There can be no assurance that such litigation, or any future litigation, will not have a material adverse effect on the Company's financial position, results of operations or cash flows.
F-35
The following table sets forth the computation of earnings per common share and earnings per common shareassuming dilution:
The effect of the convertible stock of the subsidiary trust has not been included in the computation of dilutive earnings per common share for 2001 and 2000 as the effect is antidilutive.
F-36
14. Quarterly Financial Information (Unaudited)
Unaudited quarterly results of operations are summarized below.
The differences between the change in fair value of derivatives by quarter primarily corresponds to the performance of the indices upon which our call options are based. Earnings (loss) per common share for each quarter is computed independently of earnings (loss) per common share for the year. As a result, the sum of the quarterly earnings (loss) per common share amounts may not equal the earnings (loss) per common share for the year due primarily to the inclusion or exclusion of common shares based upon whether their effect is dilutive or antidilutive in each quarter.
F-37
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
(Unaudited)
|
June 30,
2003 |
December 31,
2002 |
||||||
---|---|---|---|---|---|---|---|---|
Assets | ||||||||
Cash and investments: | ||||||||
Fixed maturity securities: | ||||||||
Available for sale, at market (amortized cost: 2003$3,105,060;
2002$3,796,914) |
$ | 3,085,017 | $ | 3,753,144 | ||||
Held for investment, at amortized cost (market: 2003$1,871,535;
2002$1,151,337) |
1,874,065 | 1,149,510 | ||||||
Equity securities, available for sale, at market (cost: 2003$54,674; 2002$18,051) |
|
|
55,674 |
|
|
17,006 |
||
Mortgage loans on real estate |
|
|
465,278 |
|
|
334,339 |
||
Derivative instruments | 90,103 | 52,313 | ||||||
Policy loans | 298 | 295 | ||||||
Cash and cash equivalents | 15,071 | 21,163 | ||||||
|
|
|||||||
Total cash and investments | 5,585,506 | 5,327,770 | ||||||
Premiums due and uncollected |
|
|
1,487 |
|
|
1,371 |
||
Accrued investment income | 22,695 | 36,716 | ||||||
Receivables from related parties | 16,342 | 20,949 | ||||||
Property, furniture, and equipment, less allowances for depreciation of $3,976 in 2003 and $4,011 in 2002 | 1,513 | 1,675 | ||||||
Deferred policy acquisition costs | 618,343 | 595,450 | ||||||
Deferred income tax asset | 40,311 | 50,711 | ||||||
Federal income taxes recoverable | 6,995 | | ||||||
Other assets | 37,029 | 4,814 | ||||||
Assets held in separate account | 2,722 | 2,810 | ||||||
|
|
|||||||
Total assets | $ | 6,332,943 | $ | 6,042,266 | ||||
|
|
See accompanying notes.
F-38
See accompanying notes.
F-39
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
(Unaudited)
|
Six Months Ended June 30,
|
|||||||
---|---|---|---|---|---|---|---|---|
|
2003
|
2002
|
||||||
Revenues: | ||||||||
Traditional life and accident and health insurance premiums | $ | 6,858 | $ | 7,320 | ||||
Annuity and single premium universal life product charges | 11,225 | 6,476 | ||||||
Net investment income | 174,824 | 144,178 | ||||||
Realized gains (losses) on investments | 7,788 | (518 | ) | |||||
Change in fair value of derivatives | 19,091 | (43,986 | ) | |||||
|
|
|||||||
Total revenues | 219,786 | 113,470 | ||||||
Benefits and expenses: |
|
|
|
|
|
|
|
|
Insurance policy benefits and change in future policy benefits | 5,584 | 5,024 | ||||||
Interest credited to account balances | 109,815 | 79,023 | ||||||
Change in fair value of embedded derivatives | 41,234 | (17,411 | ) | |||||
Interest expense on notes payable | 804 | 1,096 | ||||||
Interest expense on General Agency Commission and Servicing Agreement | 1,713 | 1,999 | ||||||
Interest expense on amounts due under repurchase agreements | 436 | | ||||||
Other interest expense | 138 | 888 | ||||||
Amortization of deferred policy acquisition costs | 26,932 | 17,890 | ||||||
Other operating costs and expenses | 12,827 | 9,966 | ||||||
|
|
|||||||
Total benefits and expenses | 199,483 | 98,475 | ||||||
|
|
|||||||
Income before income taxes, minority interests |
|
|
20,303 |
|
|
14,995 |
|
|
Income tax expense | 5,721 | 3,762 | ||||||
|
|
|||||||
Income before minority interests | 14,582 | 11,233 | ||||||
Minority interests in subsidiaries: | ||||||||
Earnings attributable to company-obligated mandatorily redeemable preferred securities of subsidiary trusts | 3,722 | 3,724 | ||||||
|
|
|||||||
Net income | $ | 10,860 | $ | 7,509 | ||||
|
|
|||||||
Earnings per common share |
|
$ |
0.67 |
|
$ |
0.46 |
|
|
|
|
|||||||
Earnings per common shareassuming dilution |
|
$ |
0.57 |
|
$ |
0.39 |
|
|
|
|
See accompanying notes.
F-40
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
(Unaudited)
|
Preferred Stock
|
Common Stock
|
Additional Paid-in Capital
|
Accumulated Other Comprehensive Loss
|
Retained Earnings
|
Total Stockholders' Equity
|
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at January 1, 2002 | $ | 625 | $ | 14,517 | $ | 57,452 | $ | (33,531 | ) | $ | 3,504 | $ | 42,567 | |||||||
Comprehensive income: | ||||||||||||||||||||
Net income for period | | | | | 7,509 | 7,509 | ||||||||||||||
Change in net unrealized investment gains/losses | | | | 15,194 | | 15,194 | ||||||||||||||
|
||||||||||||||||||||
Total comprehensive income | 22,703 | |||||||||||||||||||
Issuance of 34,228 shares of common stock | | 34 | 103 | | | 137 | ||||||||||||||
Acquisition of 109,000 shares of common stock | | (109 | ) | (678 | ) | | | (787 | ) | |||||||||||
|
|
|
|
|
|
|||||||||||||||
Balance at June 30, 2002 | $ | 625 | $ | 14,442 | $ | 56,877 | $ | (18,337 | ) | $ | 11,013 | $ | 64,620 | |||||||
|
|
|
|
|
|
|||||||||||||||
Balance at January 1, 2003 |
|
$ |
625 |
|
$ |
14,438 |
|
$ |
56,811 |
|
$ |
(11,944 |
) |
$ |
17,548 |
|
$ |
77,478 |
|
|
Comprehensive income: | ||||||||||||||||||||
Net income for period | | | | | 10,860 | 10,860 | ||||||||||||||
Change in net unrealized investment gains/losses | | | | 7,078 | | 7,078 | ||||||||||||||
|
||||||||||||||||||||
Total comprehensive income | 17,938 | |||||||||||||||||||
Acquisition of 1,369,500 shares of common stock | | (1,369 | ) | (7,533 | ) | | | (8,902 | ) | |||||||||||
Transfer of 1,262,136 shares of common stock to the NMO Deferred Compensation Trust | | 1,262 | 6,942 | | | 8,204 | ||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Balance at June 30, 2003 | $ | 625 | $ | 14,331 | $ | 56,220 | $ | (4,866 | ) | $ | 28,408 | $ | 94,718 | |||||||
|
|
|
|
|
|
See accompanying notes.
F-41
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
|
Six months ended June 30,
|
||||||||
---|---|---|---|---|---|---|---|---|---|
|
2003
|
2002
|
|||||||
Operating activities | |||||||||
Net income | $ | 10,860 | $ | 7,509 | |||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||
Adjustments related to interest sensitive products: |
|
|
|
|
|
|
|
||
Interest credited to account balances | 109,815 | 79,023 | |||||||
Annuity and single premium universal life product charges | (11,225 | ) | (6,476 | ) | |||||
Change in fair value of embedded derivatives | 41,234 | (17,411 | ) | ||||||
Increase in traditional life insurance and accident and health reserves | 4,122 | 4,681 | |||||||
Policy acquisition costs deferred | (48,622 | ) | (87,870 | ) | |||||
Amortization of deferred policy acquisition costs | 26,932 | 17,890 | |||||||
Provision for depreciation and other amortization | 566 | 553 | |||||||
Amortization of discount and premiums on fixed maturity securities | (86,474 | ) | (53,539 | ) | |||||
Realized losses (gains) on investments | (7,788 | ) | 518 | ||||||
Change in fair value of derivatives | (19,091 | ) | 43,986 | ||||||
Deferred income taxes | 6,588 | (662 | ) | ||||||
Reduction of amounts due to related party under General Agency Commission and Servicing Agreement | (9,368 | ) | (8,939 | ) | |||||
Changes in other operating assets and liabilities: |
|
|
|
|
|
|
|
||
Accrued investment income | 14,021 | (8,297 | ) | ||||||
Receivables from related parties | 4,607 | 4,277 | |||||||
Federal income taxes recoverable/payable | (15,182 | ) | 6,339 | ||||||
Other policy funds and contract claims | 11,436 | 7,811 | |||||||
Other amounts due to related parties | 22,300 | (3,469 | ) | ||||||
Other liabilities | 9,288 | (3,345 | ) | ||||||
Other | (910 | ) | 1,248 | ||||||
|
|
||||||||
Net cash provided (used in) by operating activities | 63,109 | (16,173 | ) | ||||||
Investing Activities |
|
|
|
|
|
|
|
||
Sales, maturities, or repayments of investments: | |||||||||
Fixed maturity securitiesavailable for sale | 1,710,151 | 455,737 | |||||||
Fixed maturity securitiesheld for investment | 553,741 | | |||||||
Equity securitiesavailable for sale | 10,579 | 1,175 | |||||||
Mortgage loans on real estate | 4,121 | 1,037 | |||||||
Derivative instruments | 15,886 | 4,626 | |||||||
|
|
||||||||
2,294,478 | 462,575 | ||||||||
Acquisition of investments: |
|
|
|
|
|
|
|
||
Fixed maturity securitiesavailable for sale | (995,283 | ) | (828,983 | ) | |||||
Fixed maturity securitiesheld for investment | (1,239,181 | ) | (215,161 | ) | |||||
Equity securitiesavailable for sale | (47,078 | ) | (4,229 | ) | |||||
Mortgage loans on real estate | (135,060 | ) | (75,640 | ) | |||||
Derivative instruments | (33,758 | ) | (47,933 | ) | |||||
Policy loans | (3 | ) | (13 | ) | |||||
|
|
||||||||
(2,450,363 | ) | (1,171,959 | ) | ||||||
Purchases of property, furniture and equipment |
|
|
(285 |
) |
|
(421 |
) |
||
|
|
||||||||
Net cash used in investing activities | (156,170 | ) | (709,805 | ) | |||||
F-42
See accompanying notes.
F-43
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2003
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of American Equity Investment Life Holding Company (the Company) have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information. Accordingly, they do not include all the information and notes required by GAAP for complete financial statements. The unaudited consolidated financial statements reflect all adjustments, consisting only of normal recurring items, which are necessary to present fairly our financial position and results of operations on a basis consistent with the prior audited financial statements. Operating results for the six-month period ended June 30, 2003, are not necessarily indicative of the results that may be expected for the year ended December 31, 2003. For further information, refer to the audited consolidated financial statements and notes for the year ended December 31, 2002.
In May 2003, the Financial Accounting Standards Board (FASB) issued Statement No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Statement No. 150 must be applied immediately to instruments entered into or modified after May 31, 2003 and to all other instruments that exist as of the beginning of the third quarter of 2003. The Company-obligated mandatorily redeemable preferred securities of subsidiary trusts, with an aggregate carrying value of $100.7 million at June 30, 2003, will be reclassified to liabilities upon adoption of this Statement. There will not be any adjustment to the carrying values of these instruments upon reclassification. Amounts previously classified as dividends from these financial instruments (approximately $1.9 million per quarter) will be recorded as interest expense upon adoption of Statement No. 150 on a prospective basis. The adoption of Statement No. 150 will not impact net income or earnings per common share.
In June 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-1, "Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts". The SOP provides guidance on the presentation of sales inducements ("bonus interest"). We expect to adopt this SOP when it becomes effective in the first quarter of 2004 and will need to change our presentation of deferred expenses relating to bonus interest at that time. The SOP requires that sales inducements be recognized as an asset and amortized with the amortization being included as a component of interest credited. We have currently included bonus interest as a component of deferred acquisition costs. The amount of bonus interest included as a component of deferred acquisition costs at June 30, 2003 and December 31, 2002 was $75.4 million and $62.9 million, respectively. The adoption of this SOP will have no impact on net income.
Certain amounts in the unaudited consolidated financial statements for the period ended June 30, 2002 have been reclassified to conform to the financial statement presentation for June 30, 2003.
2. General Agency Commission and Servicing Agreement
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
F-44
commissions to agents of the Company. This Agreement is more fully described in note 8 to the audited consolidated financial statements.
During the six months ended June 30, 2003 and 2002, the Company paid renewal commissions to the Service Company of $11.1 million and $10.9 million, respectively, which were used to reduce the amount due under the General Agency Commission and Servicing Agreement, and amounts attributable to imputed interest.
As one of its sources of funding its portion of agents' commission payments, the Service Company borrowed money from the Company. At June 30, 2003 and December 31, 2002, the amount receivable from the Service Company totaled $15.8 million and $20.5 million, respectively. Principal and interest are payable quarterly over the five years from the date of each advance.
3. Reinsurance
The Company has given notice of termination and recapture of all reserves subject to a reinsurance agreement with a subsidiary of Swiss Reinsurance Company ("Swiss Re"). This agreement is more fully described in note 5 to the audited consolidated financial statements. The termination and recapture is to be effective on September 30, 2003.
The Company has also entered into a reinsurance transaction with Hannover Life Reassurance Company ("Hannover") to be effective on September 30, 2003. This transaction and the underlying agreement are similar to the transaction with Hannover that was entered into during 2002. The 2002 transaction with Hannover is more fully described in note 5 to the audited consolidated financial statements.
Each of these transactions are treated as reinsurance under statutory accounting practices and as financial reinsurance under GAAP. The statutory surplus benefit that will be eliminated by the termination of the Swiss Re agreement will be replaced by the statutory surplus benefit provided by the new Hannover agreement. The termination of the Swiss Re agreement will result in the full repayment of the expense allowance allowed under the agreement which was previously being repaid ratably over a five-year period and is reported in the consolidated balance sheets as "Amounts due to Reinsurer".
4. Notes Payable
The Company amended its credit agreement during August 2003. The amended agreement requires that the financial strength ratings for American Equity Investment Life Insurance Company issued by A.M. Best and Standard & Poor's may not be less than the current financial strength ratings of B++ and BBB+, respectively. The line of credit is more fully described in note 7 to the audited consolidated financial statements.
5. Retirement and Stock Compensation Plans
During the first six months of 2003, the Company created a Rabbi Trust, the NMO Deferred Compensation Trust (the "Trust") and contributed 1,262,136 shares of its common stock to the Trust to fund the vested share liability as of January 1, 2003 established under the American Equity Investment NMO Deferred Compensation Plan. This Plan is more fully described in note 10 to the audited consolidated financial statements. In accordance with FASB's Emerging Issues Task Force Issue No. 97-14, "Accounting for Deferred Compensation Arrangements where Amounts Earned are Held in a
F-45
Rabbi Trust and Invested" , the stock held in the Trust is included as part of common stock issued and outstanding. In our June 30, 2003 consolidated balance sheet, the common shares held in the rabbi trust and the related Trust obligation funded by such shares are included in the Common Stock and Additional paid-in capital components as a respective deduction and addition, with no impact on the reported amount of total stockholders' equity.
6. Earnings Per Share
The following table sets forth the computation of earnings per common share and earnings per common shareassuming dilution:
F-46
Through and including , 2003 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Shares
American
Equity Investment Life
Holding Company
Common Stock
P R O S P E C T U S |
Merrill Lynch & Co.
Advest, Inc.
, 2003
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of notes being registered. All amounts are estimates.
SEC registration fee | $ | 20,003 | ||
Printing and engraving fees expenses | ||||
Legal fees and expenses | ||||
Accounting fees and expenses | ||||
NASD filing fee | ||||
NYSE listing fee | ||||
Blue Sky fees and expenses | ||||
Transfer agent and registrar fees and expenses | ||||
Miscellaneous fees and expenses | ||||
|
||||
Total |
|
$ |
|
|
|
We will bear all of the expenses shown above.
Item 14. Indemnification of Directors and Officers.
Section 490.202(e) of the Iowa Business Corporation Act authorizes a corporation's board of directors to grant indemnity to directors and officers in terms sufficiently broad to permit indemnification and reimbursement of expenses incurred by directors for liabilities arising under the Securities Act.
Our amended articles of incorporation provide that each individual who was or is a director of the company 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 company or is or was serving at the request of the company as a director, officer, partner, trustee, employee or agent of another corporation, shall be indemnified and held harmless by the company to the fullest extent permitted by applicable law, except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled; (2) an intentional infliction of harm on the company or its shareholders; (3) an unlawful distribution to shareholders; and (4) an intentional violation of criminal law.
Our bylaws also provide that each person who was or is a party or is threatened to be made a party to any threatened, pending or completed civil or criminal action or proceeding by reason of the fact that such person is or was a director of the company or is or was serving at our request as a director of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by us to the fullest extent permitted by Iowa law. This right to indemnification shall also include the right to be paid by us the expenses incurred in connection with any such proceeding in advance of its final disposition to the fullest extent authorized by Iowa law. This right to indemnification shall be a contract right. We may, by action of our board of directors, provide indemnification to our officers, employees and agents to such extent and to such effect as the board of directors determines to be appropriate and authorized by Iowa law.
Our bylaws also authorize us to purchase insurance for our directors, officers and employees and persons who serve at our request as directors, officers, members, employees, fiduciaries or agents of other enterprises, against any expense, liability or loss incurred in such capacity, whether or not we would have the power to indemnify such persons against such expense or liability under the bylaws. We maintain insurance coverage for our officers and directors as well as insurance coverage to reimburse us for potential costs for indemnification of directors and officers.
II-1
Item 15. Recent Sales of Unregistered Securities.
We sold 625,000 shares of 1998 Series A Participating Preferred Stock in December 1998 to an institutional investor for total consideration of $10,000,000. These shares have participating dividend rights with the shares of common stock, when and as such dividends are declared. The preferred shares are convertible into 1,875,000 shares of common stock upon the earlier of our initial public offering of our common stock or December 31, 2003.
During 1997 and 1998, we issued an aggregate of 2,700 shares of common stock to three employees pursuant to the exercise of options under our employee stock option plan. The total consideration received from these option exercises was $10,200.
All of our shareholders will have a right of co-sale in the event of any transfer of a controlling interest in us (excluding certain involuntary transfers in the event of death or disability).
In September 1999, American Equity Capital Trust I, or Trust I, issued $25,970,000 of the 8% trust preferred securities to approximately 100 accredited investors. 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% debentures to Trust I. The sole assets of Trust I are the 8% debentures and any interest accrued thereon. The 8% trust preferred securities are convertible, at the option of the holder, at any time, into shares of our common stock at a conversion price equal to the lesser of (i) $10 per share or (ii) 90% of the price per share of our common stock sold to the public in connection with this offering.
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 June 30, 2003, 865,671 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, or Trust II, issued 97,000 shares of the 5% trust preferred securities to the Iowa Farm Bureau Federation, a non-profit organization. The 5% trust preferred securities have a liquidation value of $100 per share ($97,000,000 in the aggregate). 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, or Farm Bureau. Farm Bureau beneficially owned 33% of our common stock as of June 30, 2003.
In connection with Trust II's issuance of the 5% trust 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% 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. As of June 30, 2003, 97,000 shares of 5% trust preferred securities were outstanding, all of which are unconditionally guaranteed by us to the extent of the assets of Trust II.
During 1999, 2000, 2001 and 2002, we issued an aggregate of 34,030 shares of common stock to 12 employees pursuant to the exercise of options under our employee stock option plans. The total consideration received from these option exercises was $0.2 million.
We believe that the sale and issuance of securities in all the above transactions were exempt from registration under the Securities Act by virtue of Section 4(2) thereof, or Regulation D thereunder, as transactions by an issuer not involving a public offering. Appropriate legends are affixed to the stock certificates issued in such transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients either received adequate information about us or had access, through employment or other relationships, to such information. In addition, the foregoing transactions were consummated without the use of underwriters and public offering documents and involved a very small number of purchasers.
II-2
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
II-3
10.6 |
|
Forgivable Loan Agreement dated April 30, 2000 between American Equity Investment Life Holding Company and David J. Noble++ |
10.7 |
|
2000 Employee Stock Option Plan++ |
10.8 |
|
2000 Director Stock Option Plan++ |
10.9 |
|
Coinsurance and Yearly Renewable Term Reinsurance Agreement dated January 1, 2001 between American Equity Investment Life Holding Company and Atlantic International Reinsurance Company LTD.++++ |
10.10 |
|
Coinsurance Agreement dated December 19, 2001 between American Equity Investment Life Holding Company and Equitrust Life Insurance Company+++++ |
10.11 |
|
Credit Agreement dated December 30, 2002 among American Equity Investment Life Holding Company, West Des Moines State Bank, as co-agent, Fleet National Bank, as documentation agent and U.S. Bank National Association, as agent++++++ |
10.12 |
|
2002 Coinsurance and Yearly Renewable Term Reinsurance Agreement dated November 1, 2002 between American Equity Investment Life Holding Company and Hannover Life Reassurance Company of America+++++++ |
10.13 |
|
2003 Coinsurance and Yearly Renewable Term Reinsurance Agreement dated September 30, 2003 between American Equity Investment Life Holding Company and Hannover Life Reassurance Company of America**** |
10.14 |
|
Form of Change in Control Agreement between American Equity Investment Life Holding Company and each of John M. Matovina, Kevin R. Wingert, Debra J. Richardson and Wendy L. Carlson**** |
10.15 |
|
Form of Change in Control Agreement between American Equity Investment Life Holding Company and each of James M. Gerlach and Terry A. Reimer**** |
10.16 |
|
Indenture dated September 7, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.17 |
|
Trust Preferred Securities Guarantee Agreement dated September 7, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.18 |
|
Trust Common Securities Guarantee Agreement dated September 7, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.19 |
|
Indenture dated October 29, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.20 |
|
Trust Preferred Securities Guarantee Agreement dated October 29, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.21 |
|
Trust Common Securities Guarantee Agreement dated October 29, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
21.1 |
|
Subsidiaries of American Equity Investment Life Holding Company |
23.1 |
|
Consent of Ernst & Young LLP |
23.2 |
|
Consent of Wendy L. Carlson (included in Exhibit 5.1)*** |
23.3 |
|
Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) (included in Exhibit 5.2)*** |
II-4
24.1 |
|
Power of Attorney**** |
* | Incorporated by reference to American Equity Investment Life Holding Company's 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 |
*** |
|
To be filed by amendment |
**** |
|
Previously filed |
+ |
|
Incorporated by reference to Form 10-K for the period ended December 31, 1999 |
++ |
|
Incorporated by reference to Form 10-Q for the period ended June 30, 2000 |
+++ |
|
Incorporated by reference to Form 10-K for the period ended December 31, 2000 |
++++ |
|
Incorporated by reference to Form 10-Q for the period ended September 30, 2001 |
+++++ |
|
Incorporated by reference to Form 10-K for the period ended December 31, 2001 |
++++++ |
|
Incorporated by reference to Form 10-K for the period ended December 31, 2002 |
+++++++ |
|
Incorporated by reference to Form 10-Q for the period ended June 30, 2003 |
II-5
(b) Financial Statement Schedules:
Report of Independent Auditors
Schedule I. Summary of InvestmentsOther than Investments in Related Parties
Schedule II. Condensed Financial Information of Registrant (Parent Company)
Schedle III. Supplementary Insurance Information
Schedule IV. Reinsurance
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.
Report of Independent Auditors on Schedules
The
Board of Directors and Stockholders
American Equity Investment Life Holding Company
We have audited the consolidated financial statements of American Equity Investment Life Holding Company (the Company) as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated March 14, 2003, except for paragraph 38 of Note 1 and Note 13, as to which the date is September 10, 2003 (included elsewhere in this Registration Statement). Our audits also included the financial statement schedules listed in Item 16(b) of this Registration Statement. These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when considered in relation to the 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 14, 2003 |
|
|
II-6
Schedule ISummary of InvestmentsOther
Than Investments in Related Parties
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Column A
|
Column B
|
Column C
|
Column D
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Type of Investment
|
Amortized
Cost(1) |
Fair Value
|
Amount at which
shown in the balance sheet(2) |
||||||||||
|
(Dollars in thousands)
|
||||||||||||
Fixed maturity securities: | |||||||||||||
Available for sale | |||||||||||||
United States Government and agencies | $ | 3,116,562 | $ | 3,134,003 | $ | 3,134,003 | |||||||
State, municipal and other governments | 5,621 | 5,631 | 5,631 | ||||||||||
Public utilities | 52,308 | 51,023 | 51,023 | ||||||||||
Corporate securities | 354,071 | 338,070 | 338,070 | ||||||||||
Redeemable preferred stocks | 11,882 | 12,822 | 12,822 | ||||||||||
Mortgage and asset-backed securities | 256,470 | 211,595 | 211,595 | ||||||||||
|
|
|
|||||||||||
3,796,914 | 3,753,144 | 3,753,144 | |||||||||||
Held for investment | |||||||||||||
United States Government and agencies | 1,073,837 | 1,075,664 | 1,073,837 | ||||||||||
Corporate securities | 75,673 | 75,673 | 75,673 | ||||||||||
|
|
|
|||||||||||
1,149,510 | 1,151,337 | 1,149,510 | |||||||||||
|
|
|
|||||||||||
Total fixed maturity securities | 4,946,424 | $ | 4,904,481 | 4,902,654 | |||||||||
|
|||||||||||||
Equity securities, available for sale: | |||||||||||||
Non-redeemable preferred stocks | 11,218 | $ | 11,379 | 11,379 | |||||||||
Common stocks | 6,833 | 5,627 | 5,627 | ||||||||||
|
|
|
|||||||||||
Total equity securities | 18,051 | $ | 17,006 | 17,006 | |||||||||
|
|||||||||||||
Mortgage loans on real estate | 334,339 | 334,339 | |||||||||||
Derivative instruments | 46,485 | 52,313 | |||||||||||
Policy loans | 295 | 295 | |||||||||||
Cash and cash equivalents | 21,163 | 21,163 | |||||||||||
|
|
||||||||||||
Total investments | $ | 5,366,757 | $ | 5,327,770 | |||||||||
|
|
II-7
Schedule IICondensed Financial Information of Registrant
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY (PARENT COMPANY)
Condensed Balance Sheets
(Dollars in thousands)
|
December 31,
|
|||||||
---|---|---|---|---|---|---|---|---|
|
2002
|
2001
|
||||||
Assets | ||||||||
Cash and cash equivalents | $ | 791 | $ | 3,755 | ||||
Receivable from subsidiary (eliminated in consolidation) | 480 | 500 | ||||||
Receivables from related party | 20,462 | 29,139 | ||||||
Property, furniture and equipment, less allowances for depreciation of
$1,031 in 2002 and $992 in 2001 |
68 | 107 | ||||||
Federal income tax recoverable | 558 | | ||||||
Deferred income tax asset | 5,943 | 4,590 | ||||||
Other assets | 2,301 | 2,664 | ||||||
|
|
|||||||
30,603 | 40,755 | |||||||
Investment in and advances to subsidiaries (eliminated in consolidation) | 196,815 | 153,256 | ||||||
|
|
|||||||
Total assets | $ | 227,418 | $ | 194,011 | ||||
|
|
|||||||
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
|
|
Liabilities: | ||||||||
Notes payable | $ | 43,333 | $ | 46,667 | ||||
Payable to subsidiaries (eliminated in consolidation) | 104,807 | 103,429 | ||||||
Amounts due to related party | 100 | | ||||||
Other liabilities | 1,700 | 1,348 | ||||||
|
|
|||||||
Total liabilities | 149,940 | 151,444 | ||||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
Series preferred stock | 625 | 625 | ||||||
Common stock | 14,438 | 14,517 | ||||||
Additional paid-in capital | 56,811 | 57,452 | ||||||
Accumulated other comprehensive loss | (11,944 | ) | (33,531 | ) | ||||
Retained earnings | 17,548 | 3,504 | ||||||
|
|
|||||||
Total stockholders' equity | 77,478 | 42,567 | ||||||
|
|
|||||||
Total liabilities and stockholders' equity | $ | 227,418 | $ | 194,011 | ||||
|
|
See accompanying note to condensed financial statements.
II-8
Schedule IICondensed Financial Information of Registrant (Continued)
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY (PARENT COMPANY)
Condensed Statements of Income
(Dollars in thousands)
|
Year ended December 31,
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2001
|
2000
|
||||||||
Revenues: | |||||||||||
Net investment income | $ | 20 | $ | 1,017 | $ | 3,479 | |||||
Dividends from subsidiary (eliminated in consolidation) | 5,000 | | 1,500 | ||||||||
Interest from subsidiary (eliminated in consolidation) | 214 | 214 | 214 | ||||||||
Investment advisory fees (eliminated in consolidation) | 1,994 | | | ||||||||
Surplus note interest from subsidiary (eliminated in consolidation) | 2,780 | 3,076 | 2,006 | ||||||||
Interest on note receivable from related party | 2,379 | 3,386 | 2,053 | ||||||||
|
|
|
|||||||||
Total revenues | 12,387 | 7,693 | 9,252 | ||||||||
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
Interest expense on notes payable | 1,901 | 2,881 | 2,339 | ||||||||
Interest expense on debentures issued to subsidiary trusts
(eliminated in consolidation) |
7,660 | 7,663 | 7,663 | ||||||||
Other operating costs and expenses | 2,453 | 1,147 | 620 | ||||||||
|
|
|
|||||||||
Total expenses | 12,014 | 11,691 | 10,622 | ||||||||
|
|
|
|||||||||
Income (loss) before income tax benefit, equity in undistributed
income of subsidiaries and minority interests |
373 | (3,998 | ) | (1,370 | ) | ||||||
Income tax benefit | 1,912 | 1,590 | 1,037 | ||||||||
|
|
|
|||||||||
Income (loss) before equity in undistributed income of subsidiaries
and minority interests |
2,285 | (2,408 | ) | (333 | ) | ||||||
Equity in undistributed income of subsidiaries (eliminated in consolidation) | 19,367 | 10,729 | 12,566 | ||||||||
|
|
|
|||||||||
Income before minority interests in subsidiaries | 21,652 | 8,321 | 12,233 | ||||||||
Minority interests in subsidiaries: | |||||||||||
Earnings attributable to company-obligated mandatorily
redeemable preferred securities of subsidiary trusts |
(7,445 | ) | (7,449 | ) | (7,449 | ) | |||||
|
|
|
|||||||||
Net income | $ | 14,207 | $ | 872 | $ | 4,784 | |||||
|
|
|
See accompanying note to condensed financial statements.
II-9
Schedule IICondensed Financial Information of Registrant (Continued)
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY (PARENT COMPANY)
Condensed Statements of Cash Flows
(Dollars in thousands)
|
Year ended December 31,
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2002
|
2001
|
2000
|
|||||||||
Operating activities | ||||||||||||
Net income | $ | 14,207 | $ | 872 | $ | 4,784 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Provision for depreciation and amortization | 159 | 198 | 199 | |||||||||
Accrual of discount on fixed maturity security | | 59 | (334 | ) | ||||||||
Equity in undistributed income of subsidiaries | (19,367 | ) | (10,729 | ) | (12,566 | ) | ||||||
Minority interests in subsidiariesearnings attributable to company-obligated mandatorily redeemable preferred securities of subsidiary trusts | 7,445 | 7,449 | 7,449 | |||||||||
Accrual of discount on debenture issued to subsidiary trust | 521 | 521 | 521 | |||||||||
Deferred income tax benefit | (1,353 | ) | (1,590 | ) | (1,037 | ) | ||||||
Changes in operating assets and liabilities: | ||||||||||||
Receivable from subsidiary | 20 | | 2,695 | |||||||||
Receivable from related party | 8,677 | 13,234 | 3,416 | |||||||||
Accrued investment income | | | 547 | |||||||||
Federal income tax recoverable | (558 | ) | | | ||||||||
Other assets | 343 | (126 | ) | (673 | ) | |||||||
Payable to subsidiaries | 857 | 178 | 180 | |||||||||
Amounts due to related parties | 100 | (4,000 | ) | 1,409 | ||||||||
Other liabilities | 352 | (77 | ) | 197 | ||||||||
|
|
|
||||||||||
Net cash provided by operating activities | 11,403 | 5,989 | 6,787 | |||||||||
Investing activities |
|
|
|
|
|
|
|
|
|
|
||
Capital contributions to subsidiaries | (50 | ) | (10,025 | ) | (60 | ) | ||||||
Sales of preferred stock | | 16,942 | | |||||||||
Purchases of property, plant and equipment | | (177 | ) | | ||||||||
Purchase of surplus notes from subsidiary | (10,000 | ) | (16,000 | ) | | |||||||
Purchase of note receivable from related party | | | (27,000 | ) | ||||||||
|
|
|
||||||||||
Net cash used in investing activities | (10,050 | ) | (9,260 | ) | (27,060 | ) | ||||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
||
Financing fees incurred and deferred | $ | (100 | ) | $ | | $ | (216 | ) | ||||
Proceeds from notes payable | 10,000 | 6,000 | 23,400 | |||||||||
Repayments of notes payable | (13,334 | ) | (3,333 | ) | | |||||||
Issuance of common stock | 137 | 39 | 1,956 | |||||||||
Acquisition of common stock | (857 | ) | (177 | ) | (619 | ) | ||||||
Dividends paid | (163 | ) | (164 | ) | (152 | ) | ||||||
|
|
|
||||||||||
Net cash provided by (used in) financing activities | (4,317 | ) | 2,365 | 24,369 | ||||||||
|
|
|
||||||||||
Increase (decrease) in cash and cash equivalents | (2,964 | ) | (1,024 | ) | 4,096 | |||||||
Cash and cash equivalents at beginning of year | 3,755 | 4,779 | 683 | |||||||||
|
|
|
||||||||||
Cash and cash equivalents at end of year | $ | 791 | $ | 3,755 | $ | 4,779 | ||||||
|
|
|
||||||||||
Supplemental disclosures of cash flow information |
|
|
|
|
|
|
|
|
|
|
||
Cash paid during the year for interest: | ||||||||||||
Notes payable | $ | 1,763 | $ | 2,881 | $ | 2,339 | ||||||
Debentures issued to subsidiary trusts | 7,660 | 7,663 | 7,663 | |||||||||
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
||
Fixed maturity security contributed to subsidiary | | 19,962 | 10,157 |
See accompanying note to condensed financial statements.
II-10
Schedule IICondensed Financial Information of Registrant (Continued)
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY (PARENT COMPANY)
Note to Condensed Financial Statements
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 financial statements, the Company's investment in and advances to subsidiaries (which includes surplus notes issued by one of the Company's life insurance subsidiaries) 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.
See Note 7 to the consolidated financial statements for a description of the parent company's notes payable.
Certain amounts in the 2001 condensed financial statements have been reclassified to conform to the 2002 condensed financial statement presentation.
II-11
Schedule IIISupplementary Insurance Information
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Deferred
policy acquisition costs |
Future policy
benefits, losses, claims and loss expenses |
Unearned
premiums |
Other policy
claims and benefits payable acquisition costs |
|||||||||
|
(Dollars in thousands)
|
||||||||||||
As of December 31, 2002: | |||||||||||||
Life insurance | $ | 595,450 | $ | 5,452,365 | $ | | $ | 35,644 | |||||
|
|
|
|
||||||||||
As of December 31, 2001: | |||||||||||||
Life insurance | $ | 492,757 | $ | 3,993,945 | $ | | $ | 22,046 | |||||
|
|
|
|
||||||||||
As of December 31, 2000: | |||||||||||||
Life insurance | $ | 289,609 | $ | 2,099,915 | $ | | $ | 16,669 | |||||
|
|
|
|
Column A |
|
Column F |
|
Column G |
|
Column H |
|
Column I |
|
Column J |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Premium
revenue |
Net
investment income |
Benefits,
claims, losses and settlement expenses |
Amortization
of deferred policy acquisition costs |
Other
operating expenses |
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
Year ended December 31, 2002: | ||||||||||||||||
Life insurance | $ | 29,040 | $ | 308,548 | $ | 181,923 | $ | 39,930 | $ | 28,909 | ||||||
|
|
|
|
|
||||||||||||
Year ended December 31, 2001: | ||||||||||||||||
Life insurance | $ | 25,661 | $ | 209,086 | $ | 120,606 | $ | 23,040 | $ | 27,277 | ||||||
|
|
|
|
|
||||||||||||
Year ended December 31, 2000: | ||||||||||||||||
Life insurance | $ | 19,372 | $ | 100,060 | $ | 65,257 | $ | 8,574 | $ | 26,166 | ||||||
|
|
|
|
|
II-12
Schedule IVReinsurance
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
Column F
|
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Gross amount
|
Ceded to other companies
|
Assumed from other companies
|
Net amount
|
Percent of amount assumed to net
|
|||||||||||
|
(Dollars in thousands)
|
|||||||||||||||
Year ended December 31, 2002: | ||||||||||||||||
Life insurance in force, at end of year | $ | 2,084,417 | $ | 807 | $ | 133,745 | $ | 2,217,355 | 6.03 | % | ||||||
|
|
|
|
|
||||||||||||
Insurance premiums and other considerations: | ||||||||||||||||
Annuity and single premium universal life product charges | $ | 15,376 | $ | | $ | | $ | 15,376 | | % | ||||||
Traditional life and accident and health insurance premiums | 10,421 | 362 | 3,605 | 13,664 | 26.38 | % | ||||||||||
|
|
|
|
|
||||||||||||
$ | 25,797 | $ | 362 | $ | 3,605 | $ | 29,040 | 12.41 | % | |||||||
|
|
|
|
|
||||||||||||
Year ended December 31, 2001: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force, at end of year | $ | 2,366,765 | $ | 260,675 | $ | 209,647 | $ | 2,315,737 | 9.05 | % | ||||||
|
|
|
|
|
||||||||||||
Insurance premiums and other considerations: | ||||||||||||||||
Annuity and single premium universal life product charges | $ | 12,555 | $ | 35 | $ | | $ | 12,520 | | % | ||||||
Traditional life and accident and health insurance premiums | 9,043 | 156 | 4,254 | 13,141 | 32.37 | % | ||||||||||
|
|
|
|
|
||||||||||||
$ | 21,598 | $ | 191 | $ | 4,254 | $ | 25,661 | 16.58 | % | |||||||
|
|
|
|
|
||||||||||||
Year ended December 31, 2000: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force, at end of year | $ | 2,365,190 | $ | 171,704 | $ | 161,793 | $ | 2,355,279 | 6.87 | % | ||||||
|
|
|
|
|
||||||||||||
Insurance premiums and other considerations: | ||||||||||||||||
Annuity and single premium universal life product charges | $ | 8,338 | $ | | $ | | $ | 8,338 | | % | ||||||
Traditional life and accident and health insurance premiums | 8,600 | 182 | 2,616 | 11,034 | 23.71 | % | ||||||||||
|
|
|
|
|
||||||||||||
$ | 16,938 | $ | 182 | $ | 2,616 | $ | 19,372 | 13.50 | % | |||||||
|
|
|
|
|
II-13
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-14
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of West Des Moines, State of Iowa, on October 17, 2003.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY | ||||
|
|
By: |
|
/s/ D. J. NOBLE |
|
|
Name: |
|
David J. Noble |
Title: | President |
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to Registration Statement has been signed by the following persons in the capacities indicated below on October 17, 2003:
Signature
|
Title
|
|
---|---|---|
|
|
|
/s/
D. J. NOBLE
David J. Noble |
Chairman of the Board and President (Principal Executive Officer) | |
/s/ WENDY L. CARLSON Wendy L. Carlson |
|
Chief Financial Officer and General Counsel (Principal Financial Officer) |
/s/ TED M. JOHNSON Ted M. Johnson |
|
Vice PresidentAccounting (Principal Accounting Officer) |
* John C. Anderson |
|
Director |
* James M. Gerlach |
|
Director |
* Robert L. Hilton |
|
Director |
* John M. Matovina |
|
Director |
II-15
* Ben T. Morris |
|
Director |
* David S. Mulcahy |
|
Director |
* A. J. Strickland, III |
|
Director |
* Harley A. Whitfield |
|
Director |
* Kevin R.Wingert |
|
Director |
*By: |
|
/s/ D. J. NOBLE David J. Noble |
|
|
Attorney-in-fact |
II-16
Exhibit No.
|
Description
|
|
---|---|---|
1.1 | Form of Underwriting Agreement with respect to the Common Stock*** | |
3.1 |
|
Articles of Incorporation, including Articles of Amendment**++ |
3.2 |
|
Articles of Amendment to Articles of Incorporation filed on September 23, 2003 |
3.3 |
|
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 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+ |
4.5 |
|
American Equity Investment Life Holding Company agrees to furnish the Commission upon its request a copy of any instrument defining the rights of holders of long-term debt of American Equity and its consolidated subsidiaries |
4.8 |
|
Form of Common Stock certificate*** |
5.1 |
|
Opinion of Wendy L. Carlson, General Counsel of American Equity*** |
5.2 |
|
Opinion of Skadden, Arps, Slate, Meagher & Flom (Illinois)*** |
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+ |
10.1-B |
|
Second Restated and Amended General Agency Commission and Servicing Agreement dated as of October 1, 2002 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 David 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) James M. Gerlach dated June 6, 1996* (b) Terry A. Reimer dated November 11, 1996* (c) David S. Mulcahy dated December 31, 1997* |
10.6 |
|
Forgivable Loan Agreement dated April 30, 2000 between American Equity Investment Life Holding Company and David J. Noble++ |
10.7 |
|
2000 Employee Stock Option Plan++ |
10.8 |
|
2000 Director Stock Option Plan++ |
10.9 |
|
Coinsurance and Yearly Renewable Term Reinsurance Agreement dated January 1, 2001 between American Equity Investment Life Holding Company and Atlantic International Reinsurance Company LTD.++++ |
10.10 |
|
Coinsurance Agreement dated December 19, 2001 between American Equity Investment Life Holding Company and Equitrust Life Insurance Company+++++ |
10.11 |
|
Credit Agreement dated December 30, 2002 among American Equity Investment Life Holding Company, West Des Moines State Bank, as co-agent, Fleet National Bank, as documentation agent and U.S. Bank National Association, as agent++++++ |
10.12 |
|
2002 Coinsurance and Yearly Renewable Term Reinsurance Agreement dated November 1, 2002 between American Equity Investment Life Holding Company and Hannover Life Reassurance Company of America+++++++ |
10.13 |
|
2003 Coinsurance and Yearly Renewable Term Reinsurance Agreement dated September 30, 2003 between American Equity Investment Life Holding Company and Hannover Life Reassurance Company of America**** |
10.14 |
|
Form of Change in Control Agreement between American Equity Investment Life Holding Company and each of John M. Matovina, Kevin R. Wingert, Debra J. Richardson and Wendy L. Carlson**** |
10.15 |
|
Form of Change in Control Agreement between American Equity Investment Life Holding Company and each of James M. Gerlach and Terry A. Reimer**** |
10.16 |
|
Indenture dated September 7, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.17 |
|
Trust Preferred Securities Guarantee Agreement dated September 7, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.18 |
|
Trust Common Securities Guarantee Agreement dated September 7, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.19 |
|
Indenture dated October 29, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.20 |
|
Trust Preferred Securities Guarantee Agreement dated October 29, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
10.21 |
|
Trust Common Securities Guarantee Agreement dated October 29, 1999 between American Equity Investment Life Holding Company and West Des Moines State Bank, as trustee |
21.1 |
|
Subsidiaries of American Equity Investment Life Holding Company |
23.1 |
|
Consent of Ernst & Young LLP |
23.2 |
|
Consent of Wendy L. Carlson (included in Exhibit 5.1)*** |
23.3 |
|
Consent of Skadden, Arps, Slate, Meagher & Flom (Illinois) (included in Exhibit 5.2)*** |
24.1 |
|
Power of Attorney**** |
* | Incorporated by reference to American Equity Investment Life Holding Company's 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 |
*** |
|
To be filed by amendment |
**** |
|
Previously filed |
+ |
|
Incorporated by reference to Form 10-K for the period ended December 31, 1999 |
++ |
|
Incorporated by reference to Form 10-Q for the period ended June 30, 2000 |
+++ |
|
Incorporated by reference to Form 10-K for the period ended December 31, 2000 |
++++ |
|
Incorporated by reference to Form 10-Q for the period ended September 30, 2001 |
+++++ |
|
Incorporated by reference to Form 10-K for the period ended December 31, 2001 |
++++++ |
|
Incorporated by reference to Form 10-K for the period ended December 31, 2002 |
+++++++ |
|
Incorporated by reference to Form 10-Q for the period ended June 30, 2003 |
Exhibit 3.2
ARTICLES OF AMENDMENT
TO
THE ARTICLES OF INCORPORATION
OF
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
TO THE SECRETARY OF STATE OF THE STATE OF IOWA:
Pursuant to Section 490.602 of the Iowa Business Corporation Act, the undersigned corporation adopts the following amendment to the Corporation's Articles of Incorporation.
1. The name of the corporation is AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY.
2. The Articles of Incorporation of AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY are hereby amended by deleting ARTICLE V in its entirety and inserting in lieu thereof the following:
ARTICLE V
A director of this Corporation shall not be liable to the Corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, except liability for (1) the amount of a financial benefit received by a director to which the director is not entitled; (2) an intentional infliction of harm on the Corporation or the shareholders; (3) a violation of section 490.833 of the Code of Iowa; and (4) an intentional violation of criminal law.
In addition, 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. Without limiting the generality of the preceding sentence, an Indemnitee shall be indemnified by the Corporation for any action taken, or failure to take any action, as a director, except liability for (1) receipt of a financial benefit to which the person is not entitled; (2) an intentional infliction of harm on the Corporation or its shareholders; (3) a violation of section 490.833 of the Code of Iowa; and (4) an intentional violation of criminal law.
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.
3. The date of adoption of the amendment was June 5, 2003.
4. The amendment was approved by the shareholders. The designation, number of outstanding shares, number of votes entitled to be cast by each voting group entitled to vote separately on the amendment, and the number of votes of each voting group indisputably represented at the meeting is as follows:
Designation of Group
|
Shares
Outstanding |
Votes Entitled
to be Cast on Amendment |
Votes
Represented at Meeting |
|||
---|---|---|---|---|---|---|
Common | 14,438,452 | 14,438,452 | 12,604,345 | |||
Preferred (nonvoting) | 625,000 | -0- | -0- |
A. The total number of votes cast for and against the amendment by each voting group entitled to vote separately on the amendment is as follows:
Voting Group
|
Votes For
|
Votes Against
|
Abstaining
|
|||
---|---|---|---|---|---|---|
Common | 12,472,845 | 72,375 | 59,125 | |||
Preferred (nonvoting) | N/A | N/A | N/A |
The number of votes cast for the amendment by each voting group was sufficient for approval by that voting group.
Dated this 18th day of September, 2003.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY | ||||
|
|
By: |
|
/s/ WENDY L. CARLSON Wendy L. Carlson Chief Financial Officer and General Counsel |
2
Exhibit 10.16
AMERICAN
EQUITY INVESTMENT LIFE HOLDING COMPANY,
AS ISSUER
AND
WEST DES MOINES STATE BANK,
AS TRUSTEE
INDENTURE
DATED AS OF SEPTEMBER 7, 1999
$23,216,587.63(1)
8% CONVERTIBLE JUNIOR SUBORDINATED DEBENTURES DUE 2029
|
Page
|
|
---|---|---|
RECITALS OF THE COMPANY | 1 | |
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION |
||
SECTION 101. Definitions |
|
2 |
SECTION 102. Compliance Certificates and Opinions |
|
7 |
SECTION 103. Form of Documents Delivered to Trustee |
|
8 |
SECTION 104. Acts of Holders; Record Dates |
|
8 |
SECTION 105. Notices, Etc., to Trustee and the Company |
|
9 |
SECTION 106. Notice to Holders; Waiver |
|
9 |
SECTION 107. Conflict with Trust Indenture Act |
|
10 |
SECTION 108. Effect of Headings and Table of Contents |
|
10 |
SECTION 109. Successors and Assigns |
|
10 |
SECTION 110. Separability Clause |
|
10 |
SECTION 111. Benefits of Indenture |
|
10 |
SECTION 112. Governing Law |
|
10 |
SECTION 113. Legal Holidays |
|
10 |
ARTICLE TWO DEBENTURE FORMS |
||
SECTION 201. Forms Generally |
|
11 |
SECTION 202. Initial Issuance to Property Trustee |
|
11 |
ARTICLE THREE THE DEBENTURES |
||
SECTION 301. Title and Terms |
|
11 |
SECTION 302. Denominations |
|
12 |
SECTION 303. Execution, Authentication, Delivery and Dating |
|
13 |
SECTION 304. Temporary Debentures |
|
13 |
SECTION 305. Registration, Registration of Transfer and Exchange |
|
13 |
SECTION 306. Mutilated, Destroyed, Lost and Stolen Debentures |
|
14 |
SECTION 307. Payment of Interest; Interest Rights Preserved |
|
15 |
SECTION 308. Persons Deemed Owners |
|
16 |
i
SECTION 309. Cancellation |
|
16 |
SECTION 310. Right of Set Off |
|
16 |
SECTION 311. CUSIP Numbers |
|
16 |
SECTION 312. Option to Extend Interest Payment Period |
|
17 |
SECTION 313. Paying Agent, Registrar and Conversion Agent |
|
18 |
SECTION 314. Calculation of Original Issue Discount |
|
18 |
ARTICLE FOUR SATISFACTION AND DISCHARGE |
||
SECTION 401. Satisfaction and Discharge of Indenture |
|
18 |
SECTION 402. Application of Trust Money |
|
18 |
ARTICLE FIVE REMEDIES |
||
SECTION 501. Indenture Events of Default |
|
19 |
SECTION 502. Acceleration of Maturity; Rescission and Annulment |
|
20 |
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee |
|
20 |
SECTION 504. Trustee May File Proofs of Claim |
|
20 |
SECTION 505. Trustee May Enforce Claims Without Possession of Debentures |
|
21 |
SECTION 506. Application of Money Collected |
|
21 |
SECTION 507. Limitation on Suits |
|
21 |
SECTION 508. Unconditional Right of Holders to Receive Principal and Interest and Convert |
|
22 |
SECTION 509. Restoration of Rights and Remedies |
|
22 |
SECTION 510. Rights and Remedies Cumulative |
|
22 |
SECTION 511. Delay or Omission Not Waiver |
|
22 |
SECTION 512. Control by Holders |
|
22 |
SECTION 513. Waiver of Past Defaults |
|
23 |
SECTION 514. Undertaking for Costs |
|
23 |
SECTION 515. Waiver of Stay or Extension Laws |
|
23 |
SECTION 516. Enforcement by Holders of Trust Preferred Securities |
|
23 |
ARTICLE SIX THE TRUSTEE |
||
SECTION 601. Certain Duties and Responsibilities |
|
24 |
SECTION 602. Notice of Defaults |
|
24 |
ii
SECTION 603. Certain Rights of Trustee |
|
24 |
SECTION 604. Not Responsible for Recitals or Issuance of Debentures |
|
25 |
SECTION 605. May Hold Debentures |
|
25 |
SECTION 606. Money Held in Trust |
|
25 |
SECTION 607. Compensation and Reimbursement |
|
25 |
SECTION 608. Disqualification; Conflicting Interests |
|
26 |
SECTION 609. Corporate Trustee Required; Eligibility |
|
26 |
SECTION 610. Resignation and Removal; Appointment of Successor |
|
26 |
SECTION 611. Acceptance of Appointment by Successor |
|
27 |
SECTION 612. Merger, Conversion, Consolidation or Succession to Business |
|
27 |
SECTION 613. Preferential Collection of Claims Against Company |
|
27 |
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY |
||
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders |
|
27 |
SECTION 702. Preservation of Information; Communications to Holders |
|
28 |
SECTION 703. Reports by Trustee |
|
28 |
SECTION 704. Reports by Company |
|
28 |
ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE |
||
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms |
|
29 |
SECTION 802. Successor Substituted |
|
29 |
ARTICLE NINE SUPPLEMENTAL INDENTURES |
||
SECTION 901. Supplemental Indentures Without Consent of Holders |
|
29 |
SECTION 902. Supplemental Indentures with Consent of Holders |
|
30 |
SECTION 903. Execution of Supplemental Indentures |
|
31 |
SECTION 904. Effect of Supplemental Indentures |
|
31 |
SECTION 905. Intentionally Omitted |
|
31 |
SECTION 906. Reference in Debentures to Supplemental Indentures |
|
31 |
ARTICLE TEN COVENANTS; REPRESENTATIONS AND WARRANTIES |
||
SECTION 1001. Payment of Principal and Interest |
|
31 |
iii
SECTION 1002. Maintenance of Office or Agency |
|
31 |
SECTION 1003. Money for Debenture Payments to Be Held in Trust |
|
32 |
SECTION 1004. Statement by Officers as to Default |
|
32 |
SECTION 1005. Limitation on Dividends; Transactions with Affiliates; Covenants as to the Trust |
|
33 |
SECTION 1006. Payment of Expenses of the Trust |
|
33 |
ARTICLE ELEVEN REDEMPTION OF DEBENTURES |
||
SECTION 1101. Right of Redemption |
|
34 |
SECTION 1102. Applicability of Article |
|
34 |
SECTION 1103. Election to Redeem; Notice to Trustee |
|
34 |
SECTION 1104. Selection by Trustee of Debentures to Be Redeemed |
|
34 |
SECTION 1105. Notice of Redemption |
|
35 |
SECTION 1106. Deposit of Redemption Price |
|
35 |
SECTION 1107. Debentures Payable on Redemption Date |
|
35 |
SECTION 1108. Debentures Redeemed in Part |
|
36 |
SECTION 1109. Tax Event Redemption |
|
36 |
SECTION 1110. No Sinking Fund |
|
36 |
ARTICLE TWELVE SUBORDINATION OF DEBENTURES |
||
SECTION 1201. Agreement to Subordinate |
|
37 |
SECTION 1202. Default on Senior Debt |
|
37 |
SECTION 1203. Liquidation; Dissolution; Bankruptcy |
|
37 |
SECTION 1204. Subrogation |
|
38 |
SECTION 1205. Trustee to Effectuate Subordination |
|
39 |
SECTION 1206. Notice by the Company |
|
39 |
SECTION 1207. Rights of the Trustee; Holders of Senior Debt |
|
40 |
SECTION 1208. Subordination May Not Be Impaired |
|
40 |
ARTICLE THIRTEEN CONVERSION OF DEBENTURES |
||
SECTION 1301. Conversion Rights |
|
40 |
SECTION 1302. Conversion Procedures |
|
41 |
SECTION 1303. Conversion Price AdjustmentsGeneral |
|
42 |
iv
SECTION 1304. Reclassification, Consolidation, Merger or Sale of Assets |
|
45 |
SECTION 1305. Notice of Adjustments of Conversion Price |
|
46 |
SECTION 1306. Prior Notice of Certain Events |
|
46 |
SECTION 1307. Dividend or Interest Reinvestment Plans |
|
47 |
SECTION 1308. Certain Additional Rights |
|
47 |
SECTION 1309. Restrictions on Common Stock Issuable Upon Conversion |
|
47 |
SECTION 1310. Trustee Not Responsible for Determining Conversion Price or Adjustments |
|
48 |
ARTICLE FOURTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS |
||
SECTION 1401. No Recourse |
|
48 |
EXHIBIT AForm of Debenture
ANNEX AForm of Amended and Restated Declaration of Trust, among the Company, as Sponsor, West Des Moines State Bank, as Property Trustee, First Union Trust Company, National Association, as Delaware Trustee, and Debra J. Richardson and Wendy L. Carlson, as Administrative Trustees, dated as of September 7, 1999
Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture.
v
INDENTURE, dated as of September 7, 1999, between American Equity Investment Life Holding Company, a corporation duly organized and existing under the laws of the State of Iowa (the "Company"), having its principal office at 5000 Westown Parkway, Suite 440, West Des Moines, IA 50266, and West Des Moines State Bank, an Iowa banking corporation, as Trustee (the "Trustee").
RECITALS OF THE COMPANY
WHEREAS, American Equity Capital Trust I, a Delaware business trust (the "Trust") formed under the Amended and Restated Declaration of Trust, dated as of September 7, 1999 (the "Declaration"), by and among the Company, as sponsor, West Des Moines State Bank, as property trustee (the "Property Trustee"), First Union Trust Company, National Association, as Delaware trustee (the "Delaware Trustee"), and Debra J. Richardson and Wendy L. Carlson, as Administrative Trustees, will issue and sell 750,669.67 (or up to an aggregate of 1,000,000 if additional Trust Preferred Securities (as defined below) are issued after the initial Closing Date in accordance with the Declaration) 8% Convertible Trust Preferred Securities (the "Trust Preferred Securities") representing undivided beneficial interests in the assets of Trust, with a liquidation amount of $30 per Trust Preferred Security, or $22,520,090 in the aggregate (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
WHEREAS, the Trust will issue and sell to the Company 23,216.59 (or up to an aggregate of 30,928 if additional Trust Common Securities (as defined below) are issued after the initial Closing Date in accordance with the Declaration) convertible common securities (the "Trust Common Securities" and, together with the Trust Preferred Securities, the "Trust Securities") representing undivided beneficial interests in the assets of Trust with a liquidation amount of $30 per Trust Common Security, or $696,497.63 in the aggregate (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
WHEREAS, pursuant to the Declaration, the Trust will use the proceeds from the sale of the Trust Securities to purchase from the Company the 8% Convertible Junior Subordinated Debentures Due 2029 described in this Indenture (the "Debentures") in an aggregate principal amount of $23,216,587.63 (or up to an aggregate principal amount of $30,927,840 if additional Trust Securities are issued after the initial Closing Date in accordance with the Declaration); and
WHEREAS, in connection with the issuance and sale by the Trust of the Trust Preferred Securities and the issuance and sale of the Debentures by the Company to the Trust, the Company has agreed to irrevocably guarantee the payment in full of the distributions on the Trust Preferred Securities, the amount payable upon redemption of the Trust Preferred Securities and, generally, the liquidation preference of the Trust Preferred Securities, to the extent the Trust has funds available therefor, pursuant to the Trust Preferred Securities Guarantee Agreement of even date herewith (the "Guarantee") between the Company and West Des Moines State Bank, as Guarantee Trustee, for the benefit of the holders of the Trust Preferred Securities; and
WHEREAS, so long as the Trust is a Holder (as defined herein) of Debentures, and any Trust Preferred Securities remain outstanding, the Declaration provides that the holders of Trust Preferred Securities may cause the Conversion Agent to (a) exchange such Trust Preferred Securities for Debentures held by the Trust and (b) immediately convert such Debentures into Common Stock (as defined herein), in each case at the times and in the manner set forth herein; and
WHEREAS, the Company has duly authorized the creation of the Debentures, this Indenture sets forth the terms and conditions thereof, and all things necessary to make this Indenture a valid agreement of the Company, subject to execution and delivery of this Indenture by the Company and the Trustee, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Debentures by the Holders as provided for herein, it is mutually agreed, for the equal and proportionate benefit of the Holders, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; and
(4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in Section 104.
"Additional Interest" has the meaning specified in Section 301.
"Additional Payments" means Compounded Interest and Additional Interest, if any.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. 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.
"Agent" means any Registrar, Paying Agent, Conversion Agent or co-registrar.
"Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"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.
"Closing Date" has the meaning specified in the Declaration.
"Closing Price" of any security on any day means the last reported sale price, regular way, on such day or, if no sale takes place on such day, the average of the reported closing bid and asked prices on such day, regular way, in either case as reported on the New York Stock Exchange Composite Tape, or, if such security is not listed or admitted to trading on The New York Stock Exchange, Inc., on the principal national securities exchange on which such security is listed or admitted to trading, or if such
2
security is not listed or admitted to trading on a national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. or, if such security is not quoted or admitted to trading on such quotation system, on the principal quotation system on which such security is listed or admitted to trading or quoted, or, if not listed or admitted to trading or quoted on any national securities exchange or quotation system, the average of the closing bid and asked prices of such security in the over-the-counter market on the day in question as reported by the National Quotation Bureau Incorporated, or a similar generally accepted reporting service, or, if not so available in such manner, as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors of the Company for that purpose, or, if not so available in such manner, as otherwise determined in good faith by the Board of Directors of the Company.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" includes any stock of any class of the Company which has no preference with respect to dividends or to amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company. However, subject to the provisions of Article Thirteen, shares issuable on conversion of Debentures shall include only shares of the class designated as Common Stock of the Company at the date of this instrument or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference with respect to dividends or to amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company; provided that if at any time there shall be more than one such resulting class, the shares of each such class then so issuable on conversion shall be substantially in the proportion which the total number of shares of such class resulting from all such reclassifications bears to the total number of shares of all such classes resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.
"Company's IPO" has the meaning specified in the Declaration.
"Compounded Interest" has the meaning specified in Section 312.
"Conversion Agent" means the Person appointed to act on behalf of the holders of Trust Preferred Securities in effecting the conversion of Trust Preferred Securities as and in the manner set forth in the Declaration and Section 1302 hereof.
"Conversion Date" has the meaning specified in Section 1302.
"Corporate Trust Office" means the principal office of the Trustee in West Des Moines, Iowa, at which at any particular time its corporate trust business shall be administered and which at the date of this Indenture is 1601 22 nd Street, West Des Moines, Iowa 50266.
"Debentures" has the meaning specified in the Recitals to this instrument.
"Declaration" has the meaning specified in the Recitals to this instrument.
"Declaration Event of Default" means a "Declaration Event of Default" as defined in the Declaration.
"Defaulted Interest" has the meaning specified in Section 307.
"Delaware Trustee" has the meaning specified in the Recitals to this instrument.
3
"Direct Action" means a proceeding directly instituted by a holder of Trust Preferred Securities for enforcement of payment to such holder of the principal of or interest on the Junior Subordinated Debentures 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, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company 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.)
"Dissolution Event" means that, as a result of the occurrence and continuation of a Special Event, the Trust is to be dissolved in accordance with the Declaration and the Debentures held by the Property Trustee are to be distributed to the holders of Trust Securities pro rata in accordance with the Declaration.
"Dissolution Tax Opinion" has the meaning specified in the Declaration.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation.
"Expiration Time" has the meaning specified in Section 1303(e).
"Extension Period" has the meaning specified in Section 312.
"Guarantee" has the meaning specified in the Recitals to this instrument.
"Holder" means a Person in whose name a Debenture is registered in the Register.
"Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively.
"Indenture Event of Default" has the meaning specified in Section 501.
"Interest Payment Date" has the meaning specified in Section 301.
"Investment Company Event" has the meaning specified in the Declaration.
"Maturity", when used with respect to any Debenture, means the date on which the principal of such Debenture becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"Ministerial Action" has the meaning specified in Section 1110.
"90-Day Period" has the meaning specified in Section 1110.
"No Recognition Opinion" has the meaning specified in the Declaration.
"Notice of Conversion" means the notice to be given by a holder of Trust Preferred Securities to the Conversion Agent directing the Conversion Agent to exchange such Trust Preferred Securities for Debentures and to convert such Debentures into Common Stock on behalf of such holder.
"Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee.
4
"Outstanding", when used with respect to Debentures, means, as of the date of determination, all Debentures theretofore authenticated and delivered under this Indenture, except: (i) Debentures theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Debentures for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Debentures; provided, that if such Debentures are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Debentures that have been paid pursuant to Section 306, converted into Common Stock pursuant to Section 1301, or in exchange for or in lieu of which other Debentures have been authenticated and delivered pursuant to this Indenture, other than any such Debentures with respect to which there shall have been presented to the Trustee proof satisfactory to it that such Debentures are held by a bona fide purchaser in whose hands such Debentures are valid obligations of the Company, provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Debentures have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or any other obligor upon the Debentures or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Debentures which the Trustee knows to be so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon the Debentures or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Debentures on behalf of the Company.
"Person" means any individual, corporation, company, partnership, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Predecessor Debenture" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture.
"pro rata", when used with respect to any payment, distribution or treatment of the Debentures, shall mean pro rata to each Holder of Debentures according to the aggregate principal amount of the Debentures Outstanding, provided that in the event any Debentures are held by the Company or any affiliate thereof and an Indenture Event of Default has occurred and is continuing, any funds available for such payment shall first be paid to each Holder of the Debentures (other than the Company or any affiliate thereof) pro rata according to the aggregate principal amount of the Debentures held by each such Holder relative to the aggregate principal amount of all Debentures Outstanding and held by such Holders, and only after satisfaction of all amounts owed to such Holders of the Debentures (other than the Company or any affiliate thereof), any additional funds available for such payment shall be made to the Company or any affiliate thereof pro rata according to the aggregate principal amount of Debentures held by them.
"Purchased Shares" has the meaning specified in Section 1303(e).
"Redemption Date", when used with respect to any Debenture to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
5
"Redemption Price", when used with respect to any Debenture to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
"Redemption Tax Event" has the meaning specified in Section 1110.
"Redemption Tax Opinion" has the meaning set forth in the Declaration.
"Reference Date" has the meaning specified in Section 1303(c).
"Register" and "Registrar" have the respective meanings specified in Section 305.
"Regular Record Date" has the meaning specified in Section 301.
"Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the treasurer, any assistant treasurer, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the 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 his knowledge of and familiarity with the particular subject.
"Restricted Securities Legend" has the meaning specified in Section 202.
"Senior Debt" means with respect to the Company (i) the principal, premium, if any, and interest with respect to (A) indebtedness of such obligor for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by such obligor, (ii) all capital lease obligations of such obligor, (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of such obligor for the reimbursement of any letter of credit, banker's acceptance, security purchase facility (or repurchase agreement) or similar credit transaction, (v) all obligations of the type referred to in clauses (i) through (iv) above of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise, and (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Debentures and (2) any indebtedness between or among such obligor or its affiliates, including all other debt securities and guarantees in respect of those debt securities issued to any other trust, or a trustee of such trust, partnership, or other entity affiliated with the Company that is, directly or indirectly, a financing vehicle of the Company (a "Financing Entity") in connection with the issuance by such Financing Entity of preferred securities or other securities which rank junior to or pari passu with, the Trust Preferred Securities. Such Senior Debt shall continue to be Senior Debt and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Debt.
"Special Event" has the meaning specified in the Declaration.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Debenture or any installment of interest thereon, means the date specified in such Debenture as the fixed date on which the principal, together with any accrued and unpaid interest (including Compounded Interest), of such Debenture or such installment of interest is due and payable.
6
"Subsidiary" of any Person means (i) a corporation more than 50% of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof.
"Tax Event" has the meaning specified in the Declaration.
"Trading Day" means a day on which securities are traded on The New York Stock Exchange, Inc.
"Trust" has the meaning specified in the Recitals to this instrument.
"Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee.
"Trust Common Securities" has the meaning specified in the recitals to this Instrument.
"Trust Common Securities Guarantee" means any guarantee that the Company may enter into that operates directly or indirectly for the benefit of holders of Trust Common Securities of the Trust.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Preferred Securities" has the meaning specified in the Recitals to this instrument.
"Trust Preferred Securities Guarantee" means any guarantee that the Company may enter into that operates directly or indirectly for the benefit of holders of Trust Preferred Securities of the Trust.
"Trust Securities" has the meaning specified in the Recitals to this instrument.
"Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president".
"Voting Stock" of any Person means capital stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act or reasonably requested by the Trustee in connection with such application or request. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the applicable provisions of the Trust Indenture Act and any other applicable requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
7
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee or the Company, as the case may be, deems sufficient.
8
(c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders of Outstanding Debentures entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Debentures shall be proved by the Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture.
(f) Without limiting the foregoing, a Holder entitled hereunder to give or take any such action with regard to any particular Debenture may do so with regard to all or any part of the principal amount of such Debenture or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any different part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Senior Corporate Trust Officer, or
(2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at such Holder's address as it appears in the Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be conclusively deemed to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
9
In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that would be required under such Act to be a part of and govern this Indenture, were this Indenture qualified under such Act, the latter provision shall control. If any provision of this Indenture modifies or excludes any such provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforce ability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Debentures, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Debt, the holders of Trust Preferred Securities (to the extent provided herein) and the Holders of Debentures, any benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IOWA, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Debenture or the last date on which a Holder has the right to convert his Debentures shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Debentures) payment of interest or principal or conversion of the Debentures need not be made on such date, but may be made on the next succeeding Business Day (except that, if such Business Day is in the next succeeding calendar year, such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, shall be the immediately preceding Business Day) with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity or on such last day for conversion, provided, that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
10
SECTION 201. Forms Generally.
The Debentures and the Trustee's certificates of authentication shall be substantially in the form of Exhibit A which is hereby incorporated in and expressly made a part of this Indenture. The Debentures may have notations, legends or endorsements required by law, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). The Company shall furnish any such legend not contained in Exhibit A to the Trustee in writing. Each Debenture shall be dated the date of its authentication. The terms and provisions of the Debentures set forth in Exhibit A are part of the terms of this Indenture and to the extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.
The definitive Debentures shall be typewritten or printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Debentures, as evidenced by their execution of such Debentures.
SECTION 202. Initial Issuance to Property Trustee.
The Debentures initially issued to the Property Trustee of the Trust shall be in the form of one or more individual certificates in definitive, fully registered form without distribution coupons and shall bear the following legend (the "Restricted Securities Legend") unless the Company determines otherwise in accordance with applicable law:
THIS DEBENTURE 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, ASSIGNED, 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 DEBENTURE IS 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.
SECTION 301. Title and Terms.
The aggregate principal amount of Debentures that may be authenticated and delivered under this Indenture is limited to the sum of $23,216,587.63 (or up to an aggregate principal amount of $30,927,840 if additional Trust Securities are issued after the initial Closing Date in accordance with the
11
Declaration), except for Debentures authenticated and delivered upon transfer of, or in exchange for, or in lieu of, other Debentures pursuant to Section 304, 305, 306, 906, 1108 or 1301.
The Debentures shall be known and designated as the "8% Convertible Junior Subordinated Debentures Due 2029" of the Company. Their Stated Maturity shall be September 30, 2029, and they shall bear interest at the rate of 8% per annum, from August 30, 1999 or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, as the case may be, payable quarterly (subject to deferral as set forth herein), in arrears, on March 31, June 30, September 30 and December 31 (each an "Interest Payment Date") of each year, commencing December 31, 1999 until the principal thereof is paid or made available for payment, and they shall be paid to the Person in whose name the Debenture is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the date which is 15 days prior to each Interest Payment Date (the "Regular Record Date"). Interest will compound quarterly and will accrue at the rate of 8% per annum on any interest installment in arrears or during an extension of an interest payment period as set forth in Section 312 hereof.
The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest 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.
If at any time while the Property Trustee is the Holder of any Debentures, the Trust or the Property Trustee 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, then, in any such case, the Company will pay as additional interest ("Additional Interest") on the Debentures held by the Property Trustee, such amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying any such taxes, duties, assessments or other governmental charges will be not less than the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other governmental charges been imposed.
The principal of and interest on the Debentures shall be payable at the office or agency of the Company in the United States maintained for such purpose and at any other office or agency maintained by the Company for such purpose in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Register.
The Debentures shall be redeemable as provided in Article Eleven hereof.
The Debentures shall be subordinated in right of payment to Senior Debt as provided in Article Twelve hereof.
The Debentures shall be convertible as provided in Article Thirteen hereof.
SECTION 302. Denominations.
The Debentures shall be issuable only in registered form without coupons and only in denominations of $30 and integral multiples thereof.
12
SECTION 303. Execution, Authentication, Delivery and Dating.
The Debentures shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Debentures may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the date of such Debentures.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Debentures; and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Debentures as in this Indenture provided and not otherwise.
No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Debentures which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Debentures may determine, as evidenced by their execution of such Debentures.
If temporary Debentures are issued, the Company will cause definitive Debentures to be prepared without unreasonable delay. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures upon surrender of the temporary Debentures at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Debentures of authorized denominations. Until so exchanged the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures.
SECTION 305. Registration, Registration of Transfer and Exchange.
(a) General.
The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Debentures and of transfers of Debentures. The Trustee is hereby appointed "Registrar" for the purpose of registering Debentures and transfers of Debentures as herein provided.
Upon surrender for registration of transfer of any Debenture at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the
13
Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Debentures of any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Debentures may be exchanged for other Debentures of any authorized denominations and of a like aggregate principal amount, upon surrender of the Debentures to be exchanged at such office or agency. Whenever any Debentures are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Debentures which the Holder making the exchange is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debentures surrendered upon such registration of transfer or exchange.
Every Debenture presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Debentures, other than exchanges pursuant to Section 304, 906, 1108 or 1301 not involving any transfer.
The Company shall not be required (i) in the case of a partial redemption of the Debentures, to issue, register the transfer of or exchange any Debenture during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Debentures selected for redemption under Section 1104 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Debenture so selected for redemption in whole or in part, except the unredeemed portion of any Debenture being redeemed in part.
(b) Transfer Procedures and Restrictions.
The Debentures may not be transferred except in compliance with the Restricted Debentures Legend unless otherwise determined by the Company in accordance with applicable law. Upon any distribution of the Debentures to the holders of the Trust Preferred Securities in accordance with the Declaration, the Company and the Trustee shall enter into a supplemental indenture pursuant to Section 901(6) to provide for transfer procedures and restrictions with respect to the Debentures substantially similar to those contained in the Declaration to the extent applicable in the circumstances existing at the time of such distribution.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Debentures.
If any mutilated Debenture is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Debenture and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debenture, pay such Debenture.
14
Upon the issuance of any new Debenture under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date.
Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other lawful manner, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the
15
rights to interest accrued and unpaid, and to accrue (including in each such case Compounded Interest), which were carried by such other Debenture.
In the case of any Debenture which is converted after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Debenture whose Maturity is prior to such Interest Payment Date), whose Stated Maturity is on such Interest Payment Date, interest shall be payable on such Interest Payment Date notwithstanding such conversion, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Debenture that is converted, whose Stated Maturity is after the date of conversion of such Debenture, interest shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest (including Additional Interest and Compounded Interest) on the Debentures being converted, which shall be deemed to be paid in full.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Debenture is registered as the owner of such Debenture for the purpose of receiving payment of principal of and (subject to Section 307) interest (including Additional Interest and Compounded Interest) on such Junior Subordinated Debenture and for all other purposes whatsoever, whether or not such Debenture be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Debentures surrendered for payment, redemption, registration of transfer or exchange or conversion shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Debentures so delivered shall be promptly canceled by the Trustee. No Debentures shall be authenticated in lieu of or in exchange for any Debentures canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Debentures held by the Trustee shall be disposed of as directed by a Company Order; provided, however, that the Trustee shall not be required to destroy the certificates representing such canceled Debentures.
SECTION 310. Right of Set Off.
Notwithstanding anything to the contrary in this Indenture, the Company shall have the right to set off any payment it is otherwise required to make hereunder to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee.
SECTION 311. CUSIP Numbers.
The Company in issuing the Debentures may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debentures, and any such redemption shall not be affected by any defect in or omission of such numbers.
16
SECTION 312. Option to Extend Interest Payment Period.
(a) The Company shall have the right at any time during the term of the Debentures to defer interest payments from time to time by extending the interest payment period for successive periods not exceeding 20 consecutive quarters for each such period; except that no Extension Period may extend beyond the stated maturity of the Debentures. At the end of each Extension Period, the Company shall pay all interest then accrued and unpaid together with interest thereon compounded quarterly at the rate specified for the Debentures to the extent permitted by applicable law ("Compounded Interest"); provided, that during any Extension Period, the Company shall not (a) declare or pay dividends on, or make a distribution with respect to, or redeem or purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock (or Common Stock equivalents) in connection with the satisfaction by the Company of its obligations under any employee benefit or agent plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (ii) purchases of shares of Common Stock (or Common Stock equivalents) from officers or employees of the Company or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (iii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iv) dividends or distributions of shares of Common Stock on Common Stock or (v) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) make any payment of principal (and premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Debentures (except by conversion into or exchange for shares of Common Stock) and (c) make any guarantee payments with respect to any of the foregoing (other than pursuant to the Guarantee). Upon the termination of any Extension Period and the payment of all amounts then due, the Company may commence a new Extension Period, subject to the above requirements. No interest during an Extension Period, except at the end thereof, shall be due and payable.
(b) If the Property Trustee is the sole Holder of the Debentures at the time the Company selects an Extension Period, the Company shall give written notice to the Administrative Trustees, the Property Trustee and the Trustee of its selection of such Extension Period at least one Business Day prior to the earlier of (i) the date the distributions on the Trust Preferred Securities are payable or (ii) the date the Trust is required to give notice to any applicable self-regulatory organization or to holders of the Trust Preferred Securities on the record date or the date such distributions are payable, but in any event not less than ten Business Days prior to such record date.
(c) If the Property Trustee is not the sole Holder of the Debentures at the time the Company selects an Extension Period, the Company shall give the Holders of the Debentures and the Trustee written notice of its selection of such Extension Period at least ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the date the Company is required to give notice to any applicable self-regulatory organization or to Holders of the Debentures on the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date.
(d) The quarter in which any notice is given pursuant to paragraphs (b) and (c) hereof shall be counted as one of the 20 quarters permitted in the maximum Extension Period permitted under paragraph (a) hereof.
17
SECTION 313. Paying Agent, Registrar and Conversion Agent.
The Trustee will initially act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar, co-registrar or Conversion Agent without prior notice. The Company or any of its Affiliates may act in any such capacity.
SECTION 314. Calculation of Original Issue Discount.
The Company shall file with the Trustee promptly at the end of each calendar year a written notice specifying the amount of original issue discount, if any (including daily rates and accrual periods), accrued on Outstanding Securities as of the end of such year.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any surviving rights of conversion, registration of transfer or exchange of Debentures herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Debentures theretofore authenticated and delivered (other than (i) Debentures which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Debentures for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Debentures not theretofore delivered to the Trustee for cancellation have become due and payable, and the Company has deposited or caused to be deposited with the Trustee funds in trust for the purpose and in an amount sufficient to pay and discharge the entire indebtedness on such Junior Subordinated Debentures not theretofore delivered to the Trustee for cancellation, for principal and interest (including Compounded Interest) to the date of such deposit (in the case of Debentures which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for or relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with the Trustee. All moneys deposited with the Trustee pursuant to Section 401 (and held by it or any Paying Agent) for the payment of Debentures subsequently converted shall be returned to the Company upon Company Request.
18
SECTION 501. Indenture Events of Default.
"Indenture Event of Default," wherever used herein, means any one of the following events that has occurred and is continuing (whatever the reason for such Indenture Event of Default and whether it shall be occasioned by the provisions of Article Twelve or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
(1) failure for 30 days to pay interest on the Debentures, including any Additional Interest and Compounded Interest in respect thereof, when due; provided that a valid extension of an interest payment period will not constitute a default in the payment of interest (including any Additional Interest or Compounded Interest) for this purpose;
(2) failure to pay principal of or premium, if any, on the Debentures when due whether at maturity, upon redemption, by declaration or otherwise;
(3) failure by the Company to deliver shares of its Common Stock upon an election by a holder of Trust Preferred Securities to convert such Trust Preferred Securities;
(4) failure to observe or perform any other covenant contained in this Indenture for 90 days after notice to the Company by the Trustee or by the Holders of not less than a majority in aggregate principal amount of outstanding Debentures;
(5) entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of substantially all of the property of the Company, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days;
(6) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company to the entry of a decree or order for relief in respect of itself in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by the Company to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of substantially all of the property of the Company, or the making by the Company of an assignment for the benefit of creditors, or the admission by the Company in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or
(7) the voluntary or involuntary dissolution, winding up or termination of the Trust, except in connection with (i) the distribution of Debentures to holders of Trust Preferred Securities in liquidation of the Trust upon the occurrence of a Dissolution Event, or (ii) certain mergers, consolidations or amalgamations, each as permitted by the Declaration.
19
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Indenture Event of Default occurs and is continuing, then, and in every such case, the Trustee or the Holders of not less than a majority in principal amount of the Outstanding Debentures may declare the principal of all the Debentures and any other amounts payable hereunder to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal and all accrued interest shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as provided in this Article hereinafter, the Holders of a majority in aggregate principal amount of the Outstanding Debentures, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay
(A) all overdue interest (including any Additional Interest and Compounded Interest) on all Debentures,
(B) the principal of any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and
(C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of the principal of Debentures which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any interest (including any Additional Interest or Compounded Interest) on any Debenture when such interest becomes due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of any Debenture at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Debentures, the whole amount then due and payable on such Debentures for principal and interest (including any Additional Payments) and, to the extent that payment thereof shall be legally enforceable, interest on any overdue principal and on any overdue interest (including any Additional Interest and Compounded Interest), at the rate borne by the Debentures, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
If an Indenture Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other obligor upon the Debentures), its property or its creditors, the Trustee shall be entitled and empowered, by intervention
20
in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Debentures.
All rights of action and claims under this Indenture or the Debentures may be prosecuted and enforced by the Trustee without the possession of any of the Debentures or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Debentures in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
Subject to Article Twelve, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest (including any Additional Payments), upon presentation of the Debentures and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607; and
SECOND: To the payment of the amounts then due and unpaid for principal of and interest (including any Additional Payments) on the Debentures in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal and interest (including any Compounded Interest), respectively.
SECTION 507. Limitation on Suits.
No Holder of any Debenture shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a continuing Indenture Event of Default;
(2) the Holders of not less than a majority in aggregate principal amount of the Outstanding Debentures shall have made written request to the Trustee to institute proceedings in respect of such Indenture Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
21
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Debentures; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. The limitations specified in (1) through (5) above shall not apply to a suit initiated by a Holder of a Debenture for enforcement of payment of interest, principal or premium, if any, on such Debenture on or after the respective due dates of such payments expressed in such Debenture.
SECTION 508. Unconditional Right of Holders to Receive Principal and Interest and Convert.
Notwithstanding any other provision in this Indenture, the Holder of any Debenture shall have the right, which is absolute and unconditional, to receive payment of the principal of and (subject to Section 307) interest (including any Additional Payments) on such Debenture on the respective Stated Maturities expressed in such Debenture (or, in the case of redemption, on the Redemption Date) and to convert such Debenture in accordance with Article Thirteen and to institute suit for the enforcement of any such payment and right to convert, and such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Debenture to exercise any right or remedy accruing upon any Indenture Event of Default shall impair any such right or remedy or constitute a waiver of any such Indenture Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Debentures shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, that (1) such direction
22
shall not be in conflict with any rule of law or with this Indenture; and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
Subject to Section 902 hereof, the Holders of not less than a majority in principal amount of the Outstanding Debentures may on behalf of the Holders of all the Debentures waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of, premium, if any, or interest (including any Additional Payments) on any Debenture (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Trustee); or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Debenture affected; provided, however, that if the Debentures are held by the Trust or a trustee of the Trust, such waiver shall not be effective until the holders of a majority in liquidation amount of Trust Securities shall have consented to such waiver; provided, further, that if the consent of the Holder of each Outstanding Debenture is required, such waiver shall not be effective until each holder of the Trust Securities shall have consented to such waiver.
Upon any such waiver, such default shall cease to exist, and any Indenture Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or the Trustee or in any suit for the enforcement of the right to receive the principal of and interest (including any Additional Payments) on any Debenture or to convert any Debenture in accordance with Article Thirteen.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension of law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
SECTION 516. Enforcement by Holders of Trust Preferred Securities.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable, the Company acknowledges that, in such event, a holder of Trust Preferred Securities may institute a Direct Action for payment on or after the respective due date specified in the Debentures. The Company may not amend the Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of all the holders of Trust Preferred Securities. Notwithstanding any payment made to such holder of Trust Preferred Securities by the Company in connection with a Direct Action, the Company shall remain obligated to pay the principal of or interest on the Debentures held by the Trust or the Property
23
Trustee and the Company shall be subrogated to the rights of the holder of such Trust Preferred Securities with respect to payments on the Trust Preferred Securities to the extent of any payments made by the Company to such holder in any Direct Action. The holders of Trust Preferred Securities will not be able to exercise directly any other remedy available to the Holders of the Debentures.
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(4), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Indenture Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be 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 or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and the advice of such counsel or any Opinion of Counsel 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 reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
(f) the 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, bond, debenture, note, other evidence of indebtedness or other paper or document, but the
24
Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to reasonable examination of the books, records and premises of the Company, personally or by agent or attorney;
(g) the 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 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; and
(h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence or willful misconduct, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.
SECTION 604. Not Responsible for Recitals or Issuance of Debentures.
The recitals contained herein and in the Debentures, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of the Debentures or the proceeds thereof.
SECTION 605. May Hold Debentures.
The Trustee, any Paying Agent, any Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Registrar, or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such reasonable compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, fees, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.
When the Trustee incurs expenses or renders services in connection with an Indenture Event of Default specified in Section 501(6) or Section 501(7), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law.
25
The provisions of this Section shall survive the termination of this Indenture.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee to be removed may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Debentures, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Debenture for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company by Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Debentures delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the
26
manner hereinafter provided, any Holder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; provided, that on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments required to more fully and certainly vest in and confirm to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee 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. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Debentures), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor).
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee (a) within 14 days after each record date for payment of interest, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders, as of such record date, and (b) 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 Trustee; excluding from any such list names and addresses received by the Trustee in its capacity as Registrar.
27
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Debentures, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act.
(c) Every Holder of Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) Within 60 days after November 15 of each year, commencing November 15, 1999, the Trustee shall transmit by mail to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Debentures are listed, with the Commission and with the Company. The Company will notify the Trustee when the Debentures are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided, that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission.
Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates).
The Company shall also provide to the Trustee on a timely basis such information as the Trustee requires to enable the Trustee to prepare and file any form required to be submitted by the Company with the Internal Revenue Service and the Holders of the Debentures relating to original issue discount, including, without limitation, Form 1099-OID or any successor form.
28
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge with or into any other Person or, directly or indirectly, convey, transfer or lease all or substantially all of its properties and assets on a consolidated basis to any Person, unless:
(1) the Person formed by such consolidation or into which the company is merged or the Person which acquires by conveyance, transfer or lease, all or substantially all of the properties and assets of the Company on a consolidated basis shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Debentures and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed and shall have provided for conversion rights in accordance with Article Thirteen;
(2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Indenture Event of Default, and no event which, after notice or lapse of time or both, would become an Indenture Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.
This Section shall only apply to a merger or consolidation in which the Company is not the surviving corporation and to conveyances, leases and transfers by the Company as transferor or lessor.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of all or substantially all the properties and assets of the Company on a consolidated basis in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Debentures.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Debentures;
29
(2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company;
(3) to make provision with respect to the conversion rights of Holders pursuant to the requirements of Article Thirteen;
(4) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided, that such action pursuant to this clause shall not adversely affect the interests of the Holders of the Debentures or, so long as any of the Trust Preferred Securities shall remain outstanding, the holders of the Trust Preferred Securities; or
(5) to make provision for transfer procedures, certification, the form of restricted securities legends, if any, to be placed on Debentures, and all other matters required pursuant to Section 305(b) or otherwise necessary, desirable or appropriate in connection with the issuance of Debentures to holders of Trust Preferred Securities in the event of a distribution of Debentures by the Trust upon the occurrence of a Dissolution Event.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal amount of the Outstanding Debentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debenture affected thereby
(1) extend the Stated Maturity of the principal of, or any installment of interest (including any Additional Payments) on, any Debenture, or reduce the principal amount thereof, or reduce the rate or extend the time for payment of interest thereon, or reduce any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Debenture or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or adversely affect the right to convert any Debenture as provided in Article Thirteen (except as permitted by Section 901(3)), or modify the provisions of this Indenture with respect to the subordination of the Debentures in a manner adverse to the Holders,
(2) reduce the percentage in principal amount of the Outstanding Debentures, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section 513, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Debenture affected thereby; provided that if the Debentures are held by the Trust or a trustee of the Trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation amount of Trust Securities shall have consented to such supplemental indenture; provided, further, that if the consent of the Holder of each Outstanding Debenture is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such supplemental indenture.
30
It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be canceled and of no further effect.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debentures theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. No such supplemental indenture shall directly or indirectly modify the provisions of Article Twelve in any manner which might terminate or impair the rights of the Senior Debt pursuant to such subordination provisions.
SECTION 905. [Intentionally Omitted].
SECTION 906. Reference in Debentures to Supplemental Indentures.
Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Debentures.
ARTICLE TEN
COVENANTS; REPRESENTATIONS AND WARRANTIES
SECTION 1001. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and interest on the Debentures in accordance with the terms of the Debentures and this Indenture.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the United States an office or agency where Debentures may be presented or surrendered for payment, where Debentures may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the
31
Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices or agencies (in the United States) where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the United States for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
SECTION 1003. Money for Debenture Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of or interest on any of the Debentures, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of or interest on any Debentures, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Debentures) in the making of any payment in respect of the Debentures, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or interest on any Debenture and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of any such Debenture shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease.
SECTION 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the material terms, provisions and conditions of this Indenture (without regard to any period of
32
grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.
SECTION 1005. Limitation on Dividends; Transactions with Affiliates; Covenants as to the Trust.
(a) The Company covenants that so long as the Debentures are outstanding, if (i) there shall have occurred and be continuing any event that with the giving of notice or the lapse of time or both, would constitute an Indenture Event of Default, (ii) the Company shall be in default with respect to its payment of any obligations under the Guarantee, or (iii) the Company has exercised its option to defer interest payments on the Debentures by extending the interest payment period and such period, or any extension thereof, shall be continuing, then the Company (a) shall not declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock (or Common Stock equivalents) in connection with the satisfaction by the Company of its obligations under any employee benefit or agent plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (ii) purchases of shares of Common Stock (or Common Stock equivalents) from officers or employees of the Company or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (iii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iv) dividends or distributions of shares of Common Stock on Common Stock of the Company or (v) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) shall not make any payment of principal (or premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Debentures (except by conversion into or exchange for shares of Common Stock), and (c) shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantee).
(b) The Company also covenants and agrees (i) that it shall directly or indirectly maintain 100% ownership of the Trust Common Securities; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Trust Common Securities and (ii) that it shall use its reasonable efforts, consistent with the terms and provisions of the Declaration, to cause the Trust (x) to remain a statutory business trust, except in connection with the distribution of the Debentures to the holders of Trust Securities in liquidation of the Trust upon the occurrence of a Dissolution Event, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (y) to otherwise continue to be classified as a grantor trust for United States federal income tax purposes.
SECTION 1006. Payment of Expenses of the Trust.
In connection with the offering, sale and issuance of the Debentures to the Property Trustee in connection with the sale of the Trust Securities by the Trust, the Company shall:
(a) pay for all costs, fees and expenses relating to the offering, sale and issuance of the Debentures, including compensation of the Trustee under the Indenture in accordance with the provisions of Section 607 of this Indenture;
(b) be responsible for and pay for all debts and obligations (other than with respect to the Trust Securities) of the Trust, pay for all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the offering, sale and issuance of the Trust Securities, the fees and expenses of the Property Trustee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of
33
accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); and
(c) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust.
ARTICLE ELEVEN
REDEMPTION OF DEBENTURES
SECTION 1101. Right of Redemption.
(a) The Debentures may be redeemed at the election of the Company, in whole or in part, at any time and from time to time, in cash at a redemption price equal to 100% of the principal amount of the Debentures to be redeemed, plus any accrued and unpaid interest on such Debentures, if any, to the Redemption Date (the "Redemption Price"), on or after the earliest to occur of (i) September 30, 2002 and (ii) the 91 st day immediately following the closing of the Company's IPO.
(b) The Debentures may be redeemed, at the election of the Company, in whole (but not in part), at any time, in cash at the Redemption Price, within 90 days following the occurrence of a Redemption Tax Event; provided, however, that if at the time, there is available to the Company or the Trust the opportunity to eliminate, within such 90 Day Period, the Redemption Tax 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 Company has or will cause no adverse effect on the Trust, the Holders of the Trust Securities or the Company or will involve no material cost, then the Company or the Trust shall pursue such measure in lieu of redemption.
SECTION 1102. Applicability of Article.
Redemption of Debentures at the election of the Company, as permitted by Section 1101, shall be made in accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem Debentures pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days and no more than 90 days prior to the Redemption Date fixed by the Company, notify the Trustee in writing of such Redemption Date and of the principal amount of Debentures to be redeemed and provide a copy of the notice of redemption to be given to Holders of Debentures to be redeemed pursuant to Section 1105.
SECTION 1104. Selection by Trustee of Debentures to Be Redeemed.
If less than all the Debentures are to be redeemed (unless such redemption affects only a single Debenture), the particular Debentures to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Debentures not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $30 or any integral multiple thereof) of the principal amount of the Debentures, provided, however, that following the distribution of the Debentures to the Holders of Trust Preferred Securities and the Trust Common Securities, the Debentures shall be redeemed on a pro rata basis.
The Trustee shall promptly notify the Company in writing of the Debentures selected for redemption as aforesaid and, in case of any Debentures selected for partial redemption as aforesaid, the principal amount thereof to be redeemed.
34
The provisions of the two preceding paragraphs shall not apply with respect to any redemption affecting only a single Debenture, whether such Debenture is to be redeemed in whole or in part. In the case of any such redemption in part, the unredeemed portion of the principal amount of the Junior Subordinated Debenture shall be in an authorized denomination (which shall not be less than the minimum authorized denomination) for such Debenture.
For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Debentures shall relate, in the case of any Debentures redeemed or to be redeemed only in part, to the portion of the principal amount of such Debentures which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Debentures to be redeemed, at such Holder's address appearing in the Register.
All notices of redemption shall identify the Debentures to be redeemed (including, if relevant, CUSIP or ISIN number) and shall state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will become due and payable upon each such Debenture to be redeemed and that interest thereon will cease to accrue on and after said date, and
(4) the place or places where such Debentures are to be surrendered for payment of the Redemption Price.
Notice of redemption of Debentures to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Debentures which are to be redeemed on that date.
If any Debenture called for redemption is converted, any money deposited with the Trustee or with any Paying Agent or so segregated and held in trust for the redemption of such Debenture shall (subject to any right of the Holder of such Debenture or any Predecessor Debenture to receive interest as provided in the last paragraph of Section 307) be paid to the Company upon Company Request or, if then held by the Company, shall be discharged from such trust.
SECTION 1107. Debentures Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Debentures so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Debentures shall cease to bear interest. Upon surrender of any such Debenture for redemption in accordance with said notice, such Debenture shall be paid by the Company at the Redemption Price, together with accrued interest (including Additional Payments, if any) to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior
35
to the Redemption Date shall be payable to the Holders of such Debentures, or one or more Predecessor Debentures, registered as such at the close of business on the relevant Record Dates according to the terms and the provisions of Section 307.
If any Debenture called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Debenture.
SECTION 1108. Debentures Redeemed in Part.
In the event of any redemption in part, the Company shall not be required to (i) issue, register the transfer of or exchange any Debenture during a period beginning at the opening of business 15 days before any selection for redemption of Debentures and ending at the close of business on the earliest date in which the relevant notice of redemption is deemed to have been given to all holders of Debentures to be so redeemed and (ii) register the transfer of or exchange any Debentures so selected for redemption, in whole or in part, except for the unredeemed portion of any Debentures being redeemed in part.
Any Debenture which is to be redeemed only in part shall be surrendered at a place of payment therefor (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and make available for delivery to the Holder of such Debenture without service charge, a new Debenture or Debentures, of any authorized denomination as requested by such Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Debenture so surrendered.
SECTION 1109. Tax Event Redemption.
If a Tax Event has occurred and is continuing and:
(a) the Company has received a Redemption Tax Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Administrative Trustees shall have been informed by tax counsel rendering the Dissolution Tax Opinion that a No Recognition Opinion cannot be delivered to the Trust (each such case, a "Redemption Tax Event"), then, notwithstanding Section 1109(a) but subject to Section 1109(b), the Company shall have the right upon not less than 30 days nor more than 60 days' notice to the Holders of the Debentures to redeem the Debentures in whole (but not in part) for cash within 90 days following the occurrence of such Redemption Tax Event (the "90-Day Period") at the Redemption Price; provided, however, that if, at the time there is available to the Company or the Trust the opportunity to eliminate within the 90-Day Period, the Redemption Tax 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 Company, has or will cause no adverse effect on the Company, the Trust or the Holders of the Trust Securities and will involve no material cost (a "Ministerial Action"), the Company or the Trust shall pursue such Ministerial Action or other measure in lieu of redemption, and provided, further, that the Company shall have no right to redeem the Debentures while the Trust is pursuing any Ministerial Action or other similar measure pursuant to its obligations under the Declaration. Payment of the Redemption Price shall be made prior to 12:00 noon, Central time, on the date of such redemption or such earlier time as the Company determines, provided, that the Company shall deposit with the Trustee an amount sufficient to make such redemption payment by 10:00 a.m. on the date such redemption payment is to be made. Any redemption pursuant to this Section 1110 shall be made pursuant to the provisions of Sections 1101 through 1108 hereof.
SECTION 1110. No Sinking Fund.
The Debentures are not entitled to the benefit of any sinking fund.
36
ARTICLE TWELVE
SUBORDINATION OF DEBENTURES
SECTION 1201. Agreement to Subordinate.
The Company covenants and agrees, and each Holder of Debentures by such Holder's acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article Twelve; and each Holder of a Debenture, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, premium, if any, and interest (including Additional Payments) on all Debentures issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all existing and future Senior Debt, whether outstanding at the date of this Indenture or thereafter incurred; provided however, that no provision of this Article Twelve shall prevent the occurrence of any default or Indenture Event of Default hereunder.
SECTION 1202. Default on Senior Debt.
In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Debt continuing beyond the period of grace, if any, specified in the instrument evidencing such Senior Debt, unless and until such default shall have been cured or waived or shall have ceased to exist, and in the event that the maturity of any Senior Debt has been accelerated because of a default, then no payment shall be made by the Company with respect to the principal of (including redemption payments, if any), premium, if any, or interest on the Debentures.
In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 1202, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Debt (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Debt and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Debt.
SECTION 1203. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all principal of, and premium, if any, and interest due or to become due on, all Senior Debt must be paid in full before any payment is made on account of the principal (and premium, if any) or interest on the Debentures; and upon any such dissolution or winding up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Debentures or the Trustee would be entitled, except for the provisions of this Article Twelve, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders of the Debentures or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Debt in full, in money
37
or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt, before any payment or distribution is made to the Holders of Debentures or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee or the Holders of the Debentures before all Senior Debt is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Debt or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Debt may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Debt remaining unpaid to the extent necessary to pay such Senior Debt in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt.
For purposes of this Article Twelve, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article Twelve with respect to the Debentures to the payment of all Senior Debt which may at the time be outstanding; provided, that (i) such Senior Debt is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Debt are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company with or into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of all or substantially all its properties and assets on a consolidated basis to another Person upon the terms and conditions provided for in Article Eight hereof shall not be deemed a dissolution, winding up, liquidation or reorganization for the purposes of this Section 1203 if such other Person shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions stated in Article Eight hereof. Nothing in Section 1202 or in this Section 1203 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607 hereof.
SECTION 1204. Subrogation.
Subject to the payment in full of all Senior Debt, the rights of the Holders of the Debentures shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Debentures until the principal of (and premium, if any), and interest on the Senior Debt shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Debt of any cash, property or securities to which the Holders of the Debentures or the Trustee would be entitled except for the provisions of this Article Twelve, and no payment pursuant to the provisions of this Article Twelve, to or for the benefit of the holders of such Senior Debt by Holders of the Debentures or the Trustee, shall, as between the Company, its creditors other than holders of Senior Debt, and the Holders of the Debentures, be deemed to be a payment by the Company to or on account of such Debentures. It is understood that the provisions of this Article Twelve are and are intended solely for the purposes of defining the relative rights of the Holders of the Debentures, on the one hand, and the holders of such Senior Debt on the other hand.
Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors, other than the holders of Senior Debt, and the Holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Debentures the principal of (and premium, if any) and
38
interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Debentures and creditors of the Company, as the case may be, other than the holders of Senior Debt, nor shall anything herein or therein prevent the Trustee or the Holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Twelve of the holders of such Senior Debt in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in this Article Twelve, the Trustee, subject to the provisions of Section 603, and the Holders of the Debentures, shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Debentures, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve.
SECTION 1205. Trustee to Effectuate Subordination.
Each Holder of Debentures by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Twelve and appoints the Trustee as such Holder's attorney-in-fact for any and all such purposes.
SECTION 1206. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article Twelve. Notwithstanding the provisions of this Article Twelve or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provision of this Article Twelve, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office of the Trustee from the Company or a holder or holders of Senior Debt or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 603 hereof, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 1206 at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Debenture), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to such date.
The Trustee, subject to the provisions of Section 603, shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Debt (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of such Senior Debt or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article Twelve, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such
39
payment or distribution and any other facts pertinent to the right of such Person under this Article Twelve, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.
SECTION 1207. Rights of the Trustee; Holders of Senior Debt.
The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Twelve in respect of any Senior Debt at any time held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Twelve, and no implied covenants or obligations with respect to the holders of such Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Debt and, subject to the provisions of Section 603, the Trustee shall not be liable to any holder of such Senior Debt if it shall pay over or deliver to Holders of Debentures, the Company or any other Person money or assets to which any holder of such Senior Debt shall be entitled by virtue of this Article Twelve or otherwise.
SECTION 1208. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Debentures, without incurring responsibility to the holders of the Debentures and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Debentures to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Debt, or otherwise amend or supplement in any manner such Senior Debt or any instrument evidencing the same or any agreement under which such Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Debt; (iii) release any Person liable in any manner for the collection of such Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person.
ARTICLE THIRTEEN
CONVERSION OF DEBENTURES
SECTION 1301. Conversion Rights.
Subject to and upon compliance with the provisions of this Article, the Debentures are convertible, at the option of the Holder, at any time on or after the earliest to occur of (i) September 30, 2002 and (ii) the 91 st day immediately following the closing of 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 Debentures, whether at maturity or upon redemption, into shares of Common Stock at a conversion price equal to the lesser of (A) $30 per share of Common Stock (equivalent to a conversion rate of one share of Common Stock for each $30 in aggregate principal amount of Debentures) and (B) 90% of the initial price per share to the public of Common Stock in the Company's IPO, subject to adjustment as described in this Article Thirteen. A Holder of Debentures may convert any portion of the principal amount of the Debentures into that number of fully paid and nonassessable shares of Common Stock
40
(calculated as to each conversion to the nearest 1/100th of a share) obtained by dividing the principal amount of the Debentures to be converted by such conversion price.
SECTION 1302. Conversion Procedures.
(a) In order to convert all or a portion of the Debentures, the Holder thereof shall deliver to the Conversion Agent an irrevocable Notice of Conversion setting forth the principal amount of Debentures to be converted, together with the name or names, if other than the Holder, in which the shares of Common Stock should be issued upon conversion and, surrender to the Conversion Agent the Debentures to be converted, duly endorsed or assigned to the Company or in blank. In addition, a holder of Trust Preferred Securities may exercise its right under the Declaration to convert such Trust Preferred Securities into Common Stock by delivering to the Conversion Agent an irrevocable Notice of Conversion setting forth the information called for by the preceding sentence and directing the Conversion Agent (i) to exchange such Trust Preferred Security for a portion of the Debentures held by the Trust (at an exchange rate of $30 principal amount of Debentures for each Trust Preferred Security) and (ii) to immediately convert such Debentures, on behalf of such holder, into Common Stock of the Company pursuant to this Article Thirteen and surrendering such Trust Preferred Securities, duly endorsed or assigned to the Company or in blank. So long as any Trust Preferred Securities are outstanding, the Trust shall not convert any Debentures except pursuant to a Notice of Conversion delivered to the Conversion Agent by a holder of Trust Preferred Securities and only with respect to the Trust Preferred Securities requested to be converted in such Notice of Conversion.
If a Notice of Conversion is delivered on or after the Regular Record Date and prior to the subsequent Interest Payment Date, the Holder will be entitled to receive the interest payable on the subsequent Interest Payment Date on the portion of Debentures to be converted notwithstanding the conversion thereof prior to such Interest Payment Date. Except as otherwise provided in the immediately preceding sentence, in the case of any Debenture which is converted, whose Stated Maturity is after the Conversion Date (as defined below) interest on such Debenture shall not be payable, and the Company shall not make nor be required to make any other payment, adjustment or allowance with respect to accrued but unpaid interest on the Debentures being converted, which shall be deemed to be paid in full. Each conversion shall be deemed to have been effected immediately prior to the close of business on the day on which the Notice of Conversion was received (the "Conversion Date") by the Conversion Agent from the Holder or from a holder of the Trust Preferred Securities effecting a conversion thereof pursuant to its conversion rights under the Declaration, as the case may be. The Person or Persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Common Stock as of the Conversion Date. As promptly as practicable on or after the Conversion Date, the Company shall issue and deliver at the office of the Conversion Agent, unless otherwise directed by the Holder in the Notice of Conversion, a certificate or certificates for the number of full shares of Common Stock 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. The Conversion Agent shall deliver such certificate or certificates to such Person or Persons.
(b) The Company's delivery upon conversion of the fixed number of shares of Common Stock into which the Debentures are convertible (together with the cash payment, if any, in lieu of fractional shares) shall be deemed to satisfy the Company's obligation to pay the principal amount at Maturity of the portion of Debentures so converted and any unpaid interest (including Compounded Interest and Additional Interest) accrued on such Debentures at the time of such conversion.
(c) No fractional shares of Common Stock will be issued as a result of conversion, but in lieu thereof, the Company shall pay to the Conversion Agent a cash adjustment in an amount equal to the same fraction of the applicable conversion price of such fractional interest on the date on which the
41
Debentures or Trust Preferred Securities, as the case may be, were duly surrendered to the Conversion Agent for conversion.
(d) In the event of the conversion of any Debenture in part only, a new Debenture or Debentures for the unconverted portion thereof will be issued in the name of the Holder thereof upon the cancellation thereof in accordance with Section 305.
(e) In effecting the conversion transactions described in this Section, the Conversion Agent is acting as agent of the holders of Trust Preferred Securities (in the exchange of Trust Preferred Securities for Debentures) and as agent of the Holders of Debentures (in the conversion of Debentures into Common Stock), as the case may be, directing it to effect such conversion transactions. The Conversion Agent is hereby authorized (i) to exchange Debentures held by the Trust from time to time for Trust Preferred Securities in connection with the conversion of such Trust Preferred Securities in accordance with this Article Thirteen and (ii) to convert all or a portion of the Debentures into Common Stock and thereupon to deliver such shares of Common Stock in accordance with the provisions of this Article Thirteen and to deliver to the Trust a new Debenture or Debentures for any resulting unconverted principal amount.
(f) All shares of Common Stock delivered upon any conversion of Debentures shall bear a restrictive legend substantially in the form of the legend required to be set forth on such Debentures and shall be subject to the restrictions on transfer provided in such legend and in Section 305(b) hereof. Neither the Trustee nor the Conversion Agent shall have any responsibility for the inclusion or content of any such restrictive legend on such Common Stock; provided, however, that the Trustee or the Conversion Agent shall have provided to the Company or to the Company's transfer agent for such Common Stock, prior to or concurrently with a request to the Company to deliver to such Conversion Agent certificates for such Common Stock, written notice that the Debentures delivered for conversion are Restricted Debentures.
SECTION 1303. Conversion Price AdjustmentsGeneral.
The conversion price shall be subject to adjustment (without duplication) from time to time as follows:
(a) In case the Company shall, while any of the Debentures are outstanding, (i) pay a dividend or make a distribution with respect to its Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock, (iii) combine its outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its shares of Common Stock any shares of capital stock of the Company (other than a reclassification or recapitalization of shares of Common Stock subject to Section 1304(a) hereof), the conversion privilege and the conversion price in effect immediately prior to such action shall be adjusted so that the Holder of any Debentures thereafter surrendered for conversion shall be entitled to receive the number of shares of capital stock of the Company which he would have owned immediately following such action had such Debentures been converted immediately prior thereto. An adjustment made pursuant to this subsection (a) shall become effective immediately after the record date in the case of a dividend or other distribution or a subdivision, combination or reclassification (or immediately after the record date if a record date shall have been established for such event). If, as a result of an adjustment made pursuant to this subsection (a), the Holder of any Debenture thereafter surrendered for conversion shall become entitled to receive shares of two or more classes or series of capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a Board Resolution filed with the Trustee) shall determine the allocation of the adjusted conversion price between or among shares of such classes or series of capital stock.
(b) In case the Company shall, while any of the Debentures are outstanding, issue rights or warrants to all holders of its Common Stock entitling them (for a period expiring within 45 days after
42
the record date mentioned below) to subscribe for or purchase shares of Common Stock at a price per share less than the current market price per share of Common Stock (as determined pursuant to subsection (f) below) on the record date mentioned below, the conversion price for the Debentures shall be adjusted so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the date of issuance of such rights or warrants by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of shares which the aggregate offering price of the total number of shares so offered for subscription or purchase would purchase at such current market price, and of which the denominator shall be the number of shares of Common Stock outstanding on the date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights or warrants. For the purposes of this subsection, the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company. The Company shall not issue any rights or warrants in respect of shares of Common Stock held in the treasury of the Company. In case any rights or warrants referred to in this subsection in respect of which an adjustment shall have been made shall expire unexercised within 45 days after the same shall have been distributed or issued by the Company, the conversion price shall be readjusted at the time of such expiration to the conversion price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants.
(c) Subject to the last sentence of this subparagraph, in case the Company shall, by dividend or otherwise, distribute to all holders of its Common Stock evidences of its indebtedness, shares of any class or series of capital stock, cash or assets (including securities, but excluding any rights or warrants referred to in subparagraph (b), any dividend or distribution paid exclusively in cash and any dividend or distribution referred to in subparagraph (a) of this Section 1303), the conversion price shall be reduced so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the effectiveness of the conversion price reduction contemplated by this subparagraph (c) by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (f)) of the Common Stock on the date fixed for the payment of such distribution (the "Reference Date") less the fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors), on the Reference Date, of the portion of the evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the Reference Date. In the event that such dividend or distribution is not so paid or made, the conversion price shall again be adjusted to be the conversion price which would then be in effect if such dividend or distribution had not occurred. If the Board of Directors determines the fair market value of any distribution for purposes of this subparagraph (c) by reference to the actual or when issued trading market for any securities comprising such distribution, it must in doing so consider the prices in such market over the same period used in computing the current market price per share of Common Stock (determined as provided in subparagraph (f)). For purposes of this subparagraph (c), any dividend or distribution that includes shares of Common Stock or rights or warrants to subscribe for or purchase shares of Common Stock shall be deemed instead to be (1) a dividend or distribution of the evidences of indebtedness, shares of capital stock, cash or assets other than such shares of Common Stock or such rights or warrants (making any conversion price reduction required by this subparagraph (c)) immediately followed by (2) a dividend or distribution of such shares of Common Stock or such rights or warrants (making any further conversion price reduction required by subparagraph (a) or (b)), except (A) the Reference Date of such dividend or distribution as defined in this subparagraph shall be substituted as (a) "the record date in the case of a dividend or other distribution," and (b) "the record
43
date for the determination of stockholders entitled to receive such rights or warrants" and (c) "the date fixed for such determination" within the meaning of subparagraphs (a) and (b) and (B) any shares of Common Stock included in such dividend or distribution shall not be deemed outstanding for purposes of computing any adjustment of the conversion price in subparagraph (a).
(d) In case the Company shall pay or make a dividend or other distribution on its Common Stock exclusively in cash, excluding all regular cash dividends if the annualized amount thereof per share of Common Stock does not exceed 15% of the current market price per share determined as provided in subparagraph (f) of the Common Stock on the Trading Day immediately preceding the date of declaration of such dividend (such adjustment being limited to the amount in excess of 15% of such Current Market Price), the conversion price shall be reduced so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the effectiveness of the conversion price reduction contemplated by this subparagraph by a fraction of which the numerator shall be the current market price per share (determined as provided in subparagraph (f)) of the Common Stock on the date fixed for the payment of such distribution less the amount of cash so distributed and not excluded as provided applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock, such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution; provided, however, that in the event the portion of the cash so distributed applicable to one share of Common Stock is equal to or greater than the current market price per share (as defined in subparagraph (f)) of the Common Stock on the record date mentioned above, in lieu of the foregoing adjustment, adequate provision shall be made so that each Holder of shares of Debentures shall have the right to receive upon conversion the amount of cash such Holder would have received had such Holder converted each share of the Debentures immediately prior to the record date for the distribution of the cash. In the event that such dividend or distribution is not so paid or made, the conversion price shall again be adjusted to be the conversion price which would then be in effect if such record date had not been fixed.
(e) In case a tender or exchange offer (other than an odd-lot offer) made by the Company or any Subsidiary of the Company for all or any portion of the Company's Common Stock shall expire and such tender or exchange offer shall involve the payment by the Company or such Subsidiary of consideration per share of Common Stock having a fair market value (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors) at the last time (the "Expiration Time") tenders or exchanges may be made pursuant to such tender or exchange offer (as it shall have been amended) that exceeds 110% of the current market price per share (determined as provided in subparagraph (f)) of the Common Stock on the Trading Day next succeeding the Expiration Time, the conversion price shall be reduced so that the same shall equal the price determined by multiplying the conversion price in effect immediately prior to the effectiveness of the conversion price reduction contemplated by this subparagraph (e) by a fraction of which the numerator shall be the number of shares of Common Stock outstanding (including any tendered or exchanged shares) at the Expiration Time multiplied by the current market price per share (determined as provided in subparagraph (f)) of the Common Stock on the Trading Day next succeeding the Expiration Time and the denominator shall be the sum of (x) the fair market value (determined as aforesaid) of the aggregate consideration payable to stockholders based on the acceptance (up to any maximum specified in the terms of the tender or exchange offer) of all shares validly tendered or exchanged and not withdrawn as of the Expiration Time (the shares deemed so accepted, up to any such maximum, being referred to as the "Purchased Shares") and (y) the product of the number of shares of Common Stock outstanding (less any Purchased Shares) at the Expiration Time and the current market price per share (determined as provided in subparagraph (f)) of the Common Stock on the Trading Day next succeeding the Expiration Time, such reduction to become effective immediately prior to the opening of business on the day following the Expiration Time.
44
(f) For the purpose of any computation under subparagraphs (b), (c), (d) or (e), the current market price per share of Common Stock on any date in question shall be (i) prior to the Company's IPO, as determined in good faith by the Board of Directors of the Company and (ii) following the Company's IPO, the average of the daily Closing Prices of the Common Stock for the ten (10) consecutive Trading Days selected by the Company commencing not more than twenty (20) Trading Days before, and ending not later than, the earlier of the day in question or, if applicable, the day before the "ex" date with respect to the issuance or distribution in question.
(g) The Company may make such reductions in the conversion price, in addition to those required by subparagraphs (a) through (e), as it considers to be advisable to avoid or diminish any income tax to holders of Common Stock or rights to purchase Common Stock resulting from any dividend or distribution of stock (or rights to acquire stock) or from any event treated as such for income tax purposes. The Company from time to time may reduce the conversion price by any amount for any period of time if the period is at least twenty (20) days, the reduction is irrevocable during the period, and the Board of Directors of the Company shall have made a determination that such reduction would be in the best interest of the Company, which determination shall be conclusive. Whenever the conversion price is reduced pursuant to the preceding sentence, the Company shall mail to holders of record of the Debentures a notice of the reduction at least fifteen (15) days prior to the date the reduced conversion price takes effect, and such notice shall state the reduced conversion price and the period it will be in effect.
(h) No adjustment of the conversion price shall be required upon the issuance of any shares of Common Stock pursuant to any present or future plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan. No adjustment in the conversion price shall be required unless such adjustment would require an increase or decrease of at least 1% in the conversion price; provided, however, that any adjustments which by reason of this subparagraph are not required to be made shall be carried forward and taken into account in determining whether any subsequent adjustment shall be required.
(i) If any action would require adjustment of the conversion price pursuant to more than one of the provisions described above, only one adjustment shall be made and such adjustment shall be the amount of adjustment that has the highest absolute value to the Holder of the Debentures.
SECTION 1304. Reclassification, Consolidation, Merger or Sale of Assets.
In the event that the Company shall be a party to any transaction (including without limitation (a) any recapitalization or reclassification of the Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination of the Common Stock), (b) any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger which does not result in a reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock of the Company), (c) any sale, transfer or lease of all or substantially all of the properties and assets of the Company on a consolidated basis or (d) any compulsory share exchange) pursuant to which the Common Stock is converted into the right to receive other securities, cash or other property, then lawful provision shall be made as part of the terms of such transaction whereby the Holder of each Security then outstanding shall have the right thereafter to convert such Security only into the kind and amount of securities, cash or other property receivable upon consummation of such transaction by a holder of the number of shares of Common Stock of the Company into which such Security could have been converted immediately prior to such transaction.
The Company or the Person formed by such consolidation or resulting from such merger or which acquired such assets or which acquires the Company's shares, as the case may be, shall make provision in its certificate or articles of incorporation or other constituent document, and shall enter into a
45
supplemental indenture to establish such right. Such certificate or articles of incorporation or other constituent document and such supplemental indenture shall provide for adjustments which, for events subsequent to the effective date of such certificate or articles of incorporation or other constituent document, shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 13. The above provisions shall similarly apply to successive transactions of the foregoing type.
SECTION 1305. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein provided:
(a) the Company shall compute the adjusted conversion price and shall prepare a certificate signed by the Chief Financial Officer or the Treasurer of the Company setting forth the adjusted conversion price and showing in reasonable detail the facts upon which such adjustment is based, and such certificate shall forthwith be filed with the Trustee and the transfer agent (and a copy forwarded to the Trustee) for the Trust Preferred Securities and the Debentures; and
(b) a notice stating the conversion price has been adjusted and setting forth the adjusted conversion price shall as soon as practicable be mailed by the Company to all record holders of Trust Preferred Securities and the Debentures at their last addresses as they appear upon the stock transfer books of the Company and the Trust.
SECTION 1306. Prior Notice of Certain Events.
In case:
(i) the Company shall (1) declare any dividend (or any other distribution) on its Common Stock, other than (A) a dividend payable in shares of Common Stock or (B) a dividend payable in cash that would not require an adjustment pursuant to Section 1303(c) or (d) or (2) authorize a tender or exchange offer that would require an adjustment pursuant to Section 1303(e);
(ii) the Company shall authorize the granting to all holders of Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or series or of any other rights or warrants;
(iii) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common Stock, or a change in par value, or from par value to no par value, or from no par value to par value), or of any consolidation or merger to which the Company is a party and for which approval of any stockholders of the Company shall be required, or of the sale or transfer of all or substantially all of the assets of the Company or of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution, liquidation or winding up of the Company; then the Company shall (a) if any Trust Preferred Securities are outstanding, cause to be filed with the transfer agent (and a copy forwarded to the Trustee) for the Trust Preferred Securities, and shall cause to be mailed to the holders of record of the Trust Preferred Securities, at their last addresses as they shall appear upon the stock transfer books the Trust or (b) shall cause to be mailed to all Holders at their last addresses as they shall appear in the Register, at least fifteen days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record (if any) is to be taken for the purpose of such dividend, distribution, rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution,
46
liquidation or winding up (but no failure to mail such notice or any defect therein or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice).
SECTION 1307. Dividend or Interest Reinvestment Plans.
Notwithstanding the foregoing provisions, the issuance of any shares of Common Stock pursuant to any plan providing for the reinvestment of dividends or interest payable on securities of the Company and the investment of additional optional amounts in shares of Common Stock under any such plan, and the issuance of any shares of Common Stock or options or rights to purchase such shares pursuant to any employee benefit plan or program of the Company or pursuant to any option, warrant, right or exercisable, exchangeable or convertible security outstanding as of the date the Debentures were first issued, shall not be deemed to constitute an issuance of Common Stock or exercisable, exchangeable or convertible securities by the Company to which any of the adjustment provisions described above applies. No adjustment in the conversion price will be required unless adjustment would require a change of at least one percent (1%) in the price then in effect; provided, however , that any adjustment that would not be required to be made shall be carried forward and taken into account in any subsequent adjustment. If any action would require adjustment of the conversion price pursuant to more than one of the provisions described above, only one adjustment shall be made with respect to that action and such adjustment shall be the amount of adjustment that has the highest absolute value to the holder of the Trust Preferred Securities.
SECTION 1308. Certain Additional Rights.
In case the Company shall, by dividend or otherwise, declare or make a distribution on its Common Stock referred to in Section 1303(c) or 1303(d) (including, without limitation, dividends or distributions referred to in the last sentence of Section 1303(c), the Holder of the Debentures, upon the conversion thereof subsequent to the close of business on the date fixed for the determination of stockholders entitled to receive such distribution and prior to the effectiveness of the conversion price adjustment in respect of such distribution, shall also be entitled to receive for each share of Common Stock into which the Debentures are converted, the portion of the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash and assets so distributed applicable to one share of Common Stock; provided, however, that, at the election of the Company (whose election shall be evidenced by a resolution of the Board of Directors) with respect to all Holders so converting, the Company may, in lieu of distributing to such Holder any portion of such distribution not consisting of cash or securities of the Company, pay such Holder an amount in cash equal to the fair market value thereof (as determined in good faith by the Board of Directors, whose determination shall be conclusive and described in a resolution of the Board of Directors). If any conversion of Debentures described in the immediately preceding sentence occurs prior to the payment date for a distribution to holders of Common Stock which the Holder of Debentures so converted is entitled to receive in accordance with the immediately preceding sentence, the Company may elect (such election to be evidenced by a resolution of the Board of Directors) to distribute to such Holder a due bill for the shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets to which such Holder is so entitled, provided, that such due bill (i) meets any applicable requirements of the principal national securities exchange or other market on which the Common Stock is then traded and (ii) requires payment or delivery of such shares of Common Stock, rights, warrants, evidences of indebtedness, shares of capital stock, cash or assets no later than the date of payment or delivery thereof to holders of shares of Common Stock receiving such distribution.
SECTION 1309. Restrictions on Common Stock Issuable Upon Conversion.
(a) Shares of Common Stock to be issued upon conversion of a Debenture with respect to Restricted Trust Preferred Securities (as defined in the Declaration) shall bear such restrictive legends as the Company may provide in accordance with applicable law.
47
(b) If shares of Common Stock to be issued upon conversion of a Debenture in respect of Restricted Trust Preferred Securities are to be registered in a name other than that of the Holder of such Trust Preferred Security, then the Person in whose name such shares of Common Stock are to be registered must deliver to the Conversion Agent a certificate satisfactory to the Company and signed by such Person, as to compliance with the restrictions on transfer applicable to such Trust Preferred Security. Neither the Trustee nor any Conversion Agent or Registrar shall be required to register in a name other than that of the Holder OF shares of Common Stock or such Trust Preferred Securities issued upon conversion of any such Debenture in respect of such Trust Preferred Securities not so accompanied by a properly completed certificate.
SECTION 1310. Trustee Not Responsible for Determining Conversion Price or Adjustments.
Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any Holder of any Debenture to determine whether any facts exist which may require any adjustment of the conversion price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed herein or in any supplemental indenture provided to be employed, in making the same. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind of account) of any shares of Common Stock or of any securities or property, which may at any time be issued or delivered upon the conversion of any Debenture; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to make any cash payment or to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Debenture for the purpose of conversion, or, except as expressly herein provided, to comply with any of the covenants of the Company contained in Article Ten or this Article Thirteen.
ARTICLE FOURTEEN
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 1401. No Recourse.
No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Debenture, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of the Company or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors as such, of the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against every such incorporator, stockholder, officer or director as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Debentures.
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
48
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY | ||||
|
|
By: |
|
/s/ TERRY A. REIMER Name: Terry A. Reimer Title: Exec. V.P. |
|
|
WEST DES MOINES STATE BANK, as trustee |
||
|
|
By: |
|
/s/ DAVID V. MAURER Name: David V. Maurer Title: SVP/STO |
[FORM OF FACE OF DEBENTURE]
THIS DEBENTURE AND ANY COMMON STOCK ISSUED ON CONVERSION HEREOF 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, ASSIGNED, 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 DEBENTURE IS 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.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
8% Convertible Junior Subordinated Debenture due 2029
No. |
|
$ |
|
American Equity Investment Life Holding Company, a corporation duly organized and existing under the laws of the State of Iowa (herein called "the Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of Dollars ($ ) on September 30, 2029.
Interest Payment Dates: March 31, June 30, September 30 and December 31, commencing December 31, 1999.
Regular Record Dates: the close of business on the 15th day immediately preceding each Interest Payment Date, commencing December 31, 1999.
Reference is hereby made to the further provisions of this Debenture set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Debenture shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
A-2
IN WITNESS WHEREOF, the Company has caused this instrument to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon.
Dated: , .
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
By: |
Name: Title: |
|||||
[SEAL] |
|
|
|
|
||
Attest: |
|
|
|
|
|
|
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred to in the within-mentioned Indenture.
Dated: , .
WEST DES MOINES STATE BANK, as Trustee | ||||
|
|
By: |
|
Authorized Signatory |
A-3
[FORM OF REVERSE OF DEBENTURE]
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
8% Convertible Junior Subordinated Debenture due 2029*
(1) Interest. American Equity Investment Life Holding Company, a Iowa corporation (the "Company"), is the issuer of this 8% Convertible Junior Subordinated Debenture Due 2029 (the "Debenture") limited in aggregate principal amount to $23,216,587.63 (or up to an aggregate principal amount of $30,927,840 if additional Trust Securities are issued after the initial Closing Date in accordance with the Declaration), issued under the Indenture hereinafter referred to. The Company promises to pay interest on the Debentures in cash from August 30, 1999 or from the most recent interest payment date to which interest has been paid or duly provided for, quarterly (subject to deferral for up to 20 consecutive quarters as described in Section 3 hereof) in arrears on March 31, June 30, September 30 and December 31 of each year (each day an "Interest Payment Date"), commencing December 31, 1999, at the rate of 8% per annum (subject to increase as provided in Section 13 hereto) plus Additional Interest and Compound Interest if any, until the principal hereof shall have become due and payable.
The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (without any interest 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.
(2) Additional Interest. The Company shall pay to American Equity Capital Trust I (and its permitted successors or assigns under the Declaration) (the "Trust") such amounts as shall be required so that the net amounts received and retained by the Trust after paying any taxes, duties, assessments or other governmental charges of whatever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority ("Additional Interest") will be not less than the amounts the Trust would have received had no such taxes, duties, assessment or governmental charges been imposed.
(3) Option to Extend Interest Payment Period. The Company shall have the right at any time during the term of the Debentures to defer interest payments from time to time by extending the interest payment period for successive periods not exceeding 20 consecutive quarters for each such period; except that no Extension Period may extend beyond the stated maturity of the Debentures. At the end of each Extension Period, the Company shall pay all interest then accrued and unpaid together with interest thereon compounded quarterly at the rate specified for the Debentures to the extent permitted by applicable law ("Compounded Interest"); provided, that during any Extension Period, the Company shall not (a) declare or pay dividends on, or make a distribution with respect to, or redeem or purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock (or Common Stock equivalents) in connection with the satisfaction by the Company of its obligations under any employee benefit or agent plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents),
A-4
(ii) purchases of shares of Common Stock (or Common Stock equivalents) from officers or employees of the Company or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (iii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iv) dividends or distributions of shares of Common Stock on Common Stock or (v) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) make any payment of principal of (premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Debentures (except by conversion into or exchange for shares of Common Stock) and (c) make any guarantee payments with respect to any of the foregoing (other than pursuant to the Guarantee).
Prior to the termination of any such Extension Period, the Company may further extend such Extension Period; provided that such Extension Period together with all previous and further extensions thereof may not exceed 20 consecutive quarters and may not extend beyond the maturity of the Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Company may commence a new Extension Period, subject to the above requirements. No interest during an Extension Period, except at the end thereof, shall be due and payable.
If the Property Trustee is the sole holder of the Debentures at the time the Company selects an Extension Period, the Company shall give notice to the Administrative Trustees, the Property Trustee and the Trustee of its selection of such Extension Period at least one Business Day prior to the earlier of (i) the date the distributions on the Trust Preferred Securities are payable or (ii) if the Trust Preferred Securities are listed on the New York Stock Exchange or other stock exchange or quotation system, the date the Trust is required to give notice to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Trust Preferred Securities on the record date or the date such distributions are payable, but in any event not less than ten Business Days prior to such record date.
If the Property Trustee is not the sole holder of the Debentures at the time the Company selects an Extension Period, the Company shall give the Holders of these Debentures and the Trustee notice of its selection of an Extension Period at least ten Business Days prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice to any applicable self-regulatory organization on the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date.
The quarter in which any notice is given pursuant to the second and third paragraphs of this Section 3 shall be counted as one of the 20 quarters permitted in the maximum Extension Period permitted under the first paragraph of this Section 3.
(4) Method of Payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the 15th day immediately preceding each Interest Payment Date (the "Regular Record Date"), commencing December 31, 1999. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Debentures not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the
A-5
requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this Debenture will be made at the office or agency of the Company maintained for that purpose in West Des Moines, Iowa, in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Register.
(5) Paying Agent and Registrar. The Trustee will act as Paying Agent, Registrar and Conversion Agent. The Company may change any Paying Agent, Registrar, co- registrar or Conversion Agent without prior notice. The Company or any of its Affiliates may act in any such capacity.
(6) Indenture. The Company issued the Debentures under an indenture, dated as of September 7, 1999 (the "Indenture"), between the Company and West Des Moines State Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Debentures, and of the terms upon which the Debentures are, and are to be, authenticated and delivered. The terms of the Debentures include those stated in the Indenture and those made part of the Indenture by the incorporation of certain provisions of the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) ("TIA") as in effect on the date of the Indenture. The Debentures are subject to, and qualified by, all such terms, certain of which are summarized hereon, and holders are referred to the Indenture and the TIA for a statement of such terms. The Debentures are unsecured general obligations of the Company limited to $23,216,587.63 (or up to an aggregate principal amount of $30,927,840 if additional Trust Securities are issued after the initial Closing Date in accordance with the Declaration) in aggregate principal amount and subordinated in right of payment to all existing and future Senior Debt of the Company. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the times, place and rate, and in the coin or currency, herein prescribed or to convert this Debenture as provided in the Indenture.
(7) Optional Redemption. The Company shall have the right, at its option, to redeem the Debentures, in whole or in part, at any time and from time to time, in cash at a redemption price equal to 100% of the principal amount of the Debentures to be redeemed, plus any accrued and unpaid interest on such Debentures, if any, to the Redemption Date (the "Redemption Price"), on or after the earliest to occur of (i) September 30, 2002 and (ii) the 91 st day immediately following the closing of the Company's IPO.
(8) Optional Redemption Upon Tax Event. The Debentures are subject to redemption, at the election of the Company, in whole (but not in part), for cash at the Redemption Price, at any time within 90 days following the occurrence and continuation of a Redemption Tax Event (as defined in the Declaration). Any redemption pursuant to this Section 8 will be made upon not less than 30 nor more than 60 days' notice.
(9) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of the Debentures to be redeemed at his address of record. The Debentures in denominations larger than $30 may be redeemed in part but only in integral multiples of $30. In the event of a redemption of less than all of the Debentures, the Debentures will be chosen for redemption by the Trustee in accordance with the Indenture. On and after the Redemption Date, interest ceases to accrue on the Debentures or portions of them called for redemption.
A-6
If this Debenture is redeemed subsequent to a Regular Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid to the person in whose name this Debenture is registered at the close of business on such record date.
(10) Redemption of Trust Securities. Upon the repayment of the Debentures, whether at maturity, upon any acceleration, earlier redemption or otherwise, the proceeds from such repayment or payment shall simultaneously be applied to redeem Trust Securities having an aggregate liquidation amount equal to the Debentures so repaid or redeemed at the applicable redemption price together with accrued and unpaid distributions through the date of redemption; provided, that holders of the Trust Securities shall be given not less than 30 nor more than 60 days notice of such redemption. There are no sinking fund payments with respect to the Debentures.
(11) Subordination. The payment of the principal of, interest on or any other amounts due on the Debentures is subordinated in right of payment to all existing and future Senior Debt (as defined below) of the Company, as described in the Indenture. Each holder, by accepting a Debenture, agrees to such subordination and authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee as its attorney-in-fact for such purpose.
"Senior Debt" shall mean with respect to the Company (i) the principal, premium, if any, and interest in respect of (A) indebtedness of such obligor for money borrowed and (B) indebtedness evidenced by securities, Debentures, bonds or other similar instruments issued by such obligor, (ii) all capital lease obligations of such obligor, (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of such obligor for the reimbursement of any letter of credit, banker's acceptance, security purchase facility (or repurchase agreement) or similar credit transaction, (v) all obligations of the type referred to in clauses (i) through (iv) above of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise, and (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Debentures and (2) any indebtedness between or among such obligor or its affiliates, including all other debt securities and guarantees in respect of those debt securities issued to any other trust, or a trustee of such trust, partnership, or other entity affiliated with the Company that is, directly or indirectly, a financing vehicle of the Company (a "Financing Entity") in connection with the issuance by such Financing Entity of Trust Preferred Securities or other securities which rank junior to, or pari passu with, the Trust Preferred Securities. Such Senior Debt shall continue to be Senior Debt and entitled to the subordination provisions hereof irrespective of any amendment, modification or waiver of any term of such Senior Debt.
(12) Conversion. The Holder of any Debenture has the right to convert such Debenture at any time on or after the earliest to occur of (i) September 30, 2002 and (ii) the 91 st day immediately following the closing of 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 Debentures, whether at maturity or upon redemption, into shares of Common Stock at a conversion price equal to the lesser of (A) $30 per share of Common Stock (equivalent to a conversion rate of one share of Common Stock for each $30 in principal amount of Debentures) and (B) 90% of the initial price per share to the public of Common Stock in the Company's IPO, subject to adjustment in certain circumstances.
To convert a Debenture, a Holder must (1) complete and sign a conversion notice substantially in the form attached hereto, (2) surrender the Debenture to a Conversion Agent, (3) furnish appropriate
A-7
endorsements or transfer documents if required by the Registrar or Conversion Agent and (4) pay any transfer or similar tax, if required. Upon conversion, no adjustment or payment will be made for interest or dividends, but if any Holder surrenders a Debenture for conversion after the close of business on the Regular Record Date for the payment of an installment of interest and prior to the opening of business on the next Interest Payment Date, then, notwithstanding such conversion, the interest payable on such Interest Payment Date will be paid to the registered Holder of such Debenture on such Regular Record Date. In such event, such Debenture, when surrendered for conversion, need not be accompanied by payment of an amount equal to the interest payable on such Interest Payment Date on the portion so converted. The number of shares issuable upon conversion of a Debenture is determined by dividing the principal amount of the Debenture converted by the conversion price in effect on the Conversion Date. No fractional shares will be issued upon conversion but a cash adjustment will be made for any fractional interest. The outstanding principal amount of any Debenture shall be reduced by the portion of the principal amount thereof converted into shares of Common Stock.
(14) Registration, Transfer, Exchange and Denominations. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Debenture is registrable in the Register, upon surrender of this Debenture for registration of transfer at the office or agency of the Company in West Des Moines, Iowa, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Debentures are issuable only in registered form without coupons in denominations of $30 and integral multiples thereof. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Debenture is registered as the owner hereof for all purposes, whether or not this Debenture be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. In the event of redemption or conversion of this Debenture in part only, a new Debenture or Debentures for the unredeemed or unconverted portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof.
(15) Persons Deemed Owners. Except as provided in Section 4 hereof, the registered Holder of a Debenture may be treated as its owner for all purposes.
(16) Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money back to the Company at its written request. After that, holders of Debentures entitled to the money must look to the Company for payment unless an abandoned property law designates another Person and all liability of the Trustee and such Paying Agent with respect to such money shall cease.
(17) Defaults and Remedies. The Debentures shall have the Indenture Events of Default as set forth in Section 501 of the Indenture. Subject to certain limitations in the Indenture, if an Event of Default occurs and is continuing, the Trustee by notice to the Company or the holders of at least 25% in aggregate principal amount of the then outstanding Debentures by notice to the Company and the Trustee may declare all the Debentures to be due and payable immediately.
The holders of a majority in principal amount of the Debentures then outstanding by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration.
A-8
Holders may not enforce the Indenture or the Debentures except as provided in the Indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Debentures issued under the Indenture may direct the Trustee in its exercise of any trust or power. The Company must furnish annually compliance certificates to the Trustee. The above description of Events of Default and remedies is qualified by reference to, and subject in its entirety by, the more complete description thereof contained in the Indenture.
(18) Amendments, Supplements and Waivers. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Debentures under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Debentures at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Debentures at the time Outstanding, on behalf of the Holders of all the Debentures, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Debenture shall be conclusive and binding upon such Holder and upon all future Holders of this Debenture and of any Debenture issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Debenture.
(19) Trustee Dealings with the Company. The Trustee, in its individual or any other capacity may become the owner or pledgee of the Debentures and may otherwise deal with the Company or an Affiliate with the same rights it would have, as if it were not Trustee, subject to certain limitations provided for in the Indenture and in the TIA. Any Agent may do the same with like rights.
(20) No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Debentures or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder of the Debentures by accepting a Debenture waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Debentures.
(21) Governing Law. THE INTERNAL LAWS OF THE STATE OF IOWA SHALL GOVERN THE INDENTURE AND THE DEBENTURES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF.
(22) Authentication. The Debentures shall not be valid until authenticated by the manual signature of an authorized officer of the Trustee or an authenticating agent.
The Company will furnish to any Holder of the Debentures upon written request and without charge a copy of the Indenture. Requests may be made to:
American
Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Attention: Chief Financial Officer
A-9
ASSIGNMENT FORM
To assign this Debenture, fill in the form below:
(I) or (we) assign and transfer this Debenture to | ||
|
|
|
(Insert assignee's social security or tax I.D. no.) |
||
|
|
|
(Print or type assignee's name, address and zip code) |
||
|
|
|
|
||
|
and irrevocably appoint agent to transfer this Debenture on the books of the Company. The agent may substitute another to act for him.
Your Signature: |
|
|||
(Sign exactly as your name appears on the other side of this Debenture) |
Date:
Signature Guarantee: ** |
|
|
[Include the following if the Debenture bears a Restricted Securities LegendIn connection with any transfer of any of the Debentures evidenced by this certificate, the undersigned confirms that such Debentures are being: |
CHECK ONE BOX BELOW
(1) o exchanged for the undersigned's own account without transfer; or
(2) o transferred pursuant to and in compliance with Rule 144 under the Securities Act of 1933; or
(3) o transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of the Debentures evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (3) is checked, the Trustee may require, prior to registering any such transfer of the Debentures such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in
A-10
a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act.
Signature: |
|
||||
|
|
Signature Guarantee: *** |
|
|
A-11
ELECTION TO CONVERT
To: American Equity Investment Life Holding Company
The undersigned owner of this Debenture hereby irrevocably exercises the option to convert this Debenture, or the portion below designated, into Common Stock of American Equity Investment Life Holding Company in accordance with the terms of the Indenture referred to in this Debenture, and directs 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
Portions
of Debenture to be in part converted
($30 or integral multiples thereof):
$
in part
Signature (for conversion only) |
||
|
|
Please Print or Typewrite Name and Address, Including Zip Code, and Social Security or Other Identifying Number |
|
|
|
|
|
|
|
|
Signature Guarantee: **** |
A-12
Exhibit 10.17
TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT
American Equity Investment Life Holding Company
Dated as of September 7, 1999
|
|
Page
|
||
---|---|---|---|---|
ARTICLE I DEFINITIONS AND INTERPRETATION\ |
||||
Section 1.1 |
|
Definitions and Interpretation |
|
1 |
ARTICLE II TRUST INDENTURE ACT |
||||
Section 2.1 |
|
Trust Indenture Act; Application |
|
4 |
Section 2.2 | Lists of Holders of Securities | 4 | ||
Section 2.3 | Reports by the Preferred Guarantee Trustee | 4 | ||
Section 2.4 | Periodic Reports to Preferred Guarantee Trustee | 4 | ||
Section 2.5 | Evidence of Compliance with Conditions Precedent | 4 | ||
Section 2.6 | Events of Default; Waiver | 4 | ||
Section 2.7 | Event of Default; Notice | 5 | ||
Section 2.8 | Conflicting Interests | 5 | ||
ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE |
||||
Section 3.1 |
|
Powers and Duties of the Preferred Guarantee Trustee |
|
5 |
Section 3.2 | Certain Rights of Preferred Guarantee Trustee | 6 | ||
Section 3.3 | Not Responsible for Recitals or Issuance of Trust Preferred Securities Guarantee | 8 | ||
ARTICLE IV PREFERRED GUARANTEE TRUSTEE |
||||
Section 4.1 |
|
Preferred Guarantee Trustee; Eligibility |
|
8 |
Section 4.2 | Appointment, Removal and Resignation of Preferred Guarantee Trustees | 9 | ||
ARTICLE V TRUST PREFERRED SECURITIES GUARANTEE |
||||
Section 5.1 |
|
Trust Preferred Securities Guarantee |
|
9 |
Section 5.2 | Subordination | 9 | ||
Section 5.3 | Waiver of Notice and Demand | 9 | ||
Section 5.4 | Obligations Not Affected | 10 | ||
Section 5.5 | Rights of Holders | 10 | ||
Section 5.6 | Guarantee of Payment | 11 | ||
Section 5.7 | Subrogation | 11 | ||
Section 5.8 | Independent Obligations | 11 | ||
Section 5.9 | Conversion | 11 | ||
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION |
||||
Section 6.1 |
|
Limitation of Transactions |
|
11 |
Section 6.2 | Ranking | 12 | ||
ARTICLE VII TERMINATION |
||||
Section 7.1 |
|
Termination |
|
12 |
1
ARTICLE VIII INDEMNIFICATION |
||||
Section 8.1 |
|
Exculpation |
|
12 |
Section 8.2 | Indemnification | 13 | ||
ARTICLE IX MISCELLANEOUS |
||||
Section 9.1 |
|
Successors and Assigns |
|
13 |
Section 9.2 | Amendments | 13 | ||
Section 9.3 | Notices | 13 | ||
Section 9.4 | Benefit | 14 | ||
Section 9.5 | Governing Law | 14 |
2
TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT
This TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Trust Preferred Securities Guarantee"), dated as of September 7, 1999, is executed and delivered by American Equity Investment Life Holding Company, an Iowa corporation (the "Guarantor"), and West Des Moines State Bank, an Iowa banking corporation, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Trust Preferred Securities (as defined herein) of American Equity Capital Trust I, a Delaware statutory business trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust, dated as of September 7, 1999 (the "Declaration"), among the trustees of the Trust named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing on the date hereof 750,669.67 (or up to an aggregate of 1,000,000 if additional preferred securities are issued after the initial Closing Date in accordance with the Declaration) preferred securities, having an aggregate liquidation amount of $22,520,090 (or up to $30,000,000 in the aggregate if additional preferred securities are issued after the initial Closing Date in accordance with the Declaration), designated the "8% Convertible Trust Preferred Securities" (the "Trust Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Trust Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Trust Preferred Securities Guarantee, to guarantee the obligations of the Trust to the Holders of Trust Preferred Securities on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Trust Common Securities Guarantee") in substantially identical terms to this Trust Preferred Securities Guarantee for the benefit of the holders of the Trust Common Securities (as defined herein), except that if an Indenture Event of Default (as defined herein) has occurred and is continuing, the rights of holders of the Trust Common Securities to receive Guarantee Payments (as defined in the Trust Common Securities Guarantee) under the Trust Common Securities Guarantee shall be subordinated to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments (as defined herein) under this Trust Preferred Securities Guarantee;
NOW, THEREFORE, in consideration of the purchase by each Holder of Trust Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Trust Preferred Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation.
In this Trust Preferred Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Trust Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1;
(b) terms defined in the Declaration as at the date hereof have the same meaning when used in this Trust Preferred Securities Guarantee unless otherwise defined in the Trust Preferred Securities Guarantee;
(c) a term defined anywhere in this Trust Preferred Securities Guarantee has the same meaning throughout;
(d) all references to "the Trust Preferred Securities Guarantee" or "this Trust Preferred Securities Guarantee" are to this Trust Preferred Securities Guarantee as modified, supplemented or amended from time to time;
(e) all references in this Trust Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Trust Preferred Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when used in this Trust Preferred Securities Guarantee, unless otherwise defined in this Trust Preferred Securities Guarantee or unless the context otherwise requires;
(g) a reference to the singular includes the plural and vice versa;
(h) a reference to any Person shall include its successors and assigns;
(i) a reference to any agreement or instrument shall mean such agreement or instrument, as supplemented, modified, amended, or amended and restated, and in effect from time to time; and
(j) a reference to any statute, law, rule or regulation, shall include any amendments thereto applicable to the relevant Person, and any successor statute, law, rule or regulation.
"Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder.
"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 any applicable law or executive order to close.
"Common Stock" means the common stock, par value $1.00 per share, of the Guarantor.
"Corporate Trust Office" means the office of the Preferred Guarantee Trustee at which the corporate trust business of the Preferred Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at West Des Moines State Bank, 1601 22nd Street, West Des Moines, Iowa 50266, Attention: Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Trust Preferred Securities.
"Debentures" means the 8% Convertible Junior Subordinated Debentures due 2029 of the Guarantor held by the Property Trustee (as defined in the Declaration).
"Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Trust Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Trust Preferred Securities, to the extent not paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Trust Preferred Securities to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), with respect to any Trust Preferred Securities called for redemption by the Trust to the extent the Trust has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with a distribution of the Debentures to the Holders in exchange for Trust Preferred Securities or the redemption of all of the Trust Preferred Securities as provided in the Declaration), the lesser of (a) the aggregate of the total liquidation amount and all accrued and unpaid Distributions on the Trust Preferred Securities to the date of payment, to the extent the Trust shall have funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to Holders upon liquidation of the Trust (in either case, the "Liquidation Distribution"). If an Indenture Event of Default has occurred and is continuing, the rights of holders of the Trust Common Securities to receive Guarantee Payments under the Trust Common Securities Guarantee are subordinate to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments under the Trust Preferred Securities Guarantee.
"Holder" shall mean any holder, as registered on the books and records of the Trust, of any Trust Preferred Securities; provided, however, that in determining whether the holders of the requisite
2
percentage of Trust Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Guarantee Trustee.
"Indenture" means the Indenture, dated as of September 7, 1999, among the Guarantor and West Des Moines State Bank, an Iowa banking corporation, as trustee, pursuant to which the Debentures are to be issued to the Property Trustee of the Trust.
"Indenture Event of Default" means an "Indenture Event of Default" as defined in the Indenture.
"Indenture Trustee" means the Person acting as trustee under the Indenture, initially West Des Moines State Bank, Iowa.
"Majority in liquidation amount of the Trust Preferred Securities" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Trust Preferred Securities, voting separately as a class, of more than 50% of the 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 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 Trust Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate;
(c) 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
(d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.
"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.
"Preferred Guarantee Trustee" means West Des Moines State Bank, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Trust Preferred Securities Guarantee and thereafter means each such Successor Preferred Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Guarantee Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Preferred Guarantee 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.
"Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1.
3
"Trust Common Securities" means the securities representing common undivided beneficial interests in the assets of the Trust.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.
(a) This Trust Preferred Securities Guarantee is subject to the provisions of the Trust Indenture Act that would be required to be part of this Trust Preferred Securities Guarantee were this Trust Preferred Securities Guarantee to be qualified under the Trust Indenture Act, which provisions are incorporated by reference in and made part of this Trust Preferred Securities Guarantee and this Trust Preferred Securities Guarantee shall, to the extent applicable, be governed by such provisions; and
(b) if and to the extent that any provision of this Trust Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control.
Section 2.2 Lists of Holders of Securities.
(a) The Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Trust Preferred Securities ("List of Holders") as of such date, (i) within 14 days after each record date for payment of Distributions, 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 Preferred Guarantee Trustee, provided that the Guarantor shall not 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 Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations under Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3 Reports by the Preferred Guarantee Trustee. Within 60 days after November 15 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Trust Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act.
Section 2.4 Periodic Reports to Preferred Guarantee Trustee. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act.
Section 2.5 Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate.
Section 2.6 Events of Default; Waiver. 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,
4
waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Trust Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
Section 2.7 Event of Default; Notice.
(a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Trust Preferred Securities, notices of all Events of Default of which the Preferred Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)), unless such defaults have been cured before the giving of such notice; provided that the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Trust Preferred Securities.
(b) The Preferred Guarantee Trustee shall be deemed to have knowledge of an Event of Default if (i) the Preferred Guarantee Trustee shall have received written notice of such Event of Default or (ii) a Responsible Officer of the Preferred Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge of such Event of Default.
Section 2.8 Conflicting Interests. The Declaration shall be deemed to be specifically described in this Trust Preferred Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS
OF PREFERRED GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Preferred Guarantee Trustee.
(a) This Trust Preferred Securities Guarantee shall be held by the Preferred Guarantee Trustee for the benefit of the Holders of the Trust Preferred Securities, and the Preferred Guarantee Trustee shall not transfer this Trust Preferred Securities Guarantee to any Person except a Holder of Trust Preferred Securities exercising his or her rights pursuant to Section 5.5(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee.
(b) If an Event of Default of which the Preferred Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)) has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Trust Preferred Securities Guarantee for the benefit of the Holders of the Trust Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Trust Preferred Securities Guarantee, and no implied covenants shall be read into this Trust Preferred Securities Guarantee against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and of which the Preferred Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)), the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Trust Preferred Securities Guarantee, and use the same
5
degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(d) No provision of this Trust Preferred Securities Guarantee shall be construed to relieve the Preferred Guarantee 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 any Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Trust Preferred Securities Guarantee, and no implied covenants or obligations shall be read into this Trust Preferred Securities Guarantee against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee 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 Preferred Guarantee Trustee and conforming to the requirements of this Trust Preferred Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Trust Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Preferred Guarantee 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 Trust Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Trust Preferred Securities Guarantee; and
(iv) no provision of this Trust Preferred Securities Guarantee shall require the Preferred Guarantee 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 the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Trust Preferred Securities Guarantee or indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against such risk or liability is not reasonably assured to it.
Section 3.2 Certain Rights of Preferred Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively 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.
6
(ii) Any direction or act of the Guarantor contemplated by this Trust Preferred Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate.
(iii) Whenever, in the administration of this Trust Preferred Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof).
(v) The Preferred Guarantee Trustee may consult with counsel of its selection, and the written advice or opinion of such counsel with respect to legal matters 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. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Preferred Securities Guarantee from any court of competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) 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 Preferred Guarantee Trustee; provided that nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Trust Preferred Securities Guarantee.
(vii) The Preferred Guarantee 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, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Guarantee 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.
(ix) Any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders of the Trust Preferred Securities, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Trust Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Trust Preferred Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to
7
enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Trust Preferred Securities, (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 conclusively relying on or acting in accordance with such instructions.
(xi) The Preferred Guarantee 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 Trust Preferred Securities Guarantee.
(b) No provision of this Trust Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred Guarantee 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 Preferred Guarantee 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 Preferred Guarantee Trustee shall be construed to be a duty.
Section 3.3 Not Responsible for Recitals or Issuance of Trust Preferred Securities Guarantee. The recitals contained in this Trust Preferred Securities Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Trust Preferred Securities Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
Section 4.1 Preferred Guarantee Trustee; Eligibility.
(a) There shall at all times be a Preferred Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(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 Securities and Exchange 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 4.1(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.
(b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act.
8
Section 4.2 Appointment, Removal and Resignation of Preferred Guarantee Trustees.
(a) Subject to Section 4.2(c), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor.
(b) Subject to Section 4.2(c), the Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee shall hold office and shall not be removed in accordance with Section 4.2(a) or resign in accordance with Section 4.2(b) unless and until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and, in the case of a resignation in accordance with Section 4.2(b), the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of removal or resignation, the resigning or removed Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Trust Preferred Securities Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation.
ARTICLE V
TRUST PREFERRED SECURITIES GUARANTEE
Section 5.1 Trust Preferred Securities Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders.
Section 5.2 Subordination. If an Indenture Event of Default has occurred and is continuing, the rights of holders of Trust Common Securities to receive Guarantee Payments under the Trust Common Securities Guarantee are subordinate to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments under this Trust Preferred Securities Guarantee.
Section 5.3 Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Trust Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
9
Section 5.4 Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Trust Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Trust Preferred Securities to be performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Trust Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Trust Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Trust Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Trust Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing.
Section 5.5 Rights of Holders.
(a) The Holders of a Majority in liquidation amount of the Trust Preferred Securities have the right to direct the time, method and place of the conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Trust Preferred Securities Guarantee or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Trust Preferred Securities Guarantee.
(b) Any Holder of Trust Preferred Securities may institute a legal proceeding against the Guarantor to enforce the obligations of the Guarantor under this Trust Preferred Securities Guarantee without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person.
(c) If an Indenture Event of Default constituting the failure to pay interest, principal or premium, if any, on the Debentures on the date such interest, principal or premium, if any, is otherwise payable has occurred and is continuing, then a Holder of Trust Preferred Securities may directly, at any time on or after the respective due date specified in the Debentures for such payment, institute a proceeding for enforcement of payment to such Holder of the interest, principal or premium, if any, on the Debentures having a principal amount equal to the aggregate liquidation amount of the Trust Preferred Securities of such Holder. The Holders of Trust
10
Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Debentures unless the Property Trustee (as defined in the Indenture) fails to do so.
Section 5.6 Guarantee of Payment. This Trust Preferred Securities Guarantee creates a guarantee of payment and not of collection.
Section 5.7 Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Trust Preferred Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Trust Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Trust Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Trust Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
Section 5.8 Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Trust Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Trust Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.4 hereof.
Section 5.9 Conversion. The Guarantor acknowledges its obligation to issue and deliver common stock of the Guarantor upon the conversion of the Trust Preferred Securities.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1 Limitation of Transactions. So long as any Trust Preferred Securities remain outstanding, if (i) the Guarantor has exercised its option to defer interest payments on the Debentures by extending the interest payment period and such extension shall be continuing, (ii) the Guarantor shall be in default with respect to its payment or other obligations under the Guarantee or (iii) there shall have occurred and be continuing any event that, with the giving of notice or the lapse of time or both, would constitute an Indenture Event of Default, then the Guarantor shall not (a) declare or pay dividends on, or make a distribution with respect to, or redeem or purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (1) purchases or acquisitions of shares of Company Common Stock (or Company Common Stock equivalents) in connection with the satisfaction by the Guarantor of its obligations under any employee benefit or agent plans or the satisfaction by the Guarantor of its obligations pursuant to any contract or security requiring the Guarantor to purchase shares of Company Common Stock (or Company Common Stock equivalents), (2) purchases of shares of Company Common Stock (or Company Common Stock equivalents) from officers or employees of the Guarantor or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Guarantor to purchase shares of Company Common Stock (or Company Common Stock equivalents), (3) as a result of a reclassification of the Guarantor's capital stock or the exchange or conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock, (4) dividends or distributions of shares of Company Common Stock on Company Common Stock or (5) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) make any payment of principal of (premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Guarantor that rank pari passu with or junior to the Debentures (except by conversion into or exchange for shares of Company Common Stock) and (c) make any guarantee payments with respect to any of the foregoing (other than pursuant to the Guarantee).
11
Section 6.2 Ranking.
(a) This Trust Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) senior to the Guarantor's common stock, (ii) pari passu with the most senior preferred or preference securities now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor with respect to any preferred or preference securities of the Guarantor or any Affiliate of the Guarantor, and (iii) junior and subordinate in right of payment to all other liabilities of the Guarantor except any liabilities that may be pari passu expressly by their terms.
(b) The holders of any obligations of the Guarantor that are senior in priority to the obligations under this Trust Preferred Securities Guarantee will be entitled to all of the rights inuring to the holders of "Senior Debt" under Article 12 of the Indenture, and the Holders of the Trust Preferred Securities will be subject to all of the terms and conditions of such Article 12 with respect to any claims or rights hereunder with the same effect as though fully set forth herein.
Section 7.1 Termination. This Trust Preferred Securities Guarantee shall terminate as to each Holder of Trust Preferred Securities upon (i) full payment of the applicable Redemption Price (as defined in the Declaration) with respect to all Trust Preferred Securities, (ii) the distribution of the Debentures held by the Trust to the Holders of all of the Trust Preferred Securities of the Trust, (iii) liquidation of the Trust, or (iv) the distribution of Guarantor's common stock to such Holder in respect of the conversion of such Holder's Trust Preferred Securities into common stock of the Guarantor and will terminate completely upon full payment of the amounts payable in accordance with the Declaration of the Trust. Notwithstanding the foregoing, this Trust Preferred Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Trust Preferred Securities must restore payment of any sums paid under the Trust Preferred Securities or under this Trust Preferred Securities Guarantee.
Section 8.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor 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 in accordance with this Trust Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Trust Preferred Securities Guarantee 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 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 Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, 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 Trust Preferred Securities might properly be paid.
12
Section 8.2 Indemnification. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of 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 8.2 shall survive the termination of this Trust Preferred Securities Guarantee.
Section 9.1 Successors and Assigns. All guarantees and agreements contained in this Trust Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Trust Preferred Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity or any sale, transfer or lease of the Guarantor's assets to another entity, each as permitted by the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Trust Preferred Securities Guarantee without the prior approval of the Holders of at least a Majority in liquidation amount of the Trust Preferred Securities.
Section 9.2 Amendments. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no consent of Holders will be required), this Trust Preferred Securities Guarantee may be amended only with the prior approval of the Holders of at least a Majority in liquidation amount of the Trust Preferred Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders of the Trust Preferred Securities apply to the giving of such approval.
Section 9.3 Notices. All notices provided for in this Trust Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, sent by facsimile or mailed by registered or certified mail, as follows:
(a) if given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Trust Preferred Securities):
West
Des Moines State Bank
1601 22nd Street
West Des Moines, Iowa 50266
Attention: Corporate Trust Administration
(b) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Trust Preferred Securities):
American
Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Attention: Chief Financial Officer
(c) If given to any Holder of Trust Preferred Securities, at the address set forth on the books and records of the Trust.
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
13
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 9.4 Benefit. This Trust Preferred Securities Guarantee is solely for the benefit of the Holders of the Trust Preferred Securities and, subject to Section 3.1(a), is not separately transferable from the Trust Preferred Securities.
Section 9.5 Governing Law. THIS TRUST PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF IOWA AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
14
THIS TRUST PREFERRED SECURITIES GUARANTEE is executed as of the day and year first above written.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY | |||
|
|
By: |
/s/ TERRY A. REIMER Name: Terry A. Reimer Title: Exec. V.P. |
|
|
|
|
WEST DES MOINES STATE BANK,
as Preferred Guarantee Trustee |
|||
|
|
By: |
/s/ DAVID V. MAURER Name: David V. Maurer Title: SVP/STO |
Exhibit 10.18
TRUST COMMON SECURITIES GUARANTEE AGREEMENT
American Equity Investment Life Holding Company
Dated as of September 7, 1999
|
|
Page
|
||
---|---|---|---|---|
ARTICLE I DEFINITIONS AND INTERPRETATION |
||||
Section 1.1 |
|
Definitions and Interpretation |
|
1 |
ARTICLE II TRUST INDENTURE ACT |
||||
Section 2.1 |
|
Trust Indenture Act; Application |
|
4 |
Section 2.2 | Lists of Holders of Securities | 4 | ||
Section 2.3 | Reports by the Common Guarantee Trustee | 4 | ||
Section 2.4 | Periodic Reports to Common Guarantee Trustee | 4 | ||
Section 2.5 | Evidence of Compliance with Conditions Precedent | 4 | ||
Section 2.6 | Events of Default; Waiver | 4 | ||
Section 2.7 | Event of Default; Notice | 5 | ||
Section 2.8 | Conflicting Interests | 5 | ||
ARTICLE III POWERS, DUTIES AND RIGHTS OF COMMON GUARANTEE TRUSTEE |
||||
Section 3.1 |
|
Powers and Duties of the Common Guarantee Trustee |
|
5 |
Section 3.2 | Certain Rights of Common Guarantee Trustee | 6 | ||
Section 3.3 | Not Responsible for Recitals or Issuance of Trust Common Securities Guarantee | 8 | ||
ARTICLE IV COMMON GUARANTEE TRUSTEE |
||||
Section 4.1 |
|
Common Guarantee Trustee; Eligibility |
|
8 |
Section 4.2 | Appointment, Removal and Resignation of Common Guarantee Trustees | 9 | ||
ARTICLE V TRUST COMMON SECURITIES GUARANTEE |
||||
Section 5.1 |
|
Trust Common Securities Guarantee |
|
9 |
Section 5.2 | Subordination | 9 | ||
Section 5.3 | Waiver of Notice and Demand | 9 | ||
Section 5.4 | Obligations Not Affected | 10 | ||
Section 5.5 | Rights of Holders | 10 | ||
Section 5.6 | Guarantee of Payment | 11 | ||
Section 5.7 | Subrogation | 11 | ||
Section 5.8 | Independent Obligations | 11 | ||
Section 5.9 | Conversion | 11 | ||
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION |
||||
Section 6.1 |
|
Limitation of Transactions |
|
11 |
Section 6.2 | Ranking | 12 | ||
ARTICLE VII TERMINATION |
||||
Section 7.1 |
|
Termination |
|
12 |
1
ARTICLE VIII INDEMNIFICATION |
||||
Section 8.1 |
|
Exculpation |
|
12 |
Section 8.2 | Indemnification | 13 | ||
ARTICLE IX MISCELLANEOUS |
||||
Section 9.1 |
|
Successors and Assigns |
|
13 |
Section 9.2 | Amendments | 13 | ||
Section 9.3 | Notices | 13 | ||
Section 9.4 | Benefit | 14 | ||
Section 9.5 | Governing Law | 14 |
2
TRUST COMMON SECURITIES GUARANTEE AGREEMENT
This TRUST COMMON SECURITIES GUARANTEE AGREEMENT (this "Trust Common Securities Guarantee"), dated as of September 7, 1999, is executed and delivered by American Equity Investment Life Holding Company, an Iowa corporation (the "Guarantor"), and West Des Moines State Bank, an Iowa banking corporation, as trustee (the "Common Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Trust Common Securities (as defined herein) of American Equity Capital Trust I, a Delaware statutory business trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust, dated as of September 7, 1999 (the "Declaration"), among the trustees of the Trust named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing on the date hereof 23,216.59 (or up to an aggregate of 30,928 if additional common securities are issued after the initial Closing Date in accordance with the Declaration) common securities, having an aggregate liquidation amount of $696,497.63 (or up to $927,840 in the aggregate if additional common securities are issued after the initial Closing Date in accordance with the Declaration), designated the "Trust Common Securities" (the "Trust Common Securities");
WHEREAS, as incentive for the Holders to purchase the Trust Common Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Trust Common Securities Guarantee, to guarantee the obligations of the Trust to the Holders of Trust Common Securities on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Trust Preferred Securities Guarantee") in substantially identical terms to this Trust Common Securities Guarantee for the benefit of the holders of the Trust Preferred Securities (as defined herein), except that if an Indenture Event of Default (as defined herein) has occurred and is continuing, the rights of holders of the Trust Common Securities to receive Guarantee Payments (as defined herein) under the Trust Common Securities Guarantee shall be subordinated to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments (as defined in the Trust Preferred Securities Guarantee) under this Trust Common Securities Guarantee;
NOW, THEREFORE, in consideration of the purchase by each Holder of Trust Common Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Trust Common Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation.
In this Trust Common Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Trust Common Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1;
(b) terms defined in the Declaration as at the date hereof have the same meaning when used in this Trust Common Securities Guarantee unless otherwise defined in the Trust Common Securities Guarantee;
(c) a term defined anywhere in this Trust Common Securities Guarantee has the same meaning throughout;
(d) all references to "the Trust Common Securities Guarantee" or "this Trust Common Securities Guarantee" are to this Trust Common Securities Guarantee as modified, supplemented or amended from time to time;
(e) all references in this Trust Common Securities Guarantee to Articles and Sections are to Articles and Sections of this Trust Common Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when used in this Trust Common Securities Guarantee, unless otherwise defined in this Trust Common Securities Guarantee or unless the context otherwise requires;
(g) a reference to the singular includes the plural and vice versa;
(h) a reference to any Person shall include its successors and assigns;
(i) a reference to any agreement or instrument shall mean such agreement or instrument, as supplemented, modified, amended, or amended and restated, and in effect from time to time; and
(j) a reference to any statute, law, rule or regulation, shall include any amendments thereto applicable to the relevant Person, and any successor statute, law, rule or regulation.
"Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder.
"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 any applicable law or executive order to close.
"Common Guarantee Trustee" means West Des Moines State Bank, until a Successor Common Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Trust Common Securities Guarantee and thereafter means each such Successor Common Guarantee Trustee.
"Common Stock" means the common stock, par value $1.00 per share, of the Guarantor.
"Corporate Trust Office" means the office of the Common Guarantee Trustee at which the corporate trust business of the Common Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at West Des Moines State Bank, 1601 22nd Street, West Des Moines, Iowa 50266, Attention: Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Trust Common Securities.
"Debentures" means the 8% Convertible Junior Subordinated Debentures due 2029 of the Guarantor held by the Property Trustee (as defined in the Declaration).
"Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Trust Common Securities Guarantee.
"Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Trust Common Securities, to the extent not paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Trust Common Securities to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), with respect to any Trust Common Securities called for redemption by the Trust to the extent the Trust has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with a distribution of the Debentures to the Holders in exchange for Trust Common Securities or the redemption of all of the Trust Common Securities as provided in the Declaration), the lesser of (a) the aggregate of the total liquidation amount and all accrued and unpaid Distributions on the Trust Common Securities to the date of payment, to the extent the Trust shall have funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to Holders upon liquidation of the Trust (in either case, the "Liquidation Distribution"). If an Indenture Event of Default has occurred and is continuing, the rights of holders of the Trust Common Securities to receive Guarantee Payments under this Trust Common
2
Securities Guarantee are subordinate to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments under the Trust Preferred Securities Guarantee.
"Holder" shall mean any holder, as registered on the books and records of the Trust, of any Trust Common Securities; provided, however, that in determining whether the holders of the requisite percentage of Trust Common Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Common Guarantee Trustee, any Affiliate of the Common Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Common Guarantee Trustee.
"Indenture" means the Indenture, dated as of September 7, 1999, among the Guarantor and West Des Moines State Bank, an Iowa banking corporation, as trustee, pursuant to which the Debentures are to be issued to the Property Trustee of the Trust.
"Indenture Event of Default" means an "Indenture Event of Default" as defined in the Indenture.
"Indenture Trustee" means the Person acting as trustee under the Indenture, initially West Des Moines State Bank, Iowa.
"Majority in liquidation amount of the Trust Common Securities" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Trust Common Securities, voting separately as a class, of more than 50% of the 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 Trust Common 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 Trust Common Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate;
(c) 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
(d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.
"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.
"Responsible Officer" means, with respect to the Common Guarantee Trustee, any officer within the Corporate Trust Office of the Common Guarantee Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Common Guarantee 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.
"Successor Common Guarantee Trustee" means a successor Common Guarantee Trustee possessing the qualifications to act as Common Guarantee Trustee under Section 4.1.
3
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Trust Preferred Securities" means the securities representing preferred undivided beneficial interests in the assets of the Trust.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.
(a) This Trust Common Securities Guarantee is subject to the provisions of the Trust Indenture Act that would be required to be part of this Trust Common Securities Guarantee were this Trust Common Securities Guarantee to be qualified under the Trust Indenture Act, which provisions are incorporated by reference in and made part of this Trust Common Securities Guarantee and this Trust Common Securities Guarantee shall, to the extent applicable, be governed by such provisions; and
(b) if and to the extent that any provision of this Trust Common Securities Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control.
Section 2.2 Lists of Holders of Securities.
(a) The Guarantor shall provide the Common Guarantee Trustee with a list, in such form as the Common Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Trust Common Securities ("List of Holders") as of such date, (i) within 14 days after each record date for payment of Distributions, 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 Common Guarantee Trustee, provided that the Guarantor shall not 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 Common Guarantee Trustee by the Guarantor. The Common Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders.
(b) The Common Guarantee Trustee shall comply with its obligations under Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3 Reports by the Common Guarantee Trustee. Within 60 days after November 15 of each year, the Common Guarantee Trustee shall provide to the Holders of the Trust Common Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Common Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act.
Section 2.4 Periodic Reports to Common Guarantee Trustee. The Guarantor shall provide to the Common Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act.
Section 2.5 Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Common Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Common Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate.
Section 2.6 Events of Default; Waiver. The Holders of a Majority in liquidation amount of Trust Common Securities may, by vote, on behalf of the Holders of all of the Trust Common Securities,
4
waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Trust Common Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
Section 2.7 Event of Default; Notice.
(a) The Common Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Trust Common Securities, notices of all Events of Default of which the Common Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)), unless such defaults have been cured before the giving of such notice; provided that the Common Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Common Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Trust Common Securities.
(b) The Common Guarantee Trustee shall be deemed to have knowledge of an Event of Default if (i) the Common Guarantee Trustee shall have received written notice of such Event of Default or (ii) a Responsible Officer of the Common Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge of such Event of Default.
Section 2.8 Conflicting Interests. The Declaration shall be deemed to be specifically described in this Trust Common Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS
OF COMMON GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Common Guarantee Trustee.
(a) This Trust Common Securities Guarantee shall be held by the Common Guarantee Trustee for the benefit of the Holders of the Trust Common Securities, and the Common Guarantee Trustee shall not transfer this Trust Common Securities Guarantee to any Person except a Holder of Trust Common Securities exercising his or her rights pursuant to Section 5.5(b) or to a Successor Common Guarantee Trustee on acceptance by such Successor Common Guarantee Trustee of its appointment to act as Successor Common Guarantee Trustee. The right, title and interest of the Common Guarantee Trustee shall automatically vest in any Successor Common Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Common Guarantee Trustee.
(b) If an Event of Default of which the Common Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)) has occurred and is continuing, the Common Guarantee Trustee shall enforce this Trust Common Securities Guarantee for the benefit of the Holders of the Trust Common Securities.
(c) The Common Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Trust Common Securities Guarantee, and no implied covenants shall be read into this Trust Common Securities Guarantee against the Common Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and of which the Common Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)), the Common Guarantee Trustee shall exercise such of the rights and powers vested in it by this Trust Common Securities Guarantee, and use the same
5
degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
(d) No provision of this Trust Common Securities Guarantee shall be construed to relieve the Common Guarantee 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 any Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Common Guarantee Trustee shall be determined solely by the express provisions of this Common Securities Guarantee, and the Common Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Trust Common Securities Guarantee, and no implied covenants or obligations shall be read into this Trust Common Securities Guarantee against the Common Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Common Guarantee Trustee, the Common Guarantee 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 Common Guarantee Trustee and conforming to the requirements of this Trust Common Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Common Guarantee Trustee, the Common Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Trust Common Securities Guarantee;
(ii) the Common Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Common Guarantee Trustee, unless it shall be proved that the Common Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Common Guarantee 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 Trust Common Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Common Guarantee Trustee, or exercising any trust or power conferred upon the Common Guarantee Trustee under this Trust Common Securities Guarantee; and
(iv) no provision of this Trust Common Securities Guarantee shall require the Common Guarantee 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 the Common Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Trust Common Securities Guarantee or indemnity, reasonably satisfactory to the Common Guarantee Trustee, against such risk or liability is not reasonably assured to it.
Section 3.2 Certain Rights of Common Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Common Guarantee Trustee may conclusively 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.
6
(ii) Any direction or act of the Guarantor contemplated by this Trust Common Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate.
(iii) Whenever, in the administration of this Trust Common Securities Guarantee, the Common Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Common Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor.
(iv) The Common Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof).
(v) The Common Guarantee Trustee may consult with counsel of its selection, and the written advice or opinion of such counsel with respect to legal matters 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. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Common Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Common Securities Guarantee from any court of competent jurisdiction.
(vi) The Common Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Common Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Common Guarantee Trustee such security and indemnity, reasonably satisfactory to the Common Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) 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 Common Guarantee Trustee; provided that nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Common Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Trust Common Securities Guarantee.
(vii) The Common Guarantee 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, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Common Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit.
(viii) The Common Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Common Guarantee 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.
(ix) Any action taken by the Common Guarantee Trustee or its agents hereunder shall bind the Holders of the Trust Common Securities, and the signature of the Common Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Common Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Trust Common Securities Guarantee, both of which shall be conclusively evidenced by the Common Guarantee Trustee's or its agent's taking such action.
(x) Whenever in the administration of this Trust Common Securities Guarantee the Common Guarantee Trustee shall deem it desirable to receive instructions with respect to
7
enforcing any remedy or right or taking any other action hereunder, the Common Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Trust Common Securities, (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 conclusively relying on or acting in accordance with such instructions.
(xi) The Common Guarantee 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 Trust Common Securities Guarantee.
(b) No provision of this Trust Common Securities Guarantee shall be deemed to impose any duty or obligation on the Common Guarantee 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 Common Guarantee 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 Common Guarantee Trustee shall be construed to be a duty.
Section 3.3 Not Responsible for Recitals or Issuance of Trust Common Securities Guarantee. The recitals contained in this Trust Common Securities Guarantee shall be taken as the statements of the Guarantor, and the Common Guarantee Trustee does not assume any responsibility for their correctness. The Common Guarantee Trustee makes no representation as to the validity or sufficiency of this Trust Common Securities Guarantee.
ARTICLE IV
COMMON GUARANTEE TRUSTEE
Section 4.1 Common Guarantee Trustee; Eligibility.
(a) There shall at all times be a Common Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(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 Securities and Exchange 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 4.1(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.
(b) If at any time the Common Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Common Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Common Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Common Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act.
8
Section 4.2 Appointment, Removal and Resignation of Common Guarantee Trustees.
(a) Subject to Section 4.2(c), the Common Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor.
(b) Subject to Section 4.2(c), the Common Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Common Guarantee Trustee and delivered to the Guarantor.
(c) The Common Guarantee Trustee shall hold office and shall not be removed in accordance with Section 4.2(a) or resign in accordance with Section 4.2(b) unless and until a Successor Common Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Common Guarantee Trustee and delivered to the Guarantor and, in the case of a resignation in accordance with Section 4.2(b), the resigning Common Guarantee Trustee.
(d) If no Successor Common Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of removal or resignation, the resigning or removed Common Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Common Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Common Guarantee Trustee.
(e) No Common Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Common Guarantee Trustee.
(f) Upon termination of this Trust Common Securities Guarantee or removal or resignation of the Common Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Common Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation.
ARTICLE V
TRUST COMMON SECURITIES GUARANTEE
Section 5.1 Trust Common Securities Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders.
Section 5.2 Subordination. If an Indenture Event of Default has occurred and is continuing, the rights of holders of Trust Common Securities to receive Guarantee Payments under this Trust Common Securities Guarantee are subordinate to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments under the Trust Preferred Securities Guarantee.
Section 5.3 Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Trust Common Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
9
Section 5.4 Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Trust Common Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Trust Common Securities to be performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Trust Common Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Trust Common Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Trust Common Securities, or any action on the part of the Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Trust Common Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing.
Section 5.5 Rights of Holders.
(a) The Holders of a Majority in liquidation amount of the Trust Common Securities have the right to direct the time, method and place of the conducting of any proceeding for any remedy available to the Common Guarantee Trustee in respect of this Trust Common Securities Guarantee or exercising any trust or power conferred upon the Common Guarantee Trustee under this Trust Common Securities Guarantee.
(b) Any Holder of Trust Common Securities may institute a legal proceeding against the Guarantor to enforce the obligations of the Guarantor under this Trust Common Securities Guarantee without first instituting a legal proceeding against the Trust, the Common Guarantee Trustee or any other Person.
(c) If an Indenture Event of Default constituting the failure to pay interest, principal or premium, if any, on the Debentures on the date such interest, principal or premium, if any, is otherwise payable has occurred and is continuing, then a Holder of Trust Common Securities may directly, at any time on or after the respective due date specified in the Debentures for such payment, institute a proceeding for enforcement of payment to such Holder of the interest, principal or premium, if any, on the Debentures having a principal amount equal to the aggregate liquidation amount of the Trust Common Securities of such Holder. The Holders of Trust
10
Common Securities will not be able to exercise directly any other remedy available to the holders of the Debentures unless the Property Trustee (as defined in the Indenture) fails to do so.
Section 5.6 Guarantee of Payment. This Trust Common Securities Guarantee creates a guarantee of payment and not of collection.
Section 5.7 Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Trust Common Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Trust Common Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Trust Common Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Trust Common Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
Section 5.8 Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Trust Common Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Trust Common Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.4 hereof.
Section 5.9 Conversion.
The Guarantor acknowledges its obligation to issue and deliver common stock of the Guarantor upon the conversion of the Trust Common Securities.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1 Limitation of Transactions. So long as any Trust Common Securities remain outstanding, if (i) the Guarantor has exercised its option to defer interest payments on the Debentures by extending the interest payment period and such extension shall be continuing, (ii) the Guarantor shall be in default with respect to its payment or other obligations under the Guarantee or (iii) there shall have occurred and be continuing any event that, with the giving of notice or the lapse of time or both, would constitute an Indenture Event of Default, then the Guarantor shall not (a) declare or pay dividends on, or make a distribution with respect to, or redeem or purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (1) purchases or acquisitions of shares of Company Common Stock (or Company Common Stock equivalents) in connection with the satisfaction by the Guarantor of its obligations under any employee benefit or agent plans or the satisfaction by the Guarantor of its obligations pursuant to any contract or security requiring the Guarantor to purchase shares of Company Common Stock (or Company Common Stock equivalents), (2) purchases of shares of Company Common Stock (or Company Common Stock equivalents) from officers or employees of the Guarantor or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Guarantor to purchase shares of Company Common Stock (or Company Common Stock equivalents), (3) as a result of a reclassification of the Guarantor's capital stock or the exchange or conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock, (4) dividends or distributions of shares of Company Common Stock on Company Common Stock or (5) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) make any payment of principal of (premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Guarantor that rank pari passu with or junior to
11
the Debentures (except by conversion into or exchange for shares of Company Common Stock) and (c) make any guarantee payments with respect to any of the foregoing (other than pursuant to the Guarantee).
Section 6.2 Ranking.
(a) This Trust Common Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) senior to the Guarantor's common stock, (ii) pari passu with the most senior preferred or preference securities now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor with respect to any preferred or preference securities of the Guarantor or any Affiliate of the Guarantor, and (iii) junior and subordinate in right of payment to all other liabilities of the Guarantor except any liabilities that may be pari passu expressly by their terms.
(b) The holders of any obligations of the Guarantor that are senior in priority to the obligations under this Trust Common Securities Guarantee will be entitled to all of the rights inuring to the holders of "Senior Debt" under Article 12 of the Indenture, and the Holders of the Trust Common Securities will be subject to all of the terms and conditions of such Article 12 with respect to any claims or rights hereunder with the same effect as though fully set forth herein.
Section 7.1 Termination. This Trust Common Securities Guarantee shall terminate as to each Holder of Trust Common Securities upon (i) full payment of the applicable Redemption Price (as defined in the Declaration) with respect to all Trust Common Securities, (ii) the distribution of the Debentures held by the Trust to the Holders of all of the Trust Common Securities of the Trust, (iii) liquidation of the Trust, or (iv) the distribution of Guarantor's common stock to such Holder in respect of the conversion of such Holder's Trust Common Securities into common stock of the Guarantor and will terminate completely upon full payment of the amounts payable in accordance with the Declaration of the Trust. Notwithstanding the foregoing, this Trust Common Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Trust Common Securities must restore payment of any sums paid under the Trust Common Securities or under this Trust Common Securities Guarantee.
Section 8.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor 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 in accordance with this Trust Common Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Trust Common Securities Guarantee 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 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 Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the
12
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 Trust Common Securities might properly be paid.
Section 8.2 Indemnification. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of 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 8.2 shall survive the termination of this Trust Common Securities Guarantee.
Section 9.1 Successors and Assigns. All guarantees and agreements contained in this Trust Common Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Trust Common Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity or any sale, transfer or lease of the Guarantor's assets to another entity, each as permitted by the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Trust Common Securities Guarantee without the prior approval of the Holders of at least a Majority in liquidation amount of the Trust Common Securities.
Section 9.2 Amendments. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no consent of Holders will be required), this Trust Common Securities Guarantee may be amended only with the prior approval of the Holders of at least a Majority in liquidation amount of the Trust Common Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders of the Trust Common Securities apply to the giving of such approval.
Section 9.3 Notices. All notices provided for in this Trust Common Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, sent by facsimile or mailed by registered or certified mail, as follows:
(a) if given to the Common Guarantee Trustee, at the Common Guarantee Trustee's mailing address set forth below (or such other address as the Common Guarantee Trustee may give notice of to the Holders of the Trust Common Securities):
West
Des Moines State Bank
1601 22nd Street
West Des Moines, Iowa 50266
Attention: Corporate Trust Administration
(b) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Trust Common Securities):
American
Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Attention: Chief Financial Officer
(c) If given to any Holder of Trust Common Securities, at the address set forth on the books and records of the Trust.
13
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 9.4 Benefit. This Trust Common Securities Guarantee is solely for the benefit of the Holders of the Trust Common Securities and, subject to Section 3.1(a), is not separately transferable from the Trust Common Securities.
Section 9.5 Governing Law. THIS TRUST COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF IOWA AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
14
THIS TRUST COMMON SECURITIES GUARANTEE is executed as of the day and year first above written.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY | |||
|
By: |
|
/s/ TERRY A. REIMER |
Name: | Terry A. Reimer | ||
Title: | Exec. V.P. | ||
|
WEST DES MOINES STATE BANK, as Common Guarantee Trustee |
||
|
By: |
|
/s/ DAVID V. MAURER |
Name: | David V. Maurer | ||
Title: | SVP/STO |
15
Exhibit 10.19
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY,
AS ISSUER
AND
WEST DES MOINES STATE BANK,
AS TRUSTEE
INDENTURE
DATED AS OF OCTOBER 29, 1999
$100,000,000
5% SUBORDINATED DEBENTURES DUE 2047
|
Page
|
|
---|---|---|
RECITALS OF THE COMPANY | 1 | |
ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION |
||
SECTION 101. Definitions | 1 | |
SECTION 102. Compliance Certificates and Opinions | 6 | |
SECTION 103. Form of Documents Delivered to Trustee | 7 | |
SECTION 104. Acts of Holders; Record Dates | 7 | |
SECTION 105. Notices, Etc., to Trustee and the Company | 8 | |
SECTION 106. Notice to Holders; Waiver | 8 | |
SECTION 107. Conflict with Trust Indenture Act | 8 | |
SECTION 108. Effect of Headings and Table of Contents | 9 | |
SECTION 109. Successors and Assigns | 9 | |
SECTION 110. Separability Clause | 9 | |
SECTION 111. Benefits of Indenture | 9 | |
SECTION 112. Governing Law | 9 | |
SECTION 113. Legal Holidays | 9 | |
ARTICLE TWO DEBENTURE FORMS |
||
SECTION 201. Forms Generally | 9 | |
SECTION 202. Initial Issuance to Property Trustee | 10 | |
ARTICLE THREE THE DEBENTURES |
||
SECTION 301. Title and Terms | 10 | |
SECTION 302. Denominations | 11 | |
SECTION 303. Execution, Authentication, Delivery and Dating | 11 | |
SECTION 304. Temporary Debentures | 12 | |
SECTION 305. Registration, Registration of Transfer and Exchange | 12 | |
SECTION 306. Mutilated, Destroyed, Lost and Stolen Debentures | 13 | |
SECTION 307. Payment of Interest; Interest Rights Preserved | 13 | |
SECTION 308. Persons Deemed Owners | 14 | |
SECTION 309. Cancellation | 14 | |
SECTION 310. Right of Set Off | 15 | |
SECTION 311. CUSIP Numbers | 15 | |
SECTION 312. Option to Extend Interest Payment Period | 15 | |
SECTION 313. Paying Agent and Registrar | 16 | |
SECTION 314. Calculation of Original Issue Discount | 16 | |
ARTICLE FOUR SATISFACTION AND DISCHARGE |
||
SECTION 401. Satisfaction and Discharge of Indenture | 16 | |
SECTION 402. Application of Trust Money | 17 | |
ARTICLE FIVE REMEDIES |
||
SECTION 501. Indenture Events of Default | 17 | |
SECTION 502. Acceleration of Maturity; Rescission and Annulment | 18 | |
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee | 18 | |
SECTION 504. Trustee May File Proofs of Claim | 19 | |
SECTION 505. Trustee May Enforce Claims Without Possession of Debentures | 19 | |
i
SECTION 506. Application of Money Collected | 19 | |
SECTION 507. Limitation on Suits | 20 | |
SECTION 508. Unconditional Right of Holders to Receive Principal and Interest | 20 | |
SECTION 509. Restoration of Rights and Remedies | 20 | |
SECTION 510. Rights and Remedies Cumulative | 20 | |
SECTION 511. Delay or Omission Not Waiver | 21 | |
SECTION 512. Control by Holders | 21 | |
SECTION 513. Waiver of Past Defaults | 21 | |
SECTION 514. Undertaking for Costs | 21 | |
SECTION 515. Waiver of Stay or Extension Laws | 21 | |
SECTION 516. Enforcement by Holders of Trust Preferred Securities | 22 | |
ARTICLE SIX THE TRUSTEE |
||
SECTION 601. Certain Duties and Responsibilities | 22 | |
SECTION 602. Notice of Defaults | 22 | |
SECTION 603. Certain Rights of Trustee | 22 | |
SECTION 604. Not Responsible for Recitals or Issuance of Debentures | 23 | |
SECTION 605. May Hold Debentures | 23 | |
SECTION 606. Money Held in Trust | 23 | |
SECTION 607. Compensation and Reimbursement | 23 | |
SECTION 608. Disqualification; Conflicting Interests | 24 | |
SECTION 609. Corporate Trustee Required; Eligibility | 24 | |
SECTION 610. Resignation and Removal; Appointment of Successor | 24 | |
SECTION 611. Acceptance of Appointment by Successor | 25 | |
SECTION 612. Merger, Conversion, Consolidation or Succession to Business | 25 | |
SECTION 613. Preferential Collection of Claims Against Company | 25 | |
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY |
||
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders | 26 | |
SECTION 702. Preservation of Information; Communications to Holders | 26 | |
SECTION 703. Reports by Trustee | 26 | |
SECTION 704. Reports by Company | 26 | |
ARTICLE EIGHT CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE |
||
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms | 27 | |
SECTION 802. Successor Substituted | 27 | |
ARTICLE NINE SUPPLEMENTAL INDENTURES |
||
SECTION 901. Supplemental Indentures Without Consent of Holders | 28 | |
SECTION 902. Supplemental Indentures with Consent of Holders | 28 | |
SECTION 903. Execution of Supplemental Indentures | 29 | |
SECTION 904. Effect of Supplemental Indentures | 29 | |
SECTION 905. Intentionally Omitted | 29 | |
SECTION 906. Reference in Debentures to Supplemental Indentures | 29 | |
ARTICLE TEN COVENANTS; REPRESENTATIONS AND WARRANTIES |
||
SECTION 1001. Payment of Principal and Interest | 29 | |
SECTION 1002. Maintenance of Office or Agency | 30 | |
SECTION 1003. Money for Debenture Payments to Be Held in Trust | 30 | |
SECTION 1004. Statement by Officers as to Default | 31 | |
ii
SECTION 1005. Limitation on Dividends; Transactions with Affiliates; Covenants as to the Trust | 31 | |
SECTION 1006. Payment of Expenses of the Trust | 31 | |
ARTICLE ELEVEN REDEMPTION OF DEBENTURES |
||
SECTION 1101. Right of Redemption | 32 | |
SECTION 1102. Applicability of Article | 32 | |
SECTION 1103. Election to Redeem; Notice to Trustee | 32 | |
SECTION 1104. Intentionally Omitted | 32 | |
SECTION 1105. Notice of Redemption | 32 | |
SECTION 1106. Deposit of Redemption Price | 33 | |
SECTION 1107. Debentures Payable on Redemption Date | 33 | |
SECTION 1108. Intentionally Omitted | 33 | |
SECTION 1109. Tax Event Redemption | 33 | |
SECTION 1110. No Sinking Fund | 34 | |
ARTICLE TWELVE SUBORDINATION OF DEBENTURES |
||
SECTION 1201. Agreement to Subordinate | 34 | |
SECTION 1202. Default on Senior Debt | 34 | |
SECTION 1203. Liquidation; Dissolution; Bankruptcy | 34 | |
SECTION 1204. Subrogation | 35 | |
SECTION 1205. Trustee to Effectuate Subordination | 36 | |
SECTION 1206. Notice by the Company | 36 | |
SECTION 1207. Rights of the Trustee; Holders of Senior Debt | 37 | |
SECTION 1208. Subordination May Not Be Impaired | 37 | |
ARTICLE THIRTEEN IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS |
||
SECTION 1301. No Recourse | 38 |
EXHIBIT
AForm of Debenture
ANNEX AForm of Amended and Restated Declaration of Trust, among the Company, as Sponsor, West Des Moines State Bank, as Property Trustee, First Union Trust Company, National Association,
as Delaware Trustee, and Debra J. Richardson and Wendy L. Carlson, as Administrative Trustees, dated as of October 29, 1999
Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture.
iii
INDENTURE, dated as of October 29, 1999, between American Equity Investment Life Holding Company, a corporation duly organized and existing under the laws of the State of Iowa (the "Company"), having its principal office at 5000 Westown Parkway, Suite 440, West Des Moines, IA 50266, and West Des Moines State Bank, an Iowa banking corporation, as trustee (the "Trustee").
WHEREAS, American Equity Capital Trust II, a Delaware business trust (the "Trust") governed by the Amended and Restated Declaration of Trust, dated as of October 29, 1999 (the "Declaration"), by and among the Company, as sponsor, West Des Moines State Bank, as property trustee (the "Property Trustee"), First Union Trust Company, National Association, as Delaware trustee (the "Delaware Trustee"), and Debra J. Richardson and Wendy L. Carlson, as Administrative Trustees, will issue and sell 97,000 5% Trust Preferred Securities (the "Trust Preferred Securities") representing undivided beneficial interests in the assets of the Trust, with a liquidation amount of $1,000 per Trust Preferred Security, or $97,000,000 in the aggregate; and
WHEREAS, the Trust will issue and sell to the Company 3,000 common securities (the "Trust Common Securities" and, together with the Trust Preferred Securities, the "Trust Securities") representing undivided beneficial interests in the assets of the Trust with a liquidation amount of $1,000 per Trust Common Security, or $3,000,000 in the aggregate; and
WHEREAS, pursuant to the Declaration, the Trust will use the proceeds from the sale of the Trust Securities to purchase from the Company the 5% Subordinated Debentures Due 2047 described in this Indenture (the "Debentures") in an aggregate principal amount of $100,000,000; and
WHEREAS, in connection with the issuance and sale by the Trust of the Trust Preferred Securities and the issuance and sale of the Debentures by the Company to the Trust, the Company has agreed to irrevocably guarantee the payment in full of the distributions on the Trust Preferred Securities, the amount payable upon redemption of the Trust Preferred Securities and, generally, the liquidation preference of the Trust Preferred Securities, to the extent the Trust has funds available therefor, pursuant to the Trust Preferred Securities Guarantee Agreement of even date herewith (the "Guarantee") between the Company and West Des Moines State Bank, as Guarantee Trustee, for the benefit of the holders of the Trust Preferred Securities; and
WHEREAS, the Company has duly authorized the creation of the Debentures, this Indenture sets forth the terms and conditions thereof, and all things necessary to make this Indenture a valid agreement of the Company, subject to execution and delivery of this Indenture by the Company and the Trustee, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Debentures by the Holders (as defined herein) as provided for herein, it is mutually agreed, for the equal and proportionate benefit of the Holders, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles; and
(4) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision.
"Act", when used with respect to any Holder, has the meaning specified in Section 104.
"Additional Interest" has the meaning specified in Section 301.
"Additional Payments" means Compounded Interest and Additional Interest, if any.
"Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. 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.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee.
"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.
"Closing Date" has the meaning specified in the Declaration.
"Commission" means the United States Securities and Exchange Commission.
"Common Stock" includes any stock of any class of the Company which has no preference with respect to dividends or to amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which is not subject to redemption by the Company.
"Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order signed in the name of the Company by its Chairman of the Board, its President or a Vice President, and by its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered to the Trustee.
"Compounded Interest" has the meaning specified in Section 312.
"Corporate Trust Office" means the principal office of the Trustee in West Des Moines, Iowa, at which at any particular time its corporate trust business shall be administered and which at the date of this Indenture is 1601 22 nd Street, West Des Moines, Iowa 50266.
"Debentures" has the meaning specified in the Recitals to this instrument.
"Declaration" has the meaning specified in the Recitals to this instrument.
2
"Declaration Event of Default" means a "Declaration Event of Default" as defined in the Declaration.
"Defaulted Interest" has the meaning specified in Section 307.
"Delaware Trustee" has the meaning specified in the Recitals to this instrument.
"Direct Action" means a proceeding directly instituted by a holder of Trust Preferred Securities for enforcement of payment to such holder of the principal of or interest on the Debentures 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, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company 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.)
"Dissolution Event" means that, as a result of the occurrence and continuation of a Special Event, the Trust is to be dissolved in accordance with the Declaration and the Debentures held by the Property Trustee are to be distributed to the holders of Trust Securities pro rata in accordance with the Declaration.
"Dissolution Tax Opinion" has the meaning specified in the Declaration.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor legislation.
"Extension Period" has the meaning specified in Section 312.
"Guarantee" has the meaning specified in the Recitals to this instrument.
"Holder" means a Person in whose name a Debenture is registered in the Register.
"Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof, including, for all purposes of this instrument and any such supplemental indenture, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this instrument and any such supplemental indenture, respectively.
"Indenture Event of Default" has the meaning specified in Section 501.
"Interest Payment Date" has the meaning specified in Section 301.
"Investment Company Event" has the meaning specified in the Declaration.
"Maturity", when used with respect to any Debenture, means the date on which the principal of such Debenture becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption or otherwise.
"Ministerial Action" has the meaning specified in Section 1110.
"90-Day Period" has the meaning specified in Section 1110.
"No Recognition Opinion" has the meaning specified in the Declaration.
"Officers' Certificate" means a certificate signed by the Chairman of the Board, the President or a Vice President, and by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 1004 shall be the principal executive, financial or accounting officer of the Company.
"Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, and who shall be acceptable to the Trustee.
3
"Outstanding", when used with respect to Debentures, means, as of the date of determination, all Debentures theretofore authenticated and delivered under this Indenture, except: (i) Debentures theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (ii) Debentures for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Debentures; provided, that if such Debentures are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; and (iii) Debentures that have been paid pursuant to Section 306 or in exchange for or in lieu of which other Debentures have been authenticated and delivered pursuant to this Indenture, other than any such Debentures with respect to which there shall have been presented to the Trustee proof satisfactory to it that such Debentures are held by a bona fide purchaser in whose hands such Debentures are valid obligations of the Company, provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Debentures have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Debentures owned by the Company or any other obligor upon the Debentures or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Debentures which the Trustee knows to be so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not the Company or any other obligor upon the Debentures or any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the principal of or interest on any Debentures on behalf of the Company.
"Person" means any individual, corporation, company, partnership, limited liability company, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Predecessor Debenture" of any particular Debenture means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 306 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Debenture shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Debenture.
"pro rata", when used with respect to any payment, distribution or treatment of the Debentures, shall mean pro rata to each Holder of Debentures according to the aggregate principal amount of the Debentures Outstanding, provided that in the event any Debentures are held by the Company or any affiliate thereof and an Indenture Event of Default has occurred and is continuing, any funds available for such payment shall first be paid to each Holder of the Debentures (other than the Company or any affiliate thereof) pro rata according to the aggregate principal amount of the Debentures held by each such Holder relative to the aggregate principal amount of all Debentures Outstanding and held by such Holders, and only after satisfaction of all amounts owed to such Holders of the Debentures (other than the Company or any affiliate thereof), any additional funds available for such payment shall be made to the Company or any affiliate thereof pro rata according to the aggregate principal amount of Debentures held by them.
"Redemption Date", when used with respect to any Debenture to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price", when used with respect to any Debenture to be redeemed, means the price at which it is to be redeemed pursuant to this Indenture.
4
"Redemption Tax Event" has the meaning specified in Section 1110.
"Redemption Tax Opinion" has the meaning set forth in the Declaration.
"Register" and "Registrar" have the respective meanings specified in Section 305.
"Regular Record Date" has the meaning specified in Section 301.
"Responsible Officer", when used with respect to the Trustee, means the chairman or any vice-chairman of the board of directors, the chairman or any vice-chairman of the executive committee of the board of directors, the chairman of the trust committee, the president, any vice president, any assistant vice president, the treasurer, any assistant treasurer, any trust officer or assistant trust officer, the controller or any assistant controller or any other officer of the 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 his knowledge of and familiarity with the particular subject.
"Restricted Securities Legend" has the meaning specified in Section 202.
"Senior Debt" means with respect to the Company (i) the principal, premium, if any, and interest with respect to (A) indebtedness of such obligor for money borrowed and (B) indebtedness evidenced by securities, debentures, bonds or other similar instruments issued by such obligor, (ii) all capital lease obligations of such obligor, (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of such obligor for the reimbursement of any letter of credit, banker's acceptance, security purchase facility (or repurchase agreement) or similar credit transaction, (v) all obligations of the type referred to in clauses (i) through (iv) above of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise, and (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Debentures and (2) any indebtedness between or among such obligor or its affiliates, including all other debt securities and guarantees in respect of those debt securities issued to any other trust, or a trustee of such trust, partnership, or other entity affiliated with the Company that is, directly or indirectly, a financing vehicle of the Company (a "Financing Entity") in connection with the issuance by such Financing Entity of preferred securities or other securities which rank junior to or pari passu with, the Trust Preferred Securities. Such Senior Debt shall continue to be Senior Debt and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of such Senior Debt.
"Special Event" has the meaning specified in the Declaration.
"Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity", when used with respect to any Debenture or any installment of interest thereon, means the date specified in such Debenture as the fixed date on which the principal, together with any accrued and unpaid interest (including Compounded Interest), of such Debenture or such installment of interest is due and payable.
"Subsidiary" of any Person means (i) a corporation more than 50% of the outstanding Voting Stock of which is owned, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person or by such Person and one or more Subsidiaries thereof or (ii) any other Person (other than a corporation) in which such Person, or one or more other Subsidiaries of such Person or such Person and one or more other Subsidiaries thereof, directly or indirectly, has at least a majority ownership and power to direct the policies, management and affairs thereof.
"Tax Event" has the meaning specified in the Declaration.
5
"Trust" has the meaning specified in the Recitals to this instrument.
"Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee.
"Trust Common Securities" has the meaning specified in the recitals to this Instrument.
"Trust Common Securities Guarantee" means any guarantee that the Company may enter into that operates directly or indirectly for the benefit of holders of Trust Common Securities of the Trust.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Preferred Securities" has the meaning specified in the Recitals to this instrument.
"Trust Preferred Securities Guarantee" means any guarantee that the Company may enter into that operates directly or indirectly for the benefit of holders of Trust Preferred Securities of the Trust.
"Trust Securities" has the meaning specified in the Recitals to this instrument.
"Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president".
"Voting Stock" of any Person means capital stock of such Person which ordinarily has voting power for the election of directors (or Persons performing similar functions) of such Person, whether at all times or only so long as no senior class of securities has such voting power by reason of any contingency.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act or reasonably requested by the Trustee in connection with such application or request. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the applicable provisions of the Trust Indenture Act and any other applicable requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
6
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or opinion of counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 104. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 601) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee or the Company, as the case may be, deems sufficient.
(c) The Company may, in the circumstances permitted by the Trust Indenture Act, fix any day as the record date for the purpose of determining the Holders of Outstanding Debentures entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action, or to vote on any action, authorized or permitted to be given or taken by Holders. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such action, or, in the case of any such vote, prior to such vote, the record date for any such action or vote shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 701) prior to such first solicitation or vote, as the case may be. With regard to any record
7
date, only the Holders on such date (or their duly designated proxies) shall be entitled to give or take, or vote on, the relevant action.
(d) The ownership of Debentures shall be proved by the Register.
(e) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Debenture shall bind every future Holder of the same Debenture and the Holder of every Debenture issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Debenture.
(f) Without limiting the foregoing, a Holder entitled hereunder to give or take any such action with regard to any particular Debenture may do so with regard to all or any part of the principal amount of such Debenture or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any different part of such principal amount.
SECTION 105. Notices, Etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, Attention: Senior Corporate Trust Officer, or
(2) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at such Holder's address as it appears in the Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Any notice when mailed to a Holder in the aforesaid manner shall be conclusively deemed to have been received by such Holder whether or not actually received by such Holder. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder.
SECTION 107. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that would be required under such Act to be a part of and govern this Indenture, were this Indenture qualified under such Act, the latter provision shall control. If any provision of this Indenture modifies or excludes any such provision of the Trust Indenture Act that may be so modified or excluded, the
8
latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Debentures shall be invalid, illegal or unenforceable, the validity, legality and enforce ability of the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Debentures, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the holders of Senior Debt, the holders of Trust Preferred Securities (to the extent provided herein) and the Holders of Debentures, any benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF IOWA, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date or Stated Maturity of any Debenture shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Debentures) payment of interest or principal of the Debentures need not be made on such date, but may be made on the next succeeding Business Day (except that, if such Business Day is in the next succeeding calendar year, such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be, shall be the immediately preceding Business Day) with the same force and effect as if made on the Interest Payment Date or Redemption Date, or at the Stated Maturity, provided, that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Stated Maturity, as the case may be.
SECTION 201. Forms Generally.
The Debentures and the Trustee's certificates of authentication shall be substantially in the form of Exhibit A which is hereby incorporated in and expressly made a part of this Indenture. The Debentures may have notations, legends or endorsements required by law, agreements to which the Company is subject, if any, or usage (provided that any such notation, legend or endorsement is in a form acceptable to the Company). The Company shall furnish any such legend not contained in Exhibit A to the Trustee in writing. Each Debenture shall be dated the date of its authentication. The terms and provisions of the Debentures set forth in Exhibit A are part of the terms of this Indenture and to the
9
extent applicable, the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby.
The definitive Debentures shall be typewritten or printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, all as determined by the officers executing such Debentures, as evidenced by their execution of such Debentures.
SECTION 202. Initial Issuance to Property Trustee.
The Debentures initially issued to the Property Trustee of the Trust shall be in the form of one or more individual certificates in definitive, fully registered form without distribution coupons and shall bear the following legend (the "Restricted Securities Legend") unless the Company determines otherwise in accordance with applicable law:
THIS DEBENTURE HAS 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, ASSIGNED, 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 DEBENTURE IS 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.
SECTION 301. Title and Terms.
The aggregate principal amount of Debentures that may be authenticated and delivered under this Indenture is limited to the sum of $100,000,000, except for Debentures authenticated and delivered upon transfer of, or in exchange for, or in lieu of, other Debentures pursuant to Section 304, 305, 306 or 906.
The Debentures shall be known and designated as the "5% Subordinated Debentures Due 2047" of the Company. Their Stated Maturity shall be June 1, 2047, and they shall bear interest at the rate of 5% per annum, from October 29, 1999 or from the most recent Interest Payment Date (as defined below) to which interest has been paid or duly provided for, as the case may be, payable quarterly (subject to deferral as set forth herein), in arrears, on March 31, June 30, September 30 and December 31 (each an "Interest Payment Date") of each year, commencing December 31, 1999 until the principal thereof is paid or made available for payment, and they shall be paid to the Person in whose name the Debenture is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the date which is 15 days prior to each Interest Payment Date (the "Regular Record Date"). Interest will compound quarterly and will accrue at the rate of 5% per annum on any interest installment in arrears or during an extension of an interest payment period as set forth in Section 312 hereof.
10
The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest 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.
If at any time while the Property Trustee is the Holder of any Debentures, the Trust or the Property Trustee 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, then, in any such case, the Company will pay as additional interest ("Additional Interest") on the Debentures held by the Property Trustee, such amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying any such taxes, duties, assessments or other governmental charges will be not less than the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other governmental charges been imposed.
The principal of and interest on the Debentures shall be payable at the office or agency of the Company in the United States maintained for such purpose and at any other office or agency maintained by the Company for such purpose in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Register.
The Debentures shall be redeemable as provided in Article Eleven hereof.
The Debentures shall be subordinated in right of payment to Senior Debt as provided in Article Twelve hereof.
SECTION 302. Denominations.
The Debentures shall be issuable only in registered form without coupons and only in denominations of $1,000 and integral multiples thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Debentures shall be executed on behalf of the Company by its Chairman of the Board, its President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of any of these officers on the Debentures may be manual or facsimile.
Debentures bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Debentures or did not hold such offices at the date of such Debentures.
At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Debentures; and the Trustee in accordance with such Company Order shall authenticate and make available for delivery such Debentures as in this Indenture provided and not otherwise.
No Debenture shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Debenture a certificate of authentication substantially in the
11
form provided for herein executed by the Trustee by manual signature, and such certificate upon any Debenture shall be conclusive evidence, and the only evidence, that such Debenture has been duly authenticated and delivered hereunder.
SECTION 304. Temporary Debentures.
Pending the preparation of definitive Debentures, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Debentures which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Debentures in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Debentures may determine, as evidenced by their execution of such Debentures.
If temporary Debentures are issued, the Company will cause definitive Debentures to be prepared without unreasonable delay. After the preparation of definitive Debentures, the temporary Debentures shall be exchangeable for definitive Debentures upon surrender of the temporary Debentures at any office or agency of the Company designated pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Debentures the Company shall execute and the Trustee shall authenticate and make available for delivery in exchange therefor a like principal amount of definitive Debentures of authorized denominations. Until so exchanged the temporary Debentures shall in all respects be entitled to the same benefits under this Indenture as definitive Debentures.
SECTION 305. Registration, Registration of Transfer and Exchange.
(a) General.
The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 1002 being herein sometimes collectively referred to as the "Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Debentures and of transfers of Debentures. The Trustee is hereby appointed "Registrar" for the purpose of registering Debentures and transfers of Debentures as herein provided.
Upon surrender for registration of transfer of any Debenture at an office or agency of the Company designated pursuant to Section 1002 for such purpose, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Debentures of any authorized denominations and of a like aggregate principal amount.
At the option of the Holder, Debentures may be exchanged for other Debentures of any authorized denominations and of a like aggregate principal amount, upon surrender of the Debentures to be exchanged at such office or agency. Whenever any Debentures are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and make available for delivery, the Debentures which the Holder making the exchange is entitled to receive.
All Debentures issued upon any registration of transfer or exchange of Debentures shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Debentures surrendered upon such registration of transfer or exchange.
Every Debenture presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or exchange of Debentures, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge
12
that may be imposed in connection with any registration of transfer or exchange of Debentures, other than exchanges pursuant to Section 304 or 906 not involving any transfer.
(b) Transfer Procedures and Restrictions.
The Debentures may not be transferred except in compliance with the Restricted Debentures Legend unless otherwise determined by the Company in accordance with applicable law. Upon any distribution of the Debentures to the holders of the Trust Preferred Securities in accordance with the Declaration, the Company and the Trustee shall enter into a supplemental indenture pursuant to Section 901(6) to provide for transfer procedures and restrictions with respect to the Debentures substantially similar to those contained in the Declaration to the extent applicable in the circumstances existing at the time of such distribution.
SECTION 306. Mutilated, Destroyed, Lost and Stolen Debentures.
If any mutilated Debenture is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Debenture and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Debenture has been acquired by a bona fide purchaser, the Company shall execute and the Trustee shall authenticate and deliver, in lieu of any such destroyed, lost or stolen Debenture, a new Debenture of like tenor and principal amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Debenture has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Debenture, pay such Debenture.
Upon the issuance of any new Debenture under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Debenture issued pursuant to this Section in lieu of any destroyed, lost or stolen Debenture shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures.
SECTION 307. Payment of Interest; Interest Rights Preserved.
Interest on any Debenture which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Debenture (or one or more Predecessor Debentures) is registered at the close of business on the Regular Record Date.
13
Any interest on any Debenture which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Debenture and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this Clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Debentures (or their respective Predecessor Debentures) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any other lawful manner, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such manner of payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Debenture delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Debenture shall carry the rights to interest accrued and unpaid, and to accrue (including in each such case Compounded Interest), which were carried by such other Debenture.
SECTION 308. Persons Deemed Owners.
Prior to due presentment of a Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Debenture is registered as the owner of such Debenture for the purpose of receiving payment of principal of and (subject to Section 307) interest (including Additional Interest and Compounded Interest) on such Debenture and for all other purposes whatsoever, whether or not such Debenture be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary.
SECTION 309. Cancellation.
All Debentures surrendered for payment, redemption, registration of transfer or exchange shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly canceled by it. The Company may at any time deliver to the Trustee for cancellation any Debentures previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Debentures so delivered shall be promptly canceled by the Trustee. No
14
Debentures shall be authenticated in lieu of or in exchange for any Debentures canceled as provided in this Section, except as expressly permitted by this Indenture. All canceled Debentures held by the Trustee shall be disposed of as directed by a Company Order; provided, however, that the Trustee shall not be required to destroy the certificates representing such canceled Debentures.
SECTION 310. Right of Set Off.
Notwithstanding anything to the contrary in this Indenture, the Company shall have the right to set off any payment it is otherwise required to make hereunder to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee.
SECTION 311. CUSIP Numbers.
The Company in issuing the Debentures may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debentures, and any such redemption shall not be affected by any defect in or omission of such numbers.
SECTION 312. Option to Extend Interest Payment Period.
(a) The Company shall have the right at any time during the term of the Debentures to defer interest payments from time to time by extending the interest payment period for successive periods not exceeding 20 consecutive quarters for each such period; except that no Extension Period may extend beyond the stated maturity of the Debentures. At the end of each Extension Period, the Company shall pay all interest then accrued and unpaid together with interest thereon compounded quarterly at the rate specified for the Debentures to the extent permitted by applicable law ("Compounded Interest"); provided, that during any Extension Period, the Company shall not (a) declare or pay dividends on, or make a distribution with respect to, or redeem or purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock (or Common Stock equivalents) in connection with the satisfaction by the Company of its obligations under any employee benefit or agent plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (ii) purchases of shares of Common Stock (or Common Stock equivalents) from officers or employees of the Company or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (iii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iv) dividends or distributions of shares of Common Stock on Common Stock or (v) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) make any payment of principal (and premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Debentures and (c) make any guarantee payments with respect to any of the foregoing (other than pursuant to the Guarantee). Upon the termination of any Extension Period and the payment of all amounts then due, the Company may commence a new Extension Period, subject to the above requirements. No interest during an Extension Period, except at the end thereof, shall be due and payable.
(b) If the Property Trustee is the sole Holder of the Debentures at the time the Company selects an Extension Period, the Company shall give written notice to the Administrative Trustees, the Property Trustee and the Trustee of its selection of such Extension Period at least one Business Day prior to the
15
earlier of (i) the date the distributions on the Trust Preferred Securities are payable or (ii) the date the Trust is required to give notice to any applicable self-regulatory organization or to holders of the Trust Preferred Securities on the record date or the date such distributions are payable, but in any event not less than ten Business Days prior to such record date.
(c) If the Property Trustee is not the sole Holder of the Debentures at the time the Company selects an Extension Period, the Company shall give the Holders of the Debentures and the Trustee written notice of its selection of such Extension Period at least ten Business Days prior to the earlier of (i) the Interest Payment Date or (ii) the date the Company is required to give notice to any applicable self-regulatory organization or to Holders of the Debentures on the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date.
(d) The quarter in which any notice is given pursuant to paragraphs (b) and (c) hereof shall be counted as one of the 20 quarters permitted in the maximum Extension Period permitted under paragraph (a) hereof.
SECTION 313. Paying Agent and Registrar.
The Trustee will initially act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without prior notice. The Company or any of its Affiliates may act in any such capacity.
SECTION 314. Calculation of Original Issue Discount.
The Company shall file with the Trustee promptly at the end of each calendar year a written notice specifying the amount of original issue discount, if any (including daily rates and accrual periods), accrued on Outstanding Debentures as of the end of such year.
ARTICLE FOUR
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Debentures herein expressly provided for), and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture, when (1) either (A) all Debentures theretofore authenticated and delivered (other than (i) Debentures which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 306 and (ii) Debentures for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all such Debentures not theretofore delivered to the Trustee for cancellation have become due and payable, and the Company has deposited or caused to be deposited with the Trustee funds in trust for the purpose and in an amount sufficient to pay and discharge the entire indebtedness on such Debentures not theretofore delivered to the Trustee for cancellation, for principal and interest (including Compounded Interest) to the date of such deposit (in the case of Debentures which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for or relating to the satisfaction and discharge of this Indenture have been complied with. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company to the Trustee under Section 607 and, if money shall have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of this
16
Section, the obligations of the Trustee under Section 402 and the last paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all money deposited with the Trustee pursuant to Section 401 shall be held in trust and applied by it, in accordance with the provisions of the Debentures and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal and interest for whose payment such money has been deposited with the Trustee.
SECTION 501. Indenture Events of Default.
"Indenture Event of Default," wherever used herein, means any one of the following events that has occurred and is continuing (whatever the reason for such Indenture Event of Default and whether it shall be occasioned by the provisions of Article Twelve or be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body):
(1) failure for 30 days to pay interest on the Debentures, including any Additional Interest and Compounded Interest in respect thereof, when due; provided that a valid extension of an interest payment period will not constitute a default in the payment of interest (including any Additional Interest or Compounded Interest) for this purpose;
(2) failure to pay principal of or premium, if any, on the Debentures when due whether at maturity, upon redemption, by declaration or otherwise;
(3) failure to observe or perform any other covenant contained in this Indenture for 90 days after notice to the Company by the Trustee or by the Holders of not less than a majority in aggregate principal amount of outstanding Debentures;
(4) entry by a court having jurisdiction in the premises of (A) a decree or order for relief in respect of the Company in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or (B) a decree or order adjudging the Company a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjustment or composition of or in respect of the Company under any applicable Federal or State law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or of substantially all of the property of the Company, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order for relief or any such other decree or order unstayed and in effect for a period of 60 consecutive days;
(5) the commencement by the Company of a voluntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or of any other case or proceeding to be adjudicated a bankrupt or insolvent, or the consent by the Company to the entry of a decree or order for relief in respect of itself in an involuntary case or proceeding under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law or to the commencement of any bankruptcy or insolvency case or proceeding against the Company, or the filing by the Company of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State law, or the consent by the Company to the filing of such petition or to the appointment of or taking possession by a custodian, receiver,
17
liquidator, assignee, trustee, sequestrator or other similar official of the Company or of substantially all of the property of the Company, or the making by the Company of an assignment for the benefit of creditors, or the admission by the Company in writing of its inability to pay its debts generally as they become due, or the taking of corporate action by the Company in furtherance of any such action; or
(6) the voluntary or involuntary dissolution, winding up or termination of the Trust, except in connection with (i) the distribution of Debentures to holders of Trust Preferred Securities in liquidation of the Trust upon the occurrence of a Dissolution Event, or (ii) certain mergers, consolidations or amalgamations, each as permitted by the Declaration.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Indenture Event of Default occurs and is continuing, then, and in every such case, the Trustee or the Holders of not less than a majority in principal amount of the Outstanding Debentures may declare the principal of all the Debentures and any other amounts payable hereunder to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal and all accrued interest shall become immediately due and payable.
At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as provided in this Article hereinafter, the Holders of a majority in aggregate principal amount of the Outstanding Debentures, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if:
(1) the Company has paid or deposited with the Trustee a sum sufficient to pay
(A) all overdue interest (including any Additional Interest and Compounded Interest) on all Debentures,
(B) the principal of any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon at the rate borne by the Debentures, and
(C) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel; and
(2) all Events of Default, other than the non-payment of the principal of Debentures which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 513. No such rescission shall affect any subsequent default or impair any right consequent thereon.
SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any interest (including any Additional Interest or Compounded Interest) on any Debenture when such interest becomes due and payable and such default continues for a period of 30 days, or
(2) default is made in the payment of the principal of any Debenture at the Maturity thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Debentures, the whole amount then due and payable on such Debentures for principal and interest (including any Additional Payments) and, to the extent that payment thereof shall be legally enforceable, interest on any overdue principal and on any overdue interest (including any Additional Interest and Compounded Interest), at the rate borne by the Debentures, and, in
18
addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.
If an Indenture Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to the Company (or any other obligor upon the Debentures), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of Debentures.
All rights of action and claims under this Indenture or the Debentures may be prosecuted and enforced by the Trustee without the possession of any of the Debentures or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Debentures in respect of which such judgment has been recovered.
SECTION 506. Application of Money Collected.
Subject to Article Twelve, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal or interest (including any Additional Payments), upon presentation of the Debentures and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 607; and
SECOND: To the payment of the amounts then due and unpaid for principal of and interest (including any Additional Payments) on the Debentures in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal and interest (including any Compounded Interest), respectively.
19
SECTION 507. Limitation on Suits.
No Holder of any Debenture shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of a continuing Indenture Event of Default;
(2) the Holders of not less than a majority in aggregate principal amount of the Outstanding Debentures shall have made written request to the Trustee to institute proceedings in respect of such Indenture Event of Default in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Debentures; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. The limitations specified in (1) through (5) above shall not apply to a suit initiated by a Holder of a Debenture for enforcement of payment of interest, principal or premium, if any, on such Debenture on or after the respective due dates of such payments expressed in such Debenture.
SECTION 508. Unconditional Right of Holders to Receive Principal and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any Debenture shall have the right, which is absolute and unconditional, to receive payment of the principal of and (subject to Section 307) interest (including any Additional Payments) on such Debenture on the respective Stated Maturities expressed in such Debenture (or, in the case of redemption, on the Redemption Date) and to institute suit for the enforcement of any such payment and such rights shall not be impaired without the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures in the last paragraph of Section 306, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
20
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Debenture to exercise any right or remedy accruing upon any Indenture Event of Default shall impair any such right or remedy or constitute a waiver of any such Indenture Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 512. Control by Holders.
The Holders of a majority in principal amount of the Outstanding Debentures shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee; provided, that (1) such direction shall not be in conflict with any rule of law or with this Indenture; and (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction.
SECTION 513. Waiver of Past Defaults.
Subject to Section 902 hereof, the Holders of not less than a majority in principal amount of the Outstanding Debentures may on behalf of the Holders of all the Debentures waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of, premium, if any, or interest (including any Additional Payments) on any Debenture (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Trustee); or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Debenture affected; provided, however, that if the Debentures are held by the Trust or a trustee of the Trust, such waiver shall not be effective until the holders of a majority in liquidation amount of Trust Securities shall have consented to such waiver; provided, further, that if the consent of the Holder of each Outstanding Debenture is required, such waiver shall not be effective until each holder of the Trust Securities shall have consented to such waiver.
Upon any such waiver, such default shall cease to exist, and any Indenture Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon.
SECTION 514. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or the Trustee or in any suit for the enforcement of the right to receive the principal of and interest (including any Additional Payments) on any Debenture.
SECTION 515. Waiver of Stay or Extension Laws.
The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension of law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
21
SECTION 516. Enforcement by Holders of Trust Preferred Securities.
Notwithstanding the foregoing, if a Declaration Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable, the Company acknowledges that, in such event, a holder of Trust Preferred Securities may institute a Direct Action for payment on or after the respective due date specified in the Debentures. The Company may not amend the Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of all the holders of Trust Preferred Securities. Notwithstanding any payment made to such holder of Trust Preferred Securities by the Company in connection with a Direct Action, the Company shall remain obligated to pay the principal of or interest on the Debentures held by the Trust or the Property Trustee and the Company shall be subrogated to the rights of the holder of such Trust Preferred Securities with respect to payments on the Trust Preferred Securities to the extent of any payments made by the Company to such holder in any Direct Action. The holders of Trust Preferred Securities will not be able to exercise directly any other remedy available to the Holders of the Debentures.
SECTION 601. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section.
SECTION 602. Notice of Defaults.
The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 501(3), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Indenture Event of Default.
SECTION 603. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be 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 or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate;
22
(d) the Trustee may consult with counsel of its choice and the advice of such counsel or any Opinion of Counsel 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 reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction;
(f) the 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, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to reasonable examination of the books, records and premises of the Company, personally or by agent or attorney;
(g) the 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 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; and
(h) the Trustee shall not be liable for any action taken, suffered, or omitted to be taken by it in good faith, without negligence or willful misconduct, and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture.
SECTION 604. Not Responsible for Recitals or Issuance of Debentures.
The recitals contained herein and in the Debentures, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of the Debentures or the proceeds thereof.
SECTION 605. May Hold Debentures.
The Trustee, any Paying Agent, any Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Debentures and, subject to Sections 608 and 613, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Paying Agent, Registrar, or such other agent.
SECTION 606. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company.
SECTION 607. Compensation and Reimbursement.
The Company agrees:
(1) to pay to the Trustee from time to time such reasonable compensation as the Company and the Trustee shall from time to time agree in writing for all services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, fees, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the
23
expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder.
When the Trustee incurs expenses or renders services in connection with an Indenture Event of Default specified in Section 501(5) or Section 501(6), the expenses (including the reasonable charges and expenses of its counsel) and the compensation for the services are intended to constitute expenses of administration under any applicable Federal or state bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this Indenture.
SECTION 608. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture.
SECTION 609. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article.
SECTION 610. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of removal, the Trustee to be removed may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a majority in principal amount of the Outstanding Debentures, delivered to the Trustee and to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee.
(d) If at any time: (1) the Trustee shall fail to comply with Section 608 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Debenture for at least six months, or (2) the Trustee shall cease to be eligible under Section 609 and shall fail to resign after written request therefor by the Company or by any such Holder, or (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case,
24
(i) the Company by Board Resolution may remove the Trustee, or (ii) subject to Section 514, any Holder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Debentures delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Debenture for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 106. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 611. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; provided, that on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments required to more fully and certainly vest in and confirm to such successor Trustee all such rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article.
SECTION 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee 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. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures.
SECTION 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Debentures), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor).
25
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee (a) within 14 days after each record date for payment of interest, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders, as of such record date, and (b) 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 Trustee; excluding from any such list names and addresses received by the Trustee in its capacity as Registrar.
SECTION 702. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 701 and the names and addresses of Holders received by the Trustee in its capacity as Registrar. The Trustee may destroy any list furnished to it as provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Debentures, and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act.
(c) Every Holder of Debentures, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to names and addresses of Holders made pursuant to the Trust Indenture Act.
SECTION 703. Reports by Trustee.
(a) Within 60 days after December 31 of each year, commencing December 31, 1999, the Trustee shall transmit by mail to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act in the manner provided pursuant thereto.
(b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Debentures are listed, with the Commission and with the Company. The Company will notify the Trustee when the Debentures are listed on any stock exchange.
SECTION 704. Reports by Company.
The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided, that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission.
Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates).
26
The Company shall also provide to the Trustee on a timely basis such information as the Trustee requires to enable the Trustee to prepare and file any form required to be submitted by the Company with the Internal Revenue Service and the Holders of the Debentures relating to original issue discount, including, without limitation, Form 1099-OID or any successor form.
ARTICLE EIGHT
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.
The Company shall not consolidate with or merge with or into any other Person or, directly or indirectly, convey, transfer or lease all or substantially all of its properties and assets on a consolidated basis to any Person, unless:
(1) the Person formed by such consolidation or into which the company is merged or the Person which acquires by conveyance, transfer or lease, all or substantially all of the properties and assets of the Company on a consolidated basis shall be a corporation, partnership or trust, shall be organized and validly existing under the laws of the United States of America, any State thereof or the District of Columbia and shall expressly assume, by an indenture supplemental hereto, executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, the due and punctual payment of the principal of (and premium, if any) and interest on all the Debentures and the performance or observance of every covenant of this Indenture on the part of the Company to be performed or observed;
(2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Indenture Event of Default, and no event which, after notice or lapse of time or both, would become an Indenture Event of Default, shall have happened and be continuing; and
(3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with.
This Section shall only apply to a merger or consolidation in which the Company is not the surviving corporation and to conveyances, leases and transfers by the Company as transferor or lessor.
SECTION 802. Successor Substituted.
Upon any consolidation of the Company with, or merger of the Company into, any other Person or any conveyance, transfer or lease of all or substantially all the properties and assets of the Company on a consolidated basis in accordance with Section 801, the successor Person formed by such consolidation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Debentures.
27
ARTICLE NINE
SUPPLEMENTAL INDENTURES
SECTION 901. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Debentures;
(2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company;
(3) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture; provided, that such action pursuant to this clause shall not adversely affect the interests of the Holders of the Debentures or, so long as any of the Trust Preferred Securities shall remain outstanding, the holders of the Trust Preferred Securities; or
(4) to make provision for transfer procedures, certification, the form of restricted securities legends, if any, to be placed on Debentures, and all other matters required pursuant to Section 305(b) or otherwise necessary, desirable or appropriate in connection with the issuance of Debentures to holders of Trust Preferred Securities in the event of a distribution of Debentures by the Trust upon the occurrence of a Dissolution Event.
SECTION 902. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority in principal amount of the Outstanding Debentures, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Debenture affected thereby:
(1) extend the Stated Maturity of the principal of, or any installment of interest (including any Additional Payments) on, any Debenture, or reduce the principal amount thereof, or reduce the rate or extend the time for payment of interest thereon, or reduce any premium payable upon the redemption thereof, or change the place of payment where, or the coin or currency in which, any Debenture or interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date), or modify the provisions of this Indenture with respect to the subordination of the Debentures in a manner adverse to the Holders,
(2) reduce the percentage in principal amount of the Outstanding Debentures, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section 513, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Debenture affected thereby; provided that if the Debentures are held by the Trust or a trustee of the Trust, such supplemental
28
indenture shall not be effective until the holders of a majority in liquidation amount of Trust Securities shall have consented to such supplemental indenture; provided, further, that if the consent of the Holder of each Outstanding Debenture is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such supplemental indenture.
It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof.
The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be canceled and of no further effect.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 601) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise.
SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Debentures theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. No such supplemental indenture shall directly or indirectly modify the provisions of Article Twelve in any manner which might terminate or impair the rights of the Senior Debt pursuant to such subordination provisions.
SECTION 905. [Intentionally Omitted].
SECTION 906. Reference in Debentures to Supplemental Indentures.
Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Debentures.
ARTICLE TEN
COVENANTS; REPRESENTATIONS AND WARRANTIES
SECTION 1001. Payment of Principal and Interest.
The Company will duly and punctually pay the principal of and interest on the Debentures in accordance with the terms of the Debentures and this Indenture.
29
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in the United States an office or agency where Debentures may be presented or surrendered for payment, where Debentures may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Debentures and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other offices or agencies (in the United States) where the Debentures may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the United States for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.
SECTION 1003. Money for Debenture Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the principal of or interest on any of the Debentures, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the principal or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the principal of or interest on any Debentures, deposit with a Paying Agent a sum sufficient to pay such amount, such sum to be held as provided by the Trust Indenture Act, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act.
The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will (i) comply with the provisions of the Trust Indenture Act applicable to it as a Paying Agent and (ii) during the continuance of any default by the Company (or any other obligor upon the Debentures) in the making of any payment in respect of the Debentures, upon the written request of the Trustee, forthwith pay to the Trustee all sums held in trust by such Paying Agent as such.
The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of or interest on any Debenture and remaining unclaimed for two years after such principal or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of any such Debenture shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease.
30
SECTION 1004. Statement by Officers as to Default.
The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company ending after the date hereof, an Officers' Certificate, stating whether or not to the best knowledge of the signers thereof the Company is in default in the performance and observance of any of the material terms, provisions and conditions of this Indenture (without regard to any period of grace or requirement of notice provided hereunder) and, if the Company shall be in default, specifying all such defaults and the nature and status thereof of which they may have knowledge.
SECTION 1005. Limitation on Dividends; Transactions with Affiliates; Covenants as to the Trust.
(a) The Company covenants that so long as the Debentures are outstanding, if (i) there shall have occurred and be continuing any event that with the giving of notice or the lapse of time or both, would constitute an Indenture Event of Default, (ii) the Company shall be in default with respect to its payment of any obligations under the Guarantee, or (iii) the Company has exercised its option to defer interest payments on the Debentures by extending the interest payment period and such period, or any extension thereof, shall be continuing, then the Company (a) shall not declare or pay dividends on, make distributions with respect to, or redeem, purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock (or Common Stock equivalents) in connection with the satisfaction by the Company of its obligations under any employee benefit or agent plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (ii) purchases of shares of Common Stock (or Common Stock equivalents) from officers or employees of the Company or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (iii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iv) dividends or distributions of shares of Common Stock on Common Stock of the Company or (v) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) shall not make any payment of principal (or premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Debentures, and (c) shall not make any guarantee payments with respect to the foregoing (other than pursuant to the Guarantee).
(b) The Company also covenants and agrees (i) that it shall directly or indirectly maintain 100% ownership of the Trust Common Securities; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Trust Common Securities and (ii) that it shall use its reasonable efforts, consistent with the terms and provisions of the Declaration, to cause the Trust (x) to remain a statutory business trust, except in connection with the distribution of the Debentures to the holders of Trust Securities in liquidation of the Trust upon the occurrence of a Dissolution Event, or certain mergers, consolidations or amalgamations, each as permitted by the Declaration, and (y) to otherwise continue to be classified as a grantor trust for United States federal income tax purposes.
SECTION 1006. Payment of Expenses of the Trust.
In connection with the offering, sale and issuance of the Debentures to the Property Trustee in connection with the sale of the Trust Securities by the Trust, the Company shall:
(a) pay for all costs, fees and expenses relating to the offering, sale and issuance of the Debentures, including compensation of the Trustee under the Indenture in accordance with the provisions of Section 607 of this Indenture;
31
(b) be responsible for and pay for all debts and obligations (other than with respect to the Trust Securities) of the Trust, pay for all costs and expenses of the Trust (including, but not limited to, costs and expenses relating to the organization of the Trust, the offering, sale and issuance of the Trust Securities, the fees and expenses of the Property Trustee and the Delaware Trustee, the costs and expenses relating to the operation of the Trust, including without limitation, costs and expenses of accountants, attorneys, statistical or bookkeeping services, expenses for printing and engraving and computing or accounting equipment, paying agent(s), registrar(s), transfer agent(s), duplicating, travel and telephone and other telecommunications expenses and costs and expenses incurred in connection with the acquisition, financing, and disposition of Trust assets); and
(c) pay any and all taxes (other than United States withholding taxes attributable to the Trust or its assets) and all liabilities, costs and expenses with respect to such taxes of the Trust.
ARTICLE ELEVEN
REDEMPTION OF DEBENTURES
SECTION 1101. Right of Redemption.
The Debentures may be redeemed, at the election of the Company, in whole (but not in part), at any time, in cash at the Redemption Price, within 90 days following the occurrence of a Redemption Tax Event; provided, however, that if at the time, there is available to the Company or the Trust the opportunity to eliminate, within such 90 Day Period, the Redemption Tax 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 Company has or will cause no adverse effect on the Trust, the Holders of the Trust Securities or the Company or will involve no material cost, then the Company or the Trust shall pursue such measure in lieu of redemption.
SECTION 1102. Applicability of Article.
Redemption of Debentures at the election of the Company, as permitted by Section 1101, shall be made in accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem Debentures pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 60 days and no more than 90 days prior to the Redemption Date fixed by the Company, notify the Trustee in writing of such Redemption Date and of the principal amount of Debentures to be redeemed and provide a copy of the notice of redemption to be given to Holders of Debentures to be redeemed pursuant to Section 1105.
SECTION 1104. [This Section Intentionally Omitted.]
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Debentures to be redeemed, at such Holder's address appearing in the Register.
All notices of redemption shall identify the Debentures to be redeemed (including, if relevant, CUSIP or ISIN number) and shall state:
(1) the Redemption Date,
(2) the Redemption Price,
32
(3) that on the Redemption Date the Redemption Price will become due and payable upon each such Debenture to be redeemed and that interest thereon will cease to accrue on and after said date, and
(4) the place or places where such Debentures are to be surrendered for payment of the Redemption Price.
Notice of redemption of Debentures to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 1003) an amount of money sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Debentures which are to be redeemed on that date.
SECTION 1107. Debentures Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Debentures so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Debentures shall cease to bear interest. Upon surrender of any such Debenture for redemption in accordance with said notice, such Debenture shall be paid by the Company at the Redemption Price, together with accrued interest (including Additional Payments, if any) to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Debentures, or one or more Predecessor Debentures, registered as such at the close of business on the relevant Record Dates according to the terms and the provisions of Section 307.
If any Debenture called for redemption shall not be so paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the rate borne by the Debenture.
SECTION 1108. [This Section Intentionally Omitted.]
SECTION 1109. Tax Event Redemption.
If a Tax Event has occurred and is continuing and:
(a) the Company has received a Redemption Tax Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Administrative Trustees shall have been informed by tax counsel rendering the Dissolution Tax Opinion that a No Recognition Opinion cannot be delivered to the Trust (each such case, a "Redemption Tax Event"), then, notwithstanding Section 1109(a) but subject to Section 1109(b), the Company shall have the right upon not less than 30 days nor more than 60 days' notice to the Holders of the Debentures to redeem the Debentures in whole (but not in part) for cash within 90 days following the occurrence of such Redemption Tax Event (the "90-Day Period") at the Redemption Price; provided, however, that if, at the time there is available to the Company or the Trust the opportunity to eliminate within the 90-Day Period, the Redemption Tax 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 Company, has or will cause no adverse effect on the Company, the Trust or the Holders of the Trust Securities and will involve no material cost (a "Ministerial Action"), the Company or the Trust shall pursue such Ministerial Action or other measure in lieu of
33
redemption, and provided, further, that the Company shall have no right to redeem the Debentures while the Trust is pursuing any Ministerial Action or other similar measure pursuant to its obligations under the Declaration. Payment of the Redemption Price shall be made prior to 12:00 noon, Central time, on the date of such redemption or such earlier time as the Company determines, provided, that the Company shall deposit with the Trustee an amount sufficient to make such redemption payment by 10:00 a.m. on the date such redemption payment is to be made. Any redemption pursuant to this Section 1109 shall be made pursuant to the provisions of Sections 1101 through 1108 hereof.
SECTION 1110. No Sinking Fund.
The Debentures are not entitled to the benefit of any sinking fund.
ARTICLE TWELVE
SUBORDINATION OF DEBENTURES
SECTION 1201. Agreement to Subordinate.
The Company covenants and agrees, and each Holder of Debentures by such Holder's acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article Twelve; and each Holder of a Debenture, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, premium, if any, and interest (including Additional Payments) on all Debentures issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all existing and future Senior Debt, whether outstanding at the date of this Indenture or thereafter incurred; provided however, that no provision of this Article Twelve shall prevent the occurrence of any default or Indenture Event of Default hereunder.
SECTION 1202. Default on Senior Debt.
In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Debt continuing beyond the period of grace, if any, specified in the instrument evidencing such Senior Debt, unless and until such default shall have been cured or waived or shall have ceased to exist, and in the event that the maturity of any Senior Debt has been accelerated because of a default, then no payment shall be made by the Company with respect to the principal of (including redemption payments, if any), premium, if any, or interest on the Debentures.
In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 1202, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Debt or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Debt may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Debt (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Debt and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Debt.
SECTION 1203. Liquidation; Dissolution; Bankruptcy.
Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding up or liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all principal of, and premium, if any, and interest due or
34
to become due on, all Senior Debt must be paid in full before any payment is made on account of the principal (and premium, if any) or interest on the Debentures; and upon any such dissolution or winding up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders of the Debentures or the Trustee would be entitled, except for the provisions of this Article Twelve, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders of the Debentures or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Debt (pro rata to such holders on the basis of the respective amounts of Senior Debt held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Debt may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Debt in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt, before any payment or distribution is made to the Holders of Debentures or to the Trustee.
In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee or the Holders of the Debentures before all Senior Debt is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of Senior Debt or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Debt may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Debt remaining unpaid to the extent necessary to pay such Senior Debt in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Debt.
For purposes of this Article Twelve, the words, "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article Twelve with respect to the Debentures to the payment of all Senior Debt which may at the time be outstanding; provided, that (i) such Senior Debt is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Senior Debt are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company with or into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of all or substantially all its properties and assets on a consolidated basis to another Person upon the terms and conditions provided for in Article Eight hereof shall not be deemed a dissolution, winding up, liquidation or reorganization for the purposes of this Section 1203 if such other Person shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions stated in Article Eight hereof. Nothing in Section 1202 or in this Section 1203 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607 hereof.
SECTION 1204. Subrogation.
Subject to the payment in full of all Senior Debt, the rights of the Holders of the Debentures shall be subrogated to the rights of the holders of such Senior Debt to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Debentures until the principal of (and premium, if any), and interest on the Senior Debt shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Debt of any cash, property or securities to which the Holders of the Debentures or the Trustee would be
35
entitled except for the provisions of this Article Twelve, and no payment pursuant to the provisions of this Article Twelve, to or for the benefit of the holders of such Senior Debt by Holders of the Debentures or the Trustee, shall, as between the Company, its creditors other than holders of Senior Debt, and the Holders of the Debentures, be deemed to be a payment by the Company to or on account of such Debentures. It is understood that the provisions of this Article Twelve are and are intended solely for the purposes of defining the relative rights of the Holders of the Debentures, on the one hand, and the holders of such Senior Debt on the other hand.
Nothing contained in this Article Twelve or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors, other than the holders of Senior Debt, and the Holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Debentures the principal of (and premium, if any) and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Debentures and creditors of the Company, as the case may be, other than the holders of Senior Debt, nor shall anything herein or therein prevent the Trustee or the Holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article Twelve of the holders of such Senior Debt in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy.
Upon any payment or distribution of assets of the Company referred to in this Article Twelve, the Trustee, subject to the provisions of Section 603, and the Holders of the Debentures, shall be entitled to rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Debentures, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Twelve.
SECTION 1205. Trustee to Effectuate Subordination.
Each Holder of Debentures by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article Twelve and appoints the Trustee as such Holder's attorney-in-fact for any and all such purposes.
SECTION 1206. Notice by the Company.
The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company which would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article Twelve. Notwithstanding the provisions of this Article Twelve or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provision of this Article Twelve, unless and until a Responsible Officer of the Trustee shall have received written notice thereof at the Corporate Trust Office of the Trustee from the Company or a holder or holders of Senior Debt or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 603 hereof, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 1206 at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Debenture), then, anything herein contained to the contrary
36
notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to such date.
The Trustee, subject to the provisions of Section 603, shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Debt (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of such Senior Debt or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article Twelve, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the right of such Person under this Article Twelve, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment.
SECTION 1207. Rights of the Trustee; Holders of Senior Debt.
The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article Twelve in respect of any Senior Debt at any time held by it, to the same extent as any other holder of Senior Debt, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder.
With respect to the holders of Senior Debt of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article Twelve, and no implied covenants or obligations with respect to the holders of such Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Debt and, subject to the provisions of Section 603, the Trustee shall not be liable to any holder of such Senior Debt if it shall pay over or deliver to Holders of Debentures, the Company or any other Person money or assets to which any holder of such Senior Debt shall be entitled by virtue of this Article Twelve or otherwise.
SECTION 1208. Subordination May Not Be Impaired.
No right of any present or future holder of any Senior Debt to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof which any such holder may have or otherwise be charged with.
Without in any way limiting the generality of the foregoing paragraph, the holders of Senior Debt may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Debentures, without incurring responsibility to the holders of the Debentures and without impairing or releasing the subordination provided in this Article Twelve or the obligations hereunder of the Holders of the Debentures to the holders of Senior Debt, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Debt, or otherwise amend or supplement in any manner such Senior Debt or any instrument evidencing the same or any agreement under which such Senior Debt is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Debt; (iii) release any Person liable in any manner for the collection of such Senior Debt; and (iv) exercise or refrain from exercising any rights against the Company and any other Person.
37
ARTICLE THIRTEEN
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
OFFICERS AND DIRECTORS
SECTION 1301. No Recourse.
No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Debenture, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of the Company or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors as such, of the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against every such incorporator, stockholder, officer or director as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Debentures.
This instrument may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument.
38
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY | |||
|
By: |
|
/s/ DEBRA J. RICHARDSON |
Name: | Debra J. Richardson | ||
Title: | Sr. Vice President & Secretary | ||
|
WEST DES MOINES STATE BANK, as trustee |
||
|
By: |
|
/s/ DAVID V. MAURER |
Name: | David V. Maurer | ||
Title: | SVP/STO |
EXHIBIT A
FORM OF DEBENTURE
[FORM OF FACE OF DEBENTURE]
THIS DEBENTURE HAS 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, ASSIGNED, 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 DEBENTURE IS 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.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
5% Subordinated Debenture due 2047
No. | $ |
American Equity Investment Life Holding Company, a corporation duly organized and existing under the laws of the State of Iowa (herein called "the Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to , or registered assigns, the principal sum of Dollars ($ ) on June 1, 2047.
Interest Payment Dates: March 31, June 30, September 30 and December 31, commencing December 31, 1999.
Regular Record Dates: the close of business on the 15th day immediately preceding each Interest Payment Date, commencing December 31, 1999.
Reference is hereby made to the further provisions of this Debenture set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Debenture shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose.
A-1
IN WITNESS WHEREOF, the Company has caused this instrument to be signed manually or by facsimile by its duly authorized officers and a facsimile of its corporate seal to be affixed hereto or imprinted hereon.
Dated: , .
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
By: |
|
|||||
Name: | ||||||
Title: | ||||||
[SEAL] |
|
|
|
|
||
Attest: |
|
|
|
|
|
|
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Debentures referred to in the within-mentioned Indenture.
Dated: | , . | |||||
|
|
|
|
WEST DES MOINES STATE BANK, as Trustee |
||
|
|
|
|
By: |
|
Authorized Signatory |
[FORM OF REVERSE OF DEBENTURE]
A-2
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
5% Subordinated Debenture due 2047*
*All terms used in this Security which are defined in the Indenture or in the Declaration attached as Annex A thereto shall have the meanings assigned to them in the Indenture or the Declaration, as the case may be.
(1) Interest. American Equity Investment Life Holding Company, an Iowa corporation (the "Company"), is the issuer of this 5% Subordinated Debenture Due 2047 (the "Debenture") limited in aggregate principal amount to $100,000,000 issued under the Indenture hereinafter referred to. The Company promises to pay interest on the Debentures in cash from October 29, 1999 or from the most recent interest payment date to which interest has been paid or duly provided for, quarterly (subject to deferral for up to 20 consecutive quarters as described in Section 3 hereof) in arrears on March 31, June 30, September 30 and December 31 of each year (each day an "Interest Payment Date"), commencing December 31, 1999, at the rate of 5% per annum (subject to increase as provided in Section 12 hereto) plus Additional Interest and Compound Interest if any, until the principal hereof shall have become due and payable.
The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed will be computed on the basis of the actual number of days elapsed. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (without any interest 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.
(2) Additional Interest. The Company shall pay to American Equity Capital Trust II (and its permitted successors or assigns under the Declaration) (the "Trust") such amounts as shall be required so that the net amounts received and retained by the Trust after paying any taxes, duties, assessments or other governmental charges of whatever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority ("Additional Interest") will be not less than the amounts the Trust would have received had no such taxes, duties, assessment or governmental charges been imposed.
(3) Option to Extend Interest Payment Period. The Company shall have the right at any time during the term of the Debentures to defer interest payments from time to time by extending the interest payment period for successive periods not exceeding 20 consecutive quarters for each such period; except that no Extension Period may extend beyond the stated maturity of the Debentures. At the end of each Extension Period, the Company shall pay all interest then accrued and unpaid together with interest thereon compounded quarterly at the rate specified for the Debentures to the extent permitted by applicable law ("Compounded Interest"); provided, that during any Extension Period, the Company shall not (a) declare or pay dividends on, or make a distribution with respect to, or redeem or purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (i) purchases or acquisitions of shares of Common Stock (or Common Stock equivalents) in connection with the satisfaction by the Company of its obligations under any employee benefit or agent plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of Common Stock (or Common Stock equivalents), (ii) purchases of shares of Common Stock (or Common Stock equivalents) from officers or employees of the Company or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Company to purchase shares of Common Stock
A-3
(or Common Stock equivalents), (iii) as a result of a reclassification of the Company's capital stock or the exchange or conversion of one class or series of the Company's capital stock for another class or series of the Company's capital stock, (iv) dividends or distributions of shares of Common Stock on Common Stock or (v) the purchase of fractional interests in shares of the Company's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) make any payment of principal of (premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Company that rank pari passu with or junior to the Debentures and (c) make any guarantee payments with respect to any of the foregoing (other than pursuant to the Guarantee).
Prior to the termination of any such Extension Period, the Company may further extend such Extension Period; provided that such Extension Period together with all previous and further extensions thereof may not exceed 20 consecutive quarters and may not extend beyond the maturity of the Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Company may commence a new Extension Period, subject to the above requirements. No interest during an Extension Period, except at the end thereof, shall be due and payable.
If the Property Trustee is the sole holder of the Debentures at the time the Company selects an Extension Period, the Company shall give notice to the Administrative Trustees, the Property Trustee and the Trustee of its selection of such Extension Period at least one Business Day prior to the earlier of (i) the date the distributions on the Trust Preferred Securities are payable or (ii) if the Trust Preferred Securities are listed on the New York Stock Exchange or other stock exchange or quotation system, the date the Trust is required to give notice to the New York Stock Exchange or other applicable self-regulatory organization or to holders of the Trust Preferred Securities on the record date or the date such distributions are payable, but in any event not less than ten Business Days prior to such record date.
If the Property Trustee is not the sole holder of the Debentures at the time the Company selects an Extension Period, the Company shall give the Holders of these Debentures and the Trustee notice of its selection of an Extension Period at least ten Business Days prior to the earlier of (i) the next succeeding Interest Payment Date or (ii) the date the Company is required to give notice to any applicable self-regulatory organization on the record or payment date of such related interest payment, but in any event not less than two Business Days prior to such record date.
The quarter in which any notice is given pursuant to the second and third paragraphs of this Section 3 shall be counted as one of the 20 quarters permitted in the maximum Extension Period permitted under the first paragraph of this Section 3.
(4) Method of Payment. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the 15th day immediately preceding each Interest Payment Date (the "Regular Record Date"), commencing December 31, 1999. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Debenture (or one or more Predecessor Debentures) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to Holders of Debentures not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture.
Payment of the principal of and interest on this Debenture will be made at the office or agency of the Company maintained for that purpose in West Des Moines, Iowa, in such coin or currency of the
A-4
United States of America as at the time of payment is legal tender for payment of public and private debts; provided, however, that, at the option of the Company, payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Register.
(5) Paying Agent and Registrar. The Trustee will act as Paying Agent and Registrar. The Company may change any Paying Agent, Registrar or co-registrar without prior notice. The Company or any of its Affiliates may act in any such capacity.
(6) Indenture. The Company issued the Debentures under an indenture, dated as of October 29, 1999 (the "Indenture"), between the Company and West Des Moines State Bank, as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Trustee, the Company and the Holders of the Debentures, and of the terms upon which the Debentures are, and are to be, authenticated and delivered. The terms of the Debentures include those stated in the Indenture and those made part of the Indenture by the incorporation of certain provisions of the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) ("TIA") as in effect on the date of the Indenture. The Debentures are subject to, and qualified by, all such terms, certain of which are summarized hereon, and holders are referred to the Indenture and the TIA for a statement of such terms. The Debentures are unsecured general obligations of the Company limited to $100,000,000 in aggregate principal amount and subordinated in right of payment to all existing and future Senior Debt of the Company. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the times, place and rate, and in the coin or currency, herein prescribed or to convert this Debenture as provided in the Indenture.
(7) Optional Redemption Upon Tax Event. The Debentures are subject to redemption, at the election of the Company, in whole (but not in part), for cash at the Redemption Price, at any time within 90 days following the occurrence and continuation of a Redemption Tax Event (as defined in the Declaration). Any redemption pursuant to this Section 7 will be made upon not less than 30 nor more than 60 days' notice.
(8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of the Debentures to be redeemed at his address of record. The Debentures in denominations larger than $1,000 may be redeemed in part but only in integral multiples of $1,000. In the event of a redemption of less than all of the Debentures, the Debentures will be chosen for redemption by the Trustee in accordance with the Indenture. On and after the Redemption Date, interest ceases to accrue on the Debentures or portions of them called for redemption.
If this Debenture is redeemed subsequent to a Regular Record Date with respect to any Interest Payment Date specified above and on or prior to such Interest Payment Date, then any accrued interest will be paid to the person in whose name this Debenture is registered at the close of business on such record date.
(9) Redemption of Trust Securities. Upon the repayment of the Debentures, whether at maturity, upon any acceleration, earlier redemption or otherwise, the proceeds from such repayment or payment shall simultaneously be applied to redeem Trust Securities having an aggregate liquidation amount equal to the Debentures so repaid or redeemed at the applicable redemption price together with accrued and unpaid distributions through the date of redemption; provided, that holders of the Trust Securities shall be given not less than 30 nor more than 60 days notice of such redemption. There are no sinking fund payments with respect to the Debentures.
A-5
(10) Subordination. The payment of the principal of, interest on or any other amounts due on the Debentures is subordinated in right of payment to all existing and future Senior Debt (as defined below) of the Company, as described in the Indenture. Each holder, by accepting a Debenture, agrees to such subordination and authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to effectuate the subordination so provided and appoints the Trustee as its attorney-in-fact for such purpose.
"Senior Debt" shall mean with respect to the Company (i) the principal, premium, if any, and interest in respect of (A) indebtedness of such obligor for money borrowed and (B) indebtedness evidenced by securities, Debentures, bonds or other similar instruments issued by such obligor, (ii) all capital lease obligations of such obligor, (iii) all obligations of such obligor issued or assumed as the deferred purchase price of property, all conditional sale obligations of such obligor and all obligations of such obligor under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business), (iv) all obligations of such obligor for the reimbursement of any letter of credit, banker's acceptance, security purchase facility (or repurchase agreement) or similar credit transaction, (v) all obligations of the type referred to in clauses (i) through (iv) above of other persons for the payment of which such obligor is responsible or liable as obligor, guarantor or otherwise, and (vi) all obligations of the type referred to in clauses (i) through (v) above of other persons secured by any lien on any property or asset of such obligor (whether or not such obligation is assumed by such obligor), except for (1) any such indebtedness that is by its terms subordinated to or pari passu with the Debentures and (2) any indebtedness between or among such obligor or its affiliates, including all other debt securities and guarantees in respect of those debt securities issued to any other trust, or a trustee of such trust, partnership, or other entity affiliated with the Company that is, directly or indirectly, a financing vehicle of the Company (a "Financing Entity") in connection with the issuance by such Financing Entity of Trust Preferred Securities or other securities which rank junior to, or pari passu with, the Trust Preferred Securities. Such Senior Debt shall continue to be Senior Debt and entitled to the subordination provisions hereof irrespective of any amendment, modification or waiver of any term of such Senior Debt.
(11) Registration, Transfer, Exchange and Denominations. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Debenture is registrable in the Register, upon surrender of this Debenture for registration of transfer at the office or agency of the Company in West Des Moines, Iowa, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures, of authorized denominations and for the same aggregate principal amount, will be issued to the designated transferee or transferees.
The Debentures are issuable only in registered form without coupons in denominations of $1,000 and integral multiples thereof. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Debenture for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Debenture is registered as the owner hereof for all purposes, whether or not this Debenture be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary.
(12) Persons Deemed Owners. Except as provided in Section 4 hereof, the registered Holder of a Debenture may be treated as its owner for all purposes.
(13) Unclaimed Money. If money for the payment of principal or interest remains unclaimed for two years, the Trustee and the Paying Agent shall pay the money back to the Company at its written request. After that, holders of Debentures entitled to the money must look to the Company for
A-6
payment unless an abandoned property law designates another Person and all liability of the Trustee and such Paying Agent with respect to such money shall cease.
(14) Defaults and Remedies. The Debentures shall have the Indenture Events of Default as set forth in Section 501 of the Indenture. Subject to certain limitations in the Indenture, if an Event of Default occurs and is continuing, the Trustee by notice to the Company or the holders of at least 25% in aggregate principal amount of the then outstanding Debentures by notice to the Company and the Trustee may declare all the Debentures to be due and payable immediately.
The holders of a majority in principal amount of the Debentures then outstanding by written notice to the Trustee may rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default have been cured or waived except nonpayment of principal or interest that has become due solely because of the acceleration. Holders may not enforce the Indenture or the Debentures except as provided in the Indenture. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Debentures issued under the Indenture may direct the Trustee in its exercise of any trust or power. The Company must furnish annually compliance certificates to the Trustee. The above description of Events of Default and remedies is qualified by reference to, and subject in its entirety by, the more complete description thereof contained in the Indenture.
(15) Amendments, Supplements and Waivers. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Debentures under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Debentures at the time Outstanding. The Indenture also contains provisions permitting the Holders of specified percentages in aggregate principal amount of the Debentures at the time Outstanding, on behalf of the Holders of all the Debentures, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Debenture shall be conclusive and binding upon such Holder and upon all future Holders of this Debenture and of any Debenture issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Debenture.
(16) Trustee Dealings with the Company. The Trustee, in its individual or any other capacity may become the owner or pledgee of the Debentures and may otherwise deal with the Company or an Affiliate with the same rights it would have, as if it were not Trustee, subject to certain limitations provided for in the Indenture and in the TIA. Any Agent may do the same with like rights.
(17) No Recourse Against Others. A director, officer, employee or stockholder, as such, of the Company shall not have any liability for any obligations of the Company under the Debentures or the Indenture or for any claim based on, in respect of or by reason of such obligations or their creation. Each Holder of the Debentures by accepting a Debenture waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Debentures.
(18) Governing Law. THE INTERNAL LAWS OF THE STATE OF IOWA SHALL GOVERN THE INDENTURE AND THE DEBENTURES WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF.
(19) Authentication. The Debentures shall not be valid until authenticated by the manual signature of an authorized officer of the Trustee or an authenticating agent.
A-7
The Company will furnish to any Holder of the Debentures upon written request and without charge a copy of the Indenture. Requests may be made to:
American
Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Attention: Chief Financial Officer
A-8
To assign this Debenture, fill in the form below: | ||
|
|
|
(I) or (we) assign and transfer this Debenture to | ||
|
|
|
(Insert assignee's social security or tax I.D. no.) | ||
|
|
|
(Print or type assignee's name, address and zip code) | ||
|
|
|
|
|
|
|
|
|
and irrevocably appoint agent to transfer this Debenture on the books of the Company. The agent may substitute another to act for him.
Your Signature: |
|
|||
(Sign exactly as your name appears on the other side of this Debenture) |
Date: |
|
|
|
|
Signature Guarantee:* |
|
|
[Include the following if the Debenture bears a Restricted Securities Legend
In connection with any transfer of any of the Debentures evidenced by this certificate, the undersigned confirms that such Debentures are being: |
CHECK ONE BOX BELOW
(1) [ ] exchanged for the undersigned's own account without transfer; or
(2) [ ] transferred pursuant to and in compliance with Rule 144 under the Securities Act of 1933; or
(3) [ ] transferred pursuant to another available exemption from the registration requirements of the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to register any of the Debentures evidenced by this certificate in the name of any person other than the registered Holder thereof; provided, however, that if box (3) is checked, the Trustee may require, prior to registering any such transfer of the Debentures such legal opinions, certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in
A-9
a transaction not subject to, the registration requirements of the Securities Act of 1933, such as the exemption provided by Rule 144 under such Act.
Signature: |
|
|||
|
|
Signature Guarantee:** |
|
|
A-10
Exhibit 10.20
TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT
American Equity Investment Life Holding Company
Dated as of October 29, 1999
|
|
Page
|
||
---|---|---|---|---|
ARTICLE I
DEFINITIONS AND INTERPRETATION |
||||
Section 1.1 |
|
Definitions and Interpretation |
|
1 |
|
|
ARTICLE II TRUST INDENTURE ACT |
|
|
Section 2.1 |
|
Trust Indenture Act; Application |
|
4 |
Section 2.2 | Lists of Holders of Securities | 4 | ||
Section 2.3 | Reports by the Preferred Guarantee Trustee | 4 | ||
Section 2.4 | Periodic Reports to Preferred Guarantee Trustee | 4 | ||
Section 2.5 | Evidence of Compliance with Conditions Precedent | 4 | ||
Section 2.6 | Events of Default; Waiver | 4 | ||
Section 2.7 | Event of Default; Notice | 5 | ||
Section 2.8 | Conflicting Interests | 5 | ||
|
|
ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE |
|
|
Section 3.1 |
|
Powers and Duties of the Preferred Guarantee Trustee |
|
5 |
Section 3.2 | Certain Rights of Preferred Guarantee Trustee | 6 | ||
Section 3.3 | Not Responsible for Recitals or Issuance of Trust Preferred Securities Guarantee | 8 | ||
|
|
ARTICLE IV PREFERRED GUARANTEE TRUSTEE |
|
|
Section 4.1 |
|
Preferred Guarantee Trustee; Eligibility |
|
8 |
Section 4.2 | Appointment, Removal and Resignation of Preferred Guarantee Trustees | 9 | ||
|
|
ARTICLE V TRUST PREFERRED SECURITIES GUARANTEE |
|
|
Section 5.1 |
|
Trust Preferred Securities Guarantee |
|
9 |
Section 5.2 | Subordination | 9 | ||
Section 5.3 | Waiver of Notice and Demand | 9 | ||
Section 5.4 | Obligations Not Affected | 10 | ||
Section 5.5 | Rights of Holders | 10 | ||
Section 5.6 | Guarantee of Payment | 11 | ||
Section 5.7 | Subrogation | 11 | ||
Section 5.8 | Independent Obligations | 11 | ||
|
|
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION |
|
|
Section 6.1 |
|
Limitation of Transactions |
|
11 |
Section 6.2 | Ranking | 12 | ||
|
|
ARTICLE VII TERMINATION |
|
|
Section 7.1 |
|
Termination |
|
12 |
i
|
|
ARTICLE VIII INDEMNIFICATION |
|
|
Section 8.1 |
|
Exculpation |
|
12 |
Section 8.2 | Indemnification | 12 | ||
|
|
ARTICLE IX MISCELLANEOUS |
|
|
Section 9.1 |
|
Successors and Assigns |
|
13 |
Section 9.2 | Amendments | 13 | ||
Section 9.3 | Notices | 13 | ||
Section 9.4 | Benefit | 14 | ||
Section 9.5 | Governing Law | 14 |
ii
TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT
This TRUST PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Trust Preferred Securities Guarantee"), dated as of October 29, 1999, is executed and delivered by American Equity Investment Life Holding Company, an Iowa corporation (the "Guarantor"), and West Des Moines State Bank, an Iowa banking corporation, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Trust Preferred Securities (as defined herein) of American Equity Capital Trust II, a Delaware statutory business trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust, dated as of October 29, 1999 (the "Declaration"), among the trustees of the Trust named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing on the date hereof 97,000 preferred securities, having an aggregate liquidation amount of $97,000,000 designated the "5% Trust Preferred Securities" (the "Trust Preferred Securities");
WHEREAS, as incentive for the Holders to purchase the Trust Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Trust Preferred Securities Guarantee, to guarantee the obligations of the Trust to the Holders of Trust Preferred Securities on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Trust Common Securities Guarantee") in substantially identical terms to this Trust Preferred Securities Guarantee for the benefit of the holders of the Trust Common Securities (as defined herein), except that if an Indenture Event of Default (as defined herein) has occurred and is continuing, the rights of holders of the Trust Common Securities to receive Guarantee Payments (as defined in the Trust Common Securities Guarantee) under the Trust Common Securities Guarantee shall be subordinated to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments (as defined herein) under this Trust Preferred Securities Guarantee;
NOW, THEREFORE, in consideration of the purchase by each Holder of Trust Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Trust Preferred Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation.
In this Trust Preferred Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Trust Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1;
(b) terms defined in the Declaration as at the date hereof have the same meaning when used in this Trust Preferred Securities Guarantee unless otherwise defined in the Trust Preferred Securities Guarantee;
(c) a term defined anywhere in this Trust Preferred Securities Guarantee has the same meaning throughout;
(d) all references to "the Trust Preferred Securities Guarantee" or "this Trust Preferred Securities Guarantee" are to this Trust Preferred Securities Guarantee as modified, supplemented or amended from time to time;
(e) all references in this Trust Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Trust Preferred Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when used in this Trust Preferred Securities Guarantee, unless otherwise defined in this Trust Preferred Securities Guarantee or unless the context otherwise requires;
(g) a reference to the singular includes the plural and vice versa;
(h) a reference to any Person shall include its successors and assigns;
(i) a reference to any agreement or instrument shall mean such agreement or instrument, as supplemented, modified, amended, or amended and restated, and in effect from time to time; and
(j) a reference to any statute, law, rule or regulation, shall include any amendments thereto applicable to the relevant Person, and any successor statute, law, rule or regulation.
"Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder.
"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 any applicable law or executive order to close.
"Common Stock" means the common stock, par value $1.00 per share, of the Guarantor.
"Corporate Trust Office" means the office of the Preferred Guarantee Trustee at which the corporate trust business of the Preferred Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at West Des Moines State Bank, 1601 22 nd Street, West Des Moines, Iowa 50266, Attention: Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Trust Preferred Securities.
"Debentures" means the 5% Subordinated Debentures due 2047 of the Guarantor held by the Property Trustee (as defined in the Declaration).
"Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Trust Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Trust Preferred Securities, to the extent not paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Trust Preferred Securities to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), with respect to any Trust Preferred Securities called for redemption by the Trust to the extent the Trust has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with a distribution of the Debentures to the Holders in exchange for Trust Preferred Securities or the redemption of all of the Trust Preferred Securities as provided in the Declaration), the lesser of (a) the aggregate of the total liquidation amount and all accrued and unpaid Distributions on the Trust Preferred Securities to the date of payment, to the extent the Trust shall have funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to Holders upon liquidation of the Trust (in either case, the "Liquidation Distribution"). If an Indenture Event of Default has occurred and is continuing, the rights of holders of the Trust Common Securities to receive Guarantee Payments under the Trust Common Securities Guarantee are subordinate to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments under the Trust Preferred Securities Guarantee.
"Holder" shall mean any holder, as registered on the books and records of the Trust, of any Trust Preferred Securities; provided, however, that in determining whether the holders of the requisite percentage of Trust Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor.
2
"Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Guarantee Trustee.
"Indenture" means the Indenture, dated as of October 29, 1999, among the Guarantor and West Des Moines State Bank, an Iowa banking corporation, as trustee, pursuant to which the Debentures are to be issued to the Property Trustee of the Trust.
"Indenture Event of Default" means an "Indenture Event of Default" as defined in the Indenture.
"Indenture Trustee" means the Person acting as trustee under the Indenture, initially West Des Moines State Bank, Iowa.
"Majority in liquidation amount of the Trust Preferred Securities" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Trust Preferred Securities, voting separately as a class, of more than 50% of the 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 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 Trust Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate;
(c) 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
(d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.
"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.
"Preferred Guarantee Trustee" means West Des Moines State Bank, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Trust Preferred Securities Guarantee and thereafter means each such Successor Preferred Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Guarantee Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Preferred Guarantee 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.
"Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1.
"Trust Common Securities" means the securities representing common undivided beneficial interests in the assets of the Trust.
3
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.
(a) This Trust Preferred Securities Guarantee is subject to the provisions of the Trust Indenture Act that would be required to be part of this Trust Preferred Securities Guarantee were this Trust Preferred Securities Guarantee to be qualified under the Trust Indenture Act, which provisions are incorporated by reference in and made part of this Trust Preferred Securities Guarantee and this Trust Preferred Securities Guarantee shall, to the extent applicable, be governed by such provisions; and
(b) if and to the extent that any provision of this Trust Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control.
Section 2.2 Lists of Holders of Securities.
(a) The Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Trust Preferred Securities ("List of Holders") as of such date, (i) within 14 days after each record date for payment of Distributions, 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 Preferred Guarantee Trustee, provided that the Guarantor shall not 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 Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations under Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3 Reports by the Preferred Guarantee Trustee. Within 60 days after December 31 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Trust Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act.
Section 2.4 Periodic Reports to Preferred Guarantee Trustee. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act.
Section 2.5 Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate.
Section 2.6 Events of Default; Waiver. 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 Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured,
4
for every purpose of this Trust Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
Section 2.7 Event of Default; Notice.
(a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Trust Preferred Securities, notices of all Events of Default of which the Preferred Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)), unless such defaults have been cured before the giving of such notice; provided that the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Trust Preferred Securities.
(b) The Preferred Guarantee Trustee shall be deemed to have knowledge of an Event of Default if (i) the Preferred Guarantee Trustee shall have received written notice of such Event of Default or (ii) a Responsible Officer of the Preferred Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge of such Event of Default.
Section 2.8 Conflicting Interests. The Declaration shall be deemed to be specifically described in this Trust Preferred Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS
OF PREFERRED GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Preferred Guarantee Trustee.
(a) This Trust Preferred Securities Guarantee shall be held by the Preferred Guarantee Trustee for the benefit of the Holders of the Trust Preferred Securities, and the Preferred Guarantee Trustee shall not transfer this Trust Preferred Securities Guarantee to any Person except a Holder of Trust Preferred Securities exercising his or her rights pursuant to Section 5.5(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee.
(b) If an Event of Default of which the Preferred Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)) has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Trust Preferred Securities Guarantee for the benefit of the Holders of the Trust Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Trust Preferred Securities Guarantee, and no implied covenants shall be read into this Trust Preferred Securities Guarantee against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and of which the Preferred Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)), the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Trust Preferred Securities Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
5
(d) No provision of this Trust Preferred Securities Guarantee shall be construed to relieve the Preferred Guarantee 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 any Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Trust Preferred Securities Guarantee, and no implied covenants or obligations shall be read into this Trust Preferred Securities Guarantee against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee 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 Preferred Guarantee Trustee and conforming to the requirements of this Trust Preferred Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Trust Preferred Securities Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Preferred Guarantee 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 Trust Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Trust Preferred Securities Guarantee; and
(iv) no provision of this Trust Preferred Securities Guarantee shall require the Preferred Guarantee 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 the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Trust Preferred Securities Guarantee or indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against such risk or liability is not reasonably assured to it.
Section 3.2 Certain Rights of Preferred Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively 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 Guarantor contemplated by this Trust Preferred Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate.
6
(iii) Whenever, in the administration of this Trust Preferred Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor.
(iv) The Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof).
(v) The Preferred Guarantee Trustee may consult with counsel of its selection, and the written advice or opinion of such counsel with respect to legal matters 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. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Preferred Securities Guarantee from any court of competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) 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 Preferred Guarantee Trustee; provided that nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Trust Preferred Securities Guarantee.
(vii) The Preferred Guarantee 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, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit.
(viii) The Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Guarantee 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.
(ix) Any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders of the Trust Preferred Securities, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Trust Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action.
7
(x) Whenever in the administration of this Trust Preferred Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Trust Preferred Securities, (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 conclusively relying on or acting in accordance with such instructions.
(xi) The Preferred Guarantee 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 Trust Preferred Securities Guarantee.
(b) No provision of this Trust Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred Guarantee 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 Preferred Guarantee 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 Preferred Guarantee Trustee shall be construed to be a duty.
Section 3.3 Not Responsible for Recitals or Issuance of Trust Preferred Securities Guarantee. The recitals contained in this Trust Preferred Securities Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Trust Preferred Securities Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
Section 4.1 Preferred Guarantee Trustee; Eligibility.
(a) There shall at all times be a Preferred Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(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 Securities and Exchange 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 4.1(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.
(b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and
8
Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act.
Section 4.2 Appointment, Removal and Resignation of Preferred Guarantee Trustees.
(a) Subject to Section 4.2(c), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor.
(b) Subject to Section 4.2(c), the Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor.
(c) The Preferred Guarantee Trustee shall hold office and shall not be removed in accordance with Section 4.2(a) or resign in accordance with Section 4.2(b) unless and until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and, in the case of a resignation in accordance with Section 4.2(b), the resigning Preferred Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of removal or resignation, the resigning or removed Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Trust Preferred Securities Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation.
ARTICLE V
TRUST PREFERRED SECURITIES GUARANTEE
Section 5.1 Trust Preferred Securities Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders.
Section 5.2 Subordination. If an Indenture Event of Default has occurred and is continuing, the rights of holders of Trust Common Securities to receive Guarantee Payments under the Trust Common Securities Guarantee are subordinate to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments under this Trust Preferred Securities Guarantee.
Section 5.3 Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Trust Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
9
Section 5.4 Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Trust Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Trust Preferred Securities to be performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Trust Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Trust Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Trust Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Trust Preferred Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing.
Section 5.5 Rights of Holders.
(a) The Holders of a Majority in liquidation amount of the Trust Preferred Securities have the right to direct the time, method and place of the conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Trust Preferred Securities Guarantee or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Trust Preferred Securities Guarantee.
(b) Any Holder of Trust Preferred Securities may institute a legal proceeding against the Guarantor to enforce the obligations of the Guarantor under this Trust Preferred Securities Guarantee without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person.
(c) If an Indenture Event of Default constituting the failure to pay interest, principal or premium, if any, on the Debentures on the date such interest, principal or premium, if any, is otherwise payable has occurred and is continuing, then a Holder of Trust Preferred Securities may directly, at any time on or after the respective due date specified in the Debentures for such payment, institute a proceeding for enforcement of payment to such Holder of the interest, principal or premium, if any, on the Debentures having a principal amount equal to the aggregate liquidation amount of the Trust Preferred Securities of such Holder. The Holders of Trust
10
Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Debentures unless the Property Trustee (as defined in the Indenture) fails to do so.
Section 5.6 Guarantee of Payment. This Trust Preferred Securities Guarantee creates a guarantee of payment and not of collection.
Section 5.7 Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Trust Preferred Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Trust Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Trust Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Trust Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
Section 5.8 Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Trust Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Trust Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.4 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1 Limitation of Transactions. So long as any Trust Preferred Securities remain outstanding, if (i) the Guarantor has exercised its option to defer interest payments on the Debentures by extending the interest payment period and such extension shall be continuing, (ii) the Guarantor shall be in default with respect to its payment or other obligations under the Guarantee or (iii) there shall have occurred and be continuing any event that, with the giving of notice or the lapse of time or both, would constitute an Indenture Event of Default, then the Guarantor shall not (a) declare or pay dividends on, or make a distribution with respect to, or redeem or purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (1) purchases or acquisitions of shares of Company Common Stock (or Company Common Stock equivalents) in connection with the satisfaction by the Guarantor of its obligations under any employee benefit or agent plans or the satisfaction by the Guarantor of its obligations pursuant to any contract or security requiring the Guarantor to purchase shares of Company Common Stock (or Company Common Stock equivalents), (2) purchases of shares of Company Common Stock (or Company Common Stock equivalents) from officers or employees of the Guarantor or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Guarantor to purchase shares of Company Common Stock (or Company Common Stock equivalents), (3) as a result of a reclassification of the Guarantor's capital stock or the exchange or conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock, (4) dividends or distributions of shares of Company Common Stock on Company Common Stock or (5) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) make any payment of principal of (premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Guarantor that rank pari passu with or junior to the Debentures and (c) make any guarantee payments with respect to any of the foregoing (other than pursuant to the Guarantee).
11
Section 6.2 Ranking.
(a) This Trust Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) senior to the Guarantor's common stock, (ii) pari passu with the most senior preferred or preference securities now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor with respect to any preferred or preference securities of the Guarantor or any Affiliate of the Guarantor, and (iii) junior and subordinate in right of payment to all other liabilities of the Guarantor except any liabilities that may be pari passu expressly by their terms.
(b) The holders of any obligations of the Guarantor that are senior in priority to the obligations under this Trust Preferred Securities Guarantee will be entitled to all of the rights inuring to the holders of "Senior Debt" under Article 12 of the Indenture, and the Holders of the Trust Preferred Securities will be subject to all of the terms and conditions of such Article 12 with respect to any claims or rights hereunder with the same effect as though fully set forth herein.
Section 7.1 Termination. This Trust Preferred Securities Guarantee shall terminate as to each Holder of Trust Preferred Securities upon (i) full payment of the applicable Redemption Price (as defined in the Declaration) with respect to all Trust Preferred Securities, (ii) the distribution of the Debentures held by the Trust to the Holders of all of the Trust Preferred Securities of the Trust or (iii) liquidation of the Trust, and will terminate completely upon full payment of the amounts payable in accordance with the Declaration of the Trust. Notwithstanding the foregoing, this Trust Preferred Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Trust Preferred Securities must restore payment of any sums paid under the Trust Preferred Securities or under this Trust Preferred Securities Guarantee.
Section 8.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor 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 in accordance with this Trust Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Trust Preferred Securities Guarantee 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 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 Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, 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 Trust Preferred Securities might properly be paid.
Section 8.2 Indemnification. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without
12
negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of 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 8.2 shall survive the termination of this Trust Preferred Securities Guarantee.
Section 9.1 Successors and Assigns. All guarantees and agreements contained in this Trust Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Trust Preferred Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity or any sale, transfer or lease of the Guarantor's assets to another entity, each as permitted by the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Trust Preferred Securities Guarantee without the prior approval of the Holders of at least a Majority in liquidation amount of the Trust Preferred Securities.
Section 9.2 Amendments. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no consent of Holders will be required), this Trust Preferred Securities Guarantee may be amended only with the prior approval of the Holders of at least a Majority in liquidation amount of the Trust Preferred Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders of the Trust Preferred Securities apply to the giving of such approval.
Section 9.3 Notices. All notices provided for in this Trust Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, sent by facsimile or mailed by registered or certified mail, as follows:
(a) if given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Trust Preferred Securities):
West
Des Moines State Bank
1601 22
nd
Street
West Des Moines, Iowa 50266
Attention: Corporate Trust Administration
(b) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Trust Preferred Securities):
American
Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Attention: Chief Financial Officer
(c) If given to any Holder of Trust Preferred Securities, at the address set forth on the books and records of the Trust.
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.
13
Section 9.4 Benefit. This Trust Preferred Securities Guarantee is solely for the benefit of the Holders of the Trust Preferred Securities and, subject to Section 3.1(a), is not separately transferable from the Trust Preferred Securities.
Section 9.5 Governing Law. THIS TRUST PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF IOWA AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
14
THIS TRUST PREFERRED SECURITIES GUARANTEE is executed as of the day and year first above written.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY | |||
|
By: |
|
/s/ DEBRA J. RICHARDSON |
Name: | Debra J. Richardson | ||
Title: | Sr. VP & Secty. | ||
|
WEST DES MOINES STATE BANK, as Preferred Guarantee Trustee |
||
|
By: |
|
/s/ DAVID V. MAURER |
Name: | David V. Maurer | ||
Title: | SVP/STO |
Exhibit 10.21
TRUST COMMON SECURITIES GUARANTEE AGREEMENT
American Equity Investment Life Holding Company
Dated as of October 29, 1999
|
|
Page
|
||
---|---|---|---|---|
ARTICLE I
DEFINITIONS AND INTERPRETATION |
||||
Section 1.1 |
|
Definitions and Interpretation |
|
1 |
|
|
ARTICLE II TRUST INDENTURE ACT |
|
|
Section 2.1 |
|
Trust Indenture Act; Application |
|
4 |
Section 2.2 | Lists of Holders of Securities | 4 | ||
Section 2.3 | Reports by the Common Guarantee Trustee | 4 | ||
Section 2.4 | Periodic Reports to Common Guarantee Trustee | 4 | ||
Section 2.5 | Evidence of Compliance with Conditions Precedent | 4 | ||
Section 2.6 | Events of Default; Waiver | 4 | ||
Section 2.7 | Event of Default; Notice | 5 | ||
Section 2.8 | Conflicting Interests | 5 | ||
|
|
ARTICLE III POWERS, DUTIES AND RIGHTS OF COMMON GUARANTEE TRUSTEE |
|
|
Section 3.1 |
|
Powers and Duties of the Common Guarantee Trustee |
|
5 |
Section 3.2 | Certain Rights of Common Guarantee Trustee | 6 | ||
Section 3.3 | Not Responsible for Recitals or Issuance of Trust Common Securities Guarantee | 8 | ||
|
|
ARTICLE IV COMMON GUARANTEE TRUSTEE |
|
|
Section 4.1 |
|
Common Guarantee Trustee; Eligibility |
|
8 |
Section 4.2 | Appointment, Removal and Resignation of Common Guarantee Trustees | 9 | ||
|
|
ARTICLE V TRUST COMMON SECURITIES GUARANTEE |
|
|
Section 5.1 |
|
Trust Common Securities Guarantee |
|
9 |
Section 5.2 | Subordination | 9 | ||
Section 5.3 | Waiver of Notice and Demand | 9 | ||
Section 5.4 | Obligations Not Affected | 10 | ||
Section 5.5 | Rights of Holders | 10 | ||
Section 5.6 | Guarantee of Payment | 11 | ||
Section 5.7 | Subrogation | 11 | ||
Section 5.8 | Independent Obligations | 11 | ||
|
|
ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION |
|
|
Section 6.1 |
|
Limitation of Transactions |
|
11 |
Section 6.2 | Ranking | 12 | ||
|
|
ARTICLE VII TERMINATION |
|
|
Section 7.1 |
|
Termination |
|
12 |
i
|
|
ARTICLE VIII INDEMNIFICATION |
|
|
Section 8.1 |
|
Exculpation |
|
12 |
Section 8.2 | Indemnification | 12 | ||
|
|
ARTICLE IX MISCELLANEOUS |
|
|
Section 9.1 |
|
Successors and Assigns |
|
13 |
Section 9.2 | Amendments | 13 | ||
Section 9.3 | Notices | 13 | ||
Section 9.4 | Benefit | 14 | ||
Section 9.5 | Governing Law | 14 |
ii
TRUST COMMON SECURITIES GUARANTEE AGREEMENT
This TRUST COMMON SECURITIES GUARANTEE AGREEMENT (this "Trust Common Securities Guarantee"), dated as of October 29, 1999, is executed and delivered by American Equity Investment Life Holding Company, an Iowa corporation (the "Guarantor"), and West Des Moines State Bank, an Iowa banking corporation, as trustee (the "Common Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Trust Common Securities (as defined herein) of American Equity Capital Trust II, a Delaware statutory business trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust, dated as of October 29, 1999 (the "Declaration"), among the trustees of the Trust named therein, the Guarantor, as sponsor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing on the date hereof 3,000 common securities, having an aggregate liquidation amount of $3,000,000 designated the "Trust Common Securities" (the "Trust Common Securities");
WHEREAS, as incentive for the Holders to purchase the Trust Common Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Trust Common Securities Guarantee, to guarantee the obligations of the Trust to the Holders of Trust Common Securities on the terms and conditions set forth herein; and
WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Trust Preferred Securities Guarantee") in substantially identical terms to this Trust Common Securities Guarantee for the benefit of the holders of the Trust Preferred Securities (as defined herein), except that if an Indenture Event of Default (as defined herein) has occurred and is continuing, the rights of holders of the Trust Common Securities to receive Guarantee Payments (as defined herein) under the Trust Common Securities Guarantee shall be subordinated to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments (as defined in the Trust Preferred Securities Guarantee) under this Trust Common Securities Guarantee;
NOW, THEREFORE, in consideration of the purchase by each Holder of Trust Common Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Trust Common Securities Guarantee for the benefit of the Holders.
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions and Interpretation.
In this Trust Common Securities Guarantee, unless the context otherwise requires:
(a) capitalized terms used in this Trust Common Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1;
(b) terms defined in the Declaration as at the date hereof have the same meaning when used in this Trust Common Securities Guarantee unless otherwise defined in the Trust Common Securities Guarantee;
(c) a term defined anywhere in this Trust Common Securities Guarantee has the same meaning throughout;
(d) all references to "the Trust Common Securities Guarantee" or "this Trust Common Securities Guarantee" are to this Trust Common Securities Guarantee as modified, supplemented or amended from time to time;
(e) all references in this Trust Common Securities Guarantee to Articles and Sections are to Articles and Sections of this Trust Common Securities Guarantee, unless otherwise specified;
(f) a term defined in the Trust Indenture Act has the same meaning when used in this Trust Common Securities Guarantee, unless otherwise defined in this Trust Common Securities Guarantee or unless the context otherwise requires;
(g) a reference to the singular includes the plural and vice versa;
(h) a reference to any Person shall include its successors and assigns;
(i) a reference to any agreement or instrument shall mean such agreement or instrument, as supplemented, modified, amended, or amended and restated, and in effect from time to time; and
(j) a reference to any statute, law, rule or regulation, shall include any amendments thereto applicable to the relevant Person, and any successor statute, law, rule or regulation.
"Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder.
"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 any applicable law or executive order to close.
"Common Guarantee Trustee" means West Des Moines State Bank, until a Successor Common Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Trust Common Securities Guarantee and thereafter means each such Successor Common Guarantee Trustee.
"Common Stock" means the common stock, par value $1.00 per share, of the Guarantor.
"Corporate Trust Office" means the office of the Common Guarantee Trustee at which the corporate trust business of the Common Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at West Des Moines State Bank, 1601 22 nd Street, West Des Moines, Iowa 50266, Attention: Corporate Trust Administration.
"Covered Person" means any Holder or beneficial owner of Trust Common Securities.
"Debentures" means the 5% Subordinated Debentures due 2047 of the Guarantor held by the Property Trustee (as defined in the Declaration).
"Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Trust Common Securities Guarantee.
"Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Trust Common Securities, to the extent not paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined in the Declaration) that are required to be paid on such Trust Common Securities to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), with respect to any Trust Common Securities called for redemption by the Trust to the extent the Trust has funds available therefor, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with a distribution of the Debentures to the Holders in exchange for Trust Common Securities or the redemption of all of the Trust Common Securities as provided in the Declaration), the lesser of (a) the aggregate of the total liquidation amount and all accrued and unpaid Distributions on the Trust Common Securities to the date of payment, to the extent the Trust shall have funds available therefor, and (b) the amount of assets of the Trust remaining available for distribution to Holders upon liquidation of the Trust (in either case, the "Liquidation Distribution"). If an Indenture Event of Default has occurred and is continuing, the rights of holders of the Trust Common Securities to receive Guarantee Payments under this Trust Common Securities Guarantee are subordinate to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments under the Trust Preferred Securities Guarantee.
"Holder" shall mean any holder, as registered on the books and records of the Trust, of any Trust Common Securities; provided, however, that in determining whether the holders of the requisite
2
percentage of Trust Common Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor.
"Indemnified Person" means the Common Guarantee Trustee, any Affiliate of the Common Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Common Guarantee Trustee.
"Indenture" means the Indenture, dated as of October 29, 1999, among the Guarantor and West Des Moines State Bank, an Iowa banking corporation, as trustee, pursuant to which the Debentures are to be issued to the Property Trustee of the Trust.
"Indenture Event of Default" means an "Indenture Event of Default" as defined in the Indenture.
"Indenture Trustee" means the Person acting as trustee under the Indenture, initially West Des Moines State Bank, Iowa.
"Majority in liquidation amount of the Trust Common Securities" means, except as provided by the Trust Indenture Act, a vote by Holder(s) of Trust Common Securities, voting separately as a class, of more than 50% of the 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 Trust Common 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 Trust Common Securities Guarantee shall include:
(a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definition relating thereto;
(b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate;
(c) 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
(d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with.
"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.
"Responsible Officer" means, with respect to the Common Guarantee Trustee, any officer within the Corporate Trust Office of the Common Guarantee Trustee, including any vice president, any assistant vice president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Common Guarantee 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.
"Successor Common Guarantee Trustee" means a successor Common Guarantee Trustee possessing the qualifications to act as Common Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"Trust Preferred Securities" means the securities representing preferred undivided beneficial interests in the assets of the Trust.
3
ARTICLE II
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.
(a) This Trust Common Securities Guarantee is subject to the provisions of the Trust Indenture Act that would be required to be part of this Trust Common Securities Guarantee were this Trust Common Securities Guarantee to be qualified under the Trust Indenture Act, which provisions are incorporated by reference in and made part of this Trust Common Securities Guarantee and this Trust Common Securities Guarantee shall, to the extent applicable, be governed by such provisions; and
(b) if and to the extent that any provision of this Trust Common Securities Guarantee limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control.
Section 2.2 Lists of Holders of Securities.
(a) The Guarantor shall provide the Common Guarantee Trustee with a list, in such form as the Common Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Trust Common Securities ("List of Holders") as of such date, (i) within 14 days after each record date for payment of Distributions, 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 Common Guarantee Trustee, provided that the Guarantor shall not 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 Common Guarantee Trustee by the Guarantor. The Common Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders.
(b) The Common Guarantee Trustee shall comply with its obligations under Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
Section 2.3 Reports by the Common Guarantee Trustee. Within 60 days after December 31of each year, the Common Guarantee Trustee shall provide to the Holders of the Trust Common Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Common Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act.
Section 2.4 Periodic Reports to Common Guarantee Trustee. The Guarantor shall provide to the Common Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act.
Section 2.5 Evidence of Compliance with Conditions Precedent. The Guarantor shall provide to the Common Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Common Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate.
Section 2.6 Events of Default; Waiver. The Holders of a Majority in liquidation amount of Trust Common Securities may, by vote, on behalf of the Holders of all of the Trust Common Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Trust Common Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon.
4
Section 2.7 Event of Default; Notice.
(a) The Common Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Trust Common Securities, notices of all Events of Default of which the Common Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)), unless such defaults have been cured before the giving of such notice; provided that the Common Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Common Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Trust Common Securities.
(b) The Common Guarantee Trustee shall be deemed to have knowledge of an Event of Default if (i) the Common Guarantee Trustee shall have received written notice of such Event of Default or (ii) a Responsible Officer of the Common Guarantee Trustee charged with the administration of the Declaration shall have obtained actual knowledge of such Event of Default.
Section 2.8 Conflicting Interests. The Declaration shall be deemed to be specifically described in this Trust Common Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS
OF COMMON GUARANTEE TRUSTEE
Section 3.1 Powers and Duties of the Common Guarantee Trustee.
(a) This Trust Common Securities Guarantee shall be held by the Common Guarantee Trustee for the benefit of the Holders of the Trust Common Securities, and the Common Guarantee Trustee shall not transfer this Trust Common Securities Guarantee to any Person except a Holder of Trust Common Securities exercising his or her rights pursuant to Section 5.5(b) or to a Successor Common Guarantee Trustee on acceptance by such Successor Common Guarantee Trustee of its appointment to act as Successor Common Guarantee Trustee. The right, title and interest of the Common Guarantee Trustee shall automatically vest in any Successor Common Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Common Guarantee Trustee.
(b) If an Event of Default of which the Common Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)) has occurred and is continuing, the Common Guarantee Trustee shall enforce this Trust Common Securities Guarantee for the benefit of the Holders of the Trust Common Securities.
(c) The Common Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Trust Common Securities Guarantee, and no implied covenants shall be read into this Trust Common Securities Guarantee against the Common Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and of which the Common Guarantee Trustee is deemed to have knowledge (as defined in Section 2.7(b)), the Common Guarantee Trustee shall exercise such of the rights and powers vested in it by this Trust Common Securities Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs.
5
(d) No provision of this Trust Common Securities Guarantee shall be construed to relieve the Common Guarantee 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 any Event of Default and after the curing or waiving of all such Events of Default that may have occurred:
(A) the duties and obligations of the Common Guarantee Trustee shall be determined solely by the express provisions of this Common Securities Guarantee, and the Common Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Trust Common Securities Guarantee, and no implied covenants or obligations shall be read into this Trust Common Securities Guarantee against the Common Guarantee Trustee; and
(B) in the absence of bad faith on the part of the Common Guarantee Trustee, the Common Guarantee 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 Common Guarantee Trustee and conforming to the requirements of this Trust Common Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Common Guarantee Trustee, the Common Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Trust Common Securities Guarantee;
(ii) the Common Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Common Guarantee Trustee, unless it shall be proved that the Common Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made;
(iii) the Common Guarantee 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 Trust Common Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Common Guarantee Trustee, or exercising any trust or power conferred upon the Common Guarantee Trustee under this Trust Common Securities Guarantee; and
(iv) no provision of this Trust Common Securities Guarantee shall require the Common Guarantee 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 the Common Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Trust Common Securities Guarantee or indemnity, reasonably satisfactory to the Common Guarantee Trustee, against such risk or liability is not reasonably assured to it.
Section 3.2 Certain Rights of Common Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i) The Common Guarantee Trustee may conclusively 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 Guarantor contemplated by this Trust Common Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate.
6
(iii) Whenever, in the administration of this Trust Common Securities Guarantee, the Common Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Common Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor.
(iv) The Common Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof).
(v) The Common Guarantee Trustee may consult with counsel of its selection, and the written advice or opinion of such counsel with respect to legal matters 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. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Common Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Common Securities Guarantee from any court of competent jurisdiction.
(vi) The Common Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Common Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Common Guarantee Trustee such security and indemnity, reasonably satisfactory to the Common Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) 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 Common Guarantee Trustee; provided that nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Common Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Trust Common Securities Guarantee.
(vii) The Common Guarantee 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, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Common Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit.
(viii) The Common Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Common Guarantee 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.
(ix) Any action taken by the Common Guarantee Trustee or its agents hereunder shall bind the Holders of the Trust Common Securities, and the signature of the Common Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Common Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Trust Common Securities Guarantee, both of which shall be conclusively evidenced by the Common Guarantee Trustee's or its agent's taking such action.
7
(x) Whenever in the administration of this Trust Common Securities Guarantee the Common Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Common Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Trust Common Securities, (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 conclusively relying on or acting in accordance with such instructions.
(xi) The Common Guarantee 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 Trust Common Securities Guarantee.
(b) No provision of this Trust Common Securities Guarantee shall be deemed to impose any duty or obligation on the Common Guarantee 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 Common Guarantee 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 Common Guarantee Trustee shall be construed to be a duty.
Section 3.3 Not Responsible for Recitals or Issuance of Trust Common Securities Guarantee. The recitals contained in this Trust Common Securities Guarantee shall be taken as the statements of the Guarantor, and the Common Guarantee Trustee does not assume any responsibility for their correctness. The Common Guarantee Trustee makes no representation as to the validity or sufficiency of this Trust Common Securities Guarantee.
ARTICLE IV
COMMON GUARANTEE TRUSTEE
Section 4.1 Common Guarantee Trustee; Eligibility.
(a) There shall at all times be a Common Guarantee Trustee which shall:
(i) not be an Affiliate of the Guarantor; and
(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 Securities and Exchange 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 4.1(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.
(b) If at any time the Common Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Common Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c).
(c) If the Common Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Common Guarantee Trustee and
8
Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act.
Section 4.2 Appointment, Removal and Resignation of Common Guarantee Trustees.
(a) Subject to Section 4.2(c), the Common Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor.
(b) Subject to Section 4.2(c), the Common Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Common Guarantee Trustee and delivered to the Guarantor.
(c) The Common Guarantee Trustee shall hold office and shall not be removed in accordance with Section 4.2(a) or resign in accordance with Section 4.2(b) unless and until a Successor Common Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Common Guarantee Trustee and delivered to the Guarantor and, in the case of a resignation in accordance with Section 4.2(b), the resigning Common Guarantee Trustee.
(d) If no Successor Common Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of removal or resignation, the resigning or removed Common Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Common Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Common Guarantee Trustee.
(e) No Common Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Common Guarantee Trustee.
(f) Upon termination of this Trust Common Securities Guarantee or removal or resignation of the Common Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Common Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation.
ARTICLE V
TRUST COMMON SECURITIES GUARANTEE
Section 5.1 Trust Common Securities Guarantee. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders.
Section 5.2 Subordination. If an Indenture Event of Default has occurred and is continuing, the rights of holders of Trust Common Securities to receive Guarantee Payments under this Trust Common Securities Guarantee are subordinate to the rights of Holders of Trust Preferred Securities to receive Guarantee Payments under the Trust Preferred Securities Guarantee.
Section 5.3 Waiver of Notice and Demand. The Guarantor hereby waives notice of acceptance of this Trust Common Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands.
9
Section 5.4 Obligations Not Affected. The obligations, covenants, agreements and duties of the Guarantor under this Trust Common Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Trust Common Securities to be performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Trust Common Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Trust Common Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture);
(c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Trust Common Securities, or any action on the part of the Trust granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Trust Common Securities;
(f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing.
Section 5.5 Rights of Holders.
(a) The Holders of a Majority in liquidation amount of the Trust Common Securities have the right to direct the time, method and place of the conducting of any proceeding for any remedy available to the Common Guarantee Trustee in respect of this Trust Common Securities Guarantee or exercising any trust or power conferred upon the Common Guarantee Trustee under this Trust Common Securities Guarantee.
(b) Any Holder of Trust Common Securities may institute a legal proceeding against the Guarantor to enforce the obligations of the Guarantor under this Trust Common Securities Guarantee without first instituting a legal proceeding against the Trust, the Common Guarantee Trustee or any other Person.
(c) If an Indenture Event of Default constituting the failure to pay interest, principal or premium, if any, on the Debentures on the date such interest, principal or premium, if any, is otherwise payable has occurred and is continuing, then a Holder of Trust Common Securities may directly, at any time on or after the respective due date specified in the Debentures for such payment, institute a proceeding for enforcement of payment to such Holder of the interest, principal or premium, if any, on the Debentures having a principal amount equal to the aggregate liquidation amount of the Trust Common Securities of such Holder. The Holders of Trust
10
Common Securities will not be able to exercise directly any other remedy available to the holders of the Debentures unless the Property Trustee (as defined in the Indenture) fails to do so.
Section 5.6 Guarantee of Payment. This Trust Common Securities Guarantee creates a guarantee of payment and not of collection.
Section 5.7 Subrogation. The Guarantor shall be subrogated to all (if any) rights of the Holders of Trust Common Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Trust Common Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Trust Common Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Trust Common Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders.
Section 5.8 Independent Obligations. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Trust Common Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Trust Common Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.4 hereof.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
Section 6.1 Limitation of Transactions. So long as any Trust Common Securities remain outstanding, if (i) the Guarantor has exercised its option to defer interest payments on the Debentures by extending the interest payment period and such extension shall be continuing, (ii) the Guarantor shall be in default with respect to its payment or other obligations under the Guarantee or (iii) there shall have occurred and be continuing any event that, with the giving of notice or the lapse of time or both, would constitute an Indenture Event of Default, then the Guarantor shall not (a) declare or pay dividends on, or make a distribution with respect to, or redeem or purchase or acquire, or make a liquidation payment with respect to, any of its capital stock (other than (1) purchases or acquisitions of shares of Company Common Stock (or Company Common Stock equivalents) in connection with the satisfaction by the Guarantor of its obligations under any employee benefit or agent plans or the satisfaction by the Guarantor of its obligations pursuant to any contract or security requiring the Guarantor to purchase shares of Company Common Stock (or Company Common Stock equivalents), (2) purchases of shares of Company Common Stock (or Company Common Stock equivalents) from officers or employees of the Guarantor or its subsidiaries upon termination of employment or retirement not pursuant to any obligation under any contract or security requiring the Guarantor to purchase shares of Company Common Stock (or Company Common Stock equivalents), (3) as a result of a reclassification of the Guarantor's capital stock or the exchange or conversion of one class or series of the Guarantor's capital stock for another class or series of the Guarantor's capital stock, (4) dividends or distributions of shares of Company Common Stock on Company Common Stock or (5) the purchase of fractional interests in shares of the Guarantor's capital stock pursuant to the conversion or exchange provisions of such capital stock or the security being converted or exchanged), (b) make any payment of principal of (premium, if any) or interest on or repay, repurchase or redeem any debt securities (including guarantees) issued by the Guarantor that rank pari passu with or junior to the Debentures and (c) make any guarantee payments with respect to any of the foregoing (other than pursuant to the Guarantee).
11
Section 6.2 Ranking.
(a) This Trust Common Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) senior to the Guarantor's common stock, (ii) pari passu with the most senior preferred or preference securities now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor with respect to any preferred or preference securities of the Guarantor or any Affiliate of the Guarantor, and (iii) junior and subordinate in right of payment to all other liabilities of the Guarantor except any liabilities that may be pari passu expressly by their terms.
(b) The holders of any obligations of the Guarantor that are senior in priority to the obligations under this Trust Common Securities Guarantee will be entitled to all of the rights inuring to the holders of "Senior Debt" under Article 12 of the Indenture, and the Holders of the Trust Common Securities will be subject to all of the terms and conditions of such Article 12 with respect to any claims or rights hereunder with the same effect as though fully set forth herein.
Section 7.1 Termination. This Trust Common Securities Guarantee shall terminate as to each Holder of Trust Common Securities upon (i) full payment of the applicable Redemption Price (as defined in the Declaration) with respect to all Trust Common Securities, (ii) the distribution of the Debentures held by the Trust to the Holders of all of the Trust Common Securities of the Trust or (iii) liquidation of the Trust, and will terminate completely upon full payment of the amounts payable in accordance with the Declaration of the Trust. Notwithstanding the foregoing, this Trust Common Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder of Trust Common Securities must restore payment of any sums paid under the Trust Common Securities or under this Trust Common Securities Guarantee.
Section 8.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor 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 in accordance with this Trust Common Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Trust Common Securities Guarantee 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 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 Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, 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 Trust Common Securities might properly be paid.
Section 8.2 Indemnification. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without
12
negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of 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 8.2 shall survive the termination of this Trust Common Securities Guarantee.
Section 9.1 Successors and Assigns. All guarantees and agreements contained in this Trust Common Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Trust Common Securities then outstanding. Except in connection with any merger or consolidation of the Guarantor with or into another entity or any sale, transfer or lease of the Guarantor's assets to another entity, each as permitted by the Indenture, the Guarantor may not assign its rights or delegate its obligations under this Trust Common Securities Guarantee without the prior approval of the Holders of at least a Majority in liquidation amount of the Trust Common Securities.
Section 9.2 Amendments. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no consent of Holders will be required), this Trust Common Securities Guarantee may be amended only with the prior approval of the Holders of at least a Majority in liquidation amount of the Trust Common Securities. The provisions of Section 12.2 of the Declaration with respect to meetings of Holders of the Trust Common Securities apply to the giving of such approval.
Section 9.3 Notices. All notices provided for in this Trust Common Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, sent by facsimile or mailed by registered or certified mail, as follows:
(a) if given to the Common Guarantee Trustee, at the Common Guarantee Trustee's mailing address set forth below (or such other address as the Common Guarantee Trustee may give notice of to the Holders of the Trust Common Securities):
West
Des Moines State Bank
601 22
nd
Street
West Des Moines, Iowa 50266
Attention: Corporate Trust Administration
(b) if given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Trust Common Securities):
American
Equity Investment Life Holding Company
5000 Westown Parkway, Suite 440
West Des Moines, Iowa 50266
Attention: Chief Financial Officer
(c) If given to any Holder of Trust Common Securities, at the address set forth on the books and records of the Trust.
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.
13
Section 9.4 Benefit. This Trust Common Securities Guarantee is solely for the benefit of the Holders of the Trust Common Securities and, subject to Section 3.1(a), is not separately transferable from the Trust Common Securities.
Section 9.5 Governing Law. THIS TRUST COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF IOWA AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
14
THIS TRUST COMMON SECURITIES GUARANTEE is executed as of the day and year first above written.
AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY | |||
|
By: |
|
/s/ DEBRA J. RICHARDSON |
Name: | Debra J. Richardson | ||
Title: | Sr. VP & Secty. | ||
|
WEST DES MOINES STATE BANK, as Common Guarantee Trustee |
||
|
By: |
|
/s/ DAVID V. MAURER |
Name: | David V. Maurer | ||
Title: | SVP/STO |
EXHIBIT 21.1
SUBSIDIARIES OF AMERICAN EQUITY INVESTMENT LIFE HOLDING COMPANY
American Equity Investment Life Insurance Company
American Equity Capital Trust I
American Equity Capital Trust II
American Equity Investment Properties, L.C.
American Equity Investment Capital, Inc.
American Equity Investment Life Insurance Company of New York
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated March 14, 2003, except for paragraph 38 of Note 1 and Note 13 as to which the date is September 10, 2003, in Amendment No. 1 to the Registration Statement (Form S-1 No. 333-108794) dated October 17, 2003 and related Prospectus of American Equity Investment Life Holding Company for the registration of common stock.
/s/ Ernst & Young LLP | |
Des Moines, Iowa October 17, 2003 |
|