Exhibit 10.2

 

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EXECUTION VERSION

JPMorgan Chase Bank, National Association

P.O. Box 161

60 Victoria Embankment

London EC4Y 0JP

England

September 16, 2010

 

To:

American Equity Investment Life Holding Company

 

6000 Westown Parkway

 

West Des Moines, IA 50266

 

Attention:

Treasurer

 

Telephone No.:

(515) 221-0002

 

Facsimile No.:

(515) 221-9947

 

Re:          Call Option Transaction

 

The purpose of this letter agreement (this “Confirmation”) is to confirm the
terms and conditions of the call option transaction entered into between
JPMorgan Chase Bank, National Association, London Branch (“Dealer”) and American
Equity Investment Life Holding Company (“Counterparty”) as of the Trade Date
specified below (the “Transaction”).  This letter agreement constitutes a
“Confirmation” as referred to in the ISDA Master Agreement specified below. 
This Confirmation shall replace any previous agreements and serve as the final
documentation for the Transaction.

 

The definitions and provisions contained in the 2002 ISDA Equity Derivatives
Definitions (the “Equity Definitions”), as published by the International Swaps
and Derivatives Association, Inc. (“ISDA”) are incorporated into this
Confirmation.  In the event of any inconsistency between the Equity Definitions
and this Confirmation, this Confirmation shall govern.  Certain defined terms
used herein are based on terms that are defined in the Offering Memorandum dated
September 16, 2010 (the “Offering Memorandum”) relating to the 3.50% Convertible
Senior Notes due September 15, 2015 (as originally issued by Counterparty, the
“Convertible Notes” and each USD 1,000 principal amount of Convertible Notes, a
“Convertible Note”) issued by Counterparty in an aggregate initial principal
amount of USD 170,000,000 (as increased by up to an aggregate principal amount
of USD 30,000,000 if and to the extent that the Initial Purchasers (as defined
herein) exercise their option to purchase additional Convertible Notes pursuant
to the Purchase Agreement (as defined herein)) pursuant to an Indenture to be
dated September 22, 2010 between Counterparty and U.S. Bank National
Association, as trustee (the “Indenture”).  In the event of any inconsistency
between the terms defined in the Offering Memorandum, the Indenture and this
Confirmation, this Confirmation shall govern.  The parties acknowledge that this
Confirmation is entered into on the date hereof with the understanding that
(i) definitions set forth in the Indenture which are also defined herein by
reference to the Indenture and (ii) sections of the Indenture that are referred
to herein will conform to the descriptions thereof in the Offering Memorandum. 
If any such definitions in the Indenture or any such sections of the Indenture
differ from the descriptions thereof in the Offering Memorandum, the
descriptions thereof in the Offering Memorandum will govern for purposes of this
Confirmation.  The parties further acknowledge that the Indenture section
numbers used herein are based on the draft of the Indenture last reviewed by
Dealer as of the date of this Confirmation, and if any such section numbers are
changed in the Indenture as executed, the parties will amend this Confirmation
in good faith to preserve the intent of the parties.  Subject to the foregoing,
references to the Indenture herein are references to the Indenture as in effect
on the date of its execution, and if the Indenture is amended following such
date, any such amendment will be disregarded for purposes of this Confirmation
unless the parties agree otherwise in writing.

 

JPMorgan Chase Bank, National Association

Organised under the laws of the United States as a National Banking Association

Main Office 1111 Polaris Parkway, Columbus, Ohio 43271

Registered as a branch in England & Wales branch No. BR000746

Registered Branch Office 125 London Wall, London EC2Y 5AJ

Authorised and regulated by the Financial Services Authority

 

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Each party is hereby advised, and each such party acknowledges, that the other
party has engaged in, or refrained from engaging in, substantial financial
transactions and has taken other material actions in reliance upon the parties’
entry into the Transaction to which this Confirmation relates on the terms and
conditions set forth below.

 

1.             This Confirmation evidences a complete and binding agreement
between Dealer and Counterparty as to the terms of the Transaction to which this
Confirmation relates.  This Confirmation shall supplement, form a part of, and
be subject to an agreement in the form of the 2002 ISDA Master Agreement (the
“Agreement”) as if Dealer and Counterparty had executed an agreement in such
form (but without any Schedule except for the election of the laws of the State
of New York as the governing law (without reference to choice of law doctrine))
on the Trade Date.  In the event of any inconsistency between provisions of the
Agreement and this Confirmation, this Confirmation will prevail for the purpose
of the Transaction to which this Confirmation relates.  The parties hereby agree
that no transaction other than the Transaction to which this Confirmation
relates shall be governed by the Agreement.

 

2.             The terms of the particular Transaction to which this
Confirmation relates are as follows:

 

General Terms.

 

Trade Date:

 

September 16, 2010

 

 

 

Effective Date:

 

The third Exchange Business Day immediately prior to the Premium Payment Date

 

 

 

Option Style:

 

“Modified American”, as described under “Procedures for Exercise” below

 

 

 

Option Type:

 

Call

 

 

 

Buyer:

 

Counterparty

 

 

 

Seller:

 

Dealer

 

 

 

Shares:

 

The common stock of Counterparty, par value USD 1.00 per share (Exchange symbol
“AEL”).

 

 

 

Number of Options:

 

170,000. For the avoidance of doubt, the Number of Options shall be reduced by
any Options exercised by Counterparty. In no event will the Number of Options be
less than zero.

 

 

 

Applicable Percentage:

 

The fraction, expressed as a percentage, (i) the numerator of which is 110 and
(ii) the denominator of which is 170.

 

 

 

Option Entitlement:

 

A number equal to the product of the Applicable Percentage and 80.0000.

 

 

 

Strike Price:

 

USD 12.5000

 

 

 

Premium:

 

USD 20,350,000.00

 

 

 

Premium Payment Date:

 

September 22, 2010

 

 

 

Exchange:

 

The New York Stock Exchange

 

 

 

Related Exchange(s):

 

All Exchanges

 

 

 

Excluded Provisions:

 

Section 14.03 and Section 14.04(g) of the Indenture.

 

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Procedures for Exercise.

 

Conversion Date:

 

With respect to any conversion of a Convertible Note, the date on which the
Holder (as such term is defined in the Indenture) of such Convertible Note
satisfies all of the requirements for conversion thereof as set forth in
Section 14.02(b) of the Indenture; provided that in no event shall a Conversion
Date be deemed to occur hereunder (and no Option shall be exercised or deemed to
be exercised hereunder) with respect to any Convertible Note surrendered for
conversion in respect of which Counterparty has elected to designate (and such
designation is accepted) a financial institution for exchange in lieu of
conversion of such Convertible Note pursuant to Section 14.13 of the Indenture
(regardless of whether such financial institution delivers any amounts due in
respect of such Convertible Note, or whether such Convertible Note is
resubmitted to Counterparty for conversion following a failure by such financial
institution to deliver any such amounts or otherwise).

 

 

 

Final Settlement Method Election Date:

 

March 15, 2015

 

 

 

Expiration Time:

 

The Valuation Time

 

 

 

Expiration Date:

 

September 15, 2015, subject to earlier exercise.

 

 

 

Multiple Exercise:

 

Applicable, as described under “Automatic Exercise” below.

 

 

 

Automatic Exercise:

 

Notwithstanding Section 3.4 of the Equity Definitions, on each Conversion Date,
a number of Options equal to the number of Convertible Notes in denominations of
USD 1,000 as to which such Conversion Date has occurred shall be deemed to be
automatically exercised; provided that such Options shall be exercised or deemed
exercised only if Counterparty has provided a Notice of Exercise to Dealer in
accordance with “Notice of Exercise” below.

 

 

 

 

 

Notwithstanding the foregoing, in no event shall the number of Options that are
exercised or deemed exercised hereunder exceed the Number of Options.

 

 

 

Notice of Exercise:

 

Notwithstanding anything to the contrary in the Equity Definitions or under
“Automatic Exercise” above, in order to exercise any Options, Counterparty must
notify Dealer in writing (i) before 5:00 p.m. (New York City time) on the
Scheduled Valid Day immediately preceding the scheduled first day of the
Settlement Averaging Period for the Options being exercised or (ii) before
5:00 p.m. (New York City time) on the fifth Scheduled Valid Day immediately
following the scheduled first day of the Settlement Averaging Period for the
Options being exercised (in which case the Calculation Agent will determine the
adjustment to be made to any one or more of the Strike Price, Number of Options,
Option Entitlement and any other variable relevant to the

 

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exercise, settlement or payment for the Transaction in a commercially reasonable
manner as appropriate to reflect the additional costs (including, but not
limited to, hedging mismatches and market losses) and reasonable expenses
incurred by Dealer in connection with its hedging activities (including the
unwinding of any Hedge Position)  due to such notification occurring after the
time specified in the immediately preceding clause (i)) of:

 

 

 

 

 

(A)

the number of such Options (without regard to any adjustments by the Calculation
Agent in accordance with the immediately preceding clause (ii));

 

 

 

 

 

 

(B)

in respect of any Options relating to Convertible Notes with a Conversion Date
occurring prior to the Final Settlement Method Election Date, (I) the scheduled
first day of the Settlement Averaging Period and the scheduled Settlement Date,
(II) whether the condition set forth in Section 14.01(b)(i)(A) of the Indenture
(the “Trading Price Condition”) was satisfied on such Conversion Date,
(III) whether an Option Counterparty Reorganization Event (as defined below) has
occurred as of the close of business on the Valid Day immediately following such
Conversion Date, (IV) if either the Trading Price Condition was so satisfied or
an Option Counterparty Reorganization Event has so occurred, the Relevant
Settlement Method for such Options, (V) if the Relevant Settlement Method for
such Options is Combination Settlement (as defined below), the fixed amount of
cash per Convertible Note that Counterparty has elected to deliver to Holders
(as such term is defined in the Indenture) of the related Convertible Notes (the
“Specified Dollar Amount”), and (VI) if the Relevant Settlement Method for such
Options is not Cash Settlement, such notice shall also include the information,
representations, acknowledgements and agreements required pursuant to
“Settlement Method Election Conditions” below;

 

 

 

 

 

 

provided that, notwithstanding the immediately preceding clause (i), in respect
of any Options relating to Convertible Notes with a Conversion Date occurring on
or after the Final Settlement Method Election Date, such notice may be given on
or prior to the Scheduled Valid Day immediately preceding the Expiration Date.

 

 

 

Notice of Final Settlement Method:

 

Notwithstanding anything to the contrary in the Equity Definitions or under
“Automatic Exercise” above, in order to exercise any Options with a Conversion
Date occurring on or after the Final Settlement Method Election Date in respect
of which an the Option Counterparty Reorganization Event has occurred as of the
close of business on the Final Settlement Method Election Date, Counterparty
must notify Dealer in writing before

 

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9:00 a.m. (New York City time) on the Final Settlement Method Election Date
specifying:

 

 

 

 

 

 

(i)

that an Option Counterparty Reorganization Event has occurred as of the close of
business on the Final Settlement Method Election Date;

 

 

 

 

 

 

(ii)

the Relevant Settlement Method for such Options;

 

 

 

 

 

 

(iii)

if the Relevant Settlement Method for such Options is Combination Settlement (as
defined below), the Specified Dollar Amount for all Convertible Notes with
Conversion Dates occurring on or after the Final Settlement Method Election
Date; and

 

 

 

 

 

 

(iv)

if the Relevant Settlement Method for such Options is not Cash Settlement, such
notice shall also include the information, representations, acknowledgements and
agreements required pursuant to “Settlement Method Election Conditions” below.

 

 

 

 

Option Counterparty Reorganization Event:

 

Either (i) Dealer or Deutsche Bank AG, or one or more “significant subsidiaries”
(as defined in Article 1, Rule 1-02 of Regulation S-X under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) of one or more of the
foregoing (each such named party or significant subsidiary, an “Option
Counterparty”) shall commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to such Option
Counterparty or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of such Option Counterparty or
any substantial part of its property, or shall consent to any such relief or to
the appointment of or taking possession by any such official in an involuntary
case or other proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally to pay its
debts as they become due, or (ii) an involuntary case or other proceeding shall
be commenced against one or more of the Option Counterparties seeking
liquidation, reorganization or other relief with respect to such Option
Counterparty or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a trustee, receiver,
liquidator, custodian or other similar official of such Option Counterparty or
any substantial part of its property, and such involuntary case or other
proceeding shall remain undismissed and unstayed for a period of 30 consecutive
days.

 

 

 

 

Valuation Time:

 

At the close of trading of the regular trading session on the Exchange; provided
that if the principal trading session is extended, the Calculation Agent shall
determine the Valuation Time in its reasonable discretion.

 

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Market Disruption Event:

 

Section 6.3(a) of the Equity Definitions is hereby replaced in its entirety by
the following:

 

 

 

 

 

“‘Market Disruption Event’ means, in respect of a Share, (i) a failure by the
primary United States national securities exchange or market on which the Shares
are listed or admitted for trading to open for trading during its regular
trading session or (ii) the occurrence or existence prior to 1:00 p.m. (New York
City time) on any Scheduled Valid Day for the Shares for more than one half-hour
period in the aggregate during regular trading hours of any suspension or
limitation imposed on trading (by reason of movements in price exceeding limits
permitted by the relevant stock exchange or otherwise) in the Shares or in any
options, contracts or future contracts relating to the Shares.”

 

Settlement Terms.

 

Settlement Method:

 

For any Option, Cash Settlement. Notwithstanding the forgoing:

 

 

 

 

 

(i)

in respect of any Option relating to a Convertible Note with a Conversion Date
occurring prior to the Final Settlement Method Election Date, if
(A) Counterparty has notified Dealer in the Notice of Exercise for such Option
that either the Trading Price Condition was satisfied on such Conversion Date or
an Option Counterparty Reorganization Event has occurred as of the close of
business on the Valid Day immediately following such Conversion Date, and
(B) the Settlement Method Election Conditions have been satisfied with respect
to such Option, then the Settlement Method shall be the Relevant Settlement
Method elected by Counterparty for such Option in such Notice of Exercise; and

 

 

 

 

 

 

(ii)

in respect of any Option relating to a Convertible Note with a Conversion Date
occurring on or after the Final Settlement Method Election Date, if
(A) Counterparty has timely delivered a Notice of Final Settlement Method to
Dealer stating that an Option Counterparty Reorganization Event has occurred as
of the close of business on the Final Settlement Method Election Date, and
(B) the Settlement Method Election Conditions have been satisfied with respect
to such Option, then the Settlement Method shall be the Relevant Settlement
Method elected by Counterparty for such Option in such Notice of Final
Settlement Method;

 

 

 

 

 

provided that if Counterparty fails to specify in such Notice of Exercise or
Notice of Final Settlement Method the Relevant Settlement Method, Cash
Settlement shall apply; provided further that if Counterparty elects Combination
Settlement in such Notice of Exercise or Notice of Final Settlement Method, but
fails to specify in

 

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such Notice of Exercise or Notice of Final Settlement Method the Specified
Dollar Amount, the Settlement Method shall be Net Share Settlement.

 

 

 

Relevant Settlement Method:

 

In respect of any Option, subject to the Settlement Method Election Conditions:

 

 

 

 

 

(i)

if Counterparty has, in accordance with Section 14.02(a) of the Indenture,
elected to settle its conversion obligations in respect of the related
Convertible Note (A) entirely in Shares pursuant to Section 14.02(a)(iv)(A) of
the Indenture (together with cash in lieu of fractional Shares) (such settlement
method, “Settlement in Shares”), (B) in a combination of cash and Shares
pursuant to Section 14.02(a)(iv)(C) of the Indenture with a Specified Dollar
Amount less than USD 1,000 (such settlement method, “Low Cash Combination
Settlement”) or (C) in a combination of cash and Shares pursuant to
Section 14.02(a)(iv)(C) of the Indenture with a Specified Dollar Amount equal to
USD 1,000, then, in each case, the Relevant Settlement Method for such Option
shall be Net Share Settlement;

 

 

 

 

 

 

(ii)

if Counterparty has, in accordance with Section 14.02(a) of the Indenture,
elected to settle its conversion obligations in respect of the related
Convertible Note in a combination of cash and Shares pursuant to
Section 14.02(a)(iv)(C) of the Indenture with a Specified Dollar Amount greater
than USD 1,000, then the Relevant Settlement Method for such Option shall be
Combination Settlement; and

 

 

 

 

 

 

(iii)

if Counterparty has, in accordance with Section 14.02(a) of the Indenture,
elected to settle its conversion obligations in respect of the related
Convertible Note entirely in cash pursuant to Section 14.02(a)(iv)(B) of the
Indenture, then the Relevant Settlement Method for such Option shall be Cash
Settlement.

 

 

 

Settlement Method Election Conditions:

 

In respect of any Option, for any Relevant Settlement Method other than Cash
Settlement, such Relevant Settlement Method shall apply to such Option only if
the Notice of Exercise or Notice of Final Settlement Method, as applicable, for
such Option contains:

 

 

 

 

 

(i)

a representation that, on the date of such Notice of Exercise or Notice of Final
Settlement Method, as applicable, Counterparty is not in possession of any
material non-public information with respect to Counterparty or the Shares;

 

 

 

 

 

 

(ii)

a representation that Counterparty is electing the settlement method for the
related Convertible Note and such Relevant Settlement Method in good faith

 

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and not as part of a plan or scheme to evade the prohibitions of Rule 10b-5
under the Exchange Act;

 

 

 

 

 

 

(iii)

a representation that Counterparty has not entered into or altered any hedging
transaction relating to the Shares corresponding to or offsetting the
Transaction;

 

 

 

 

 

 

(iv)

a representation that Counterparty is not electing the settlement method for the
related Convertible Note and such Relevant Settlement Method to create actual or
apparent trading activity in the Shares (or any security convertible into or
exchangeable for the Shares) or to raise or depress or otherwise manipulate the
price of the Shares (or any security convertible into or exchangeable for the
Shares); and

 

 

 

 

 

 

(v)

an acknowledgment by Counterparty that (A) any transaction by Dealer following
Counterparty’s election of the settlement method for the related Convertible
Note and such Relevant Settlement Method shall be made at Dealer’s sole
discretion and for Dealer’s own account and (B) Counterparty does not have, and
shall not attempt to exercise, any influence over how, when, whether or at what
price to effect such transactions, including, without limitation, the price paid
or received per Share pursuant to such transactions, or whether such
transactions are made on any securities exchange or privately.

 

 

 

Cash Settlement:

 

If Cash Settlement is applicable to any Option exercised or deemed exercised
hereunder, in lieu of Section 8.1 of the Equity Definitions, Dealer will pay to
Counterparty, on the relevant Settlement Date for each such Option, an amount of
cash (the “Cash Settlement Amount”) equal to the sum, for each Valid Day during
the Settlement Averaging Period for such Option, of (i) the Daily Option Value
for such Valid Day, divided by (ii) the number of Valid Days in the Settlement
Averaging Period.

 

 

 

Net Share Settlement:

 

If Net Share Settlement is applicable to any Option exercised or deemed
exercised hereunder, Dealer will deliver to Counterparty, on the relevant
Settlement Date for each such Option, a number of Shares (the “Net Share
Settlement Amount”) equal to the sum, for each Valid Day during the Settlement
Averaging Period for each such Option, of (i) the Daily Option Value for such
Valid Day, divided by (ii) the Relevant Price on such Valid Day, divided by
(iii) the number of Valid Days in the Settlement Averaging Period; provided that
in no event shall the Net Share Settlement Amount for any Option exceed a number
of Shares equal to the Applicable Limit for such Option, divided by the
Applicable Limit Price on the Settlement Date for such Option.

 

 

 

 

 

Dealer will deliver cash in lieu of any fractional Shares to be delivered with
respect to any Net Share Settlement

 

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Share Amount valued at the Relevant Price for the last Valid Day of the
Settlement Averaging Period.

 

 

 

Combination Settlement:

 

If Combination Settlement is applicable to any Option exercised or deemed
exercised hereunder, Dealer will deliver to Counterparty, on the relevant
Settlement Date for each such Option:

 

 

 

 

 

(i)

an amount of cash (the “Combination Settlement Cash Amount”) equal to the sum,
for each Valid Day during the Settlement Averaging Period for such Option, of an
amount of cash for such Valid Day (the “Daily Combination Settlement Cash
Amount”) equal to (A) the lesser of (1) the product of (x) the Applicable
Percentage and (y) the Specified Dollar Amount, minus USD 1,000 and (2) the
Daily Option Value, divided by (B) the number of Valid Days in the Settlement
Averaging Period; provided that if the calculation in clause (A) above results
in zero or a negative number for any Valid Day, the Daily Combination Settlement
Cash Amount for such Valid Day shall be deemed to be zero; and

 

 

 

 

 

 

(ii)

a number of Shares (the “Combination Settlement Share Amount”) equal to the sum,
for each Valid Day during the Settlement Averaging Period for such Option, of a
number of Shares for such Valid Day (the “Daily Combination Settlement Share
Amount”) equal to (A) the Daily Option Value on such Valid Day, minus the Daily
Combination Settlement Cash Amount for such Valid Day, divided by (B) the
Relevant Price on such Valid Day, divided by (C) the number of Valid Days in the
Settlement Averaging Period; provided that if the calculation in clause
(A) above results in zero or a negative number for any Valid Day, the Daily
Combination Settlement Share Amount for such Valid Day shall be deemed to be
zero;

 

 

 

 

 

provided that in no event shall the sum of (x) the Combination Settlement Cash
Amount for any Option and (y) the Combination Settlement Share Amount for such
Option, multiplied by the Applicable Limit Price on the Settlement Date for such
Option, exceed the Applicable Limit for such Option.

 

 

 

 

 

Dealer will deliver cash in lieu of any fractional Shares to be delivered with
respect to any Combination Settlement Share Amount valued at the Relevant Price
for the last Valid Day of the Settlement Averaging Period.

 

 

 

Daily Option Value:

 

For any Valid Day, an amount equal to (i) the Option Entitlement on such Valid
Day, multiplied by (ii) the Relevant Price on such Valid Day less the Strike
Price on such Valid Day; provided that if the calculation contained in clause
(ii) above results in a negative number, the Daily Option Value for such Valid
Day shall be deemed to be

 

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zero.  In no event will the Daily Option Value be less than zero.

 

 

 

Applicable Limit:

 

For any Option, an amount of cash equal to the Applicable Percentage, multiplied
by the excess of (i) the aggregate of (A) the amount of cash, if any, delivered
to the Holder of the related Convertible Note upon conversion of such
Convertible Note and (B) the number of Shares, if any, delivered to the Holder
of the related Convertible Note upon conversion of such Convertible Note,
multiplied by the Applicable Limit Price on the Settlement Date for such Option,
over (ii) USD 1,000.

 

 

 

Applicable Limit Price:

 

On any day, the opening price as displayed under the heading “Op” on Bloomberg
page AEL <equity> (or any successor thereto).

 

 

 

Valid Day:

 

A day on which (i) there is no Market Disruption Event and (ii) trading in the
Shares generally occurs on the Exchange or, if the Shares are not then listed on
the Exchange, on the principal other United States national securities exchange
on which the Shares are then listed or, if the Shares are not then listed on a
United States national securities exchange, on the principal other market on
which the Shares are then listed or admitted for trading. If the Shares are not
so listed or admitted for trading, “Valid Day” means a Business Day.

 

 

 

Scheduled Valid Day:

 

A day that is scheduled to be a Valid Day on the principal United States
national securities exchange or market on which the Shares are listed or
admitted for trading. If the Shares are not so listed or admitted for trading,
“Scheduled Valid Day” means a Business Day.

 

 

 

Business Day:

 

Any day other than a Saturday, a Sunday or a day on which the Federal Reserve
Bank of New York is authorized or required by law or executive order to close or
be closed.

 

 

 

Relevant Price:

 

On any Valid Day, the per Share volume-weighted average price as displayed under
the heading “Bloomberg VWAP” on Bloomberg page AEL <equity> AQR (or its
equivalent successor if such page is not available) in respect of the period
from the scheduled open of trading until the scheduled close of trading of the
primary trading session on such Valid Day (or if such volume-weighted average
price is unavailable, the market value of one Share on such Valid Day, as
determined by the Calculation Agent using a volume-weighted method). The
“Relevant Price” will be determined without regard to after-hours trading or any
other trading outside of the regular trading session trading hours.

 

 

 

Settlement Averaging Period:

 

For any Option, regardless of the Settlement Method applicable to such Option:

 

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(i)

if the related Conversion Date occurs prior to the Final Settlement Method
Election Date, the 40 consecutive Valid Days commencing on, and including, the
second Valid Day following such Conversion Date; provided that if the Notice of
Exercise for such Option specifies that (A) the Trading Price Condition was
satisfied on the Conversion Date for such related Convertible Note or an Option
Counterparty Reorganization Event has occurred as of the close of business on
the Valid Day immediately following such Conversion Date, and (B) Settlement in
Shares or Low Cash Combination Settlement applies to the related Convertible
Note, the Settlement Averaging Period shall be the 80 consecutive Valid Day
period commencing on, and including, the second Valid Day immediately following
such Conversion Date; or

 

 

 

 

 

 

(ii)

if the related Conversion Date occurs on or following the Final Settlement
Method Election Date, the 40 consecutive Valid Days commencing on, and
including, the 42nd Scheduled Valid Day immediately prior to the Expiration
Date; provided that if Counterparty has timely delivered a Notice of Final
Settlement Method for such Option specifying that (A) an Option Counterparty
Reorganization Event has occurred as of the close of business on the Final
Settlement Method Election Date, and (B) Settlement in Shares or Low Cash
Combination Settlement applies to the related Convertible Note, the Settlement
Averaging Period shall be the 80 consecutive Valid Day period commencing on, and
including, the 82nd Scheduled Valid Day immediately prior to the Expiration
Date.

 

 

 

Settlement Date:

 

For any Option, the third Business Day immediately following the final Valid Day
of the Settlement Averaging Period for such Option.

 

 

 

Settlement Currency:

 

USD

 

 

 

Other Applicable Provisions:

 

The provisions of Sections 9.1(c), 9.8, 9.9, 9.11, 9.12 and 10.5 of the Equity
Definitions will be applicable, except that all references in such provisions to
“Physically-settled” shall be read as references to “Share Settled”. “Share
Settled” in relation to any Option means that Net Share Settlement or
Combination Settlement is applicable to that Option.

 

 

 

Representation and Agreement:

 

Notwithstanding anything to the contrary in Equity Definitions (including, but
not limited to, Section 9.11 thereof), the parties acknowledge that (i) any
Shares delivered to Counterparty shall be, upon delivery, subject to
restrictions and limitations arising from Counterparty’s status as issuer of the
Shares under applicable securities

 

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laws, (ii) Dealer may deliver any Shares required to be delivered hereunder in
certificated form in lieu of delivery through the Clearance System and (iii) any
Shares delivered to Counterparty may be “restricted securities” (as defined in
Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”)).

 

3.             Additional Terms applicable to the Transaction.

 

Adjustments applicable to the Transaction:

 

Potential Adjustment Events:

 

Notwithstanding Section 11.2(e) of the Equity Definitions, a “Potential
Adjustment Event” means an occurrence of any event or condition, as set forth in
any Dilution Adjustment Provision, that would result in an adjustment to the
Conversion Rate (as defined in the Indenture) of the Convertible Notes.

 

 

 

Method of Adjustment:

 

Calculation Agent Adjustment, which means that, notwithstanding
Section 11.2(c) of the Equity Definitions, upon any Potential Adjustment Event,
the Calculation Agent shall make a corresponding adjustment to any one or more
of the Strike Price, Number of Options, Option Entitlement and any other
variable relevant to the exercise, settlement or payment for the Transaction;
provided that, notwithstanding the foregoing, if the Calculation Agent in good
faith disagrees with any adjustment to the Convertible Notes that involves an
exercise of discretion by Counterparty or its board of directors (including,
without limitation, pursuant to Section 14.05 of the Indenture or in connection
with any proportional adjustment or the determination of the fair value of any
securities, property, rights or other assets), then in each such case, the
Calculation Agent will determine the adjustment to be made to any one or more of
the Strike Price, Number of Options, Option Entitlement and any other variable
relevant to the exercise, settlement or payment for the Transaction in a
commercially reasonable manner; provided, further, that, notwithstanding the
foregoing, if any Potential Adjustment Event occurs during the Settlement
Averaging Period but no adjustment was made to any Convertible Note under the
Indenture because the relevant Holder (as such term is defined in the Indenture)
was deemed to be a record owner of the underlying Shares on the related
Conversion Date, then the Calculation Agent shall make an adjustment, as
determined by it, to the terms hereof in order to account for such Potential
Adjustment Event.

 

 

 

Dilution Adjustment Provisions:

 

Section 14.04(a), (b), (c), (d) and (e) and Section 14.05 of the Indenture.

 

Extraordinary Events applicable to the Transaction:

 

Merger Events:

 

Applicable; provided that notwithstanding Section 12.1(b) of the Equity
Definitions, a “Merger Event” means the

 

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occurrence of any event or condition set forth in the definition of “Merger
Event” in Section 14.07 of the Indenture.

 

 

 

Tender Offers:

 

Applicable; provided that notwithstanding Section 12.1(d) of the Equity
Definitions, a “Tender Offer” means the occurrence of any event or condition set
forth in Section 14.04(e) of the Indenture.

 

 

 

Consequence of Merger Events /

Tender Offers:

 

Notwithstanding Section 12.2 and Section 12.3 of the Equity Definitions, upon
the occurrence of a Merger Event or a Tender Offer, the Calculation Agent shall
make a corresponding adjustment in respect of any adjustment under the Indenture
to any one or more of the nature of the Shares (in the case of a Merger Event),
Strike Price, Number of Options, Option Entitlement and any other variable
relevant to the exercise, settlement or payment for the Transaction; provided,
however, that such adjustment shall be made without regard to any adjustment to
the Conversion Rate pursuant to any Excluded Provision; provided further that
if, with respect to a Merger Event or a Tender Offer, (i) the consideration for
the Shares includes (or, at the option of a holder of Shares, may include)
shares of an entity or person not organized under the laws of the United States,
any State thereof or the District of Columbia or (ii) the Counterparty to the
Transaction following such Merger Event or Tender Offer, will not be the Issuer
following such Merger Event or Tender Offer, then Cancellation and Payment
(Calculation Agent Determination) shall apply.

 

 

 

Nationalization, Insolvency or Delisting:

 

Cancellation and Payment (Calculation Agent Determination); provided that, in
addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it
will also constitute a Delisting if the Exchange is located in the United States
and the Shares are not immediately re-listed, re-traded or re-quoted on any of
the New York Stock Exchange, The NASDAQ Global Select Market or The NASDAQ
Global Market (or their respective successors); if the Shares are immediately
re-listed, re-traded or re-quoted on any of the New York Stock Exchange, The
NASDAQ Global Select Market or The NASDAQ Global Market (or their respective
successors), such exchange or quotation system shall thereafter be deemed to be
the Exchange.

 

 

 

Additional Disruption Events:

 

 

 

 

 

Change in Law:

 

Applicable; provided that Section 12.9(a)(ii)(X) of the Equity Definitions is
hereby amended by replacing the word “Shares” with the phrase “Hedge Positions.”

 

 

 

Failure to Deliver:

 

Applicable

 

 

 

Hedging Disruption:

 

Applicable; provided that:

 

13

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(i)

Section 12.9(a)(v) of the Equity Definitions is hereby amended by inserting the
following two phrases at the end of such Section:

 

 

 

 

 

 

 

“For the avoidance of doubt, the term “equity price risk” shall be deemed to
include, but shall not be limited to, stock price and volatility risk. And, for
the further avoidance of doubt, any such transactions or assets referred to in
phrases (A) or (B) above must be available on commercially reasonable pricing
terms.”; and

 

 

 

 

 

 

(ii)

Section 12.9(b)(iii) of the Equity Definitions is hereby amended by inserting in
the third line thereof,  after the words “to terminate the Transaction”, the
words “or a portion of the Transaction affected by such Hedging Disruption”.

 

 

 

 

Increased Cost of Hedging:

 

Applicable

 

 

 

Hedging Party:

 

For all applicable Additional Disruption Events, Dealer.

 

 

 

Determining Party:

 

For all applicable Extraordinary Events, Dealer.

 

 

 

Non-Reliance:

 

Applicable

 

 

 

Agreements and Acknowledgements

 

 

Regarding Hedging Activities:

 

Applicable

 

 

 

Additional Acknowledgments:

 

Applicable

 

4.

Calculation Agent.

Dealer, whose judgments, determinations and calculations shall be made in good
faith and in a commercially reasonable manner. Following any calculation by the
Calculation Agent hereunder and a prior written request by Counterparty, the
Calculation Agent shall provide Counterparty a written explanation of any
calculation or adjustment made by it including, where applicable, a description
of the methodology and the basis for such calculation or adjustment in
reasonable detail, it being understood that the Calculation Agent shall not be
obligated to disclose any proprietary models used by it for such calculation.

 

 

 

5.

Account Details.

 

 

 

 

 

(a)

Account for payments to Counterparty:

 

 

 

 

 

Bank:

West Bank

 

 

ABA#:

073903354

 

 

Acct No.:

905432

 

 

Beneficiary:

American Equity Investment Life Holding Company

 

 

Ref:

Derivatives

 

 

 

 

 

 

Account for delivery of Shares to Counterparty:

 

 

 

 

 

DTC 50108.

 

14

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(b)           Account for payments to Dealer:

 

Bank:

JPMorgan Chase Bank, N.A.

ABA#:

021000021

Acct No.:

099997979

Beneficiary:

JPMorgan Chase Bank, N.A. New York

Ref:

Derivatives

 

Account for delivery of Shares from Dealer:

 

DTC 0060

 

6.             Offices.

 

(a)           The Office of Counterparty for the Transaction is:  Inapplicable,
Counterparty is not a Multibranch Party.

 

(b)           The Office of Dealer for the Transaction is: London

 

JPMorgan Chase Bank, National Association

London Branch

P.O. Box 161

60 Victoria Embankment

London EC4Y 0JP

England

 

7.             Notices.

 

(a)           Address for notices or communications to Counterparty:

 

American Equity Investment Life Holding Company

 

 

6000 Westown Parkway

 

 

West Des Moines, IA 50266

 

 

Attention:

Treasurer

Telephone No.:

(515) 221-0002

Facsimile No.:

(515) 221-9947

 

(b)           Address for notices or communications to Dealer:

 

JPMorgan Chase Bank, National Association

4 New York Plaza, Floor 18

New York, NY 10004-2413

Attention:

Mariusz Kwasnik

Title:

Operations Analyst, EDG Corporate Marketing

Telephone No:

(212) 623-7223

Facsimile No:

(212) 623-7719

 

8.             Representations and Warranties of Counterparty.

 

Counterparty hereby represents and warrants to Dealer on the date hereof and on
and as of the Premium Payment Date that:

 

(a)           Counterparty has all necessary corporate power and authority to
execute, deliver and perform its obligations in respect of the Transaction; such
execution, delivery and performance have been duly authorized by all necessary
corporate action on Counterparty’s part; and this Confirmation has been duly and
validly executed and delivered by Counterparty and constitutes its valid and
binding obligation, enforceable against Counterparty in accordance with its
terms, subject to

 

15

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applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors’ rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity) and except
that rights to indemnification and contribution hereunder may be limited by
federal or state securities laws or public policy relating thereto.

 

(b)           Neither the execution and delivery of this Confirmation nor the
incurrence or performance of obligations of Counterparty hereunder will conflict
with or result in a breach of the certificate of incorporation or by-laws (or
any equivalent documents) of Counterparty, or any applicable law or regulation,
or any order, writ, injunction or decree of any court or governmental authority
or agency, or any agreement or instrument filed as exhibits to Counterparty’s
Annual Report on Form 10-K for the year ended December 31, 2009, as updated by
any subsequent filings, to which Counterparty or any of its subsidiaries is a
party or by which Counterparty or any of its subsidiaries is bound or to which
Counterparty or any of its subsidiaries is subject, or constitute a default
under, or result in the creation of any lien under, any such agreement or
instrument, in each case which would have a material adverse effect on the
Transaction or Dealer’s rights or obligations relating to the Transaction.

 

(c)           No consent, approval, authorization, or order of, or filing with,
any governmental agency or body or any court is required in connection with the
execution, delivery or performance by Counterparty of this Confirmation, except
such as have been obtained or made and such as may be required under the
Securities Act or state securities laws.

 

(d)           Counterparty is not and will not be required to register as an
“investment company” as such term is defined in the Investment Company Act of
1940, as amended.

 

(e)           Counterparty is an “eligible contract participant” (as such term
is defined in Section 1a(12) of the Commodity Exchange Act, as amended, other
than a person that is an eligible contract participant under
Section 1a(12)(C) of the Commodity Exchange Act).

 

(f)            Counterparty is not, on the date hereof, in possession of any
material non-public information with respect to Counterparty or the Shares.

 

(g)           All reports and other documents filed by Counterparty with the
Securities and Exchange Commission pursuant to the Exchange Act when considered
as a whole (with the more recent such reports and documents deemed to amend
inconsistent statements contained in any earlier such reports and documents), do
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading.

 

9.             Other Provisions.

 

(a)           Opinions.  Counterparty shall deliver to Dealer an opinion of
counsel, dated as of the Premium Payment Date, with respect to the matters set
forth in Sections 8(a) through (c) of this Confirmation.  Delivery of such
opinion to Dealer shall be a condition precedent for the purpose of
Section 2(a)(iii) of the Agreement with respect to each obligation of Dealer
under Section 2(a)(i) of the Agreement.

 

(b)           Repurchase Notices.  Counterparty shall, on any day on which
Counterparty effects any repurchase of Shares, promptly give Dealer a written
notice of such repurchase (a “Repurchase Notice”) on such day if following such
repurchase, the number of outstanding Shares as determined on such day is
(i) less than 56.7 million (in the case of the first such notice) or
(ii) thereafter more than 1.7 million less than the number of Shares included in
the immediately preceding Repurchase Notice.  Counterparty agrees to indemnify
and hold harmless Dealer and its affiliates and their respective officers,
directors, employees, affiliates, advisors, agents and controlling persons
(each, an “Indemnified Person”) from and against any and all losses

 

16

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(including losses relating to Dealer’s hedging activities as a consequence of
becoming, or of the risk of becoming, a Section 16 “insider”, including without
limitation, any forbearance from hedging activities or cessation of hedging
activities and any losses in connection therewith with respect to the
Transaction), claims, damages, judgments, liabilities and expenses (including
reasonable attorney’s fees), joint or several, which an Indemnified Person may
become subject to, as a result of Counterparty’s failure to provide Dealer with
a Repurchase Notice on the day and in the manner specified in this paragraph,
and to reimburse, within 30 days, upon written request, each of such Indemnified
Persons for any reasonable legal or other expenses incurred in connection with
investigating, preparing for, providing testimony or other evidence in
connection with or defending any of the foregoing.  If any suit, action,
proceeding (including any governmental or regulatory investigation), claim or
demand shall be brought or asserted against the Indemnified Person as a result
of Counterparty’s failure to provide Dealer with a Repurchase Notice in
accordance with this paragraph, such Indemnified Person shall promptly notify
Counterparty in writing, and Counterparty, upon request of the Indemnified
Person, shall retain counsel reasonably satisfactory to the Indemnified Person
to represent the Indemnified Person and any others Counterparty may designate in
such proceeding and shall pay the fees and expenses of such counsel related to
such proceeding.  Counterparty shall not be liable for any settlement of any
proceeding contemplated by this paragraph that is effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, Counterparty agrees to indemnify any Indemnified Person from and
against any loss or liability by reason of such settlement or judgment. 
Counterparty shall not, without the prior written consent of the Indemnified
Person, effect any settlement of any pending or threatened proceeding
contemplated by this paragraph that is in respect of which any Indemnified
Person is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Person, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of such proceeding on terms reasonably satisfactory
to such Indemnified Person.  If the indemnification provided for in this
paragraph is unavailable to an Indemnified Person or insufficient in respect of
any losses, claims, damages or liabilities referred to therein, then
Counterparty hereunder, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities.  The remedies
provided for in this paragraph (b) are not exclusive and shall not limit any
rights or remedies which may otherwise be available to any Indemnified Person at
law or in equity.  The indemnity and contribution agreements contained in this
paragraph shall remain operative and in full force and effect regardless of the
termination of the Transaction.

 

(c)           Regulation M.  Counterparty is not on the Trade Date engaged in a
distribution, as such term is used in Regulation M under the Exchange Act, of
any securities of Counterparty, other than a distribution meeting the
requirements of the exception set forth in Rules 101(b)(10) and 102(b)(7) of
Regulation M.  Counterparty shall not, until the second Scheduled Trading Day
immediately following the Effective Date, engage in any such distribution.

 

(d)           No Manipulation.  Counterparty is not entering into the
Transaction to create actual or apparent trading activity in the Shares (or any
security convertible into or exchangeable for the Shares) or to raise or depress
or otherwise manipulate the price of the Shares (or any security convertible
into or exchangeable for the Shares) or otherwise in violation of the Exchange
Act.

 

(e)           Transfer or Assignment.

 

(i)            Counterparty shall have the right to transfer or assign its
rights and obligations hereunder with respect to all, but not less than all, of
the Options hereunder (such Options, the “Transfer Options”); provided that such
transfer or assignment shall be subject to reasonable conditions that Dealer may
impose, including but not limited, to the following conditions:

 

17

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(A)          With respect to any Transfer Options, Counterparty shall not be
released from its notice and indemnification obligations pursuant to
Section 9(b) or any obligations under Section 9(o) or 9(s) of this Confirmation;

 

(B)           Any Transfer Options shall only be transferred or assigned to a
third party that is a United States person (as defined in the Internal Revenue
Code of 1986, as amended);

 

(C)           Such transfer or assignment shall be effected on terms, including
any reasonable undertakings by such third party (including, but not limited to,
an undertaking with respect to compliance with applicable securities laws in a
manner that, in the reasonable judgment of Dealer, will not expose Dealer to
material risks under applicable securities laws) and execution of any
documentation and delivery of legal opinions with respect to securities laws and
other matters by such third party and Counterparty, as are requested and
reasonably satisfactory to Dealer;

 

(D)          Dealer will not, as a result of such transfer and assignment, be
required to pay the transferee on any payment date an amount under
Section 2(d)(i)(4) of the Agreement greater than an amount that Dealer would
have been required to pay to Counterparty in the absence of such transfer and
assignment;

 

(E)           An Event of Default, Potential Event of Default or Termination
Event will not occur as a result of such transfer and assignment;

 

(F)           Without limiting the generality of clause (B), Counterparty shall
cause the transferee to make such Payee Tax Representations and to provide such
tax documentation as may be reasonably requested by Dealer to permit Dealer to
determine that results described in clauses (D) and (E) will not occur upon or
after such transfer and assignment; and

 

(G)           Counterparty shall be responsible for all reasonable costs and
expenses, including reasonable counsel fees, incurred by Dealer in connection
with such transfer or assignment.

 

(ii)           Dealer may, without Counterparty’s consent, transfer or assign
all or any part of its rights or obligations under the Transaction to any
affiliate of Dealer (1) that has a rating for its long term, unsecured and
unsubordinated indebtedness that is equal to or better than Dealer’s credit
rating at the time of such transfer or assignment, or (2) whose obligations
hereunder will be guaranteed, pursuant to the terms of a customary guarantee in
a form used by Dealer generally for similar transactions, by Dealer or JPMorgan
Chase & Co.  If at any time at which (A) the Section 16 Percentage exceeds 8.0%,
(B) the Option Equity Percentage exceeds 15.5%, or (C) the Share Amount exceeds
the Applicable Share Limit (if any applies) (any such condition described in
clauses (A), (B) or (C), an “Excess Ownership Position”), Dealer is unable after
using its commercially reasonable efforts to effect a transfer or assignment of
Options in accordance with the preceding sentence within a time period
reasonably acceptable to Dealer such that no Excess Ownership Position exists,
then Dealer may designate any Exchange Business Day as an Early Termination Date
with respect to a portion of the Transaction (the “Terminated Portion”), such
that following such partial termination no Excess Ownership Position exists.  In
the event that Dealer so designates an Early Termination Date with respect to a
portion of the Transaction, a payment shall be made pursuant to Section 6 of the
Agreement as if (1) an Early Termination Date had been designated in respect of
a Transaction having terms identical to the Transaction and a Number of Options
equal to the number of Options underlying the Terminated Portion,
(2) Counterparty were the sole Affected Party with respect to such partial
termination and (3) the Terminated Portion were the sole Affected Transaction
(and, for the avoidance of doubt, the provisions of

 

18

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Section 9(m) shall apply to any amount that is payable by Dealer to Counterparty
pursuant to this sentence as if Counterparty was not the Affected Party).  The
“Section 16 Percentage” as of any day is the fraction, expressed as a
percentage, (A) the numerator of which is the number of Shares that Dealer and
each person subject to aggregation of Shares with Dealer under Section 13 or
Section 16 of the Exchange Act and rules promulgated thereunder directly or
indirectly beneficially own (as defined under Section 13 or Section 16 of the
Exchange Act and rules promulgated thereunder) and (B) the denominator of which
is the number of Shares outstanding.  The “Option Equity Percentage” as of any
day is the fraction, expressed as a percentage, (A) the numerator of which is
the sum of (1) the product of the Number of Options and the Option Entitlement
and (2) the aggregate number of Shares underlying any other call option
transaction sold by Dealer to Counterparty, and (B) the denominator of which is
the number of Shares outstanding.  The “Share Amount” as of any day is the
number of Shares that Dealer and any person whose ownership position would be
aggregated with that of Dealer (Dealer or any such person, a “Dealer Person”)
under any insurance or other law, rule, regulation, regulatory order or
organizational documents or contracts of Counterparty that are, in each case,
applicable to ownership of Shares (“Applicable Restrictions”), owns,
beneficially owns, constructively owns, controls, holds the power to vote or
otherwise meets a relevant definition of ownership under any Applicable
Restriction, as determined by Dealer in its reasonable discretion.  The
“Applicable Share Limit” means a number of Shares equal to (A) the minimum
number of Shares that could give rise to reporting or registration obligations
or other requirements (including obtaining prior approval from any person or
entity) of a Dealer Person, or could result in an adverse effect on a Dealer
Person, under any Applicable Restriction, as determined by Dealer in its
reasonable discretion, minus (B) 1% of the number of Shares outstanding.

 

(iii)          Notwithstanding any other provision in this Confirmation to the
contrary requiring or allowing Dealer to purchase, sell, receive or deliver any
Shares or other securities, or make or receive any payment in cash, to or from
Counterparty, Dealer may designate any of its affiliates to purchase, sell,
receive or deliver such Shares or other securities, or to make or receive such
payment in cash, and otherwise to perform Dealer’s obligations in respect of the
Transaction and any such designee may assume such obligations.  Dealer shall be
discharged of its obligations to Counterparty to the extent of any such
performance.

 

(f)            Ratings Decline.  If at any time the long term, unsecured and
unsubordinated indebtedness of Dealer is rated Ba1 or lower by Moody’s or BB+ or
lower by S&P (any such rating, a “Ratings Downgrade”), then Counterparty may, at
any time following the occurrence and during the continuation of such Ratings
Downgrade, provide written notice to Dealer specifying that it elects for this
Section 9(f) to apply (a “Trigger Notice”).  Upon receipt by Dealer of a Trigger
Notice from Counterparty, Dealer shall promptly elect that either (i) the
parties shall negotiate in good faith terms for collateral arrangements pursuant
to which Dealer is required to provide collateral (including, but not limited
to, equity or equity-linked securities issued by Counterparty) to Counterparty
in respect of the Transaction with a value equal to the full mark-to-market
exposure of Counterparty under the Transaction, or (ii) an Additional
Termination Event shall occur and, with respect to such Additional Termination
Event, (A) Counterparty shall be deemed to be the sole Affected Party, and
(B) the Transaction shall be the sole Affected Transaction.

 

(g)           Staggered Settlement.  If upon advice of counsel with respect to
applicable legal and regulatory requirements, including any requirements
relating to Dealer’s hedging activities hereunder, Dealer reasonably determines
that it would not be practicable or advisable to deliver, or to acquire Shares
to deliver, any or all of the Shares to be delivered by Dealer on the Settlement
Date for the Transaction, Dealer may, by notice to Counterparty on or prior to
any Settlement Date (a “Nominal Settlement Date”), elect to deliver the Shares
on two or more dates (each, a “Staggered Settlement Date”) as follows:

 

19

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(i)            in such notice, Dealer will specify to Counterparty the related
Staggered Settlement Dates (the first of which will be such Nominal Settlement
Date and the last of which will be no later than the twentieth (20th) Exchange
Business Day following such Nominal Settlement Date) and the number of Shares
that it will deliver on each Staggered Settlement Date;

 

(ii)           the aggregate number of Shares that Dealer will deliver to
Counterparty hereunder on all such Staggered Settlement Dates will equal the
number of Shares that Dealer would otherwise be required to deliver on such
Nominal Settlement Date; and

 

(iii)          the Settlement Method applicable on the Nominal Settlement Date
will apply on each Staggered Settlement Date, except that the cash and/or Shares
deliverable to Counterparty will be allocated among such Staggered Settlement
Dates as specified by Dealer in the notice referred to in clause (i) above.

 

(h)           Role of Agent.  Each party agrees and acknowledges that (i) J.P.
Morgan Securities LLC, an affiliate of Dealer (“JPMS”), has acted solely as
agent and not as principal with respect to the Transaction and (ii) JPMS has no
obligation or liability, by way of guaranty, endorsement or otherwise, in any
manner in respect of the Transaction (including, if applicable, in respect of
the settlement thereof). Each party agrees it will look solely to the other
party (or any guarantor in respect thereof) for performance of such other
party’s obligations under the Transaction.

 

(i)            Dividends.  If at any time during the period from and including
the Effective Date, to but excluding the Expiration Date, (i) an ex-dividend
date for a regular annual cash dividend occurs with respect to the Shares (an
“Ex-Dividend Date”), and that dividend is less than the Regular Dividend on a
per Share basis or (ii) if no Ex-Dividend Date for a regular annual cash
dividend occurs with respect to the Shares in any annual dividend period of
Counterparty, then the Calculation Agent will make a corresponding adjustment to
any one or more of the Strike Price, Number of Options, Option Entitlement
and/or any other variable relevant to the exercise, settlement or payment for
the Transaction to preserve the fair value of the Options to Dealer after taking
into account such dividend or lack thereof.  “Regular Dividend” shall mean
USD 0.08 per Share per calendar year.  Upon any adjustment to the Initial
Dividend Threshold (as defined in the Indenture) for the Convertible Notes
pursuant to the Indenture, the Calculation Agent will make a corresponding
adjustment to the Regular Dividend for the Transaction.

 

(j)            Additional Termination Events.  Notwithstanding anything to the
contrary in this Confirmation:

 

(i)              If an event of default with respect to Counterparty that
results in an acceleration of the Convertible Notes pursuant to the terms of the
Indenture occurs under the terms of the Convertible Notes as set forth in
Section 6.01 of the Indenture, then such event of default shall constitute an
Additional Termination Event applicable to the Transaction and, with respect to
such Additional Termination Event, (A) Counterparty shall be deemed to be the
sole Affected Party, (B) the Transaction shall be the sole Affected Transaction
and (C) Dealer shall designate, at its own election or at Counterparty’s
request, an Exchange Business Day (which Exchange Business Day shall be on or as
promptly as reasonably practicable after the occurrence of such acceleration) as
an Early Termination Date pursuant to Section 6(b) of the Agreement.

 

(ii)             Following any repurchase of Convertible Notes (whether pursuant
to Section 15.02 of the Indenture in connection with a Fundamental Change (as
defined in the Indenture) or otherwise), Counterparty may notify Dealer of such
repurchase and the aggregate principal amount of Convertible Notes so
repurchased and cancelled (any such notice, a “Repurchase Notice”).  The receipt
by Dealer from Counterparty of any Repurchase Notice shall constitute an
Additional Termination Event as provided in this Section 9(j)(ii). Upon receipt
of any such Repurchase Notice, Dealer shall designate an Exchange Business Day
following receipt of such Repurchase Notice (which Exchange Business Day shall
be on or as promptly as reasonably practicable after the related settlement date

 

20

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for the repurchase of such Convertible Notes) as an Early Termination Date with
respect to the portion of this Transaction corresponding to a number of Options
(the “Repurchase Options”) equal to the lesser of (A) the aggregate principal
amount of such Convertible Notes specified in such Repurchase Notice, divided by
USD 1,000 and (B) the Number of Options as of the date Dealer designates such
Early Termination Date and, as of such date, the Number of Options shall be
reduced by the number of Repurchase Options.  Any payment hereunder with respect
to such termination shall be calculated pursuant to Section 6 of the Agreement
as if (1) an Early Termination Date had been designated in respect of a
Transaction having terms identical to this Transaction and a Number of Options
equal to the number of Repurchase Options, (2) Counterparty were the sole
Affected Party with respect to such Additional Termination Event and (3) the
terminated portion of the Transaction were the sole Affected Transaction.

 

(iii)            The receipt by Dealer from Counterparty, within the applicable
time period set forth under “Notice of Exercise” above, of any Notice of
Exercise in respect of Options that relates to Convertible Notes as to which
additional Shares would be added to the Conversion Rate pursuant to
Section 14.03 of the Indenture in connection with a “Fundamental Change” (as
defined in the Indenture) shall constitute an Additional Termination Event as
provided in this Section 9(j)(iii).  Upon receipt of any such Notice of
Exercise, Dealer shall designate an Exchange Business Day following such
Additional Termination Event (which Exchange Business Day shall be on or as
promptly as reasonably practicable after the related settlement date for such
Convertible Notes) as an Early Termination Date with respect to the portion of
this Transaction corresponding to a number of Options (the “Make-Whole
Conversion Options”) equal to the lesser of (A) the number of such Options
specified in such Notice of Exercise and (B) the Number of Options as of the
date Dealer designates such Early Termination Date and, as of such date, the
Number of Options shall be reduced by the number of Make-Whole Conversion
Options.  Any payment hereunder with respect to such termination (the
“Make-Whole Unwind Payment”) shall be calculated pursuant to Section 6 of the
Agreement as if (1) an Early Termination Date had been designated in respect of
a Transaction having terms identical to this Transaction and a Number of Options
equal to the number of Make-Whole Conversion Options, (2) Counterparty were the
sole Affected Party with respect to such Additional Termination Event and
(3) the terminated portion of the Transaction were the sole Affected Transaction
(and, for the avoidance of doubt, in determining the amount payable pursuant to
Section 6 of the Agreement, the Calculation Agent shall not take into account
any adjustments to the Option Entitlement that result from corresponding
adjustments to the Conversion Rate pursuant to Section 14.03 of the Indenture);
provided that the amount of cash deliverable in respect of such early
termination by Dealer to Counterparty shall not be greater than the product of
(x) the Applicable Percentage and (y) the excess of (I) (1) the number of
Make-Whole Conversion Options multiplied by (2) the Conversion Rate (after
taking into account any applicable adjustments to the Conversion Rate pursuant
to Section 14.03 of the Indenture) multiplied by (3) a price per Share
determined by the Calculation Agent over (II) the aggregate principal amount of
such Convertible Notes, as determined by the Calculation Agent in a commercially
reasonable manner.  Counterparty may irrevocably elect, if so designated in its
Notice of Exercise to Dealer as set forth above, to receive the Make-Whole
Unwind Payment in Shares, in which case, in lieu of making such Make-Whole
Unwind Payment as set forth above, Dealer shall deliver to Counterparty, within
a commercially reasonable period of time after such designation as determined by
Dealer (taking into account existing liquidity conditions and Dealer’s hedging
and hedge unwind activity or settlement activity in connection with such
delivery) a number of Shares equal to such Make-Whole Unwind Payment divided by
a price per Share determined by the Calculation Agent in good faith and in a
commercially reasonable manner.

 

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(k)           Amendments to Equity Definitions.

 

(i)            Section 12.6(a)(ii) of the Equity Definitions is hereby amended
by (1) deleting from the fourth line thereof the word “or” after the word
“official” and inserting a comma therefor, and (2) deleting the semi-colon at
the end of subsection (B) thereof and inserting the following words therefor “or
(C) at Dealer’s option, the occurrence of any of the events specified in
Section 5(a)(vii)(1) through (9) of the ISDA Master Agreement with respect to
that Issuer.”

 

(ii)           Section 12.9(b)(i) of the Equity Definitions is hereby amended by
(1) replacing “either party may elect” with “Dealer may elect” and (2) replacing
“notice to the other party” with “notice to Counterparty” in the first sentence
of such section.

 

(l)            Setoff.  Each party waives any and all rights it may have to set
off obligations arising under the Agreement and the Transaction against other
obligations between the parties, whether arising under any other agreement,
applicable law or otherwise.

 

(m)          Alternative Calculations and Payment on Early Termination and on
Certain  Extraordinary Events.  If in respect of the Transaction, an amount is
payable by Dealer to Counterparty (i) pursuant to Section 12.7 or Section 12.9
of the Equity Definitions or (ii) pursuant to Section 6(d)(ii) of the Agreement
(any such amount, a “Payment Obligation”), Counterparty may request Dealer to
satisfy the Payment Obligation by the Share Termination Alternative (as defined
below) (except that Counterparty shall not have the right to make such an
election in the event of (I) a Nationalization, Insolvency, Merger Event or
Tender Offer, in each case, in which the consideration to be paid to holders of
Shares consists solely of cash, (II) a Merger Event or Tender Offer that is
within Counterparty’s control, or (III) an Event of Default in which
Counterparty is the Defaulting Party or a Termination Event in which
Counterparty is the Affected Party, other than an Event of Default of the type
described in Section 5(a)(iii), (v), (vi), (vii) or (viii) of the Agreement or a
Termination Event of the type described in Section 5(b) of the Agreement in each
case that resulted from an event or events outside Counterparty’s control) and
shall give irrevocable telephonic notice to Dealer, confirmed in writing within
one Scheduled Trading Day, no later than 12:00 p.m. (New York City time) on the
Merger Date, the Tender Offer Date, the Announcement Date (in the case of
Nationalization, Insolvency or Delisting), the Early Termination Date or date of
cancellation, as applicable; provided that if Counterparty does not validly
request Dealer to satisfy the Payment Obligation by the Share Termination
Alternative, Dealer shall have the right, in its sole discretion, to satisfy its
Payment Obligation by the Share Termination Alternative, notwithstanding
Counterparty’s election to the contrary.

 

Share Termination Alternative:                          If applicable, Dealer
shall deliver to Counterparty the Share Termination Delivery Property on, or
within a commercially reasonable period of time after, the date when the
relevant Payment Obligation would otherwise be due pursuant to Section 12.7 or
12.9 of the Equity Definitions or Section 6(d)(ii) and 6(e) of the Agreement, as
applicable (the “Share Termination Payment Date”), in satisfaction of such
Payment Obligation in the manner reasonably requested by Counterparty free of
payment.

 

Share Termination Delivery Property:              A number of Share Termination
Delivery Units, as calculated by the Calculation Agent, equal to the Payment
Obligation divided by the Share Termination Unit Price.  The Calculation Agent
shall adjust the Share Termination Delivery Property by replacing any fractional
portion of a security therein with an amount of cash equal to the value of such
fractional security based on the values used to calculate the Share Termination
Unit Price.

 

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Share Termination Unit Price:                            The value to Dealer of
property contained in one Share Termination Delivery Unit, as determined by the
Calculation Agent in its discretion by commercially reasonable means and
notified by the Calculation Agent to Dealer at the time of notification of the
Payment Obligation. For the avoidance of doubt, the parties agree that in
determining the Share Termination Delivery Unit Price the Calculation Agent may
consider the purchase price paid in connection with the purchase of Share
Termination Delivery Property.

 

Share Termination Delivery Unit:                      One Share or, if a Merger
Event has occurred and a corresponding adjustment to the Transaction has been
made, a unit consisting of the number or amount of each type of property
received by a holder of one Share (without consideration of any requirement to
pay cash or other consideration in lieu of fractional amounts of any securities)
in such Merger Event, as determined by the Calculation Agent.

 

Failure to Deliver:                                                 Applicable

 

Other applicable provisions:                              If Share Termination
Alternative is applicable, the provisions of Sections 9.8, 9.9, 9.11, 9.12 and
10.5 (as modified above) of the Equity Definitions and the provisions set forth
opposite the caption “Representation and Agreement” in Section 2 will be
applicable, except that all references in such provisions to
“Physically-settled” shall be read as references to “Share Termination Settled”
and all references to “Shares” shall be read as references to “Share Termination
Delivery Units”.  “Share Termination Settled” in relation to the Transaction
means that the Share Termination Alternative is applicable to the Transaction.

 

(n)           Waiver of Jury Trial.  Each party waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect
of any suit, action or proceeding relating to the Transaction.  Each party
(i) certifies that no representative, agent or attorney of either party has
represented, expressly or otherwise, that such other party would not, in the
event of such a suit, action or proceeding, seek to enforce the foregoing waiver
and (ii) acknowledges that it and the other party have been induced to enter
into the Transaction, as applicable, by, among other things, the mutual waivers
and certifications provided herein.

 

(o)           Registration.  Counterparty hereby agrees that if, in the good
faith reasonable judgment of Dealer,  based on the advice of outside counsel,
the Shares (“Hedge Shares”) acquired by Dealer for the purpose of hedging its
obligations pursuant to the Transaction cannot be sold in the public market by
Dealer without registration under the Securities Act, Counterparty shall, at its
election, either (i) in order to allow Dealer to sell the Hedge Shares in a
registered offering, make available to Dealer an effective registration
statement under the Securities Act and enter into an agreement, in form and
substance reasonably satisfactory to Dealer, substantially in the form of an
underwriting agreement for a registered secondary offering; provided, however,
that if Dealer, in its sole reasonable discretion, is not satisfied with access
to due diligence materials, the results of its due diligence investigation, or
the procedures and documentation for the registered offering referred to above,
then clause (ii) or clause (iii) of this paragraph shall apply at the election
of Counterparty, (ii) in order to allow Dealer to sell the Hedge Shares in a
private placement, enter into a private

 

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placement agreement substantially similar to private placement purchase
agreements customary for private placements of equity securities, in form and
substance satisfactory to Dealer (in which case, the Calculation Agent shall
make any adjustments to the terms of the Transaction that are necessary, in its
reasonable judgment, to compensate Dealer for any discount from the public
market price of the Shares incurred on the sale of Hedge Shares in a private
placement), or (iii) purchase the Hedge Shares from Dealer at the Relevant Price
on such Exchange Business Days, and in the amounts, requested by Dealer.

 

(p)           Tax Disclosure.  Effective from the date of commencement of
discussions concerning the Transaction, Counterparty and each of its employees,
representatives, or other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the Transaction
and all materials of any kind (including opinions or other tax analyses) that
are provided to Counterparty relating to such tax treatment and tax structure.

 

(q)           Right to Extend.  Dealer may postpone or add, in whole or in part,
any Valid Day or Valid Days during the Settlement Averaging Period or any other
date of valuation, payment or delivery by Dealer, with respect to some or all of
the Options hereunder, if Dealer reasonably determines, in its discretion, that
such action is reasonably necessary or appropriate to preserve Dealer’s hedging
or hedge unwind activity hereunder in light of existing liquidity conditions or
to enable Dealer to effect purchases of Shares in connection with its hedging,
hedge unwind or settlement activity hereunder in a manner that would, if Dealer
were Counterparty or an affiliated purchaser of Counterparty, be in compliance
with applicable legal, regulatory or self-regulatory requirements, or with
related policies and procedures applicable to Dealer.

 

(r)            Securities Contract; Swap Agreement.  The parties hereto intend
for (i) the Transaction to be a “securities contract” and a “swap agreement” as
defined in the Bankruptcy Code (Title 11 of the United States Code) (the
“Bankruptcy Code”), and the parties hereto to be entitled to the protections
afforded by, among other Sections, Sections 362(b)(6), 362(b)(17), 546(e),
546(g), 555 and 560 of the Bankruptcy Code, (ii) a party’s right to liquidate
the Transaction and to exercise any other remedies upon the occurrence of any
Event of Default under the Agreement with respect to the other party to
constitute a “contractual right” as described in the Bankruptcy Code, and
(iii) each payment and delivery of cash, securities or other property hereunder
to constitute a “margin payment” or “settlement payment” and a “transfer” as
defined in the Bankruptcy Code.

 

(s)           Notice of Certain Other Events. Counterparty covenants and agrees
that:

 

(i)            promptly following the public announcement of the results of any
election by the holders of Shares with respect to the consideration due upon
consummation of any consolidation, merger and binding share exchange to which
Counterparty is a party, or any sale of all or substantially all of
Counterparty’s assets, in each case pursuant to which the Shares will be
converted into cash, securities or other property, Counterparty shall give
Dealer written notice of the types and amounts of consideration that holders of
Shares have elected to receive upon consummation of such transaction or event
(the date of such notification, the “Consideration Notification Date”); provided
that in no event shall the Consideration Notification Date be later than the
date on which such transaction or event is consummated; and

 

(ii)           promptly following any adjustment to the Convertible Notes in
connection with any Potential Adjustment Event, Merger Event or Tender Offer,
Counterparty shall give Dealer written notice of the details of such adjustment.

 

(t)            Early Unwind.  In the event that the sale of the “Underwritten
Securities” (as defined in the Purchase Agreement (the “Purchase Agreement”),
dated as of September 16, 2010, between Counterparty and J.P. Morgan Securities
LLC, as representative of the Initial Purchasers party thereto (the “Initial
Purchasers”)) is not consummated with the Initial Purchasers for any reason, or
Counterparty fails to deliver to Dealer opinions of counsel as required pursuant
to Section 9(a), in each case by 5:00 p.m. (New York City time) on the Premium
Payment Date, or such later date

 

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as agreed upon by the parties (the Premium Payment Date or such later date, the
“Early Unwind Date”), then the Transaction shall automatically terminate (the
“Early Unwind”) on the Early Unwind Date and (i) the Transaction and all of the
respective rights and obligations of Dealer and Counterparty under the
Transaction shall be cancelled and terminated and (ii) each party shall be
released and discharged by the other party from and agrees not to make any claim
against the other party with respect to any obligations or liabilities of the
other party arising out of and to be performed in connection with the
Transaction either prior to or after the Early Unwind Date; provided that
Counterparty shall, to the extent permitted by the Credit Agreement, dated as of
November 20, 2006, among Counterparty, as Borrower, the several lenders from
time to time party thereto, Keybank National Association, as Administrative
Agent, Co-Lead Arranger, Sole Book Runner and Swingline Lender, and LaSalle Bank
National Association, as Co-Lead Arranger, purchase from Dealer on the Early
Unwind Date all Shares purchased by Dealer or one or more of its affiliates in
connection with the Transaction at the then prevailing market price.  Each of
Dealer and Counterparty represent and acknowledge to the other that, subject to
the proviso included in this Section 9(t), upon an Early Unwind, all obligations
with respect to the Transaction shall be deemed fully and finally discharged.

 

(u)           Payment by Counterparty. In the event that (i) an Early
Termination Date occurs or is designated with respect to the Transaction as a
result of a Termination Event or an Event of Default (other than an Event of
Default arising under Section 5(a)(ii) or 5(a)(iv) of the Agreement) and, as a
result, Counterparty owes to Dealer an amount calculated under Section 6(e) of
the Agreement, or (ii) Counterparty owes to Dealer, pursuant to Section 12.7 or
Section 12.9 of the Equity Definitions, an amount calculated under Section 12.8
of the Equity Definitions, such amount shall be deemed to be zero.

 

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Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing this Confirmation and returning it to EDG Confirmation
Group, J.P. Morgan Securities LLC, 277 Park Avenue, 11th Floor, New York, NY
10172-3401, or by fax to (212) 622 8519.

 

Very truly yours,

 

 

 

J.P. Morgan Securities LLC, as agent for JPMorgan Chase Bank, National
Association

 

 

 

 

 

By:

/s/ Santosh Sreenivasan

 

Authorized Signatory

 

Name:

Santosh Sreenivasan

 

Title:

Managing Director

 

Accepted and confirmed

as of the Trade Date:

 

American Equity Investment Life Holding Company

 

 

By:

/s/ John M. Matovina

 

Authorized Signatory

 

Name:

John M. Matovina

 

Title:

Chief Financial Officer & Treasurer

 

 

JPMorgan Chase Bank, National Association

Organised under the laws of the United States as a National Banking Association

Main Office 1111 Polaris Parkway, Columbus, Ohio 43271

Registered as a branch in England & Wales branch No. BR000746

Registered Branch Office 125 London Wall, London EC2Y 5AJ

Authorised and regulated by the Financial Services Authority

 

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