Exhibit 10.1


 


AMERICAN
EQUITY INVESTMENT LIFE HOLDING COMPANY


 


$52,225,000


 


5.25% CONTINGENT CONVERTIBLE SENIOR NOTES DUE 2029


 


PURCHASE
AGREEMENT


 


December 17, 2009


 

















 


PURCHASE
AGREEMENT


 


December 17, 2009


 


FBR CAPITAL MARKETS &
CO.


1001 19th Street North


Arlington, Virginia 22209


 


Dear Sirs:


 


American Equity
Investment Life Holding Company, an Iowa corporation (the “Company”),
proposes to issue and sell to you, FBR Capital Markets & Co. (“FBR”),
as initial purchaser, $52,225,000 aggregate principal amount of the Company’s
5.25% Contingent Convertible Senior Notes due 2029 (the “Notes”) in a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended (the “Securities Act”).


 


The Notes will be issued
pursuant to the provisions of an indenture to be dated as of December 22,
2009 (the “Indenture”), between the Company and U.S. Bank National
Association, as trustee (the “Trustee”), as it may be supplemented or
amended from time to time.  The offer and
sale of the Notes to you will be made without registration of the Notes under
the Securities Act and the rules and regulations thereunder, in reliance
upon the exemption from the registration requirements of the Securities Act
provided by Section 4(2) thereof. 
You have advised the Company that you will make offers and sales (“Exempt
Resales”) of the Notes purchased by you hereunder (such Notes referred to
collectively herein as “Resale Notes”) in accordance with Section 3
hereof, as soon as you deem advisable after this Agreement has been executed
and delivered.


 


The Company and FBR agree
as follows:


 


1.             Sale and
Purchase. Upon the basis of the warranties and
representations and other terms and conditions herein set forth, the Company
agrees to issue and sell to FBR and FBR agrees to purchase from the Company the
following aggregate principal amount of Notes for the purchase price specified
below:


 


Principal Amount of Notes to be
Purchased: $52,225,000 (the “Purchased Notes”).


 


Purchase Price: 97% of the
principal amount of the Purchased Notes ($50,658,250 in cash) (the “Purchase Price”).


 


2.             Payment and Delivery. The closing
of FBR’s purchase of the Purchased Notes shall be held at the office of Sidley
Austin LLP, One South Dearborn Street, Chicago, Illinois 60603 (unless another
place shall be agreed upon by FBR and the Company).  At the closing, subject to the satisfaction
or waiver of the closing conditions set forth herein, FBR shall pay to the
Company the Purchase Price by wire transfer of immediately available funds to
an account previously designated by the Company in writing against delivery by
the Company of the Purchased Notes to FBR for FBR’s account through the
facilities of DTC in such denominations and registered in such 


 


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names as FBR shall specify.  Such
payment and delivery shall be made at 10:00 a.m., New York City time, on
the third business day after the date hereof (unless another time, not later
than ten (10) business days after such date, shall be agreed to by FBR and
the Company).  The time at which such
payment and delivery are actually made is hereinafter called the “Closing
Time”.


 


3.             Offering of the Notes;
Restrictions on Transfer.


 


(a)           FBR represents and warrants
to and agrees with the Company that (i) it has not solicited and will not
solicit any offer to buy, and has not and will not make any offer to sell, the
Notes by means of any form of general solicitation or general advertising
(within the meaning of Regulation D) in the United States; and (ii) it has
solicited and will solicit offers to buy the Resale Notes only from, and has
offered and will offer, to sell and deliver the Resale Notes only to, persons
who FBR reasonably believes to be “qualified institutional buyers” (as defined
in Rule 144A under the Securities Act) (“QIBs”) or, if any such
person is buying for one or more institutional accounts for which such person
is acting as fiduciary or agent, only when such person has represented to it
that each such account is a QIB to whom notice has been given that such sale or
delivery is being made in reliance on Rule 144A, and, in each case, in
transactions under Rule 144A and who provide to it a fully completed and
executed purchaser’s letter substantially in the form of Exhibit A
hereto (such persons specified in clause (ii) being referred to herein as
the “Eligible Purchasers”).


 


(b)           The Company represents and
warrants to and agrees with FBR that it (together with its respective
affiliates) has not solicited and will not solicit any offer to buy, and it
(together with its respective affiliates) has not offered and will not offer to
sell, the Notes by means of any form of general solicitation or general
advertising (within the meaning of Regulation D).


 


(c)           Each of FBR and the Company
severally represents and warrants to the other that no action is being taken by
it or is contemplated that would permit an offering or sale of the Notes in any
jurisdiction where, or in any other circumstances in which, action for those
purposes is required (other than in jurisdictions where such action has been
duly taken by counsel for FBR).


 


(d)           FBR and the Company agree
that the Notes may be resold or otherwise transferred by the holders thereof
only if the offer and sale of such Notes are registered under the Securities Act
or if an exemption from registration is available.  FBR hereby establishes and agrees that it has
observed and will observe the following procedures in connection with offers,
sales and subsequent resales or other transfers of any Notes placed by FBR:


 


(i)            Sales only to
Eligible Purchasers.  Initial
offers and sales of the Resale Notes will be made only in Exempt Resales by FBR
to investors that FBR reasonably believes to be Eligible Purchasers and who
have delivered to the Company and FBR a fully completed and executed purchaser’s
letter substantially in the form of Exhibit A hereto.


 


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(ii)           No general
solicitation.  The Notes
will be offered only by approaching prospective purchasers on an individual basis
with whom FBR and/or the Company has an existing relationship.  No general solicitation or general
advertising within the meaning of Regulation D will be used in connection with
the offering of the Notes.


 


(e)           Restrictions on
transfer.   The
Company agrees that each Note and each Resale Note shall bear a legend stating
that the offer and sale of the Notes or Resale Notes have not been and will not
be registered under the Securities Act, and that no resale or other transfer of
any Notes or Resale Notes or any interest therein prior to the date that is one
year (or such shorter period as is prescribed by Rule 144(d) under
the Securities Act as then in effect) after the later of the original issuance
of such Notes or Resale Notes, as the case may be, and the last date on which
the Company or any “affiliate” (as defined in Rule 144 under the
Securities Act) of the Company was the owner of such Notes or Resale Notes may
be made by a purchaser of such Notes or Resale Notes, except as follows:


 


(A)          to the Company
or any subsidiary thereof,


 


(B)           pursuant to a
registration statement that has been declared effective under the Securities
Act,


 


(C)           for so long as
the Notes or Resale Notes are eligible for resale pursuant to Rule 144A
under the Securities Act, in a transaction complying with the requirements of Rule 144A
to a person who such purchaser reasonably believes is a QIB that purchases for
its own account or for the account of a QIB and to whom notice is given that
the offer, resale, pledge or transfer is being made in reliance on Rule 144A,
or


 


(D)          pursuant to any
other available exemption from the registration requirements of the Securities
Act,


 


in each case in
accordance with any applicable federal securities laws and the securities laws
of any state of the United States or other jurisdiction.


 


4.             Representations and
Warranties of the Company.


 


The Company hereby represents and
warrants to FBR, as of the date of this Agreement and as of the Closing Time,
and agrees with FBR, as follows:


 


(a)           Disclosure
Package.  The Disclosure Package did
not, as of its date or as of the date of any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.  The Company’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2008 (the “2008 Form 10-K”),
the Company’s Proxy Statement pursuant to Section 14(a) of
the Securities Exchange Act of 1934, as amended (the “Exchange Act’”)
filed April 30, 2009, the Company’s Quarterly Reports on Form 10-Q
for the quarters ended March 


 


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31,
2009, June 30, 2009 and September 30, 2009 (collectively, the “2009
Form 10-Qs”), and any Current Reports on Form 8-K filed by the
Company with the Securities and Exchange Commission (the “SEC”) since December 31,
2008 shall be collectively referred to herein as the “Company SEC Filings.”  The term sheet dated December 17, 2009,
the form of which is attached as Exhibit E hereto (the “Term
Sheet”), and the Company SEC Filings shall be collectively referred to
herein as the “Disclosure Package.”


 


(b)           Good
Standing.  The Company
and each of its “significant subsidiaries” (as such term is defined in Rule 405)
(each, a “Significant Subsidiary” and together, the “Significant
Subsidiaries”), has been duly incorporated, organized or formed and is
validly existing in good standing under the laws of the jurisdiction of its incorporation,
organization or formation, with the power and authority to own, lease and
operate its properties and conduct its business as described in the Company SEC
Filings; and each of the Company and its Significant Subsidiaries is duly
qualified to do business and is in good standing in each jurisdiction in which
the character of the business conducted by it or the location of the properties
owned, leased or operated by it make such qualification necessary, except where
the failure to be so qualified or in good standing would not, individually or
in the aggregate, reasonably be expected to have a material adverse effect on
the condition (financial or otherwise), results of operations or business of
the Company and its subsidiaries taken as a whole (a “Material Adverse
Effect”). The Company does not have any subsidiaries or control, directly
or indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21.2 to the 2008 Form 10-K.


 


(c)           Corporate
Power.  The Company has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement.  This Agreement has
been duly authorized, executed and delivered by the Company.


 


(d)           No
Default.  Neither the Company nor any of
its Significant Subsidiaries (i) is in violation of its certificate of
incorporation or by-laws or other organizational documents, (ii) is in
default, and no event has occurred which, with notice or lapse of time or both,
would constitute such a default, in the due performance or observance of any
term, covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, license or other agreement or instrument to which it is
a party or by which it is bound or to which any of its properties or assets is
subject or (iii) is in violation of any law, ordinance, rule, regulation
or order of any court or governmental agency or body having jurisdiction over
it or its property or assets, except in the case of clauses (ii) and
(iii), to the extent any such conflict, breach, violation or default would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.


 


(e)           Absence
of Defaults and Conflicts.  None
of the execution, delivery and performance of this Agreement nor the
consummation of any other of the transactions contemplated herein, nor the
fulfillment of the terms hereof by the Company, nor the application of the
proceeds from the sale of the Notes will (i) conflict with or result in a
breach or violation of any agreement, indenture or other instrument to which
the Company or any of its Significant Subsidiaries is a party or by which any
of them is 


 


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bound,
or to which any of their properties is subject; (ii) result in the
creation or imposition of any Lien, charge, claim or encumbrance upon any
property or asset of the Company or any of its Significant Subsidiaries; (iii) result
in a breach or violation of, or constitute a default under, the certificate of
incorporation, by-laws, partnership agreement or other organizational documents
of the Company or any of its Significant Subsidiaries; or (iv) violate any
law, rule, administrative regulation or decree of any court or any governmental
agency or body having jurisdiction over the Company or any of its Significant
Subsidiaries or any of their respective properties, except, with respect to
clauses (i), (ii) and (iv), conflicts or violations that would not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.


 


(f)            Absence
of Further Requirements.  No
permit, consent, approval, authorization or order of, or filing with, any
court, governmental agency or body is required for the issue and sale of the
Notes, the execution, delivery and performance of this Agreement by the
Company, or the application of the proceeds from the sale of the Notes or the
conversion thereof into Underlying Shares (as defined below), except for any
report or notice required under Regulation D promulgated under the Securities
Act or any applicable state securities laws and such consents, approvals,
authorizations, orders, filings, registrations or qualifications as may be
required under the Exchange Act, the New York
Stock Exchange, and applicable state or foreign securities laws in
connection with the purchase and sale of the Underlying Shares.


 


(g)           Authorization
of the Indenture.  The
Indenture has been duly authorized by the Company and, when duly executed and
delivered in accordance with its terms by each of the parties thereto, will
constitute a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforceability
thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or 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 such enforceability is considered in a proceeding in
equity or at law) (collectively, the “Enforceability Exceptions”).


 


(h)           Validity
of Purchased Notes.  The
Purchased Notes have been duly authorized by the Company and, when executed and
authenticated in accordance with the provisions of the Indenture and delivered
to FBR in accordance with the terms of this Agreement, the Purchased Notes will
be valid and binding obligations of the Company, enforceable in accordance with
their terms, except that such enforcement may be limited by the Enforceability
Exceptions, and the Purchased Notes will not be subject to any preemptive,
participation, rights of first refusal and other similar rights. Assuming the
accuracy of FBR’s representations and warranties hereunder, the Purchased Notes
(i) will be issued pursuant to the Indenture and this Agreement exempt
from the registration requirements of the Securities Act pursuant to Section 4(2) of
the Securities Act and (ii) will be issued in compliance with all applicable
state and federal laws concerning the issuance of the Purchased Notes.  The Purchased Notes will be “restricted
securities” within the meaning of Rule 144 promulgated under the
Securities Act and will not be 


 


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freely
transferable by FBR.  Accordingly, the
Notes will bear restrictive legends provided in Section 3(e) hereof.


 


(i)            Validity
of the Underlying Shares and Common Stock. 
The Purchased Notes may be converted into underlying shares (the “Underlying
Shares”) of the Company’s common stock, par value $1.00 per share (the “Common
Stock”), in accordance with the terms of the Purchased Notes. The
Underlying Shares have been duly authorized and reserved by the Company for
issuance upon conversion of the Purchased Notes and, when issued in connection
with such conversion in accordance with the terms of the Purchased Notes, will
be validly issued, fully paid and non-assessable, in compliance with federal
and state securities laws, and the issuance of the Underlying Shares will not
be subject to any preemptive, resale, participation, rights of first refusal or
other similar rights.  All of the
outstanding shares of capital stock of each Significant Subsidiary of the Company
that is a corporation have been duly authorized and validly issued and are
fully paid and non-assessable.  All of
the outstanding shares of capital stock, partnership interests or other
ownership interests of each Significant Subsidiary of the Company are owned
directly or indirectly by the Company, free and clear of any claim, lien,
encumbrance, security interest, restriction upon voting or transfer, preemptive
rights or any other claim of any third party (collectively, “Liens”),
except such Liens as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.


 


(j)            Financial
Statements.  The
consolidated financial statements of the Company and its subsidiaries
(including the related notes and supporting schedules) included in the Company
SEC Filings present fairly in all material respects the financial condition,
results of operations and cash flows of the entities purported to be shown
thereby at the dates and for the periods indicated (subject to year-end
adjustments in the case of unaudited interim financial statements) and have
been prepared in accordance with U.S. generally accepted accounting principles
(“GAAP”) applied on a consistent basis throughout the periods indicated,
except as otherwise noted therein; and the supporting schedules included in the
2008 Form 10-K and the 2009 Form 10-Qs present fairly in all material
respects the information required to be stated therein.


 


(k)           Accountants.  KPMG LLP, who have reported on certain
financial statements of the Company included in the 2008 Form 10-K and the
2009 Form 10-Qs, are independent public accountants as required by the
Securities Act, and were independent public accountants as required by the
Securities Act during the periods covered by the financial statements on which
they reported contained in the 2008 Form 10-K and 2009 Form 10-Qs.


 


(l)            Internal
Controls over Financial Reporting.  The Company and its subsidiaries maintain
systems of “internal control over financial reporting” (as defined in Rule 13a-15(f) under
the Exchange Act) that comply with the requirements of the Exchange Act and
have been designed by, or under the supervision of their respective principal
executive and principal financial officers, or persons performing similar
functions, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with 


 


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GAAP,
including, but not limited to, internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations; (ii) transactions
are recorded as necessary to permit preparation of financial statements in
conformity with GAAP accounting principles and to maintain asset
accountability; (iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.


 


(m)          Disclosure
Controls.  The Company
and its subsidiaries maintain an effective system of “disclosure controls and
procedures” (as defined in Rule 13a-15(e) under the Exchange Act)
that is designed to ensure that information required to be disclosed by the
Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the rules and
forms of the SEC, including controls and procedures designed to ensure that
such information is accumulated and communicated to the Company’s management as
appropriate to allow timely decisions regarding required disclosure. The
Company and its subsidiaries have carried out evaluations of the effectiveness
of their disclosure controls and procedures as required by Rule 13a-15
under the Exchange Act.


 


(n)           Sarbanes-Oxley.  The Company, its subsidiaries and, to the
knowledge of the Company, their respective officers and directors (in their
capacities as such), are in compliance in all material respects with the
Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in
connection therewith.


 


(o)           No
Material Adverse Change in Business.  Since September 30, 2009: (i) there
has been no material adverse change in the condition (financial or otherwise),
results of operations or business of the Company and its subsidiaries taken as
a whole, whether or not arising in the ordinary course of business; (ii) there
have been no transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of business, which are
material with respect to the Company and its subsidiaries, taken as a whole;
and (iii) except for dividends on the Company’s common stock in an amount
not to exceed $0.08 per share, there has been no dividend or distribution of
any kind declared, paid or made by the Company on any class of its capital
stock.


 


(p)           Title.  The Company and each of its Significant
Subsidiaries have good and marketable title in fee simple to all real property
and good title to all personal property owned by them, in each case free and
clear of all Liens, encumbrances and defects, except where the failure to have
such good and marketable title or the existence of any such Liens, encumbrances
or defects would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect. All assets held under lease by the Company
and its Significant Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as do not materially interfere with the
use made and proposed to be made of such assets by the Company and its
Significant Subsidiaries, except where the failure of any such leases to be
valid, subsisting or enforceable or the 


 


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existence
of such exceptions would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.


 


(q)           Regulatory
Filings.  The Company is not required to
be licensed as an insurance company; American Equity Investment Life Insurance
Company (“AELIC”), American Equity Investment Life Insurance Company of
New York (“AELICNY”) and Eagle Life Insurance Company (“Eagle,”
and together with AELIC and AELICNY, the “Insurance Subsidiaries”) are
each duly licensed as insurers under the insurance laws and regulations of
Iowa, New York and Iowa, respectively; and the Insurance Subsidiaries have
filed with the appropriate insurance regulatory authorities all reports,
documents and other information required to be filed under the insurance laws
of Iowa, New York and Iowa, respectively, except as to filings the failure
of which to make would not, individually or in the aggregate, reasonably be expected
to have a Material Adverse Effect.


 


(r)            Possession
of Licenses and Permits.  Each
of the Company and its Insurance Subsidiaries holds such insurance licenses,
certificates, authorities, approvals, authorizations and permits from
governmental authorities (including, without limitation, from the insurance
regulatory agencies of the various jurisdictions where it conducts business)
(the “Insurance Licenses”) which are necessary under applicable law to
the conduct of its business as described in the Company SEC Filings; the
Company and each Insurance Subsidiary have fulfilled and performed all
obligations necessary to maintain such Insurance Licenses; there is no pending
or, to the knowledge of the Company, threatened action, suit, proceeding or
investigation that would reasonably be expected to result in the revocation,
termination or suspension of any Insurance License that would reasonably be
expected to result in a Material Adverse Effect; and no insurance regulatory
agency or body has issued, or commenced any proceeding for the issuance of, any
order or decree impairing, restricting or prohibiting the payment of dividends
by any Insurance Subsidiary to its parent. 
Neither the Company nor any of its Insurance Subsidiaries has received
notice of any revocation or modification of any such Insurance Licenses or has
any reason to believe that any such Insurance Licenses will not be renewed in
the ordinary course, except where the revocation, modification or nonrenewal of
such Insurance Licenses, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.


 


(s)           Reinsurance.  All reinsurance treaties and arrangements to
which any Insurance Subsidiary is a party are in full force and effect and no
Insurance Subsidiary is in violation of, or in default in the performance,
observance or fulfillment of, any material obligation, agreement, covenant or
condition contained therein, except where the failure to be in full force and
effect or where such violation or default would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Neither
the Company nor any Insurance Subsidiary has received any notice from any of
the other parties to such treaties, contracts or arrangements that such other
party intends not to perform such treaty and, to the best knowledge of the
Company and each Insurance Subsidiary, none of the other parties to such
treaties or arrangements will be unable to perform such treaty or arrangement
except to the extent adequately and properly reserved for in the consolidated
financial statements of the Company included in 


 


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the
Company SEC Filings, except where such nonperformance would not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.


 


(t)            Filing
of Statutory Statements.  The
statutory annual and quarterly statements of each of the Insurance Subsidiaries
and the statutory balance sheets and summaries of operations included in such
statutory annual and quarterly statements most recently filed in any state have
been prepared in compliance with prescribed or permitted statutory accounting
principles or practices consistently followed, except (i) as may otherwise
be indicated in the notes thereto and (ii) in the case of any such
financial statements for periods less than a full year, for any normal year-end
adjustments, and present fairly in all material respects the statutory
financial position of each Insurance Subsidiary as at the dates thereof, and on
a statutory basis for the periods covered thereby.


 


(u)           Insurance.  The Company and its Significant Subsidiaries
carry or are entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts and covering such risks as is generally
deemed adequate for the conduct of their respective businesses as presently
conducted and the value of their respective properties and as is customary for
companies engaged in similar businesses, and, except as otherwise would not,
individually or in the aggregate, be reasonably expected to result in a
Material Adverse Effect, all such insurance is in full force and effect.


 


(v)           Absence
of Proceedings.  Except as
set forth in the Company SEC Filings, there is no litigation or governmental
proceeding to which the Company or any of its subsidiaries is a party or to
which any property or assets of the Company or any of its subsidiaries is
subject or which is pending or, to the knowledge of the Company, threatened
against the Company or any of its subsidiaries that would, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.


 


(w)          Relationship
with Officers, Directors and Shareholders.  No relationship, direct or indirect, exists
between or among the Company, on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company, on the other hand, that is
required to be described in the Company SEC Filings which is not so described.


 


(x)            Investment
Company Act.  Neither the
Company nor any subsidiary of the Company is, and after giving effect to the
offering and sale of the Notes and the application of the proceeds thereof,
none of them will be, an “investment company” within the meaning of the
Investment Company Act of 1940, as amended (the “Investment Company Act”).


 


(y)           Registration
Rights.  No person has the right to
file a registration statement or otherwise require the Company to register any
securities for sale under the Securities Act by reason of the issuance and sale
of the Notes or the issuance of the Underlying Shares upon the conversion of
the Notes.


 


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(z)            Brokers’
Fees.  Neither the Company nor any of
its subsidiaries is a party to any contract, agreement or understanding with
any person (other than this Agreement) that would give rise to a valid claim
against any of them or FBR for a brokerage commission, finder’s fee or like
payment in connection with the offering and sale of the Notes.


 


(aa)         Additional
Securities.  The Company
has not sold or issued any securities that would be integrated with the
offering of the Notes contemplated by this Agreement pursuant to the Securities
Act, the rules and regulations thereunder or the interpretations thereof
by the SEC.


 


(bb)         Absence
of Manipulation.  Neither the
Company nor any of its subsidiaries nor, to the knowledge of the Company, any
of its affiliates has taken, directly or indirectly, any action designed to or
that has constituted or that would reasonably be expected to cause or result in
the stabilization or manipulation of the price of any security of the Company
in connection with the offering of the Notes.


 


(cc)         Actively
Traded.  The Common Stock is an “actively-traded
security” exempted from the requirements of Rule 101 of Regulation M under
the Exchange Act by subsection (c)(1) of such rule.


 


(dd)         Listing.  The Common Stock has been approved for
listing, subject to official notice of issuance, on the New York Stock
Exchange.


 


(ee)         Possession
of Intellectual Property.  The
Company and its Significant Subsidiaries own or possess, or have the ability to
acquire, all patents, patent rights, licenses, inventions, copyrights, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures), trademarks, service marks
and trade names currently employed by them in connection with the business now
operated by them, except where the failure to own, possess or have the ability
to acquire such patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), trademarks,
service marks and trade names would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and none of the
Company nor its Significant Subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to any
of the foregoing which, individually or in the aggregate, if subject to any
unfavorable decision, ruling or finding, would reasonably be expected to have a
Material Adverse Effect.


 


(ff)           Environmental
Laws.  The Company and its
subsidiaries are in compliance with any and all applicable foreign, Federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants (“Environmental Laws”); (ii) have received
all permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses; and (iii) are
in compliance with all terms and conditions of any such permit, license or
approval, except where such 


 


10

















 


noncompliance
with Environmental Laws, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such permits,
licenses or approvals would not, individually or in the aggregate, be
reasonably expected to have a Material Adverse Effect.


 


(gg)         Taxes.  The Company and each of its subsidiaries have
filed all Federal and all material state, local and foreign tax returns
required to be filed through the date hereof, subject to permitted extensions,
which returns are complete and correct in all material respects, and have paid
all taxes due, and neither the Company nor any subsidiary is in default in the
payment of any taxes which were payable pursuant to said returns or any
assessments with respect thereto, except for any such taxes or assessments
which are being contested in good faith by appropriate proceedings and for
which appropriate reserves, if any, have been established in accordance with GAAP
and statutory accounting principles, and no tax deficiency has been determined
adversely to the Company or any of its subsidiaries, nor does the Company have
any knowledge of any tax deficiencies that have been, or could reasonably be
expected to be, asserted against the Company that would, in the aggregate,
reasonably be expected to have a Material Adverse Effect.


 


(hh)         Employee
Benefits.  The Company
and its subsidiaries are in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder (“ERISA”); no “reportable event” (as defined in ERISA) has
occurred with respect to any “pension plan” (as defined in ERISA) for which the
Company and its subsidiaries would have any material liability; the Company and
its subsidiaries have not incurred and do not expect to incur any material
liability under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any “pension plan” or (ii) Sections 412 or 4971 of the
Internal Revenue Code of 1986, as amended, including the regulations and
published interpretations thereunder (the “Code”); and each “pension
plan” for which the Company or any of its subsidiaries would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects, and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such qualification.


 


(ii)           Absence
of Labor Disputes.  To the
knowledge of the Company, after due inquiry, no labor disturbance by or dispute
with the employees of the Company or any of its subsidiaries exists or is
imminent that would reasonably be expected to have a Material Adverse Effect.


 


(jj)           Corrupt
Practices.  Neither the
Company nor any of its subsidiaries, nor, to the knowledge of the Company, any
director, officer, agent, employee or other person acting on behalf of the
Company or any of its subsidiaries, has (i) used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expense
relating to political activity; (ii) made any direct or indirect unlawful
payment to any foreign or domestic government official or employee from
corporate funds; (iii) violated or is in violation of any provision of the
U.S. Foreign Corrupt Practices Act of 1977; or (iv) made any bribe or
other unlawful payment.


 


11






 












 


(kk)         Money Laundering Laws.  The operations of the Company and its
subsidiaries are and have been conducted at all times in compliance, in all
material respects, with applicable financial recordkeeping and reporting
requirements of the Currency and Foreign Transactions Reporting Act of 1970, as
amended, the money laundering statutes of all applicable jurisdictions, the rules and
regulations thereunder and any related or similar rules, regulations or
guidelines, issued, administered or enforced by any applicable governmental
agency (collectively, the “Money Laundering Laws”), and no action, suit
or proceeding by or before any court or governmental agency, authority or body
or any arbitrator involving the Company or any of its subsidiaries with respect
to the Money Laundering Laws is pending or, to the knowledge of the Company,
threatened.


 


(ll)           OFAC.  Neither the Company nor any of its
subsidiaries nor, to the knowledge of the Company, any director, officer,
agent, employee or affiliate of the Company or any of its subsidiaries is
currently subject to any U.S. sanctions administered by the Office of Foreign
Assets Control of the U.S. Treasury Department (“OFAC”); and the Company
will not directly or indirectly use the proceeds of the offering, or lend,
contribute or otherwise make available such proceeds to any subsidiary, joint
venture partner or other person or entity, for the purpose of financing the
activities of any person currently subject to any U.S. sanctions administered
by OFAC.


 


(mm)      Affiliate.  None of the proceeds from the sale of the
Notes has been or will be paid to FBR or, to the knowledge of the Company, to
any affiliate of FBR; and the Company is not an “affiliate” (as defined in NASD
Conduct Rule 2720) of any member of the Financial Industry Regulatory
Authority (“FINRA”).


 


(nn)         Acknowledgement Regarding
Purchase of the Purchased Notes.  The Company acknowledges and agrees that FBR
is acting solely in the capacity of an arm’s length purchaser with respect to
the purchase of the Notes and the transactions contemplated hereby and that to
the knowledge of the Company (i) no officer or director of FBR is an
officer or director of the Company, (ii) FBR is not an “affiliate” of the
Company (as defined in Rule 144 promulgated under the Securities Act) or (iii) FBR
is not a “beneficial owner” of more than 10% of the Common Stock (as defined
for purposes of Rule 13d-3 of the Securities
Act).  The Company further
represents to FBR that the Company’s decision to enter into the Agreement and
the transactions contemplated hereunder has been based solely on an independent
evaluation by the Company and its representatives.


 


(oo)         Officer’s Certificates.  Any certificate signed by any officer of the
Company and delivered to FBR in connection with the offering of the Notes shall
be deemed a representation and warranty by the Company to FBR, as to the
matters covered thereby.


 


5.             Certain Covenants of the
Company.


 


The Company hereby agrees with FBR:


 


12

















 


(a)           on or before the first
business day following the date of this Agreement, the Company shall issue a
publicly available press release and/or file with the SEC a Current Report on Form 8-K
disclosing all material terms of the transaction contemplated hereunder (to the
extent not previously publicly disclosed);


 


(b)           that promptly from time to
time during the term of this Agreement, the Company will take such action to
qualify the Notes for offering and sale under the securities or blue sky laws
of such jurisdictions as FBR may reasonably request, and to maintain such
qualifications in effect for as long as may be necessary to complete the sale
or resale of the Notes; provided, that
in connection therewith the Company shall not be required to (A) qualify
as a foreign corporation in any jurisdiction in which it would not otherwise be
required to so qualify, (B) file a general consent to service of process
in any such jurisdiction or (C) subject itself to taxation in any
jurisdiction in which it would not otherwise be subject;


 


(c)           that the Company will
reasonably cooperate on a timely basis with any reasonable due diligence
request from, or review conducted by, FBR or its counsel prior to the Closing
Time in connection with the transactions contemplated hereby, including,
without limitation, and upon reasonable notice, providing information and
making available documents and appropriate corporate officers, during regular
business hours and at the Company’s principal offices and/or by telephone, as
FBR or its counsel may reasonably request;


 


(d)           to furnish to FBR (upon
request) for a period of two years from the Closing Time, (i) copies of
all annual, quarterly and current reports supplied to holders of the Notes, if
any and (ii) copies of all reports filed by the Company with the SEC; provided, however, that so long as the Company is
timely filing reports with the SEC on EDGAR, it is not required to furnish such
reports or statements to FBR;


 


(e)           during any period in the
year (or such shorter period as may then be applicable under the Securities Act
regarding the holding period for securities under Rule 144(d) under
the Securities Act or any successor rule) after the Closing Time in which the
Company is not subject to Section 13 or 15(d) of the Exchange Act to
furnish, upon request, to any holder of the Notes the information (“Rule 144A
Information”) specified in Rule l44A(d)(4) under the Securities
Act and any additional information (“PORTAL Information”) required by
the National Association of Securities Dealers, Inc. PortalSM Market (“PORTAL”), and any such Rule l44A
Information and Portal Information will not, at the date thereof, contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
under which they are made, not misleading;


 


(f)            that neither the Company nor
any of their respective affiliates (as defined in Section 501(b) of
Regulation D) will, whether directly or through any agent or person acting on
its behalf (other than FBR): (i) offer Notes of the Company or any other
securities convertible into or exchangeable or exercisable for Common Stock in
a manner in violation of the Securities Act or the rules and regulations
thereunder, (ii) distribute any offering material (other than the
Disclosure Package) in connection with the offer


 


13

















 


and
sale of the Notes, or (iii) sell, offer for sale, solicit offers to buy or
otherwise negotiate in respect of any security (as defined in the Securities
Act), any of which will be integrated with the offering and sale of the Notes
in a manner that would require the registration under the Securities Act of the
sale to FBR (or to the Eligible Purchasers, in the case of the Resale Notes);


 


(g)           that, except as permitted by
the Securities Act, neither the Company nor any of its affiliates will
distribute any offering materials in connection with Exempt Resales;


 


(h)           to pay all expenses, fees
and taxes in connection with (i) the issuance, sale and delivery of the
Notes, (ii) the qualification of the Notes for offering and sale under
state laws and the determination of their eligibility for investment under
state law as aforesaid (including any filing fees), and the printing and
furnishing of copies of any blue sky surveys or legal investment surveys to
FBR, (iii) all fees and disbursements of counsel and accountants for the
Company, (iv) the designation of the Notes as PORTAL eligible securities
by PORTAL, (v) the fees and expenses of any trustee, transfer agent or
registrar for the Notes or the Underlying Shares and (vi)  performance of
the Company’s other obligations hereunder;


 


(i)            to use reasonable efforts in
cooperation with FBR to obtain permission for the Notes to be eligible for clearance
and settlement through the facilities of The Depository Trust Company;


 


(j)            to refrain during the period
commencing on the date of this Agreement and ending on the date that is 60 days
after the date of this Agreement, without the prior written consent of FBR
(which consent may be withheld or delayed in FBR’s sole discretion), from (i) offering,
pledging, selling, contracting to sell, selling any option or contract to
purchase, purchasing any option or contract to sell, granting any option, right
or warrant for the sale of, lending or otherwise disposing of or transferring,
directly or indirectly, any equity securities of the Company or any securities
convertible into or exercisable or exchangeable for equity securities of the
Company, or filing any registration statement under the Securities Act with
respect to any of the foregoing, or (ii) entering into any swap or other
arrangement that transfers, in whole or in part, directly or indirectly, any of
the economic consequences of ownership of equity securities of the Company,
whether any such transaction described in clause (i) or (ii) above is
to be settled by delivery of Common Stock or such other securities, in cash or
otherwise.  The foregoing sentence shall
not apply to (i) the Notes to be sold hereunder, (ii) any shares of
Common Stock issued by the Company upon the exercise of an option outstanding
on the date hereof and referred to in the Company SEC Filings, or (iii) such
issuances of options or grants of restricted stock under the Company’s stock
option and incentive plans as described in the Company SEC Filings;


 


(k)           if the Purchased Notes are
not delivered by the Company to FBR for any reason other than the termination
of this Agreement pursuant to clauses (ii) through (v) of the first
paragraph of Section 7 hereof or the default by FBR in its obligations
hereunder, to reimburse FBR for all of its out-of-pocket expenses relating to
the transactions


 


14

















 


contemplated
hereby, including the reasonable fees and disbursements of its legal counsel;
and


 


(l)            that the Company will not
take, and will cause its subsidiaries not to take, and use reasonable efforts
to cause its affiliates not to take, directly or indirectly, any action
designed to or that has constituted or that reasonably would be expected to
cause or result in the stabilization or manipulation of the price of any
security of the Company in connection with the offering of the Notes.


 


6.             Conditions of
FBR’s Obligations.  The
obligations of FBR hereunder are subject to (i) the accuracy of the
representations and warranties of the Company on the date hereof and at the
Closing Time, (ii) the accuracy of the statements of the Company’s
officers made in any certificate pursuant to the provisions hereof as of the
date of such certificate, (iii) the performance by the Company of all of
its obligations hereunder and (iv) the following other conditions:


 


(a)           The Company shall furnish to
FBR at the Closing Time opinions of (i) Skadden, Arps, Slate, Meagher &
Flom LLP, counsel for the Company, addressed to FBR and dated the Closing Time,
in form and substance satisfactory to FBR, covering the matters set forth on Exhibit B-1
hereto, and (ii) Marla Lacey, Associate General Counsel of the Company,
addressed to FBR and dated the Closing Time, in form and substance satisfactory
to FBR, covering the matters set forth on Exhibit B-2 hereto.


 


(b)           FBR shall have received from
KPMG LLP, “comfort” letters dated, respectively, as of the date hereof and the
Closing Time, addressed to FBR and in form and substance satisfactory to FBR.


 


(c)           FBR shall have received at
the Closing Time a favorable opinion of Sidley Austin LLP, counsel for FBR,
dated the Closing Time, in form and substance satisfactory to FBR, covering the
matters set forth on Exhibit C hereto.


 


(d)           Prior to the Closing Time, (i) no
suspension of the qualification of the Notes for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceedings for any of
such purposes, shall have occurred, and (ii) the Disclosure Package and
all amendments or supplements thereto, or modifications thereof, if any, shall
not contain an untrue statement of material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they are made, not misleading.


 


(e)           Between the time of
execution of this Agreement and the Closing Time, (i) no event,
circumstance or change constituting a Material Adverse Effect shall have
occurred or become known, (ii) no transaction which is material to the
Company, taken as a whole, shall have been entered into by the Company that has
not been fully and accurately disclosed in the Disclosure Package, or any
amendment or supplement thereto, except with the prior written consent of FBR;
and (iii) no order or decree preventing the use of the Indenture, or any
amendment or supplement thereto, or any order asserting that


 


15

















 


any
of the transactions contemplated by this Agreement are subject to the
registration requirements of the Securities Act shall have been issued.


 


(f)            The Company shall have
delivered to FBR a certificate, executed by the secretary of the Company and
dated as of the Closing Time, as to (i) the resolutions adopted by the
Company’s board of directors, (ii) the Company’s certificate of
incorporation, as amended and (iii) the Company’s bylaws, as amended, each
as in effect at the Closing Time.


 


(g)           The Company shall have delivered
to FBR a certificate, executed by its chief executive officer and chief
financial officer to the effect that the representations and warranties of the
Company set forth in this Agreement shall be true and correct as of the Closing
Time as though made on and as of such date (except to the extent that such
representations and warranties speak as of another date, in which case such
representations and warranties shall be true and correct as of such other
date), and the Company shall have complied with all covenants and agreements
and satisfied all conditions on its part to be performed or satisfied under
this Agreement at or prior to the Closing Time.


 


(h)           At the time of execution and
delivery of this Agreement, FBR shall have received from each of the officers
of the Company a written agreement (a “Lock-up Agreement”) in
substantially the form attached hereto as Exhibit D.


 


7.             Termination.  The obligations of FBR hereunder shall be
subject to termination in the absolute discretion of FBR, at any time prior to
the Closing Time if (i) any of the conditions specified in Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled and FBR has not waived in writing such unfulfilled condition, (ii) trading
in securities in general on any exchange or national quotation system shall
have been suspended or minimum prices shall have been established on such
exchange or quotation system, (iii) there has been a material disruption
in the securities settlement, payment or clearance services in the United
States, (iv) a general banking moratorium shall have been declared either
by the United States or New York State authorities, or (v) if the United
States shall have declared war in accordance with its constitutional processes
or there shall have occurred any material outbreak or escalation of hostilities
or other national or international calamity or crisis or change in economic,
political or other conditions of such magnitude in its effect on the financial
markets of the United States as, in the judgment of FBR, to make it
impracticable to purchase or resell the Notes.


 


If FBR elects to
terminate this Agreement as provided in this Section 7, the Company shall
be notified promptly in writing.


 


If the sale to FBR of the
Resale Notes, as contemplated by this Agreement, is not carried out by FBR for
any reason permitted under this Agreement or if such sale is not carried out
because the Company shall be unable to comply with any of the terms of this
Agreement, (i) the Company shall not be under any obligation or liability
to FBR under this Agreement (except to the extent provided in Sections 5(h), 5(k) and
8 hereof), and (ii) FBR shall be under no


 


16

















 


obligation or
liability to the Company under this Agreement (except to the extent provided in
Section 8 hereof).


 


8.             Indemnity.


 


(a)           The Company agrees to
indemnify, defend and hold harmless FBR and its affiliates, and their
respective directors, officers, representatives and agents, and any person who
controls FBR within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, from and against any loss, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or severally,
FBR or any such controlling person may incur under the Securities Act, the
Exchange Act or otherwise, insofar as such loss, expense, liability or claim
arises out of or is based upon (i) any untrue statement or alleged untrue
statement made by the Company herein, (ii) any breach by the Company of
any covenant set forth herein or (iii) any untrue statement or alleged
untrue statement of a material fact contained in the Disclosure Package, or
arises out of or is based upon any omission or alleged omission to state a
material fact required to be stated in the Disclosure Package or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading.


 


(b)           If any action is brought
against any person or entity (each an “Indemnified  Party”), in
respect of which indemnity may be sought pursuant to Section 8(a) above,
the Indemnified Party shall promptly notify the party(ies) obligated to provide
such indemnity (each an “Indemnifying Party”) in writing of the
institution of such action and the Indemnifying Party shall assume the defense
of such action, including the employment of counsel and payment of expenses;
provided that the failure so to notify the Indemnifying Party will not relieve
the Indemnifying Party from any liability which the Indemnifying Party may have
to any Indemnified Party unless and to the extent the Indemnifying Party did
not otherwise know of such action and such failure results in the forfeiture by
the Indemnifying Party of rights and defenses that would have had material
value in the defense.  The Indemnified
Party(ies) shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless the employment of such counsel shall have been
authorized in writing by the Indemnifying Party in connection with the defense
of such action or the Indemnifying Party shall not have employed counsel to
have charge of the defense of such action within a reasonable time or such
Indemnified Party(ies) shall have reasonably concluded (based on the advice of
counsel) that counsel selected by the Indemnifying Party has an actual conflict
of interest or there may be defenses available to the Indemnified Party(ies)
which are different from or additional to those available to the Indemnifying
Party (in which case the Indemnifying Party shall not have the right to direct
the defense of such action on behalf of the Indemnified Party(ies)), in any of
which events such fees and expenses shall be borne by the Indemnifying Party
and paid as incurred (it being understood, however, that the Indemnifying Party
shall not be liable for the fees and expenses of more than one separate firm of
counsel (in addition to local counsel) for the Indemnified Party in any one
action or series of related actions in the same jurisdiction representing the
Indemnified Parties who are parties to such action). Anything in this paragraph
to the contrary notwithstanding, the Indemnifying Party shall not be liable for


 


17

















 


any
settlement of any such claim or action effected without its written
consent.  The Indemnifying Party shall
have the right to settle any such claim or action for itself and any
Indemnified Party so long as the Indemnifying Party pays any settlement payment
and such settlement (i) includes a complete and unconditional release of
the Indemnified Party from all losses, expenses, claims, damages, injunctions,
liability and other obligations with respect to any claims that are the subject
matter of such action and (ii) does not include a statement as to, or an
admission of, fault, culpability or a failure to act by or on behalf of the
Indemnified Party.


 


(c)           The indemnity agreement
contained in this Section 8 and the covenants, warranties and
representations of the Company contained in this Agreement shall remain in full
force and effect regardless of any investigation made by or on behalf of FBR or
its affiliates, or their respective directors, officers, representatives and
agents, or any person who controls FBR within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act, or by or on behalf
of the Company or their respective directors and officers or any person who
controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, and shall survive any termination
of this Agreement or the sale and delivery of the Notes.  Each party to this Agreement agrees promptly
to notify the other party of the commencement of any litigation or proceeding
against it and, in the case of the Company, against any of their respective
officers and directors, in connection with the sale and delivery of the Notes.


 


9.             Notices.  Except as otherwise herein provided, all
statements, requests, notices and agreements shall be in writing delivered by
facsimile (with receipt confirmed), overnight courier or registered or
certified mail, return receipt requested, or by telegram and:


 


(a)           if to FBR, shall be
sufficient in all respects if delivered or sent to FBR Capital Markets &
Co., 1001 Nineteenth Street North, Arlington, Virginia 22209, Attention:  Compliance Department, (facsimile:
703-312-9698); with a copy to Sidley Austin LLP, One South Dearborn Street,
Chicago, Illinois, 60603, Attention: Brian Fahrney, (facsimile: 312-853-7036);
and


 


(b)           if to the Company, shall be
sufficient in all respects if delivered to the Company at the offices of the
Company at American Equity Investment Life Holding Company, 6000 Westown
Parkway, West Des Moines, Iowa, 50266, Attention: Wendy L. Carlson, Chief
Executive Officer (facsimile: 515-221-0744, email:
wcarlson@american-equity.com); with a copy to Skadden, Arps, Slate, Meagher &
Flom LLP, 155 North Wacker Drive, Chicago, Illinois 60606-1720, Attention:
William R. Kunkel (facsimile: 312-407-8514).


 


10.          Duties.  Nothing in this Agreement shall be deemed to
create a partnership, joint venture or agency relationship between the
parties.  FBR undertakes to perform such duties and obligations only as
expressly set forth herein.  Such duties and obligations of FBR with
respect to the Notes shall be determined solely by the express provisions of
this Agreement, and FBR shall not be liable except for the performance of
such duties and obligations with respect to the Notes as are specifically set
forth in this


 


18

















 


Agreement.  The Company acknowledges and agrees that: (i) the
purchase and sale of the Notes pursuant to this Agreement, including the
determination of the Purchase Price and any related discounts and commissions,
is an arm’s-length commercial transaction between the Company, on the one hand,
and FBR, on the other hand, and the Company is capable of evaluating and
understanding and understands and accepts the terms, risks and conditions of
the transactions contemplated by this Agreement; (ii) in connection with
each transaction contemplated hereby and the process leading to such
transaction, FBR is and has been acting solely as a principal and is not the
financial advisor, agent or fiduciary of the Company or its affiliates,
stockholders, creditors or employees or any other party; (iii) FBR has not
assumed and will not assume an advisory, agency or fiduciary responsibility in
favor of the Company with respect to any of the transactions contemplated
hereby or the process leading thereto (irrespective of whether FBR has advised
or is currently advising the Company on other matters); and (iv) FBR and
its affiliates may be engaged in a broad range of transactions that involve
interests that differ from those of the Company and that FBR has no obligation
to disclose any of such interests.  The
Company acknowledges that FBR disclaims any implied duties (including any
fiduciary duty), covenants or obligations arising from its performance of the
duties and obligations expressly set forth herein.  The Company hereby waives and releases, to
the fullest extent permitted by law, any claims that the Company may have
against FBR with respect to any breach or alleged breach of agency or fiduciary
duty.


 


11.          GOVERNING
LAW; HEADINGS.  
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF THE LAW OF ANY OTHER
STATE.  The section headings in this
Agreement have been inserted as a matter of convenience of reference and are
not a part of this Agreement.


 


12.          Parties at
Interest.  The
Agreement herein set forth has been and is made solely for the benefit of FBR
and the Company and the controlling persons, directors and officers referred to
in Section 8 hereof, and their respective successors, assigns, executors
and administrators.  No other person,
partnership, association or corporation (including a purchaser, in its capacity
as such, from FBR) shall acquire or have any right under or by virtue of this
Agreement.


 


13.          Counterparts.  This Agreement may be signed by the parties
in counterparts, which together shall constitute one and the same agreement
among the parties.


 


[SIGNATURE PAGE FOLLOWS]


 


19

















 


If the foregoing
correctly sets forth the understanding among the Company and FBR, please so
indicate in the space provided below for the purpose, whereupon this letter
shall constitute a binding agreement between the Company and FBR.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AMERICAN EQUITY
  INVESTMENT LIFE HOLDING COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John M. Matovina

  
	
   

  	
  Name:

  	
  John M. Matovina

  
	
   

  	
  Title:

  	
  Chief Financial Officer & Treasurer

  



 


[Signature
Page to Purchase Agreement]


 

















 


	
  Accepted
  and agreed to as 

  
	
  of
  the date first above written:

  
	
   

  
	
  FBR
  CAPITAL MARKETS & CO.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Paul S. Rosica

  	
   

  
	
  Name:

  	
  Paul S. Rosica

  
	
  Title:

  	
  Senior Managing Director

  



 


[Signature
Page to Purchase Agreement]


 

















 


EXHIBIT A


 


FORM OF PURCHASER LETTER


 


December 17,
2009


 


 


To
the Undersigned Purchaser


 


Re:          Sale of $52,200,000 Aggregate Principal Amount of 5.25% Contingent
Convertible Senior Notes due 2029 of American Equity Investment Life Holding
Company


 


Ladies
and Gentlemen:


 


Reference
is hereby made to the proposed purchase (the “Transaction”) by [    ] (the “Purchaser”) of $52,200,000
aggregate principal amount of 5.25% Contingent Convertible Senior Notes due
2029 (the “Securities”) of American Equity Investment Life Holding
Company, an Iowa corporation (the “Issuer”), from FBR Capital Markets &
Co., the initial purchaser (“Initial Purchaser”) of the Securities.  In connection with the Transaction, Purchaser
acknowledges, understands and agrees, as follows:


 


1.             Purchaser
represents that it: (a) is either an “accredited investor” as such term is
defined in Rule 501(a) under the Securities Act of 1933, as amended
(the “Securities Act”), or a “qualified institutional buyer” as such
term is defined in Rule 144A under the Securities Act; (b) has
sufficient knowledge and experience in financial and business matters such that
it is capable of evaluating the merits and risks of the Securities; (c) has
conducted, to the extent it deemed necessary, its own independent investigation
of such matters as, in its judgment, is necessary for it to make an investment
decision with respect to the Securities, the Issuer and the Transaction and has
had the opportunity to ask questions of and receive answers from the Issuer and
its officers and directors and to obtain such additional information which the
Issuer or its subsidiaries possess or could acquire without unreasonable effort
or expense as such Purchaser deems necessary to verify the accuracy of the information
furnished to such Purchaser and has asked such questions, received such answers
and obtained such information as it deems necessary to verify the accuracy of
the information furnished to such Purchaser; (d) has not relied upon the
Initial Purchaser for any investigation into, assessment of, or evaluation or
information with respect to the Securities, the Issuer and/or the Transaction; (e) has
been provided with copies of a term sheet dated December 17, 2009 (the “Term
Sheet”) and the indenture under which the Securities will be issued and has had
the opportunity to ask questions of and receive answers from the Issuer
regarding the terms of the Securities; and (f) acknowledges that the Term
Sheet is meant to be only a summary of certain provisions of the Securities and
is qualified in its entirety by reference to all of the provisions of the
indenture, including definitions of certain terms used in the indenture, and
the notes.


 


2.             Purchaser
represents that it is buying the Securities for investment purposes only and
not with a view toward distribution or resale in violation of any applicable
securities laws.


 


A-1

















 


3.             The Initial
Purchaser has informed the Purchaser that it may have possession of confidential
or material, non-public information concerning the Securities and/or the Issuer
(collectively, the “Excluded Information”), which, if publicly disclosed, could
affect the trading price of the Company’s securities, including information
that may be indicative that the value of the Securities is substantially
different than the purchase price being paid for the Securities in the
Transaction.  Purchaser acknowledges that
Initial Purchaser does not now, and will not in the future, have an obligation
to Purchaser to disclose the Excluded Information and has no fiduciary
obligations to the Purchaser.


 


4.             Notwithstanding
any possession of Excluded Information by the Initial Purchaser, the Purchaser
desires to enter into the Transaction for its investment purposes.


 


5.             The Purchaser
hereby irrevocably waives any and all actions, causes, rights or claims,
whether known or unknown, contingent or matured, and whether currently existing
or hereafter arising, that it may have or hereafter acquire (“Claims”)
against the Initial Purchaser or its officers, directors, shareholders,
members, employees, agents, representatives and affiliates (collectively, the “Released Persons”)
in any way, directly or indirectly, arising out of, relating to or resulting
from (i) the Initial Purchaser’s failure to disclose the Excluded
Information to the Purchaser, (ii) the existence or substance of the
Excluded Information or (iii) the fact that the Initial Purchaser has sold
the Securities to the Purchaser in this Transaction, including, without
limitation, Claims it may have or hereafter acquire under applicable federal
and/or state securities laws, including, without limitation, pursuant to
Sections 11, 12 and 17 of the Securities Act, and Sections 10(b) and 20A
of the Securities Exchange Act of 1934, as amended (collectively, the “Acts”),
or the rules and regulations promulgated by the Securities and Exchange
Commission under the Acts.  The Purchaser
agrees that it shall not institute or maintain any cause of action, suit or
complaint or other proceeding against any Released Person as a result of the
Initial Purchaser’s or such person’s failure to disclose the Excluded
Information to the Purchaser.


 


6.             The Purchaser
intends to effect, to the maximum extent permitted by law, a complete and
knowing waiver of its rights as set forth in this letter.


 


7.             Purchaser
acknowledges that the Initial Purchaser is relying on this letter in acting as
the Initial Purchaser of the Securities in the Transaction, and would not act
as the Initial Purchaser of the Securities in the Transaction in the absence of
this letter and the acknowledgment and agreement contained herein.


 


The
foregoing representations, warranties, acknowledgments and agreements shall be
deemed made as of the Trade Date (December 17, 2009) and shall survive the
sale and delivery of the Securities hereunder. 
Please indicate your acknowledgment and agreement to the foregoing by
signing below where indicated, as of the above date.


 


This
agreement shall be governed by the laws of the State of New York.  Both parties agree that any dispute hereunder
shall be resolved by binding arbitration. The parties further agree that
nothing contained herein shall operate as a waiver of any Claims by Purchaser
against the Issuer or any of its respective officers, directors, employees and
affiliates. This agreement is solely for the benefit of the parties hereto and
their respective offices, directors, shareholders,


 


A-2

















 


members,
employees and affiliates and no other person shall acquire or have any rights
under or by virtue of this agreement.


 


 


	
  FBR
  CAPITAL MARKETS & CO.

  	
   

  	
  [PURCHASER]

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  	
  Name:

  
	
   

  	
  Title:

  	
   

  	
   

  	
  Title:

  



 


A-3

















 


EXHIBIT
B-1


 


FORM OF
OPINION OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP


 


1.     No Governmental Approval which has not
been obtained or taken and is not in full force and effect is required to
authorize, or is required for, the execution or delivery of the Purchase
Agreement by the Company or the consummation by the Company of the transactions
contemplated thereby.


 


2.     The Company is not and, solely after
giving effect to the offering and sale of the Notes pursuant to the Purchase
Agreement and the application of the proceeds thereof as described in the
Disclosure Package will not be, an “investment company” as such term is defined
in the Investment Company Act of 1940, as amended.


 


3.     The Company SEC Filings, as of the date
on which such filings were made, appeared on their face to be appropriately
responsive in all material respects to the requirements of the Securities Act
and the rules and regulations promulgated by the SEC thereunder (except
that, in each case, we do not express any view as to the financial statements,
schedules and other financial information included or incorporated by reference
therein or excluded therefrom), and (ii) no facts have come to our
attention that have caused us to believe that the Disclosure Package, as of the
dates on which the statements therein are made, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading (except
that, in each case, we do not express any view as to the financial statements,
schedules and other financial information included or incorporated by reference
therein or excluded therefrom).


 


As used herein, (i) “Purchase
Agreement” shall mean that certain Purchase Agreement dated December 17,
2009 by and between the Company and FBR Capital Markets & Co. for the
sale by the Company of $52,225,000 aggregate principal amount of the Company’s
5.25% Contingent Convertible Senior Notes due 2029; (ii) “Applicable Laws”
means those laws, rules and regulations of the State of New York and those
federal laws, rules and regulations of the United States of America, in
each case that, in our experience, are normally applicable to transactions of
the type contemplated by the Purchase Agreement (other than the United States federal
securities laws, state securities or blue sky laws, antifraud laws and the rules and
regulations of the Financial Industry Regulatory Authority, Inc.), but
without our having made any special investigation as to the applicability of
any specific law, rule or regulation; (iii) “Governmental Authorities”
means any court, regulatory body, administrative agency or governmental body of
the State of New York or the United States of America having jurisdiction over
the Company under Applicable Laws; and (iv) “Governmental Approval” means
any consent, approval, license, authorization or validation of, or filing,
qualification or registration with, any Governmental Authority required to be
made or obtained by the Company pursuant to Applicable Laws, other than any
consent, approval, license, authorization, validation, filing, qualification or
registration that may have become applicable as a result of the involvement of


 


B-1

















 


any party (other
than the Company) in the transactions contemplated by the Purchase Agreement or
because of such party’s legal or regulatory status or because of any other
facts specifically pertaining to such party.


 


Other capitalized terms
used but not defined herein shall have their respective meanings set forth in
the Purchase Agreement.


 


B-2

















 


EXHIBIT
B-2


 


FORM OF
OPINION OF ASSOCIATE GENERAL COUNSEL OF THE COMPANY


 


1.     The Company has been duly incorporated
and is validly existing as a corporation and in good standing under the laws of
the State of Iowa, with all corporate power and authority to own, lease or
operate its current property and to conduct its business and to execute,
deliver and perform the Purchase Agreement.


 


2.     To the best knowledge of Company Counsel,
the Company is duly qualified as a foreign corporation to transact business and
is in good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or to be in good
standing could not reasonably be expected to result in a Material Adverse
Effect.


 


3.     The execution, delivery and performance
by the Company of the Purchase Agreement and have been duly authorized by all
necessary corporate action of the Company.


 


4.     The Purchase Agreement has been duly
executed and delivered on behalf of the Company.


 


5.     The Indenture has been duly authorized,
executed and delivered by the Company and, assuming the due authorization,
valid execution and delivery by the Trustee, the Indenture is a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except to the extent that enforcement thereof may be subject to
the Enforceability Exceptions.


 


6.     The Notes have been duly authorized,
issued and executed by the Company, and when authenticated in accordance with
the provisions of the Indenture, and delivered to and duly paid for in
accordance with the applicable provisions of the Purchase Agreement, the Notes
will be entitled to the benefits of the Indenture and will be valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except to the extent that enforcement thereof may be
subject to the Enforceability Exceptions.


 


7.     The Underlying Shares have been duly
authorized and reserved by the Company for issuance upon the exercise of the
equity-linked put right pursuant to the terms of the Purchased Notes and, when
issued in connection with such equity-linked put right in accordance with the
terms of the Purchased Notes, will be validly issued, fully paid and
non-assessable, and the issuance of the Underlying Shares will not be subject
to any preemptive, resale, participation, rights of first refusal or other
similar rights.


 


8.     To the best of my knowledge, the
execution and delivery by the Company of the Purchase Agreement by the Company,
the issuance and sale of the Notes, and the consummation by the Company of the
transactions contemplated by the Purchase Agreement, the Notes and the
Indenture, as the case may be, will not, whether with or without the giving of
notice or lapse of time or both, (i) constitute a violation of, or a
breach of, or default under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of the 


 


B-3

















 


Company or any
Significant Subsidiary pursuant to, the terms of any Applicable Contract
(except for such violations, breaches, defaults or liens, charges or
encumbrances that would not reasonably be expected to have a Material Adverse
Effect), (ii) conflict with the articles of incorporation or bylaws or
comparable organizational documents of the Company or any of its subsidiaries,
or (iii) violate or conflict with, or result in any contravention of, any
Applicable Law or any Applicable Order.


 


9.     American Equity Investment Life Insurance
Company, an Iowa corporation, has been duly incorporated and validly exists in
good standing under the laws of the State of Iowa.  American Equity Life has the corporate power
and authority to own, lease and operate its properties and to conduct its
business.


 


10.  American Equity Investment Life Insurance
Company of New York, a New York corporation, has been duly organized and
validly exists in good standing under the laws of the State of New York.  American Equity Life of New York has the
corporate power and authority to own, lease and operate its properties and to
conduct its business.


 


11.  Eagle Life Insurance Company, an Iowa
corporation, has been duly incorporated and validly exists in good standing
under the laws of the State of Iowa. 
Eagle Life has the corporate power and authority to own, lease and
operate its properties and to conduct its business.


 


12.  To the best of my knowledge, each
Significant Subsidiary is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure so to qualify or
to be in good standing would not reasonably be expected to result in a Material
Adverse Effect.


 


13.  To the best of my knowledge, other than
as described in the Company SEC Filings, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the Company or any
Significant Subsidiary is a party, or to which the property of the Company or
any Significant Subsidiary is subject, before or brought by any court or
governmental agency or body, domestic or foreign, that could reasonably be
expected to result in a Material Adverse Effect, or that could reasonably be
expected to materially and adversely affect the properties or assets thereof or
the consummation of the transactions contemplated in the Purchase Agreement or
the Indenture or the performance by the Company of its obligations under the
Purchase Agreement, the Notes or the Indenture.


 


14.  To the best of my knowledge, any pending
or threatened actions, suits, proceedings, inquiries or investigations to which
the Company or any Significant Subsidiary is or may become a party or to which
any of their property is or may be subject which are not described in the
Company SEC Filings, including ordinary routine litigation incidental to the
Company’s or Significant Subsidiary’s business, would, considered in the
aggregate, not reasonably be expected to result in a Material Adverse Effect on
the financial condition, earnings or business of the company and its
Significant Subsidiaries considered together.


 


15.  To the best of my knowledge, each
Insurance Subsidiary holds such Insurance Licenses as are material to the
conduct of its business; to the best of my knowledge, there is no pending 


 


B-4

















 


or threatened
action, suit, proceeding or investigation that would reasonably be expected to
result in the revocation, termination or suspension of any such Insurance
License that would reasonably be expected to, individually or in the aggregate,
have a Material Adverse Effect; and, except as disclosed in the Company SEC
Filings, and to the best of my knowledge, no insurance regulatory agency or
body has issued, or commenced any proceeding for the issuance of, any order or
decree impairing, restricting or prohibiting the payment of dividends by any
Insurance Subsidiary to its parent.


 


As used herein, (i) “Purchase
Agreement” shall mean that certain Purchase Agreement dated December 17,
2009 by and between the Company and FBR Capital Markets & Co. for the
sale by the Company of $52,225,000 aggregate principal amount of the Company’s
5.25% Contingent Convertible Senior Notes due 2029; (ii) “Applicable
Contracts” means those indentures or other agreements or instruments known to
me and to which the Company or any Significant Subsidiary is a party or by
which the Company or any Significant Subsidiary is bound or to which any of
their respective properties or assets are subject; (iii) “Applicable Laws”
means those laws, rules and regulations of the States of Iowa and New
York, including the insurance laws, rules and regulations of the States of
Iowa and New York, that, in my experience, are normally applicable to
transactions of the type contemplated by the Purchase Agreement, the Notes or
the Indenture, as the case may be (other than state securities or blue sky laws
and antifraud laws), but without may having made any special investigation as
to the applicability of any specific law, rule or regulation; and (iv) “Applicable
Orders” means those judgments, orders or decrees known to me to be applicable
to the Company.  Other capitalized terms
herein shall have their respective meanings set forth in the Purchase
Agreement.


 


B-5

















 


EXHIBIT C


 


FORM OF
OPINION OF SIDLEY AUSTIN LLP


 


1.     No facts have
come to our attention that have caused us to believe that the Disclosure
Package, as of the dates on which the statements therein are made, contained an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; except in each case that we express no belief and make no statement
with respect to (A) financial statements and schedules and other financial
or statistical data included or incorporated by reference in or omitted from
the Company SEC Filings, or the omission therefrom of the purchase price for
the Notes payable by investors or the amount of net proceeds to be received by
the Company from sales of the Notes or (B) any trustee’s statement of
eligibility on Form T-1.


 


Capitalized terms used
but not defined herein shall have their respective meanings set forth in that
certain Purchase Agreement dated December 17, 2009 by and between the
Company and FBR Capital Markets & Co. for the sale by the Company of
$52,225,000 aggregate principal amount of the Company’s 5.25% Contingent
Convertible Senior Notes due 2029.


 


C-1

















 


EXHIBIT D


 


FORM OF
LOCK-UP AGREEMENT


 


December 17, 2009


 


FBR Capital Markets &
Co.


1001 Nineteenth Street
North, 18th Floor

Arlington, Virginia  22209


 


Ladies and Gentlemen:


 


The undersigned
understands and agrees as follows:


 


1.             FBR Capital Markets & Co. (“FBR”)
proposes to enter into a Purchase Agreement (the “Agreement”) with
American Equity Investment Life Holding Company, an Iowa corporation (the “Company”),
providing for the initial purchase by FBR of $52,225,000 aggregate principal
amount of the Company’s 5.25% Contingent Convertible Senior Notes due 2029 (the
“Notes”), and the resale of such shares by FBR to certain eligible
purchasers (the “Offering”), in each case, in transactions exempt from
the registration requirements of the Securities Act of 1933, as amended (the “Securities
Act”).


 


2.             In recognition of the benefit that the
Offering will confer upon the undersigned and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
the undersigned, the undersigned hereby agrees that, without the prior written
consent of FBR (which consent may be withheld or delayed in FBR’s sole
discretion), he, she or it will refrain during the period commencing on the
date of the Agreement and ending on the date that is 60 days after the date of
the Agreement, from (i) offering, pledging, selling, contracting to sell,
selling any option or contract to purchase, purchasing any option or contract
to sell, granting any option, right or warrant for the sale of, lending or
otherwise disposing of or transferring, directly or indirectly, any equity
securities of the Company, or any securities convertible into or exercisable or
exchangeable for equity securities of the Company, or (ii) entering into
any swap or other arrangement that transfers to another, in whole or in part,
directly or indirectly, any of the economic consequences of ownership of equity
securities of the Company, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of common
stock of the Company or such other securities, in cash or otherwise.


 


Notwithstanding the
foregoing, subject to applicable securities laws and the restrictions contained
in the Company’s articles of incorporation, as amended, the undersigned may
transfer any securities of the Company (including, without limitation, common
stock) as follows: (i) pursuant to the exercise and issuance of options; (ii) as
a bona fide gift or gifts, provided that the donee or donees thereof agree to
be bound in writing by the restrictions set forth herein; (iii) to any
trust for the direct or indirect benefit of the undersigned or the immediate
family of the undersigned, provided that the trustee of the trust agrees to be
bound in writing by the restrictions set forth herein; (iv) as a
distribution to stockholders, partners or members of the undersigned, provided
that such stockholders, partners or members agree to be bound in writing 


 


D-1

















 


by the
restrictions set forth herein; (v) any transfer required under any benefit
plans or the Company’s third amended and restated bylaws; (vi) as
collateral for any loan, provided that the lender agrees in writing to be bound
by the restrictions set forth in herein; or (vii) with respect to sales of
securities acquired after the Closing Time in the open market. For purposes of
this agreement, “immediate family” shall mean any relationship by blood,
marriage or adoption, not more remote than first cousin.


 


For the avoidance of doubt,
nothing shall prevent the undersigned from, or restrict the ability of the
undersigned to, (i) purchase common stock on the open market or (ii) exercise
any options or other convertible securities granted under any benefit plan of
the Company.


 


3.             The undersigned acknowledges that FBR is
relying on the agreements of the undersigned set forth herein in making its
decision to enter into the Agreement and to continue its efforts in connection
with the Offering.


 


4.             This Lock-Up Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to principles of conflict of laws.


 


5.             This Lock-Up Agreement may be delivered
by facsimile.


 


[SIGNATURE PAGE FOLLOWS]


 


D-2

















 


IN WITNESS WHEREOF, the undersigned has executed this
Lock-Up Agreement, or caused this Lock-Up Agreement to be executed, as of the
date first written above.


 


	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  (Address)

  



 


D-3






 












 


EXHIBIT E


 


FORM OF
TERM SHEET


 


[See attached.]


 


E-1

















 





 


5.25%
Contingent Convertible Senior Notes due 2029(1)


Summary
of Terms


 


	
  Issuer:

  	
   

  	
  American Equity Investment
  Life Holding Company (“AEL”)

  
	
   

  	
   

  	
   

  
	
  Maturity:

  	
   

  	
  December 6, 2029,
  unless earlier exchanged, redeemed or repurchased

  
	
   

  	
   

  	
   

  
	
  Principal
  Amount:

  	
   

  	
  $52,225,000

  
	
   

  	
   

  	
   

  
	
  Ranking:

  	
   

  	
  The notes are our senior
  unsecured obligations and each series ranks equally in right of payment with
  the other series and any of our other existing and future senior indebtedness
  and senior to any existing and future subordinated indebtedness. The notes
  rank junior in right of payment to all of our existing and future secured
  indebtedness to the extent of the value of the assets securing such secured
  indebtedness. In addition, the notes are effectively subordinate to all
  liabilities, including policyholder liabilities, trade payables, lease
  obligations and liquidation preference on any preferred stock, whether or not
  secured, of any of our subsidiaries and any subsidiaries that we may in the
  future acquire or establish.

  
	
   

  	
   

  	
   

  
	
  Interest
  Rate and Payment 

  	
   

  	
  The notes bear interest at
  an annual rate equal to 5.25%, accruing from December 22, 2009.

  
	
  Dates:

  	
   

  	
   

  
	
   

  	
   

  	
  Interest is payable
  semi-annually in arrears on June 6 and December 6 of each year,
  each an interest payment date, beginning June 6, 2010.

  
	
   

  	
   

  	
   

  
	
  Contingent
  Interest:

  	
   

  	
  In addition to regular
  interest on a series of notes, beginning with the six-month interest period
  ending June 6, 2015, we will also pay contingent interest during any
  six-month interest period in which the average trading price per $1,000
  principal amount of a series of notes for the five-day trading period ending
  on the third day immediately preceding the first day of such six-month
  interest period equals 120% or more of the principal amount of such series of
  notes

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  During any interest period
  in which contingent interest shall be payable on a series of notes, the
  contingent interest payable per $1,000 principal amount of such series of
  notes will equal 0.50% per annum of the average trading price of $1,000
  principal amount of notes during the five trading day measuring period ending
  on the third day immediately preceding the applicable six-month interest
  period used to determine whether contingent interest must be paid

  
	
   

  	
   

  	
   

  
	
  Conversion
  Rights:

  	
   

  	
  Holders may surrender notes
  for conversion into cash and shares of our common stock on or prior to the
  maturity date only in the following circumstances:

  
	
   

  	
   

  	
   

  
	
   

  	
  ·

  	
  During any fiscal quarter
  commencing after the date of original issuance of the notes, if the common
  stock price for at least 20 trading days in the period of 30 consecutive
  trading days ending on the last trading day of the fiscal quarter preceding
  the quarter in which the conversion occurs is more than 120% of the
  Conversion Price in effect on that 30th trading day;

  
	
   

  	
   

  	
   

  
	
   

  	
  ·

  	
  If such notes have been
  called for redemption, at any time prior to the close of business on the
  second business day prior to redemption date;

  
	
   

  	
   

  	
   

  
	
   

  	
  ·

  	
  At any time on or after
  December 15, 2028; or

  
	
   

  	
   

  	
   

  
	
   

  	
  ·

  	
  Upon the occurrence of
  specified transactions described under “Conversion Upon Specified Corporate
  Transactions” below.

  
	
   

  	
   

  	
   

  
	
   

  	
  Upon the occurrence of any
  of the circumstances described above, holders may convert any outstanding
  notes into cash and shares of our common stock at an initial “Conversion
  Price” per share of $9.69. This represents a “Conversion Rate” of
  approximately 103.1992 shares of common stock per $1,000 principal amount of
  notes. Subject to certain exceptions set forth in the indenture, once notes
  are tendered for conversion, the value (the “Conversion Value”) of the cash
  and shares of our common stock, if any, to be received by a holder converting
  $1,000 principal amount of the notes will be determined by multiplying the
  Conversion Rate by the Ten Day Average Closing Stock Price (as defined
  below). We will deliver the Conversion Value to holders as follows: (1) an
  amount in cash (the “Principal Return”) equal to the lesser of (a) the
  aggregate Conversion Value of the notes to be converted and (b) the
  aggregate principal amount of the notes to be converted, (2) if the
  aggregate Conversion Value of the notes to be converted is greater than the
  Principal Return, an amount in whole shares (the “Net Shares”), determined as
  set forth below, equal to such aggregate Conversion Value less the Principal
  Return (the “Net Share Amount”), and (3) an amount in cash in lieu of
  any  fractional shares of
  common stock.  We will pay the Principal Return and cash in
  lieu of fractional shares and deliver the Net Shares, if any, as promptly as
  practicable after determination of the Net Share Amount. The number of Net
  Shares to be paid will be determined by dividing the Net Share Amount by the Ten
  Day Average Closing Stock Price, rounded down to the nearest whole share. The
  “Ten Day Average Closing Stock Price” will be the average of the closing per
  share prices of our common stock on the New York Stock Exchange on the ten
  consecutive trading days beginning on the second trading day following the
  day

  
					



 






(1) The notes will be issued pursuant to an indenture between us and U.S.
Bank National Association, as trustee, dated December 22, 2009 (the “indenture”).
The indenture contains provisions which define your rights under the notes. The
terms of the notes include those stated in the indenture and those made part of
the indenture by reference to the Trust Indenture Act of 1939, as amended. This
term sheet is meant to be only a summary of certain provisions of the indenture
and is subject to and qualified in its entirety by reference to all of the
provisions of the indenture, including definitions of certain terms used in the
indenture, and the notes. We urge that you carefully read the indenture because
the indenture, and not this term sheet, governs your rights as note holders.
See “Additional Information” below.


 


E-2

















 


	
  

  	
  Summary of Terms

  	
  December 17, 2009

  



 


	
   

  	
   

  	
  the notes are submitted for
  conversion.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The Conversion Price will
  be subject to adjustment in certain circumstances, as set forth in the
  indenture.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  If AEL declares a cash
  dividend or cash distribution above $0.08 per share annually (the “dividend
  threshold amount”) to all of the holders of AEL’s common stock, the
  Conversion Price shall be decreased to equal the price determined by
  multiplying the Conversion Price in effect immediately prior to the record
  date for such dividend or distribution by the following fraction:
  ((Pre-Dividend Sale Price - Dividend Adjustment Amount) / (Pre-Dividend Sale
  Price))

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Pre-Dividend Sale Price”
  means the average common stock price for the three consecutive trading days
  ending on the trading day immediately preceding the record date for such
  dividend or distribution.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  “Dividend Adjustment
  Amount” means the difference between the full amount of the dividend or
  distribution to the extent payable in cash applicable to one share of our
  common stock and the dividend threshold amount.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The “common stock price” on
  any date means the closing sale price per share (or if no closing sale price
  is reported, the average of the bid and ask prices or, if more than one in
  either case, the average of the average bid and the average ask prices) on
  such date for our common stock as reported in composite transactions on the
  New York Stock Exchange or such other principal United States securities
  exchange on which our common stock is then traded or, if our common stock is
  not listed on a United States national or regional securities exchange, as
  reported by Pink OTC Markets Inc. If our common stock is not so reported, the
  “common stock price” will be determined by a U.S. nationally recognized
  independent investment banking firm selected by us for this purpose.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  A “trading day” means any
  regular or abbreviated trading day of The New York Stock Exchange.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Upon conversion of the
  notes, the holder will not receive any additional cash payment representing
  accrued and unpaid interest, including contingent interest or liquidated
  damages, if any.

  
	
   

  	
   

  	
   

  
	
  Conversion
  Upon Specified

  	
   

  	
  If we elect to:

  
	
  Corporate
  Transactions:

  	
   

  	
   

  



 


	
   

  	
  ·

  	
  distribute to all holders
  of our common stock rights, warrants or options entitling them to subscribe
  for or  purchase, for a
  period expiring not more than 60 days after the date of distribution, shares
  of our common stock at less
  than the average common stock price for the ten trading days immediately
  preceding the date that such distribution
  was first publicly announced; or

  
	
   

  	
   

  	
   

  
	
   

  	
  ·

  	
  distribute to all holders
  of our common stock cash, other assets, debt securities or certain rights or
  warrants to  purchase our
  securities, which distribution has a per share value exceeding 10% of the
  common stock price on the
  trading day immediately preceding the date that such distribution was first
  publicly announced,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  we must notify the holders
  of notes at least 20 days prior to the ex-dividend date for such
  distribution. Once we  have
  given such notice, holders may surrender their notes for conversion until the
  earlier of the close of business
  on the business day prior to the ex-dividend date or our announcement that
  such distribution will not take
  place. This provision shall not apply if the holder of a note otherwise
  participates in the distribution on an as-converted basis (solely into shares of our common stock at the then
  applicable Conversion Price) without conversion of such holder’s notes.

  
	
   

  	
   

  	
   

  
	
   

  	
  In addition, (x) if a
  change of control occurs or (y) if we are a party to a consolidation,
  merger, share exchange, sale of all  or substantially all of our properties and assets or other similar
  transaction, in each case pursuant to which the shares of our common stock
  would be converted into cash, securities or other property, which transaction
  does not otherwise constitute a change of control, a holder may surrender its
  notes for conversion at any time from and after the effective date of such
  transaction until and including the date that is 30 days after the effective
  date of such transaction.

  
	
   

  	
   

  
	
   

  	
  If you elect to convert
  your notes in connection with a change in control that occurs prior to
  December 15, 2014 (other  than a change in control relating to the composition of our board of
  directors) and 10% or more of the fair market value of the consideration for
  the common stock in such transaction consists of (i) cash,
  (ii) other property or (iii) securities that are not traded or
  scheduled to be traded immediately following such transaction on a U.S.
  national securities exchange, we will increase the Conversion Rate by a
  number of shares (“the additional shares”) as described below, which will
  have the effect of decreasing the Conversion Price for the notes surrendered
  for conversion. A note will be deemed to have been converted “in connection
  with” such a transaction if such note is tendered for conversion from and
  after the effective date of such transaction until and including the date
  that is 30 days after the effective date of such transaction.

  
	
   

  	
   

  
	
   

  	
  A “change in control” means
  (a) any sale, lease, exchange or other transfer (in one transaction or a
  series of related  transactions)
  of all or substantially all of the properties and assets of AEL, to any
  person or group of related persons, as defined in Section 13(d) of
  the Securities Exchange Act of 1934; (b) the approval by the holders of
  the capital stock of AEL of any plan or proposal for the liquidation or
  dissolution of AEL, whether or not otherwise in compliance with the
  indenture; (c) any person or group, other than AEL, any subsidiary of
  AEL or any employee benefit plan of AEL or any subsidiary, becomes the
  beneficial owner, directly or indirectly, of shares of voting stock
  representing in excess of 50% of the aggregate ordinary voting power
  represented by all of the issued and outstanding voting stock of AEL; or
  (d) the first day on which a majority of the members of the AEL board of
  directors are not continuing directors.

  
	
   

  	
   

  
	
   

  	
  The number of additional
  shares will be determined by reference to the table below, based on the date
  on which the  corporate
  transaction becomes effective (the “effective date”) and the share price (the
  “share price”) paid per share of common stock in the corporate transaction.
  If holders of shares of our common stock receive only cash in the corporate
  transaction, the share price shall be the cash amount paid per share.
  Otherwise, the share price shall be the average of the closing per share sale
  price of our common stock on the five trading days prior to but not including
  the effective date of the corporate transaction.

  
				



 


E-3

















 


	
   

  	
  The share prices set forth
  in the first row of the table below (i.e., column headers) will be adjusted
  in the same manner as the Conversion Price. The additional share amounts will
  be adjusted as of any date on which the Conversion Price of the notes is
  adjusted in accordance with the provisions of the indenture and will equal
  the additional share amounts applicable immediately prior to such adjustment,
  multiplied by a fraction, the numerator of which is the Conversion Price
  immediately prior to the adjustment giving rise to the additional share
  amount adjustment and the denominator of which is the Conversion Price as so
  adjusted.

  
	
   

  	
   

  
	
   

  	
  The following table sets
  forth the share price and number of additional shares to be received per
  $1,000 principal amount of notes:

  



 


	
   

  	
   

  	
  Stock
  Price

  	
   

  
	
  Effective Date

  	
   

  	
  $7.75

  	
   

  	
  $9.00

  	
   

  	
  $9.69

  	
   

  	
  $11.00

  	
   

  	
  $12.00

  	
   

  	
  $15.00

  	
   

  	
  $25.00

  	
   

  	
  $35.00

  	
   

  	
  $45.00

  	
   

  	
  $55.00

  	
   

  	
  $65.00

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 22,
  2009

  	
   

  	
  25.8331

  	
   

  	
  19.6342

  	
   

  	
  17.1311

  	
   

  	
  13.5554

  	
   

  	
  11.5342

  	
   

  	
  7.6208

  	
   

  	
  2.7768

  	
   

  	
  1.2180

  	
   

  	
  0.5386

  	
   

  	
  0.2081

  	
   

  	
  0.0593

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 15,
  2010

  	
   

  	
  25.8331

  	
   

  	
  19.6897

  	
   

  	
  16.9866

  	
   

  	
  13.1826

  	
   

  	
  11.0842

  	
   

  	
  7.1408

  	
   

  	
  2.5368

  	
   

  	
  1.1094

  	
   

  	
  0.4875

  	
   

  	
  0.1863

  	
   

  	
  0.0501

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 15,
  2011

  	
   

  	
  25.8331

  	
   

  	
  19.2230

  	
   

  	
  16.2539

  	
   

  	
  12.1826

  	
   

  	
  10.0258

  	
   

  	
  6.1608

  	
   

  	
  2.1088

  	
   

  	
  0.9265

  	
   

  	
  0.4075

  	
   

  	
  0.1554

  	
   

  	
  0.0393

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 15,
  2012

  	
   

  	
  25.8331

  	
   

  	
  18.0897

  	
   

  	
  14.7678

  	
   

  	
  10.4099

  	
   

  	
  8.2258

  	
   

  	
  4.6675

  	
   

  	
  1.5368

  	
   

  	
  0.6865

  	
   

  	
  0.3053

  	
   

  	
  0.1154

  	
   

  	
  0.0285

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 15,
  2013

  	
   

  	
  25.8331

  	
   

  	
  15.1453

  	
   

  	
  11.3829

  	
   

  	
  6.9190

  	
   

  	
  4.9842

  	
   

  	
  2.4475

  	
   

  	
  0.8048

  	
   

  	
  0.3723

  	
   

  	
  0.1742

  	
   

  	
  0.0736

  	
   

  	
  0.0177

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  December 15,
  2014

  	
   

  	
  25.8331

  	
   

  	
  7.9119

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  	
  0.0000

  	
   

  



 


	
   

  	
  The exact stock prices and effective
  dates may not be set forth in the table above, in which case:

  
	
   

  	
   

  
	
   

  	
  ·

  	
  If the stock price is
  between two stock prices in the table or the effective date is between two
  effective dates in  the
  table, the number of additional shares will be determined by a straight-line
  interpolation between the number of additional shares set forth for the
  higher and lower stock prices and the earlier and later effective dates, as
  applicable, based on a 365-day year.

  
	
   

  	
   

  	
   

  
	
   

  	
  ·

  	
  If the stock price is
  greater than $65.00 per share (subject to adjustment in the same manner as
  the stock prices set forth in the column headings of the table above), no
  additional shares will be added to the Conversion Rate.

  
	
   

  	
   

  	
   

  
	
   

  	
  ·

  	
  If the stock price is less
  than $7.75 per share (subject to adjustment in the same manner as the stock
  prices set forth in the column headings of the table above), no additional
  shares will be added to the Conversion Rate.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Notwithstanding the
  foregoing, in no event will the Conversion Rate exceed 129.0323 shares per
  $1,000 principal amount of notes, subject to adjustments in the same manner
  as the Conversion Price as set forth in the indenture.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Our obligation to satisfy
  the additional shares requirement could be considered a penalty, in which
  case the enforceability thereof would be subject to general principles of
  reasonableness and equitable remedies.

  
	
   

  	
   

  	
   

  
	
  Redemption
  of the Notes at  AEL’s Option:

  	
   

  	
  AEL cannot redeem the notes
  before December 15, 2014. AEL may redeem some or all of the notes at any
  time or from time to time on or after December 15, 2014, at a redemption
  price equal to 100% of the principal amount of the notes, plus accrued and
  unpaid interest (including contingent interest and liquidated damages, if
  any) up to but not including the date of redemption, payable in cash.

  
	
   

  	
   

  	
   

  
	
  Redemption
  of the Notes at the  Option of the Holder:

  	
   

  	
  Holders may require AEL to
  repurchase all or a portion of their notes on December 15, 2014, 2019
  and 2024 for a repurchase price equal to 100% of the principal amount of the
  notes, plus accrued and unpaid interest (including contingent interest and
  liquidated damages, if any) up to but not including the date of repurchase,
  payable in cash.

  
	
   

  	
   

  	
   

  
	
  Repurchase
  of Notes at the  Option of the Holder Upon Certain Change of
  Control Transactions:

  	
   

  	
  If a change in control
  occurs, holders will have the right to require AEL to repurchase all or a
  portion of their notes on or before the close of business on the third
  business day prior to the repurchase date fixed by AEL, which will be not
  less than 30 days nor more than 45 days after the date the change in control
  repurchase notice is given. AEL is required to send a change in control
  repurchase notice not more than 30 days after the occurrence of a change in
  control. The repurchase price will be equal to 100% of the principal amount
  of the notes, plus accrued and unpaid interest (including contingent interest
  and liquidated damages, if any) up to but not including the date of
  repurchase, payable in cash.

  
					



 


E-4

















 


	
  Registration
  Rights, Additional  Interest:

  	
   

  	
  AEL does not intend to file
  a shelf registration statement for the resale of the notes or any common
  stock issuable upon conversion of the notes. As a result, holders may only
  resell the notes or common stock issued upon conversion of the notes pursuant
  to an exemption from the registration requirements of the Securities Act of
  1933, and other applicable securities laws.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  If at any time during the
  six month period beginning on, and including, the date which is 6 months
  after the last date on  which
  any of the notes are issued, (a) we fail to timely file with the
  Securities and Exchange Commission (“SEC”) pursuant to Section 13 or
  15(d) of the Securities Exchange Act of 1934, as applicable (after
  giving effect to all applicable grace periods thereunder and other than
  reports on Form 8-K), or the notes are not otherwise freely tradable by
  holders other than our affiliates (as a result of restrictions pursuant to
  U.S. securities law or the terms of the indenture or the notes), AEL will pay
  additional interest on the notes. Additional interest will accrue on the
  notes at the rate of 0.25% per annum of the principal amount of the notes
  outstanding for each day during such period for which our failure to file, or
  the failure of the notes to be freely tradable by holders other than our
  affiliates, has occurred and is continuing, which rate will be an increased
  by an additional 0.25% per annum following the 90th day on which such
  additional interest has accrued, provided that the rate at which such
  additional interest accrues may in no event exceed 0.50% per annum; and
  provided further that we will have 14 calendar days, in the aggregate, to
  cure any such late filings before any such additional interest shall accrue.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Further, if, and for so
  long as, the restrictive legend on the notes has not been removed or the
  notes are not otherwise freely tradable by holders other than our affiliates
  as of the 365th day after the last date of the issuance of the notes offered
  hereby, AEL will pay additional interest on the notes at a rate equal to
  0.25% per annum of the principal amount of the notes outstanding until the
  restrictive legend on the notes has been removed and the notes are feely
  tradable, which rate will be increased by an additional 0.25% per annum
  following the 90th day on which such additional interest has accrued,
  provided that the rate at which such additional interest accrues may in no
  event exceed 0.50% per annum.

  
	
   

  	
   

  	
   

  
	
  Form of
  Notes:

  	
   

  	
  The notes are in book-entry
  form and represented by permanent global certificates deposited with, or on
  behalf of, DTC and registered in the name of a nominee of DTC. Beneficial
  interests in any of the securities are shown on, and transfers of those
  beneficial interests are effected only through, records maintained by DTC and
  its participants.

  
	
   

  	
   

  	
   

  
	
  Certain
  U.S. Federal Income Tax  Considerations for U.S. Holders:

  	
   

  	
  We and each holder (and
  beneficial owner) of the notes will agree in the indenture governing the notes
  to treat the notes, for U.S. federal income tax purposes, as “contingent
  payment debt instruments” and to be bound by our application of the U.S.
  Treasury regulations governing contingent payment debt instruments (the “CPDI
  Regulations”). Under the CPDI Regulations, even if we do not pay any
  contingent interest on the notes, a U.S. holder of a note will be required to
  include interest in its gross income as original issue discount for U.S.
  federal income tax purposes regardless of whether such holder uses the cash
  or accrual method of accounting for income tax purposes. The amount of such
  required inclusions will be based on the comparable yield of the notes which
  will be based on the rate, as of the initial issue date, at which we would
  issue a fixed-rate non-convertible debt instrument with no contingent
  payments but with terms and conditions otherwise similar to the notes. We
  believe the comparable yield is 11.50%, although this determination is not
  binding on the Internal Revenue Service and could be challenged. Accordingly,
  each U.S. holder generally will recognize taxable income in excess of cash
  received on the notes while they are outstanding. In addition, a U.S. holder
  generally will be required to recognize gain upon the conversion, sale,
  exchange, repurchase or retirement of a note. Any gain recognized by a holder
  on the conversion, sale, exchange, repurchase, redemption or retirement of a
  note generally will be ordinary interest income; any loss generally will be
  ordinary loss to the extent of the interest previously included in income by
  the holder and, thereafter, capital loss. If, as expected, the yield to
  maturity with respect to the notes equals or exceeds the sum of the
  “applicable federal rate” (4.09% for December 2009) plus five percentage
  points, the notes would be treated as applicable high yield discount
  obligations (“AHYDO”) under the Internal Revenue Code of 1986, as amended.
  Under this treatment, (i) original issue discount (“OID”) in excess of
  the sum of the “applicable federal rate” and six percentage points would be
  treated as a dividend for purposes of the dividends received deduction for
  corporations and (ii) we would not be able to deduct such portion of the
  OID on the notes, and (iii) we would not be able to deduct the balance of
  the OID until actually paid.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  We are required to provide
  to holders, solely for U.S. federal income tax purposes, a schedule of
  projected amounts of payments on the notes. This schedule must produce the
  comparable yield. Our determination of the projected payment schedule for the
  notes includes estimates for payments of contingent interest and an estimate
  for a payment at maturity that takes into account the conversion feature of
  the notes. A holder may obtain the projected payment schedule by submitting a
  written request to us at the following address: American Equity Investment
  Life Holding Company, 6000 Westown Parkway, West Des Moines, Iowa 50266,
  Attention: Investor Relations.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The comparable yield and
  the projected payment schedule are not determined for any purpose other than
  for the determination of a holder’s interest accruals and adjustments thereof
  in respect of the notes for U.S. federal income tax purposes and do not
  constitute a projection or representation regarding the actual amounts
  payable to holders of the notes.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  THERE IS
  SOME UNCERTAINTY AS TO THE PROPER TREATMENT OF THE NOTES UNDER THE CPDI
  REGULATIONS AND RULES APPLICABLE TO AHYDOS. MOREOVER, SUCH PROVISIONS ARE
  EXTREMELY COMPLEX. THIS DISCUSSION DOES NOT CONSTITUTE TAX ADVICE AND,
  ACCORDINGLY, PROSPECTIVE HOLDERS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
  ADVISORS AS TO THE U.S. FEDERAL, STATE, LOCAL OR OTHER TAX CONSEQUENCES OF
  ACQUIRING, OWNING AND DISPOSING OF THE NOTES AND COMMON STOCK INTO WHICH THE
  NOTES ARE CONVERTIBLE.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  TO ENSURE
  COMPLIANCE WITH TREASURY DEPARTMENT CIRCULAR 230, HOLDERS OF NOTES ARE HEREBY
  NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES IN THIS TERM
  SHEET IS NOT INTENDED OR WRITTEN TO BE RELIED UPON, AND CANNOT BE RELIED
  UPON, BY HOLDERS

  



 


E-5

















 


	
   

  	
   

  	
  FOR THE
  PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON HOLDERS UNDER THE
  INTERNAL REVENUE
  CODE; (B) SUCH DISCUSSION IS BEING USED IN CONNECTION WITH THE
  PROMOTION OR
  MARKETING (WITHIN THE MEANING OF CIRCULAR 230) BY THE ISSUERS OF THE
  TRANSACTIONS OR
  MATTERS ADDRESSED HEREIN; AND (C) HOLDERS SHOULD SEEK ADVICE  BASED ON THEIR PARTICULAR
  CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

  
	
   

  	
   

  	
   

  
	
  Trading:

  	
   

  	
  The notes will be eligible
  for trading in The PORTALSM Market.
  There is no public market for the notes and we do not  intend to apply for listing of the notes on
  any securities exchange or for quotation of the notes through any automated quotation system.

  
	
   

  	
   

  	
   

  
	
  Transfer
  Restrictions:

  	
   

  	
  Neither the notes nor AEL
  common shares that may be issuable upon exchange of the notes have been
  registered under the  Securities
  Act of 1933 or the securities law of any jurisdiction and are subject to
  certain restrictions on transfer.

  
	
   

  	
   

  	
   

  
	
  Listing of
  Common Stock:

  	
   

  	
  Our common stock is listed
  on the New York Stock Exchange under the symbol “AEL”

  
	
   

  	
   

  	
   

  
	
  Financial
  Covenants:

  	
   

  	
  None

  
	
   

  	
   

  	
   

  
	
  Use of
  Proceeds:

  	
   

  	
  General corporate purposes

  
	
   

  	
   

  	
   

  
	
  Initial
  Purchaser:

  	
   

  	
  FBR Capital
  Markets & Co.

  
	
   

  	
   

  	
   

  
	
  Expected
  Trade Date:

  	
   

  	
  December 17, 2009

  
	
   

  	
   

  	
   

  
	
  Settlement
  Date:

  	
   

  	
  December 22, 2009

  
	
   

  	
   

  	
   

  
	
  Coupon
  Type:

  	
   

  	
  Fixed-rate, payable
  semi-annually in arrears

  
	
   

  	
   

  	
   

  
	
  Interest
  Calculation:

  	
   

  	
  30/360

  
	
   

  	
   

  	
   

  
	
  Clearance:

  	
   

  	
  DTC

  
	
   

  	
   

  	
   

  
	
  Identifiers:

  	
   

  	
  CUSIP: 025676 AH0

  
	
   

  	
   

  	
  ISIN: US025676AH01

  
	
   

  	
   

  	
   

  
	
  Risks
  Related to Your  Investment in the Notes:

  	
   

  	
  An investment in the notes
  involves certain risks. Prospective holders are urged to consult with
  financial and legal  advisors
  as to the risks involved in an investment in the notes and to determine
  whether the notes are a suitable investment for you. Before investing in the
  notes, prospective holders should carefully consider, among other matters,
  the  information set forth under the heading “Risk Factors” in our Annual
  Report on Form 10-K for the fiscal year  ended December 31,
  2008, as updated in our Quarterly Report on Form 10-Q for the quarter
  ended September 30,  2009, which are incorporated herein by reference, as the
  same may be updated from time to time by our filings with  the SEC under the
  Securities Exchange Act of 1934, as amended (the “Exchange Act”). You should
  also consider  the information set forth under the heading “Risk Factors Relating to
  an Investment in the Notes and Our Common  Stock” in Exhibit A
  attached hereto, which is incorporated by reference herein. You should also refer to the other information incorporated by reference herein
  (see “Additional Information” below), including our financial statements and the related notes thereto. Additional
  risks and uncertainties that are not yet identified may also materially harm our business, operating results and
  financial condition and could result in a complete loss of your investment.

  
	
   

  	
   

  	
   

  
	
  Additional
  Information:

  	
   

  	
  This term sheet is meant to
  be only a summary of certain provisions of the indenture and is subject to
  and qualified in its  entirety
  by reference to all of the provisions of the indenture, including definitions
  of certain terms used in the indenture, and the notes. We urge that you
  carefully read the indenture because the indenture, and not this term sheet,
  governs  your rights as note holders. The terms of the indenture, a
  copy of which will be provided upon request, are  incorporated herein by
  reference. A description of
  the general terms and provisions of the notes and our common shares may be found under the headings “Description
  of the Notes” and “Description of Capital Stock,” respectively, in our prospectus dated April 22, 2005,
  as filed with the SEC on April 22, 2005. The description of the notes in
  this term sheet and the
  provisions of the indenture supplement, and to the extent inconsistent
  therewith replace, the descriptions contained in our prospectus dated April 22, 2005.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  In addition, we file
  annual, quarterly and current reports, proxy statements and other information
  with the SEC. We  incorporate
  by reference herein our Annual Report on Form 10-K for the fiscal year
  ended December 31, 2008, our proxy statement pursuant to Section 14(a) of the Exchange Act
  filed April 30, 2009, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2009,
  June 30, 2009 and September 30, 2009, and any Current Reports on
  Form 8-K filed with the
  SEC since December 31, 2008. Before
  investing in the notes, prospective holders should read the documents we
  have filed with
  the SEC for more information about us. Our SEC filings are available free of charge through our Internet website at
  http://www.american-equity.com or through the SEC’s website at
  http://www.sec.gov.

  



 


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EXHIBIT
A


 


Risks
Factors Relating to an Investment in the Notes and Our Common Stock


 


Your right to
receive payments on these notes is effectively subordinated to the rights of
our existing and future unsubordinated, secured creditors.


 


The notes are unsecured
and therefore are effectively subordinated to all of our existing and future
unsubordinated, secured indebtedness to the extent of the value of the assets
securing such indebtedness. As a result, in the event of a bankruptcy,
liquidation, dissolution, reorganization or similar proceeding of our company,
our assets will be available to satisfy obligations of our unsubordinated,
secured debt before any payment may be made on the notes. To the extent that
such assets cannot satisfy in full our unsubordinated, secured debt, the
holders of such debt would have a claim for any shortfall that would rank
equally in right of payment (or effectively senior if the debt were issued by a
subsidiary) with the notes. In such an event, we may not have sufficient assets
remaining to pay amounts on any or all of the notes.


 


The notes are
junior to the indebtedness of our subsidiaries.


 


The notes were issued by
American Equity Investment Life Holding Company and are structurally
subordinated to the existing and future claims of our subsidiaries’ creditors.
Holders of the notes are not creditors of our subsidiaries. Any claims of
holders of the notes to the assets of our subsidiaries derive from our own
equity interests in those subsidiaries. Claims of our subsidiaries’ creditors
will generally have priority as to the assets of our subsidiaries over our own
equity interest claims and will therefore have priority over the holders of the
notes. Consequently, the notes are effectively subordinate to all liabilities,
including policyholder liabilities, trade payables, lease obligations and
liquidation preference on any preferred stock, whether or not secured, of any
of our subsidiaries and any subsidiaries that we may in future acquire or
establish. Our subsidiaries’ creditors may also include general creditors and
taxing authorities.


 


We continue to have
the ability to incur additional debt; if we incur substantial additional debt,
these higher levels of debt may affect our ability to pay principal and
interest on the notes.


 


The indenture governing
the notes does not restrict our ability to incur additional indebtedness or
require us to maintain financial ratios or specified levels of net worth or
liquidity. Although our line of credit facility contains restrictions on the
incurrence of additional indebtedness and requires us to comply with specific
financial ratios and tests, these provisions are subject to a number of
qualifications and exceptions, and the indebtedness incurred in compliance with
these provisions could be substantial. If we incur substantial additional indebtedness
in the future, these higher levels of indebtedness may affect our ability to
pay principal and interest on the notes and our creditworthiness generally.


 


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 our principal assets are the shares of the capital stock and surplus notes
of our life insurance subsidiaries. As a holding company without independent
means of generating operating revenues, we depend on investment advisory fees,
dividends, interest on surplus notes and other payments from our life insurance
subsidiaries to fund our obligations and meet our cash needs, including to pay
dividends on our common stock.


 


We have a $150 million
revolving line of credit agreement with eight banks, which has been fully drawn
as of September 30, 2009. The transfer of funds by American Equity
Investment Life Insurance Company (“American Equity Life”) is restricted by
certain covenants in our line of credit facility which, among other things,
requires American Equity Life to maintain a minimum risk-based capital ratio of
200%.


 


The payment of dividends
or distributions, including surplus note payments, by our life insurance
subsidiaries is subject to regulation by each subsidiary’s state of domicile’s
insurance department. Currently, American Equity Life may pay dividends or make
other distributions without the prior approval of its 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) American
Equity Life’s statutory net gain from operations for the preceding calendar
year, or (2) 10% of American Equity Life’s statutory surplus at the
preceding December 31. In addition, dividends and surplus note payments
may be made only out of statutory earned surplus, and all surplus note payments
are subject to prior approval by regulatory authorities in each life insurance
subsidiary’s state of domicile.


 


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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 insurance subsidiaries following
any dividend or distribution must be reasonable in relation to their outstanding
liabilities and adequate for their financial needs.


 


Although we believe our
current sources of funds provide adequate cash flow to us to meet our current
and reasonably foreseeable future obligations, there can be no assurance that
we will continue to have access to these sources in the future.


 


Upon conversion of the notes, you may receive less proceeds
than expected because the value of our common stock may decline between the day
that you exercise your conversion right and the day the value of your shares is
determined.


 


The conversion value that
you will receive upon conversion of your notes is in part determined by the
average of the closing prices per share of our common stock on the New York
Stock Exchange for the ten consecutive trading days beginning on the second
trading day immediately following the day the notes are tendered for
conversion. Accordingly, if the price of our common stock decreases after you
tender your notes for conversion, the conversion value you receive may be
adversely affected.


 


We may be unable to repurchase your notes as required under
the indenture upon a change in control or on the specified dates at the option
of the holder or pay you cash upon conversion of your notes.


 


Upon a change in control,
as defined in the indenture, and on December 15, 2014, 2019 and 2024, you
will have the right to require us to repurchase your notes for cash. In
addition, upon conversion of the notes, you will have the right to receive a
cash payment. If we do not have sufficient funds to pay the repurchase price
for all of the notes you tender upon a change in control, the cash due upon
repurchases of the notes on December 15, 2014, 2019 and 2024 or the cash
due upon conversion, an event of default under the indenture governing the
notes would occur as a result of such failure. In addition, cash payments in
respect of notes that you tender for repurchase or that you convert may be
subject to limits and might be prohibited, or create an event of default, under
our line of credit facility or other agreements relating to borrowings that we
may enter into from time to time. Our failure to make cash payments in respect
of the notes could result in an event of default under such agreements. Such
other borrowings may be secured indebtedness and may prevent us from making
cash payments in respect of the notes under certain circumstances. Our
inability to pay for your notes that are tendered for repurchase or conversion
could result in your receiving substantially less than the principal amount of
the notes.


 


Upon an occurrence of a
change of control, we may be required to offer to repay the notes and may be
required to repay any other debt then outstanding. If a change in control were
to occur, we may not have the financial resources available to repurchase all
the notes for cash.


 


U.S. holders will
recognize income for U.S. federal income tax purposes in excess of current cash
payments on the notes.


 


We and each holder (and
beneficial owner) of the notes will agree in the indenture to treat the notes,
for U.S. federal income tax purposes, as “contingent payment debt instruments.”
As a result of such treatment, U.S. holders of the notes will be required to
include interest in gross income as original issue discount in excess of the
stated interest on the notes. In addition, any gain recognized by a U.S. holder
on the conversion, sale, exchange, repurchase, redemption or retirement of a
note generally will be ordinary interest income; any loss generally will be
ordinary loss to the extent of the interest previously included in income by
the holder and, thereafter, capital loss. There is some uncertainty as to the
proper application of the Treasury regulations governing contingent payment
debt instruments and, if our treatment is successfully challenged by the
Internal Revenue Service, with respect to the series of notes you hold, it
might be determined that, among other things, you should have accrued interest
income at a lower or higher rate, or should have recognized capital gain or
loss, rather than ordinary income or loss, upon the conversion or taxable
disposition of such notes.


 


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Our reported
earnings per share may be more volatile because of the conversion provision of
the notes.


 


We are required to include
the dilutive effect of the notes in our diluted earnings per share. Holders of
the notes are entitled to convert the notes prior to their maturity date into
cash and shares of our common stock. Until our common stock price exceeds the
Conversion Price, inclusion of the shares of our common stock underlying the
notes in the calculation of diluted earnings per share will not be dilutive.
Should our common stock price exceed the Conversion Price, diluted earnings per
share would be expected to decrease as a result of including the underlying
shares in the diluted earnings per share calculation. Volatility in our common
stock price could cause this contingency to be met in one quarter and not in a
subsequent quarter, increasing the volatility of diluted earnings per share.


 


There is no public
market for the notes, so if an active trading market does not develop for the
notes you may not be able to resell them.


 


There is no public market
for the notes, we do not intend to apply for listing of the notes on any
securities exchange or for quotation of the notes on any automated dealer
quotation system and we cannot assure you that an active trading market will
ever develop for the notes. We intend to make the notes eligible for trading on
The PORTALSM Market.


 


There can be no assurance
that any market for the notes will develop or, if one does develop, that it
will be maintained. The lack of a trading market could adversely affect your
ability to sell the notes and the price at which you may be able to sell the notes.
The liquidity of the trading market, if any, and future trading prices of the
notes will depend on many factors, including, among other things, the market
price of our common stock, the shares of common stock issuable upon conversion
of the notes, prevailing interest rates, our operating results, financial
performance and prospects, the market for similar securities and the overall
securities market, and may be adversely affected by unfavorable changes in
these factors. Historically, the market for convertible debt has been subject
to disruptions that have caused volatility in prices. It is possible that the
market for the notes will be subject to disruptions which may have a negative
effect on the holders of the notes, regardless of our operating results,
financial performance or prospects.


 


We expect that the
trading value of the notes will be significantly affected by the price of our
common stock and other factors.


 


The market price of the
notes is expected to be significantly affected by the market price of our
common stock. This may result in greater volatility in the trading value of the
notes than would be expected for nonconvertible debt securities. In addition,
the notes have a number of features, including conditions to conversion, which,
if not met, could result in a holder receiving less than the value of our
common stock into which a note would otherwise be convertible. These features
could adversely affect the value and the trading prices of the notes.


 


The price of our
common stock, and therefore of the notes, may fluctuate significantly, and this
may make it difficult for you to resell the notes or the shares of our common
stock issuable upon conversion of the notes when you want or at prices you find
attractive.


 


The price of our common
stock on the New York Stock Exchange constantly changes. Volatility in the
market price of our common stock may prevent you from being able to sell your
shares when you want or at prices you find attractive.


 


The market price of our
common stock may fluctuate in response to numerous factors, many of which are
beyond our control. These factors include the following:


 


·      actual or anticipated
fluctuations in our operating results;


·      changes in expectations as
to our future financial performance, including financial estimates by
securities analysts and investors;


·      changes in laws and
regulations which may affect the sale of our products;


·      the operating and stock
performance of our competitors;


·      announcements by us or our
competitors of new products or services or significant contracts, acquisitions,
strategic partnerships, joint ventures or capital commitments;


·      changes in interest rates;


·      general domestic or
international economic, market and political conditions and regulatory
initiatives;


·      additions or departures of
key personnel; and


·      future sales of our common
stock, including sales of our common stock in short sales transactions.


 


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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.


 


Future sales of our
common stock or equity-related securities in the public market, including sales
of our common stock in short sales transactions by purchasers of the notes,
could adversely affect the trading price of our common stock and the value of
the notes and our ability to raise funds in new stock offerings.


 


Sales of significant
amounts of our common stock or equity-related securities in the public market,
or the perception that such sales will occur, could adversely affect prevailing
trading prices of our common stock and the value of the notes and could impair
our ability to raise capital through future offerings of equity or
equity-related securities. No prediction can be made as to the effect, if any,
that future sales of shares of common stock or the availability of shares of
common stock for future sale, including sales of our common stock in short
sales transactions by purchasers of the notes, will have on the trading price
of our common stock or the value of the notes.


 


Anti-takeover
provisions affecting us could make it difficult for a third party to acquire
our company.


 


Our articles of
incorporation, as amended, our third amended and restated bylaws and Iowa law
contain anti-takeover provisions that could have the effect of delaying or
preventing changes in control of our company or our management. These
provisions could also discourage proxy contests and make it more difficult for
our stockholders to elect directors and take other corporate actions without
the concurrence of our management or board of directors. The provisions in our
charter documents include the following:


 


·      our amended articles of
incorporation provide for a classified board of directors pursuant to which our
directors are divided into three classes, with three-year staggered terms;


·      our amended articles of
incorporation provide our board of directors the ability to issue shares of
preferred stock and to determine the price and other terms, including
preferences and voting rights, of those shares without shareholder approval;


·      our bylaws provide that
shareholder action may be taken only at a special or regular meeting or by
written consent signed by the holders of outstanding shares having not less
than 90% of the votes entitled to be cast at a meeting at which all shares
entitled to vote on the action were present and voted;


·      our bylaws limit our
shareholders’ ability to make proposals at shareholder meetings; and


·      our bylaws establish advance
notice procedures for nominating candidates to our board of directors.


 


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.


 


The foregoing provisions
may discourage transactions that otherwise could provide for the payment of a
premium over prevailing market prices of our common stock and, possibly, the
notes, and also could limit the price that investors are willing to pay in the
future for shares of our common stock and the notes.


 


Before conversion,
holders of the notes will not be entitled to any shareholder rights, but will
be subject to all changes affecting our shares.


 


If you hold notes, you
will not be entitled to any rights with respect to shares of our common stock,
including voting rights and rights to receive dividends or distributions.
However, the common stock you receive upon conversion of your notes will be
subject to all changes affecting our common stock. Except for limited cases
under the adjustments to the Conversion Price, you will be entitled only to
rights that we may grant with respect to shares of our common stock if and when
we deliver shares to you upon your election to convert your notes into shares. For
example, if we seek approval from shareholders for a potential merger, or if an
amendment is proposed to our articles of incorporation or bylaws that requires
shareholder approval, holders of notes will not be entitled to vote on the
merger or amendment.


 


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