UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

 

 

Filed by the Registrant:  ☒                    Filed by a Party other than the Registrant:  ☐

Check the appropriate box:

 

☐		Preliminary Proxy Statement
☐		Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☒		Definitive Proxy Statement
☐		Definitive Additional Materials
☐		Soliciting Material Pursuant to §240.14a-12

ATHENE HOLDING LTD.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

☒		No fee required.
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ATHENE HOLDING LTD.

Chesney House, 96 Pitts Bay Road,

Pembroke, HM08, Bermuda

January 6, 2020

Dear Shareholder,

You are cordially invited to attend a Special General Meeting of Shareholders of Athene Holding Ltd. (the “Company” or “Athene”) to be held on February 12, 2020 at 8:30 a.m., Greenwich Mean Time, at The Langham Hotel, 1c Portland Place, Regent Street, London, W1B 1JA, United Kingdom (the “Special Meeting”).

On October 27, 2019, the Company entered into a Transaction Agreement with Apollo Global Management, Inc. (“Apollo”) and certain of its affiliates (the “Transaction Agreement”) under which affiliates of Apollo will make a significant investment in the Company (the “Proposal”). Apollo, through its affiliates, is, before such investment, a significant shareholder of the Company. Pursuant to the Transaction Agreement, the Company is proposing to make certain amendments to the Twelfth Amended and Restated Bye-laws of the Company (the “Bye-laws”), by way of amending and restating the Bye-laws (the “Thirteenth Amended and Restated Bye-laws”), and is seeking shareholder approval for the Thirteenth Amended and Restated Bye-laws and for certain other corporate actions related to the Proposal, as described in the Transaction Agreement. The amendments to the Bye-laws would reflect, among other items, the elimination of the Company’s current multi-class share structure (the “Multi-Class Share Elimination”). In connection with the Multi-Class Share Elimination, (i) all of the Class B common shares of the Company (“Class B Common Shares”) would be converted into an equal number of Class A common shares of the Company (“Class A Common Shares”) on a one-for-one basis (the “Class B Exchange”) and (ii) all of the Class M common shares of the Company (“Class M Common Shares”), including those that will vest at the time of the closing of the Share Issuance (as defined herein), would be converted into a combination of Class A Common Shares and warrants to purchase Class A Common Shares (as further described in the accompanying proxy statement) (the “Class M Exchange”). As part of the Proposal, the Company would also issue 35,534,942 new Class A Common Shares that the Company (or its subsidiaries) would transfer to certain affiliates of Apollo which comprise the Apollo Operating Group (collectively, the “AOG”) for approximately $1.55 billion, consisting of (i) 29,154,519 equity interests of the AOG valued at approximately $1.2 billion (based on the closing market price of Apollo Class A common shares on October 25, 2019 and applying a 2.3% premium to the closing market price of the Class A Common Shares on October 25, 2019, the last trading day prior to the public announcement of the Proposal) and (ii) $350 million in cash (together, the transactions described in clauses (i) and (ii), constituting the “Share Issuance”). As part of the Proposal, the Company would also grant to Apollo the right to purchase additional Class A Common Shares from the Company from the date of the closing of the Share Issuance until 180 days after such date to the extent that the issued and outstanding Class A Common Shares beneficially owned by Apollo, controlled affiliates of Apollo and each employee of and consultant to Apollo and the controlled affiliates of Apollo (inclusive of any Class A Common Shares over which any such persons have a valid proxy, the “Conditional Right Shares”) do not equal at least 35% of the issued and outstanding Class A Common Shares, on a fully diluted basis (the “Conditional Right”). Additionally, the Company would grant to an affiliate of Apollo the right to purchase up to that number of Class A Common Shares that would increase by five percentage points the percentage of the issued and outstanding Class A Common Shares represented by the Conditional Right Shares, calculated on a fully diluted basis (the “Facility Right”). The Share Issuance, the Conditional Right and the Facility Right are collectively referred to as the “Share Transactions.” Each of the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange, the Share Transactions and the proposal to adjourn the Special Meeting, each as further described in the accompanying proxy statement, require the approval of our shareholders.

At the Special Meeting, our shareholders will be asked to consider and vote on proposals to approve the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange, the proposal to adjourn the Special Meeting from time to time to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposals set forth in the accompanying proxy statement if there are

insufficient votes at the time of the Special Meeting to approve such proposals, and, in accordance with Section 312.03(b) of the New York Stock Exchange Listed Company Manual, the Share Transactions.

The disinterested directors of the Board, upon a recommendation of a special committee of the Board, unanimously recommend that its shareholders vote “FOR” the proposals to approve the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange, the Share Transactions and the proposal to adjourn the Special Meeting as set forth in the accompanying proxy statement for the Special Meeting.

Only shareholders of record of Class A Common Shares, Class B Common Shares and, solely with respect to the proposal to approve the Thirteenth Amended and Restated Bye-laws and the proposal to approve the Class M Exchange, vested Class M Common Shares, as shown by the Register of Shareholders and the records of Computershare Trust Company, N.A. and the Company at the close of business on November 12, 2019 (the “Record Date”) are entitled to receive notice, and only those shareholders as of the Record Date are entitled to vote at the Special Meeting or any adjournment or postponement thereof. CERTAIN HOLDERS OF CLASS A COMMON SHARES MAY NOT BE ENTITLED TO VOTE OR MAY HAVE THEIR VOTING RIGHTS LIMITED OR OTHERWISE ADJUSTED IN ACCORDANCE WITH THE BYE-LAWS AND AS DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT. IN ACCORDANCE WITH THE BYE-LAWS, THE BOARD OF DIRECTORS OF THE COMPANY RETAINS THE AUTHORITY, IN ITS SOLE AND ABSOLUTE DISCRETION, TO DETERMINE WHETHER A HOLDER’S SHARES CARRY NO VOTING RIGHTS, REDUCED VOTING RIGHTS OR ADJUSTED VOTING RIGHTS. PLEASE SEE THE ACCOMPANYING PROXY STATEMENT FOR A DESCRIPTION OF THE VOTING RIGHTS APPLICABLE TO HOLDERS OF CLASS A COMMON SHARES AND CLASS B COMMON SHARES, TO THE EXTENT THEY ARE ENTITLED TO VOTE.

The proxy statement and accompanying materials are first being mailed to shareholders on or about January 9, 2020.

Under Bermuda law, if an item set out in this letter or the accompanying proxy statement is no longer applicable at the time of the meeting, the Chairman of the meeting may decide not to put such resolution to a vote at the meeting.

YOU MAY COMPLETE YOUR PROXY BY INTERNET OR MAIL AS SET FORTH ON THE ENCLOSED PROXY CARD, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. PROXIES SUBMITTED BY THE INTERNET OR MAIL MUST BE RECEIVED BY 9:00 A.M., ATLANTIC STANDARD TIME, ON FEBRUARY 11, 2020. YOU MAY ALSO ATTEND THE SPECIAL MEETING AND VOTE IN PERSON. IF YOU LATER DESIRE TO REVOKE YOUR PROXY FOR ANY REASON, YOU MAY DO SO IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. YOUR SHARES WILL BE VOTED PURSUANT TO THE INSTRUCTIONS CONTAINED IN YOUR COMPLETED PROXY. IF YOU RETURN A SIGNED PROXY CARD AND NO INSTRUCTIONS ARE GIVEN, YOUR SHARES WILL BE VOTED “FOR” ITEMS 1–5.

If you have any questions or need assistance voting your common shares, please contact Georgeson LLC, our proxy solicitor, by calling toll-free at (888) 663-7851.

By order of the board of directors,

 

ATHENE HOLDING LTD.

Chesney House, 96 Pitts Bay Road,

Pembroke, HM08, Bermuda

PROXY STATEMENT

SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD ON FEBRUARY 12, 2020

The board of directors (the “Board”) of Athene Holding Ltd. (the “Company,” “our,” “us,” “we” or “Athene”), has prepared this document to solicit your proxy to vote upon certain matters at a special general meeting of our shareholders (the “Special Meeting”).

These proxy materials contain information regarding the Special Meeting, to be held on February 12, 2020, beginning at 8:30 a.m., Greenwich Mean Time, at The Langham Hotel, 1c Portland Place, Regent Street, London, W1B 1JA, United Kingdom, and at any adjournments or postponements thereof.

It is anticipated that we will begin mailing this proxy statement and proxy card to our shareholders on or about January 9, 2020. The information regarding share ownership and other matters in this proxy statement is as of November 12, 2019 (the “Record Date”), unless otherwise indicated.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND VOTING

Why am I receiving this proxy statement?

We are sending you this proxy statement because the Board is soliciting your proxy to vote at the Special Meeting to be held on February 12, 2020 at 8:30 a.m. Greenwich Mean Time, at The Langham Hotel, 1c Portland Place, Regent Street, London, W1B 1JA, United Kingdom, and any adjournments or postponements of the Special Meeting. This proxy statement summarizes information that is intended to assist you in making an informed vote on the proposal to be considered at the Special Meeting.

What is the purpose of the Special Meeting?

On October 27, 2019, the Company entered into a Transaction Agreement with Apollo Global Management, Inc. (“Apollo”) and certain of its affiliates (the “Transaction Agreement”) under which affiliates of Apollo will make a significant investment in the Company (the “Proposal”). Apollo, through its affiliates, is, before such investment, a significant shareholder of the Company. Pursuant to the Transaction Agreement, the Company is proposing to make certain amendments to the Twelfth Amended and Restated Bye-laws of the Company (the “Bye-laws”), by way of amending and restating the Bye-laws (the “Thirteenth Amended and Restated Bye-laws”), and is seeking shareholder approval for the Thirteenth Amended and Restated Bye-laws and for certain other corporate actions related to the Proposal as described in the Transaction Agreement. The amendments to the Bye-laws (collectively, the “Bye-law Amendments”) would reflect, among other items, the elimination of the Company’s current multi-class share structure (the “Multi-Class Share Elimination”). In connection with the Multi-Class Share Elimination, (i) all of the Class B common shares of the Company (“Class B Common Shares”) would be converted into an equal number of Class A common shares of the Company (“Class A Common Shares”) on a one-for-one basis (the “Class B Exchange”) and (ii) all Class M common shares of the Company (collectively, “Class M Common Shares,” and together with Class B Common Shares and Class A Common Shares, “Common Shares”), including those that will vest at the time of the closing of the Share Issuance (as defined herein), would be converted into a combination of Class A Common Shares and Warrants (as defined herein) to purchase Class A Common Shares (as further described herein) (the “Class M Exchange”). As part of the Proposal, the Company would also issue 35,534,942 new Class A Common Shares

 

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that the Company (or its subsidiaries) would transfer to certain affiliates of Apollo which comprise the Apollo Operating Group (collectively, the “AOG”) for approximately $1.55 billion, consisting of (i) 29,154,519 equity interests of the AOG (the “AOG units”) valued at approximately $1.2 billion (based on the closing market price of Apollo Common Shares (as defined herein) on October 25, 2019 and applying a 2.3% premium to the closing market price of the Class A Common Shares on October 25, 2019, the last trading day prior to the public announcement of the Proposal) and (ii) $350 million in cash (together, the transactions described in clauses (i) and (ii), constituting the “Share Issuance”). As part of the Proposal, the Company would also grant to Apollo the right to purchase additional Class A Common Shares from the Company from the date of the closing of the Share Issuance (the “Closing Date”) until 180 days after the Closing Date to the extent that the issued and outstanding Class A Common Shares beneficially owned by Apollo, controlled affiliates of Apollo and each employee of and consultant to Apollo and the controlled affiliates of Apollo (inclusive of any Class A Common Shares over which any such persons have a valid proxy, the “Conditional Right Shares”) do not equal at least 35% of the issued and outstanding Class A Common Shares, on a fully diluted basis (the “Conditional Right”). Additionally, the Company would grant to an affiliate of Apollo the right to purchase up to that number of Class A Common Shares that would increase by five percentage points the percentage of the issued and outstanding Class A Common Shares represented by the Conditional Right Shares, calculated on a fully diluted basis (the “Facility Right”). The Share Issuance, the Conditional Right and the Facility Right are collectively referred to as the “Share Transactions.” Each of the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange, the Share Transactions and the proposal to adjourn the Special Meeting set forth in this proxy statement for the Special Meeting require the approval of our shareholders.

The Transaction Agreement generally governs the terms and conditions of the Share Issuance and Conditional Right, and provides, among other things, that, subject to the terms and conditions set forth in the Transaction Agreement, (i) the limited partnerships and limited liability companies comprising the AOG will issue 29,154,519 AOG units to a newly-formed wholly owned limited liability company of such member of the AOG (each a “New AOG Subsidiary,” and together the “New AOG Subsidiaries”) in exchange for interests in such New AOG Subsidiary, (ii) the Company will issue and transfer, or cause a subsidiary to transfer, an aggregate of 27,959,184 new Class A Common Shares to the New AOG Subsidiaries in accordance with the allocations designated in writing by Apollo to the Company at least two business days prior to the Closing Date, and, in exchange therefor, the Company or certain subsidiaries of the Company will collectively receive all of the 29,154,519 AOG units received by the New AOG Subsidiaries in clause (i) (such units, the “Equity Exchange Consideration” and, such exchange, the “Equity Exchange Transaction”), and (iii) Apollo or members of the AOG will pay, or cause to be paid, in the aggregate, $350 million (the “Cash Consideration” and, together with the Equity Exchange Consideration, the “Aggregate Consideration”) to the Company or a subsidiary thereof and, in exchange therefor, the Company will issue and sell, or cause such subsidiary to sell, 7,575,758 new Class A Common Shares to such members of the AOG as designated in writing by Apollo to the Company at least two business days prior to the Closing Date (such exchange, the “Equity Sale Transaction”). The price at which the Class A Common Shares will be exchanged in the Equity Exchange Transaction represents a 2.3% premium to the closing market price of the Class A Common Shares on October 25, 2019, the last trading day prior to the public announcement of the Proposal. The price of $46.20 per share at which the Class A Common Shares will be sold in the Equity Sale Transaction represents a 10% premium to the closing price of Class A Common Shares on October 25, 2019. The Company would also grant to Apollo, or its designee as permitted by the Transaction Agreement, the Conditional Right under the Transaction Agreement. The transaction is subject to customary closing conditions, including approval of our shareholders, the receipt of all necessary regulatory and governmental approvals and certain other closing conditions contemplated by the Transaction Agreement.

Contemporaneously with the execution of the Transaction Agreement, Apollo Management Holdings, L.P. (“AMH”), an affiliate of Apollo, James Belardi, the Chief Executive Officer of the Company, and William Wheeler, the President of the Company (each, an “Other Shareholder”), entered into a voting agreement (the “Voting Agreement”), pursuant to which each Other Shareholder irrevocably appointed AMH as its proxy and attorney-in-fact (the “Proxy”) to vote all of such Other Shareholder’s Class A Common Shares (expected to constitute approximately 0.8% of the voting power of the Company immediately following the Closing Date) at

 

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any meeting of the Company’s shareholders occurring following the Closing Date and in connection with any written resolution of the Company’s shareholders following the Closing Date. The Proxy will be of no force and effect, and AMH will not be entitled to vote any of such Other Shareholder’s Class A Common Shares upon the earlier of (i) the entities comprising the AOG that will hold Class A Common Shares (the “Apollo Shareholders”), controlled affiliates of Apollo and each employee of and consultant to Apollo and the controlled affiliates of Apollo (the “Fall-away Parties”) no longer continuing to hold or beneficially own (excluding any Class A Common Shares to which a valid proxy has been granted to any of the Apollo Shareholders by any employee of the Company) at least 7.5% of the issued and outstanding Class A Common Shares or (ii) the Apollo Shareholders no longer continuing to hold or beneficially own (including any Class A Common Shares to which a valid proxy has been granted to any Apollo Shareholder) at least 5% of the issued and outstanding Class A Common Shares. In addition, Messrs. Belardi and Wheeler have each entered into a letter agreement with the Company, pursuant to which they have agreed to vote their Class M Common Shares in favor of the proposals on which holders of Class M Common Shares are entitled to vote at the Special Meeting. As a result of the letter agreements, all proposals on which the holders of Class M Common Shares are entitled to vote at the Special Meeting are expected to be approved by the holders of Class M Common Shares, regardless of the votes of holders of Class M Common Shares who have not entered into such agreements.

In connection with the Transaction Agreement, we will enter into a shareholders agreement (the “Shareholders Agreement”) with the Apollo Shareholders, which will provide for (i) the Company granting the Apollo Shareholders certain nomination rights to the Board, (ii) subjecting Class A Common Shares held by the Apollo Shareholders to a lock-up period and certain other transfer restrictions and (iii) the Company granting the Facility Right to a representative of the AOG, in each case, on the terms and subject to the conditions set forth therein. The Shareholders Agreement also sets forth certain information and inspection rights in favor of, and imposes certain confidentiality obligations on, the Apollo Shareholders. Also in connection with the Transaction Agreement, we will enter into a registration rights agreement (the “Registration Rights Agreement”) with Apollo, which will provide for the obligation of the Company, at the request of Apollo, to register the resale of Class A Common Shares held by Apollo and its affiliates with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Act”), as well as piggyback and shelf registration rights with respect to such Class A Common Shares. The Company and Apollo will also enter into a liquidity agreement (the “Liquidity Agreement”), which will provide that once each quarter, the Company will be entitled to request that Apollo (i) purchase from the Company a number of AOG units or sell a number of Apollo Class A common shares (“Apollo Common Shares”) or AOG units representing at least $50 million in exchange for payment of cash proceeds, (ii) conduct a public offering of an equivalent number of Apollo Common Shares, (iii) assist with a private placement of an equivalent number of Apollo Common Shares or (iv) assist with the private placement of AOG units to a buyer meeting certain criteria and subject to certain additional transfer restrictions, in each of clauses (i)—(iv) as set forth in the Liquidity Agreement. The Transaction Agreement, the Voting Agreement, the Shareholders Agreement, the Registration Rights Agreement and the Liquidity Agreement are described in more detail in the section entitled “Description of the Transaction Documents” below.

At the Special Meeting, our shareholders will be asked to consider and vote on proposals to approve the Thirteenth Amended and Restated Bye-laws, to approve the Class B Exchange, to approve the Class M Exchange, to adjourn the Special Meeting from time to time to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposals set forth in this proxy statement if there are insufficient votes at the time of the Special Meeting to approve such proposals, and, in accordance with Section 312.03(b) of the New York Stock Exchange (“NYSE”) Listed Company Manual, the Share Transactions.

How does the Board recommend that I vote?

A special committee of the Board (the “Special Committee”) recommended to the disinterested directors of the Board (the “Disinterested Directors” as described further in “Description of the Share Transactions, the Class B Exchange and the Class M Exchange—Background of the Proposal and the Share Transactions”) that such Disinterested Directors (i) approve the Transaction Agreement and the Shareholders Agreement and other

 

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transaction documents and the transactions contemplated thereby, including the Share Transactions, (ii) determine that the terms of the Transaction Agreement and the Shareholders Agreement and other transaction documents and the transactions contemplated thereby, including the Share Transactions, are in the best interests of the Company and its shareholders, (iii) direct that the proposed Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange and the Share Transactions, any other actions necessary to effectuate the foregoing and a proposal to adjourn the Special Meeting to solicit additional votes to adopt the foregoing be submitted to the shareholders of the Company for approval, (iv) recommend approval of the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange and the Share Transactions by the Company’s shareholders, (v) declare that the Transaction Agreement and the other transaction documents and the transactions contemplated thereby, including the Share Transactions, are advisable and (vi) authorize the filing of this proxy statement.

After consulting with their financial advisors and outside legal counsel and after reviewing and considering the terms and conditions of the Proposal and the factors more fully described in this proxy statement, and upon the recommendation of the Special Committee, the Disinterested Directors unanimously (i) approved the Transaction Agreement and the Shareholders Agreement and other transaction documents and the transactions contemplated thereby, including the Share Transactions, (ii) determined that the terms of the Transaction Agreement and the Shareholders Agreement and other transaction documents and the transactions contemplated thereby, including the Share Transactions, are in the best interests of the Company and its shareholders, (iii) directed that the proposed Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange and the Share Transactions, any other actions necessary to effectuate the foregoing and a proposal to adjourn the Special Meeting to solicit additional votes to adopt the foregoing be submitted to the shareholders of the Company for approval, (iv) recommended approval of the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange and the Share Transactions by the Company’s shareholders, (v) declared that the Transaction Agreement and the other transaction documents and the transactions contemplated thereby, including the Share Transactions, are advisable and (vi) authorized the filing of this proxy statement.

The Disinterested Directors, upon the recommendation of the Special Committee, unanimously recommend that the Company’s shareholders vote “FOR” the proposal to approve the proposed Thirteenth Amended and Restated Bye-laws, and unanimously recommend that the Company’s shareholders vote “FOR” the proposal to approve the Class B Exchange, and unanimously recommend that the Company’s shareholders vote “FOR” the proposal to approve the Class M Exchange and unanimously recommend that the Company’s shareholders vote “FOR” the proposal to approve the Share Transactions, and unanimously recommend that the Company’s shareholders vote “FOR” the proposal to adjourn the Special Meeting from time to time to a later date or time if necessary or appropriate.

What are the proposed Bye-law Amendments?

The Bye-law Amendments including the following:

 

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Eliminate the multi-class common share structure of the Company;

 

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Modify the voting cutback that is applicable to persons who own, or are treated as owning, Class A Common Shares that represent more than 9.9% of the total voting power of the Company (the “9.9% Voting Cutback”). As modified, the 9.9% Voting Cutback applies to limit to 9.9% the voting power of the Company owned by persons who, together with their affiliates, beneficially own more than 9.9% of the voting power of the Company, subject to exemptions as authorized by (i) until March 31, 2021, 70% of the Board and (ii) after March 31, 2021, 75%, of the Board. The Board is also granted authority to eliminate the 9.9% Voting Cutback, as authorized by (i) until March 31, 2021, 70% of the Board and (ii) after March 31, 2021, 75%, of the Board. In connection with such amendments, the Board has, subject to approval of the Thirteenth Amended and Restated Bye-laws at the Special Meeting, (i) resolved to exempt shares beneficially owned by the Apollo Group (as defined in the Bye-laws) from the 9.9% Voting Cutback and (ii) delegated authority to the Company’s independent directors to eliminate the applicability of the 9.9% Voting Cutback altogether in the event that they determine that

 

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it is the sole impediment to the Class A Common Shares being listed on the Standard & Poor’s 500 Stock Index (or, if Standard & Poor’s then maintains any index with broader representation in terms of market capitalization and number of companies represented, such other index);

 

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Modify and narrow the existing rule that deems certain Class A Common Shares to be non-voting so that it applies only when the 9.9% Voting Cutback is in effect with respect to one or more persons and only to Class A Common Shares owned, or treated as owned, by persons (other than Apollo, its affiliates, and persons who have granted Apollo a valid proxy) who own, or are treated as owning, shares of Apollo;

 

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Add a voting cutback that would apply only when the 9.9% Voting Cutback is in effect with respect to one or more persons and would limit to 49.9% the voting power of the Company owned, or treated as owned, by certain persons or groups of persons who do not own more than 50% of the value of the Company’s shares;

 

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Add certain procedural requirements necessary for shareholders to take action by written resolution;

 

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Permit certain provisions relating to the nomination of directors to be modified by the Shareholders Agreement (as described herein);

 

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Eliminate certain transfer restrictions applicable to transfers of Common Shares (defined below) that would result in 19.9% or more of the total voting power or value of the Company being owned, or treated as owned, by persons who are either (i) both “United States shareholders” of the Company under Section 953(c) of the Internal Revenue Code of 1986, as amended (the “Code”), and Related Insured Entities (as defined in the Bye-laws) or (ii) both related to “United States shareholders” of the Company under Section 953(c) of the Code and Related Insured Entities;

 

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Make technical modifications to the restrictions on transactions between the Company and the Apollo Group (as defined in the Bye-laws) as a result of the elimination of the multi-class common share structure of the Company;

 

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Modify the provisions of the Bye-laws that require the Company to refer the subject matter of certain matters with respect to its subsidiaries upon which it has the right to vote to its shareholders, and vote in accordance with the votes of its shareholders, so that those provisions apply only when the 9.9% Voting Cutback is in effect with respect to one or more persons; and

 

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Update the list of insurance subsidiaries and ceding companies attached as Schedule 1 to the Bye-laws.

What are the principal conditions to consummation of the Share Transactions?

The obligations of the Company, on one hand, and Apollo and its affiliates who are party to the Transaction Agreement, on the other, to complete the Share Transactions are subject to the satisfaction or waiver (to the extent permitted by applicable law) by the Company and Apollo and its affiliates, respectively, at or prior to the closing of the Share Issuance of the following conditions:

 

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the approval of the Thirteenth Amended and Restated Bye-laws and the Share Transactions by the Company’s shareholders;

 

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the receipt of certain governmental and regulatory approvals for the Share Transactions, and the approval of the NYSE for the listing of the Class A Common Shares issued by the Company in connection with the Share Issuance;

 

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the receipt of certain regulatory approvals necessary to consummate, and the actual consummation of, the restructuring of certain reinsurance transactions (see “Related Party Transactions—Reinsurance of Voya Financial, Inc. and Investment in VA Capital Company LLC and Debt Financing to Venerable Holdings, Inc.”) contemplated by the Transaction Agreement;

 

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the absence of any applicable law or regulation or order that prohibits the transactions contemplated by the Transaction Agreement and the absence of any pending or threatened proceeding by any governmental entity or any investigation by any governmental entity seeking any such order; and

 

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other customary closing conditions, including, among other things, delivery of certain transaction documents contemplated by the Transaction Agreement, accuracy of representations and warranties and compliance with covenants by the parties.

See the section entitled “Description of the Transaction Documents—Transaction Agreement—Closing Conditions” below for a full description of the conditions to consummating the Share Transactions.

What happens if the Share Transactions are not completed?

If the Thirteenth Amended and Restated Bye-laws or the Share Transactions are not approved by the Company’s shareholders, or if another condition to the consummation of the Share Transactions is not satisfied, the Share Transactions will not be completed and the proposed Transaction Agreement will be terminated in its entirety.

Why is shareholder approval necessary for the Share Transactions?

Our Class A Common Shares are listed on the NYSE and we are subject to the NYSE rules and regulations. Section 312.03(b) of the NYSE Listed Company Manual requires shareholder approval prior to any issuance of common stock, or of securities convertible into common stock, in any transaction or series of related transactions, to (1) a director, officer or substantial security holder of the company (each a “Related Party”); (2) a subsidiary, affiliate or other closely-related person of a Related Party; or (3) any company or entity in which a Related Party has a substantial direct or indirect interest; if the number of shares of common stock to be issued, or if the number of shares of common stock into which the securities may be convertible or exercisable, exceeds either 1% of the number of shares of common stock or 1% of the voting power outstanding before the issuance. Because of its indirect ownership in the Company, Apollo is deemed to be a Related Party of the Company within the meaning of NYSE Rule 312.03(b).

When and where is the Special Meeting?

The Special Meeting will take place on February 12, 2020 at 8:30 a.m., Greenwich Mean Time, at The Langham Hotel, 1c Portland Place, Regent Street, London, W1B 1JA, United Kingdom.

Pursuant to the Bye-laws, a majority of those present in person or by proxy at a meeting at which a quorum is present has the power to adjourn the meeting, for any or no reason, to another place, date and time. In the absence of a quorum, the presiding officer of the Special Meeting may adjourn the meeting until a quorum is present. We intend to adjourn the Special Meeting to solicit additional proxies if there are insufficient votes at the Special Meeting to approve the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange or the Share Transactions.

If the Special Meeting is adjourned to another time or place, the Company may transact any business which might have been transacted at the original meeting, but only those shareholders entitled to vote at the meeting as originally noticed are entitled to vote at any adjournment or adjournments thereof unless a new record date is fixed by the Board. If the meeting is adjourned for 30 days or fewer and no new record date is set for the adjourned meeting, the time and place of the adjourned meeting will be announced at the Special Meeting and no other notice will be sent to shareholders.

Who may vote?

Shareholders of record of our Common Shares at the close of business on the Record Date are entitled to receive these proxy materials and to vote their respective shares at the Special Meeting. Holders of vested Class M-1 common shares of the Company, vested Class M-2 common shares of the Company, vested Class M-3 common shares of the Company and vested Class M-4 common shares of the Company are entitled to receive

 

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these proxy materials and to vote their respective Class M Common Shares on only the proposal to approve the Thirteenth Amended and Restated Bye-laws and the proposal to approve the Class M Exchange and will not be entitled to vote their Class M Common Shares on any other proposal. Holders of unvested Class M Common Shares will not be entitled to vote such unvested Class M Common Shares on any proposal submitted to the shareholders of the Company.

Shareholders of record as of the close of business on the Record Date that are eligible to vote will be entitled to vote at the Special Meeting. As of the Record Date, there were 143,126,020 outstanding Class A Common Shares, 25,433,465 outstanding Class B Common Shares, 3,273,390 outstanding vested Class M-1 common shares, 841,011 outstanding vested Class M-2 common shares, 1,000,000 outstanding vested Class M-3 common shares and 2,379,755 outstanding vested Class M-4 common shares. Each Class A Common Share, Class B Common Share and, solely with respect to the proposal to approve the Thirteenth Amended and Restated Bye-laws and the proposal to approve the Class M Exchange, Class M Common Share, entitles the holder of record thereof to vote at the Special Meeting, subject to certain adjustments and limitations, including those set forth in the Company’s Bye-laws and as described herein. CERTAIN HOLDERS OF CLASS A COMMON SHARES MAY NOT BE ENTITLED TO VOTE IN ACCORDANCE WITH THE BYE-LAWS AND AS DESCRIBED HEREIN. IN ACCORDANCE WITH THE BYE-LAWS, THE BOARD RETAINS THE AUTHORITY, IN ITS SOLE AND ABSOLUTE DISCRETION, TO DETERMINE WHETHER A HOLDER’S SHARES CARRY NO VOTING RIGHTS, REDUCED VOTING RIGHTS OR ADJUSTED VOTING RIGHTS.

Adjustments to Voting Rights of Class A Common Shares

The Bye-laws generally provide that shareholders are entitled to vote, on a non-cumulative basis, at all annual general and special meetings of shareholders with respect to matters on which Class A Common Shares are eligible to vote. Class A Common Shares collectively represent 55% of the total voting power of all Common Shares, subject to certain voting restrictions and adjustments described below. This allocation of 55% of the total voting power to Class A Common Shares applies regardless of the number of Class A Common Shares that may be issued and outstanding.

In general, the Bye-laws provide that the Board may determine that certain shares shall carry no voting rights or shall have reduced voting rights to the extent that it reasonably determines that it is necessary to do so to avoid any adverse tax consequences to the Company or, upon the request of certain shareholders, to avoid adverse regulatory consequences to such shareholder. In addition, the Board has the authority under the Bye-laws to request information from any shareholder for the purpose of determining whether a shareholder’s voting rights are to be adjusted pursuant to the Bye-laws. IF A SHAREHOLDER FAILS TO RESPOND TO ANY REQUEST FOR INFORMATION OR SUBMITS INCOMPLETE OR INACCURATE INFORMATION IN RESPONSE TO A REQUEST BY THE COMPANY, THE BOARD, IN ITS SOLE AND ABSOLUTE DISCRETION, MAY REDUCE OR ELIMINATE THE SHAREHOLDER’S VOTING RIGHTS.

The Bye-laws also include several specific restrictions and adjustments to the voting power of Class A Common Shares. If a holder is subject to the restrictions described below, their Class A Common Shares may be deemed to be non-voting or the voting power attributable to such Class A Common Shares may be reduced or otherwise adjusted. Such restrictions depend on the identity and characteristics of the holder of the shares as of the Record Date; for example, Class A Common Shares that are deemed non-voting for the Special Meeting may be entitled to vote at a later meeting of shareholders as a result of a subsequent transfer to a different holder. The specific Class A Common Share voting restrictions are as follows:

 

•

Class A Common Shares shall be deemed non-voting if the shareholder (or any person related to the shareholder within the meaning of Section 953(c) of the Code or to whom the ownership of such shareholder’s shares is attributed under Section 958 of the Code, each, a “Tax-Attributed Affiliate”) (1) owns, directly, indirectly or constructively, Class B Common Shares, (2) owns, directly, indirectly or constructively, an equity interest in Apollo or AP Alternative Assets, L.P. (“AAA”) or (3) is a member

 

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of the Apollo Group (defined below) at which time any member of the Apollo Group holds Class B Common Shares.

 

•

The voting power of those Class A Common Shares that are entitled to vote shall be adjusted so that no shareholder or Tax-Attributed Affiliate (other than a member of the Apollo Group) holds more than 9.9% of the total voting power of common shares. “Apollo Group” means, (A) Apollo, (B) AAA Guarantor—Athene, L.P. (the “AAA Investor”), (C) any investment fund or other collective investment vehicle whose general partner or managing member is owned, directly or indirectly, by Apollo or by one or more of Apollo’s subsidiaries, (D) BRH Holdings GP, Ltd. and its shareholders, (E) any executive officer of Apollo whom Apollo designates, in a written notice delivered to the Company, as a member of the Apollo Group for purposes of the Bye-laws (which designation shall continue in effect until such designee ceases to be an executive officer of Apollo) and (F) any affiliate of a person described in clauses (A), (B), (C), (D) or (E) above; provided, none of the Company or its subsidiaries, nor any person employed by the Company, its subsidiaries or Apollo Insurance Solutions Group LLC (“ISG” formerly known as Athene Asset Management LLC, “AAM”), shall be deemed to be a member of the Apollo Group. For avoidance of doubt, any person managed by Apollo or one or more of Apollo’s subsidiaries pursuant to a managed account agreement (or similar arrangement) without Apollo or by one or more of Apollo’s subsidiaries controlling such person as a general partner or managing member shall not be part of the Apollo Group.

 

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The aggregate votes conferred by Class A Common Shares held by employees of the Apollo Group may constitute collectively no more than 3% of the total voting power of the Company.

The amount of any reduction in voting power that occurs by operation of the adjustments described above will generally be allocated proportionately among all other Class A Common Shares entitled to vote. If such reallocation in turn triggers one of the adjustments described above, the adjustments will be reapplied serially until additional adjustments are not necessary.

THE ACCOMPANYING PROXY CARD CONTAINS REQUIRED REPRESENTATIONS IN ORDER TO DETERMINE WHETHER YOUR CLASS A COMMON SHARES ARE SUBJECT TO THE ADJUSTMENTS DESCRIBED ABOVE. IF YOU FAIL TO COMPLETE THESE REQUIRED REPRESENTATIONS, YOUR VOTING POWER MAY BE LIMITED OR YOUR VOTE MAY NOT BE COUNTED AT THE SPECIAL MEETING.

Voting Rights of Class B Common Shares

The Class B Common Shares represent, in aggregate, 45% of the total voting power of Common Shares, subject to certain adjustments that are described below and in the Bye-laws. Generally, only members of the Apollo Group may own Class B Common Shares.

The Bye-laws provide that the voting power of Class B Common Shares shall be allocated on a pro rata basis among all holders of Class B Common Shares, provided that if certain conditions are met (described in detail in Bye-law 4.2(b)(iii) and defined therein as a “Class B Adjustment Condition”) then the voting power of Class B Common Shares shall be adjusted as follows:

 

(1)

First, the voting power of the Class B Common Shares directly held by the shareholder(s) (i) with the highest Relative Class B Ownership Percentage (as defined in the Bye-laws) as of such time and (ii) whose Class B Common Shares have voting power as of such time (the “Adjustment Shareholder(s)”) that are attributable to the Smallest Class B 9.9% U.S. Person (as defined in the Bye-laws) shall be reduced (but not below zero) until the Class B Adjustment Condition is no longer met or such Smallest Class B 9.9% U.S. Person is no longer a Class B 9.9% U.S. Person (taking into account any reallocation of voting power pursuant to clause (2) below), whichever requires the smallest reduction in voting power;

 

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(2)

Second, the aggregate voting power reduced in clause (1) above shall be reallocated pro rata among the Class B Common Shares (other than any Transferred Class B Common Shares, as defined in the Bye-laws) directly held by all other shareholders;

 

(3)

Third, the adjustments described in clause (1) above and the reallocation described in clause (2) above shall be reapplied serially to the next Smallest Class B 9.9% U.S. Person until the Class B Adjustment Condition is no longer met; and

 

(4)

Any excess voting power that cannot be reallocated pursuant to clauses (1), (2) and (3) above shall be transferred pursuant to the Bye-laws, and thereafter clause (3) above shall not apply.

Pursuant to the Bye-laws, the pro rata reallocation of voting power of Class B Common Shares provided for above shall not be permitted to the extent such reallocation would cause (i) a U.S. Person to become a Class B 9.9% U.S. Person (determined after such reallocation) or (ii) the Voting Ratio (as defined below) with respect to any Class B Common Share to be greater than 15. Any voting power that cannot be reallocated on a pro rata basis among all of the Class B Common Shares (other than any Transferred Class B Common Shares) directly held by all other shareholders due to the reallocation discussed above shall nonetheless be reallocated to such shares to the maximum extent possible without violating the limitations described herein. “Voting Ratio” means, with respect to any share in the Company, a fraction (i) the numerator of which is the percentage of the total voting power represented by such share and (ii) the denominator of which is a fraction (expressed as a percentage) (a) the numerator of which is the value of that share and (b) the denominator of which is the total value of all outstanding shares in the Company.

If after providing for the reduction of voting power as set forth herein, clause (1) of the Class B Adjustment Condition continues to be met, the total voting power of Class B Common Shares shall be reduced (and the total voting power of Class A Common Shares shall be correspondingly increased) until such Class B Adjustment Condition is no longer met, unless all Affected Class B Shareholders (as defined in the Bye-laws) agree otherwise.

Restrictions on Holding Class A Common Shares

The Bye-laws also contain certain restrictions on holders of Class A Common Shares. Bye-law 5.1 provides that no shareholder (including certain affiliates and related persons) may:

 

•

acquire any interests in AAA or Apollo;

 

•

knowingly permit itself (or, to its actual knowledge, any direct or indirect beneficial owner of itself) to be (directly or indirectly) insured or reinsured by any subsidiary of the Company or any ceding company specified in Schedules 1 and 2 to its proxy statement, if such shareholder is a “United States shareholder” of the Company within the meaning of Section 953(c) of the Code;

 

•

knowingly permit itself (or to its actual knowledge, any direct or indirect beneficial owner of itself) to own (directly, indirectly or constructively under Section 958 of the Code) stock of the Company possessing more than 50% of the total voting power or total value of the Company; or

 

•

make any investment or enter into a transaction that, to the actual knowledge of such shareholder at the time such person becomes bound to make the investment or enter into the transaction, would cause such person to own (directly, indirectly or constructively within the meaning of Section 958 of the Code) stock of the Company possessing more than 50% of the total voting power or total value of the Company.

How do I vote?

We encourage you to vote your shares via the internet. How you vote will depend on how you hold your Common Shares.

 

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Shareholders of Record

If your Common Shares are registered directly in your name with our transfer agent, Computershare Trust Company, N.A., you are considered a shareholder of record with respect to those shares, and a full paper set of these proxy materials is being sent directly to you. As a shareholder of record, you have the right to vote by proxy.

You may vote by proxy in either of the following two ways:

 

•

by dating, signing and completing the proxy card and returning it in accordance with the instructions provided on the proxy card; or

 

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electronically via the internet as described in the proxy card.

Voting by either of these methods will not affect your right to attend the Special Meeting and vote in person. However, for those who will not be voting in person at the Special Meeting, your final voting instructions must be received by no later than 9:00 a.m., Atlantic Standard Time, on February 11, 2020.

Beneficial Owners

If you hold your Common Shares through a broker, bank or other financial institution, in order for your vote to be counted on any matter, you must provide specific voting instructions to your broker, bank or financial institution by following your broker, bank or financial institution’s instructions for completing and returning the proxy card to your broker, bank or financial institution or following your broker, bank or financial institution’s instructions to vote your Common Shares via the internet. Voting deadlines vary by institution. Please check with your broker, bank or other financial institution for its voting cut-off date for the Special Meeting. For more information, see “What is a broker ‘non-vote’?” below.

May I attend the Special Meeting and vote in person?

Yes. All shareholders of record as of the Record Date may attend the Special Meeting and vote in person. Shareholders will need to present proof of ownership of our Common Shares as of the Record Date, such as a bank or brokerage account statement, and a form of personal identification to be admitted to the Special Meeting. No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Special Meeting. For directions to the Special Meeting, please visit http://www.langhamhotels.com/en/the-langham/london/overview/location.

Even if you plan to attend the Special Meeting in person, we encourage you to complete, sign, date and return the enclosed proxy to ensure that your Common Shares will be represented at the Special Meeting. If you attend the Special Meeting and vote in person, your vote by ballot will revoke any proxy previously submitted.

If you are a beneficial owner and hold your Common Shares in “street name” through a broker, bank or nominee, you should instruct your broker, bank or nominee on how you wish to vote your Common Shares using the instructions provided by your broker, bank or nominee. Your broker, bank or nominee cannot vote on the proposals set forth in this proxy statement, including the proposals to approve the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange and the Share Transactions, without your instructions. If you hold your Common Shares in “street name,” because you are not the shareholder of record, you may not vote your Common Shares in person at the Special Meeting unless you request and obtain a valid proxy in your name from your broker, bank or nominee.

Can I change my vote?

Yes. If you are the shareholder of record, you may revoke your proxy before it is exercised by doing any of the following:

 

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giving notice of such revocation in writing to the Corporate Secretary of the Company at Athene Holding Ltd., Chesney House, 96 Pitts Bay Road, Pembroke, HM08, Bermuda;

 

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•

by attending and voting in person at the Special Meeting; or

 

•

by executing a subsequent proxy, provided that any such action is taken in sufficient time to permit the necessary examination and tabulation of the subsequent proxy or revocation before the votes are taken.

Sending in a signed proxy will not affect your right to attend the meeting and vote. If a shareholder attends the meeting and votes in person, any previously submitted proxy will be considered revoked. If a shareholder holds their Common Shares in “street name” by a broker and has directed its broker to vote its Common Shares, such shareholder should instruct its broker to change its vote or obtain a proxy to vote its Common Shares if such shareholder wishes to cast its vote in person at the Special Meeting.

How many votes must be present to hold the Special Meeting?

A “quorum” is necessary to hold the Special Meeting. A quorum is considered present if shareholders entitled to cast a majority of the total votes attributable to all shares of the Company issued and outstanding are present in person or by proxy. In addition, for each proposal that requires the separate vote of a class of Common Shares, a quorum is considered present if there are two persons at least holding or representing by proxy 1/3 of the issued shares of such class of Common Shares. Abstentions are counted as present and entitled to vote for purposes of determining a quorum. Broker “non-votes” are not counted for the purpose of determining the presence of a quorum at the Special Meeting because each of the proposals to be considered would not be evaluated as routine by the NYSE.

How many votes are needed to approve the Thirteenth Amended and Restated Bye-laws?

Pursuant to the Bye-laws, provided there is a quorum (consisting of, for purposes of this proposal, (x) shareholders present in person or by proxy entitled to cast a majority of the total votes attributable to all shares of the Company issued and outstanding, (y) two persons at least holding or representing by proxy 1/3 of the issued Class B Common Shares and (z) (i) two persons at least holding or representing by proxy 1/3 of the issued vested Class M-1 common shares, (ii) two persons at least holding or representing by proxy 1/3 of the issued vested Class M-2 common shares, (iii) two persons at least holding or representing by proxy 1/3 of the issued vested Class M-3 common shares and (iv) two persons at least holding or representing by proxy 1/3 of the issued vested Class M-4 common shares), the approval of the Thirteenth Amended and Restated Bye-laws requires the affirmative vote of (a) the majority of the total voting power attributable to all shares of the Company cast at the Special Meeting, (b) the majority of the total outstanding Class B Common Shares, voting as a separate class from any other class of common shares and (c) the majority of the total outstanding vested Class M-1 common shares of the Company, vested Class M-2 common shares of the Company, vested Class M-3 common shares of the Company and vested Class M-4 common shares of the Company, each voting as a separate class from any other class of common shares. Holders of unvested Class M Common Shares will not be entitled to vote such unvested Class M Common Shares on any proposal submitted to the shareholders of the Company. The adoption of this proposal is conditioned upon the approval of the proposal to approve the Class B Exchange, the proposal to approve the Class M Exchange and the proposal to approve the Share Transactions. Even if this proposal is approved by our shareholders, it will not be adopted unless the proposal to approve the Class B Exchange, the proposal to approve the Class M Exchange and the proposal to approve the Share Transactions are approved. With respect to requirement (a) above, abstentions and broker “non-votes” will have no effect on the outcome of this vote. With respect to requirements (b) and (c) above, abstentions and broker “non-votes” by a holder of Class B Common Shares or Class M Common Shares shall have the same effect as if such holder voted “AGAINST” this proposal. If either of the conditions specified in (a), (b) or (c) are not satisfied, the Thirteenth Amended and Restated Bye-laws shall not be deemed approved. This means that there must be more votes “FOR” the proposal than the aggregate of votes “AGAINST” the proposal plus abstentions and broker “non-votes” at the Special Meeting.

 

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How many votes are needed to approve the Class B Exchange?

Pursuant to the Bye-laws, provided there is a quorum (consisting of, for purposes of this proposal, (x) shareholders present in person or by proxy entitled to cast a majority of the total votes attributable to all shares of the Company issued and outstanding and (y) two persons at least holding or representing by proxy 1/3 of the issued Class B Common Shares), the approval of the Class B Exchange requires the affirmative vote of (a) the majority of the total voting power attributable to all Class A Common Shares and Class B Common Shares of the Company cast at the Special Meeting and (b) the majority of the total voting power attributable to all Class B Common Shares cast at the Special Meeting, voting as a separate class from any other class of common shares. Holders of Class M Common Shares will not be entitled to vote their Class M Common Shares with respect to this proposal. The adoption of this proposal is conditioned upon the approval of the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class M Exchange and the proposal to approve the Share Transactions. Even if this proposal is approved by our shareholders, it will not be adopted unless the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class M Exchange and the proposal to approve the Share Transactions are approved. Abstentions and broker “non-votes” will have no effect on the outcome of this vote. This means that there must be more votes “FOR” the proposal than the aggregate of votes “AGAINST” the proposal.

How many votes are needed to approve the Class M Exchange?

Pursuant to the Bye-laws, provided there is a quorum (consisting of, for purposes of this proposal, (x) shareholders present in person or by proxy entitled to cast a majority of the total votes attributable to all shares of the Company issued and outstanding and (y) (i) two persons at least holding or representing by proxy 1/3 of the issued vested Class M-1 common shares, (ii) two persons at least holding or representing by proxy 1/3 of the issued vested Class M-2 common shares, (iii) two persons at least holding or representing by proxy 1/3 of the issued vested Class M-3 common shares and (iv) two persons at least holding or representing by proxy 1/3 of the issued vested Class M-4 common shares), the approval of the Class M Exchange requires the affirmative vote of (a) the majority of the total voting power attributable to all Class A Common Shares and Class B Common Shares of the Company cast at the Special Meeting and (b) the majority of the total voting power attributable to all vested Class M-1 common shares of the Company, vested Class M-2 common shares of the Company, vested Class M-3 common shares of the Company and vested Class M-4 common shares of the Company cast at the Special Meeting, each voting as a separate class from any other class of common shares. Holders of unvested Class M Common Shares will not be entitled to vote such unvested Class M Common Shares on any proposal submitted to the shareholders of the Company. The adoption of this proposal is conditioned upon the approval of the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class B Exchange and the proposal to approve the Share Transactions. Even if this proposal is approved by our shareholders, it will not be adopted unless the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class B Exchange and the proposal to approve the Share Transactions are approved. Abstentions and broker “non-votes” will have no effect on the outcome of this vote. This means that there must be more votes “FOR” the proposal than the aggregate of votes “AGAINST” the proposal.

How many votes are needed to approve the Share Transactions?

Pursuant to the rules of the NYSE, provided there is a quorum (consisting of, for purposes of this proposal, shareholders present in person or by proxy entitled to cast a majority of the total votes attributable to all shares of the Company issued and outstanding), the approval of the Share Transactions requires the affirmative vote of a majority of the votes cast at the Special Meeting. Holders of Class M Common Shares will not be entitled to vote their Class M Common Shares with respect to this proposal. The adoption of this proposal is conditioned upon the approval of the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class B Exchange and the proposal to approve the Class M Exchange. Even if this proposal is approved by our shareholders, it will not be adopted unless the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class B Exchange and the proposal to approve the Class M Exchange are

 

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approved. Under applicable NYSE rules, abstentions are counted as votes cast “AGAINST” at the Special Meeting with respect to the proposal to approve the Share Transactions. This means that there must be more votes “FOR” the proposal than the aggregate of votes “AGAINST” the proposal plus abstentions at the Special Meeting. Broker “non-votes” will have no effect on the outcome of this vote.

How many votes are needed to approve the proposal to adjourn the meeting from time to time?

Pursuant to the Bye-laws of the Company, provided there is a quorum (consisting of, for purposes of this proposal, shareholders present in person or by proxy entitled to cast a majority of the total votes attributable to all shares of the Company issued and outstanding), the approval of the proposal to adjourn the Special Meeting from time to time to a later date or time if necessary or appropriate, including to solicit additional proxies in favor of the proposals set forth in this proxy statement if there are insufficient votes at the time of the Special Meeting to approve such proposals, requires the affirmative vote of a majority of those present in person or by proxy at the Special Meeting. Holders of Class M Common Shares will not be entitled to vote their Class M Common Shares with respect to this proposal. This means that there must be more votes “FOR” the proposal than the aggregate of votes “AGAINST” the proposal plus abstentions at the Special Meeting. Broker “non-votes” will have no effect on the outcome of this vote.

What is an abstention?

An abstention is a properly signed proxy card that is marked “ABSTAIN.”

What is a broker “non-vote?”

A broker “non-vote” occurs when a nominee, such as a broker, holding Common Shares in “street name” for a beneficial owner, does not vote on a particular proposal because that nominee does not have discretionary voting power with respect to a proposal and has not received instructions from the beneficial owner. Under current applicable rules, the proposals set forth in this proxy statement, including the proposals to approve the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange and the Share Transactions, are not “discretionary” items upon which NYSE member brokerage firms that hold shares as nominee may vote on behalf of the beneficial owners if such beneficial owners have not furnished voting instructions by the tenth day before the Special Meeting. Therefore, NYSE member brokerage firms that hold shares as a nominee may not vote on behalf of the beneficial owners on the proposals in this proxy statement, including the proposals to approve the Thirteenth Amended and Restated Bye-laws, Class B Exchange, the Class M Exchange and the Share Transactions, unless you provide voting instructions.

If an NYSE member brokerage firm holds your Common Shares as a nominee, please instruct your broker how to vote your Common Shares. This will ensure that your shares are counted.

What should I do if I receive more than one set of voting materials?

You may receive more than one set of voting materials, including multiple copies of this proxy statement and multiple proxy cards or voting instruction cards. For example, if you hold your Common Shares in more than one brokerage account or you hold both Class A Common Shares and Class M Common Shares, you will receive separate voting instruction cards. If you are a shareholder of record and your Common Shares are registered in more than one name, you will receive more than one proxy card. Please date, sign, complete and return each proxy card and voting instruction card in accordance with the instructions on your proxy card.

Will any other matters be acted on at the Special Meeting?

Only such business as is specified in this proxy statement will be conducted at the Special Meeting.

 

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Am I entitled to appraisal rights?

No. You will have no right under Bermuda law to seek appraisal of your Class A Common Shares, Class B Common Shares or Class M Common Shares in connection with the proposals to approve the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange, the Share Transactions or the proposal to adjourn the Special Meeting set forth in this proxy statement.

Where can I find the voting results of the Special Meeting?

The Company intends to announce preliminary voting results at the Special Meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the Special Meeting. All reports that the Company files with the SEC are publicly available when filed. See the section entitled “Where You Can Find More Information” below.

Who pays for this proxy solicitation?

We will pay the expenses of soliciting proxies. In addition to solicitation by mail, proxies may be solicited in person or by telephone or other means by our directors or associates for no additional compensation. We will reimburse brokerage firms and other nominees, custodians and fiduciaries for costs incurred by them in mailing these proxy materials to the beneficial owners of Common Shares held of record by such persons.

In addition, we have retained Georgeson LLC to assist in the solicitation of proxies and otherwise in connection with the Special Meeting for an estimated fee of $10,000, plus reimbursement of certain reasonable expenses.

Who should I call with other questions?

If you have additional questions about these proxy materials or the Special Meeting, please contact:

 

 

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this proxy statement are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “anticipate,” “estimate,” “expect,” “project,” “plan,” “intend,” “seek,” “assume,” “believe,” “may,” “will,” “should,” “could,” “would,” “likely” and other words and terms of similar meaning, including the negative of these or similar words and terms, in connection with any discussion of the timing or nature of future operating or financial performance or other events. However, not all forward-looking statements contain these identifying words. Forward-looking statements appear in a number of places throughout and give our current expectations and projections relating to our business, financial condition, results of operations, plans, strategies, objectives, future performance and other matters.

We caution you that forward-looking statements are not guarantees of future performance and that our actual consolidated financial condition, results of operations, liquidity and cash flows may differ materially from those made in or suggested by the forward-looking statements contained in this proxy statement. A number of important factors could cause actual results or conditions to differ materially from those contained or implied by the forward-looking statements, including the risks discussed in the section entitled “Risk Factors” below. Factors that could cause actual results or conditions to differ from those reflected in the forward-looking statements contained in this proxy statement include, but are not limited to:

 

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the risk that the Share Issuance, subsequent Share Transactions or related transactions may not be completed in a timely manner, or at all;

 

•

the risk that the ongoing business of the Company may be adversely impacted if the Share Issuance, subsequent Share Transactions or related transactions are not completed;

 

•

the satisfaction of the conditions precedent to the consummation of the Share Issuance, subsequent Share Transactions or related transactions, including, without limitation, the receipt of the Company shareholder approval and regulatory approval on the terms desired or anticipated;

 

•

disruptions of the Company’s and Apollo’s business, results of operations and financial condition caused by the announcement and pendency of the Share Issuance, subsequent Share Transactions or related transactions;

 

•

the risk that the performance of our Class A Common Shares or the AOG units materially differs from our current expectations;

 

•

legal proceedings, including those that may be instituted against the Company and Apollo and others following announcement of the Share Issuance, subsequent Share Transactions or related transactions;

 

•

certain tax consequences that may occur as a result of the consummation of the Share Issuance, the subsequent Share Transactions or related transactions and the holding of Class A Common Shares; and

 

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other risks and factors included in Part II-Item 1A. Risk Factors in our quarterly report on Form 10-Q for the quarterly period ended September 30, 2019, Part I-Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2018 and those discussed elsewhere in this proxy statement and in the documents incorporated by reference herein.

We caution you that the important factors referenced above may not be exhaustive. In light of these risks, you should not place undue reliance upon any forward-looking statements contained in this proxy statement. The forward-looking statements included in this proxy statement are made only as of the date hereof. We undertake no obligation, except as may be required by law, to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise. Comparisons of results for current and any prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.

 

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SUPPLEMENTAL INFORMATION FOR INVESTORS

On October 28, 2019, the Company and Apollo jointly announced the Share Issuance, subsequent Share Transactions and related transactions. In the related press release and investor presentation, each of which was furnished as an exhibit to our Current Report on Form 8-K, and in the comments on the investor call announcing the transactions, the Company disclosed that, assuming utilization of the increased repurchase authorization and a total return for its Apollo holdings in line with analyst consensus targets for dividend and stock price appreciation, the proposed transactions are expected to be approximately 1.5% accretive to the Company’s adjusted operating earnings per common share in year one and approximately 1% dilutive to adjusted book value per share at closing. Subsequent to the announcement and the release of the Company’s and Apollo’s earnings for the quarter ending September 30, 2019, the Company has updated its expectations of the effect of the transactions on its adjusted operating earnings per common share and based on a number of factors, including management’s expectations of the Company’s adjusted operating earnings per common share in year one, management’s expectations of dividends for AOG unitholders relative to analyst consensus targets for holders of Class A Common Shares, potential taxes applicable to the investment in AOG units, utilization of the increased repurchase authorization and analyst consensus targets for stock appreciation for its Apollo holdings, the transactions are now expected to be within a range of approximately 2.5% accretive to approximately 1% dilutive to the Company’s adjusted operating earnings per common share in year one. The anticipated impact of the transactions on adjusted book value per share is unchanged. The Company’s revised expectation supersedes the Company’s related prior disclosures. This updated expectation is subject to a number of assumptions, including but not limited to, the future operating performance and results of the Company, applicable tax rates, performance and valuation of the AOG units and the price of our Common Shares, and the level of accretion or dilution experienced may differ materially from the updated expectation if actual experience deviates from the Company’s assumptions. See “Cautionary Statements Regarding Forward-Looking Statements” in this proxy statement.

 

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RISK FACTORS

Risks Related to the Share Issuance

The consummation of the Share Issuance is subject to a number of conditions and if those conditions are not satisfied or waived, the Transaction Agreement may be terminated in accordance with its terms and the Share Issuance may not be completed.

The Transaction Agreement is subject to a number of conditions which must be fulfilled in order to complete the Share Issuance. Those conditions include: (i) the approval of the Thirteenth Amended and Restated Bye-laws and the Share Transactions by the Company’s shareholders, (ii) the receipt of required governmental and regulatory approvals for the Share Transactions, and the approval of the NYSE for the listing of the Class A Common Shares issued by the Company in connection with the Share Issuance, (iii) the absence of any applicable law or regulation or order that prohibits the transactions contemplated by the Transaction Agreement, and the absence of any pending or threatened proceeding by any governmental entity or any investigation by any governmental entity seeking any such order, and (iv) certain other customary closing conditions, including, among other things, delivery of certain transaction documents contemplated by the Transaction Agreement, accuracy of representations and warranties and compliance with covenants by the parties. These conditions to the closing of the Share Issuance may not be fulfilled in a timely manner or at all, and, accordingly, the Share Issuance may not be completed. In addition, the parties can mutually decide to terminate the Transaction Agreement at any time, or the Company or Apollo may elect to terminate the Transaction Agreement in certain other circumstances.

Termination of the Transaction Agreement could negatively impact the Company.

If the Share Issuance is not completed for any reason, including as a result of the Company’s shareholders declining to approve the Thirteenth Amended and Restated Bye-laws or the Share Transactions, the ongoing business of the Company may be adversely impacted and, without realizing any of the anticipated benefits of completing the Share Issuance, the Company would be subject to a number of risks, including the following:

 

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the Company may experience negative reactions from its policyholders, reinsurance counterparties, producers, employees and regulators;

 

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the Company will have incurred substantial expenses and will be required to pay certain costs relating to the Share Issuance, whether or not the Share Issuance is completed; and

 

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matters relating to the Share Issuance will require substantial commitments of time and resources by the Company’s management, which would otherwise have been devoted to other opportunities that may have been beneficial to the Company.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

Before the transactions contemplated in the Transaction Agreement can be completed, various approvals must be obtained from regulatory agencies. In deciding whether to grant these approvals, the relevant governmental entities will consider a variety of factors, including the regulatory standing of each of the parties. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain one or more of the required regulatory approvals or delay receipt of required approvals.

The terms of the approvals that are granted may impose conditions, limitations, obligations or costs, or place restrictions on the conduct of the Company’s business or require changes to the terms of the transactions contemplated by the Transaction Agreement. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the Transaction

 

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Agreement, imposing additional material costs on or otherwise reduce the anticipated benefits of the Share Issuance if the Share Issuance were consummated successfully within the expected timeframe. Nor can there be any assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the transaction. Additionally, the completion of the Share Issuance is conditioned on the absence of certain orders or injunctions issued by any court of competent jurisdiction or other legal restraints that would prohibit or make illegal the consummation of any of the transactions contemplated by the Transaction Agreement.

The announcement and pendency of the Share Issuance, the subsequent Share Transactions or related transactions could adversely affect each of Apollo’s and the Company’s businesses, results of operations and financial condition.

The announcement and pendency of the Share Issuance, the subsequent Share Transactions or related transactions could cause disruptions in and create uncertainty surrounding Apollo’s and the Company’s businesses, including affecting (a) Apollo’s relationships with its existing and future investors, customers and employees and (b) the Company’s relationships with its existing and future policyholders, reinsurance counterparties, producers, employees and regulators, which could have an adverse effect on Apollo’s or the Company’s businesses, results of operations and financial condition, and in turn, the price of the Class A Common Shares and Apollo Common Shares, regardless of whether the Share Issuance or other Share Transactions are completed. In addition, each of Apollo and the Company has expended, and continues to expend, significant management resources, in an effort to complete the Share Issuance, which are being diverted from Apollo’s and the Company’s day-to-day operations.

If the Share Issuance is not completed, the price of Apollo Common Shares and the Class A Common Shares may fall to the extent that the current price of their shares reflects a market assumption that the Share Issuance will be completed. In addition, the failure to complete the Share Issuance may result in negative publicity or a negative impression of Apollo and the Company in the investment community and may affect (a) Apollo’s relationships with its existing and future investors, customers and employees and other partners in the business community and (b) the Company’s relationships with its existing and future policyholders, reinsurance counterparties, producers, employees and regulators and other partners in the business community.

The Special Committee does not anticipate requesting an updated opinion from Houlihan Lokey, one of the Special Committee’s financial advisors. The opinion delivered to the Special Committee on October 26, 2019 does not reflect changes in events or circumstances after the date of the opinion.

The Special Committee does not anticipate requesting an updated fairness opinion from Houlihan Lokey Capital, Inc. (“Houlihan Lokey”), one of the Special Committee’s financial advisors, as of the date of the Special Meeting or the Closing Date. The opinion delivered to the Special Committee by Houlihan Lokey was based on the financial analyses performed, which considered market and other conditions then in effect, and financial information made available to Houlihan Lokey as of the date of the opinion. Changes in the operations and prospects of Apollo or the Company, general market and economic conditions and other factors that may be beyond the control of Apollo or the Company may significantly alter the value of Class A Common Shares or the AOG units, or the prices at which Class A Common Shares or Apollo Common Shares may trade at the time the Share Issuance or other Share Transactions are completed.

Apollo and the Company have incurred and expect to incur substantial Share Issuance fees and costs in connection with the Share Issuance, whether or not the Share Issuance is completed.

Apollo and the Company have incurred and expect to incur additional material non-recurring expenses in connection with the Share Issuance and completion of the transactions contemplated by the Transaction Agreement. Apollo and the Company have incurred significant legal, advisory and financial services fees in connection with the process of negotiating and evaluating the terms of the Share Issuance. Even if the Share

 

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Issuance is not completed, Apollo and the Company will need to pay certain costs relating to the Share Issuance incurred prior to the date the Share Issuance was abandoned, such as legal, accounting, financial advisory, filing and printing fees. Such costs may be significant and could have an adverse effect on the parties’ future results of operations, cash flows and financial condition.

The Company and Apollo may be targets of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Share Issuance from being completed.

Securities class action lawsuits and derivative lawsuits are often brought against companies that have entered into agreements similar to the Transaction Agreements (as defined herein). Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on the Company’s liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting consummation of the Share Issuance, then that injunction may delay or prevent the Share Issuance from being completed.

Apollo and certain of its affiliates control and are expected to continue to control a significant portion of the total voting power of the Company and will also have the right to nominate directors to fill a number of the seats on the Board. The interests of Apollo and its affiliates may conflict with those of other shareholders and could make it more difficult for you and other shareholders to influence significant corporate decisions.

Apollo and certain of its affiliates control and is expected to continue to control a significant portion of the total voting power of the Company. As a result, Apollo and certain of its affiliates could exercise significant influence over all matters requiring shareholder approval for the foreseeable future, including approval of significant corporate transactions, appointment of members of our management, election of directors, approval of the termination of our Investment Management Agreements (“IMAs”) and determination of our corporate policies, which may reduce the market price of our common shares. We believe that, as a result of the Share Issuance and the other transactions contemplated by the Proposal, the mutually beneficial relationship between the Company and Apollo and its affiliates will be strengthened, as well as result in further alignment between the economic and voting interests of the companies.

The interests of our existing shareholders, particularly the interests of Apollo and its affiliates, may conflict with the interests of our other shareholders. Actions that Apollo and its affiliates take as shareholders may not be favorable to our other shareholders. For example, the concentration of voting power held by Apollo and its affiliates, the significant representation on the Board by individuals who are employees of Apollo or its affiliates, or the limitations on our ability to terminate any IMA with ISG could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination which another shareholder may otherwise view favorably. Apollo and its affiliates may, in their role as shareholders, vote in favor of a merger, takeover or other business combination transaction which our other shareholders might not consider in their best interests, including those transactions in which Apollo or its affiliates or related parties may have an interest.

Our conflicts committee and our Disinterested Directors analyze certain of these conflicts to protect against potential harm resulting from conflicts of interest in connection with transactions that we have entered into or will enter into with Apollo or its affiliates. Specifically, the Bye-laws require that the conflicts committee (in accordance with its charter and procedures) approve certain material transactions by and between us and Apollo or its affiliates, including entering into material agreements or the imposition of any new fee or increase in the rate at which fees are charged to us, subject to certain exceptions. These conflicts provisions will not, by themselves, prohibit transactions with Apollo or its affiliates. In addition, our conflicts committee may exclusively rely on information provided by ISG and Apollo, including with respect to fees charged by ISG or Apollo or its affiliates, and with respect to the historical performance or fees of unrelated service providers used for comparison purposes, and may not independently verify the information so provided.

 

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Apollo sub-advises substantially all of our asset classes based on sub-advisory agreements between Apollo and ISG. Substantially all of our invested assets are managed by Apollo and ISG. Our investment policies permit Apollo and ISG to invest in securities of issuers with which it is affiliated, including funds managed by Apollo. Apollo and ISG may make such investments at its discretion, subject only to the approval of our conflicts committee in certain cases and/or certain regulatory approvals. Accordingly, Apollo and ISG may have a conflict of interest in managing our investments, which could increase amounts payable by us for investment advisory services or cause us to receive a lower return on our investments than if our investment portfolio was managed by another party. In addition, asset management fees are paid based on the amount of our invested assets regardless of the results of our operations. Therefore, Apollo could be incentivized to exercise its influence to cause us to increase our invested assets, which may have an adverse impact on our financial condition, results of operations and cash flows.

We have made investments in collective investment vehicles managed by Apollo affiliates, including seed investments in new investment vehicles or investment strategies offered by Apollo which have limited track records, as well as junior and subordinated tranches of structured investment vehicles which may assist Apollo in meeting certain regulatory requirements applicable to Apollo as the sponsor of such vehicles. Such Apollo affiliates may charge us vehicles management or other fees, that independently, or when taken together with the investment management fees, may not be the lowest fee available for similar investment management services offered by unrelated managers. In addition, it is possible that such unrelated managers may perform better than Apollo. Apollo is not obligated to devote any specific amount of time to our affairs, or to the funds in which we are invested and the Bye-laws impose restrictions on our right to terminate any IMA or sub-advisory arrangement. Affiliates of Apollo manage and expect to continue to manage other client accounts, some of which have objectives similar to ours, including collective investment vehicles managed by Apollo and in which Apollo may have an equity interest. We will compete with other Apollo clients not only in terms of time spent on management of our portfolio, but also for allocation of assets that do not have significant supply. In addition, there may be different investment teams for ISG and Apollo investing in the same strategies for different clients, including us. As a result, we may compete with other Apollo clients for the same investment opportunities, potentially disadvantaging us. Apollo may also manage accounts whose advisory fee schedules, investment objectives and policies differ from ours, which may cause Apollo to allocate securities in a manner that may have an adverse effect on our ability to source appropriate assets and meet our strategic objectives.

Under the Seventh Amended and Restated Fee Agreement, dated June 10, 2019, between us and ISG, Apollo and ISG receive higher sub-allocation fees for investing in asset classes with higher alpha generating abilities. There is no assurance that higher returns will be achieved by investing in these asset classes. Accordingly, Apollo and ISG are incentivized to increase the amount of investments subject to higher sub-allocation fees, which may result in greater risk to the returns in our investment portfolio. While we believe that each of we and Apollo and ISG has implemented appropriate risk governance regarding asset allocation, it is possible that such incentives could result in increased holdings of assets with higher alpha generating abilities, and if such investments fail to perform, it could have an adverse impact on our investment results.

From time to time, ISG or Apollo may acquire investments on our behalf which are senior or junior to other instruments of the same issuer that are held by, or acquired for, another ISG or Apollo client (for example, we may acquire junior debt while another Apollo client may acquire senior debt). In the event such an issuer enters bankruptcy or becomes otherwise insolvent, the client holding securities which are senior in preference may have the right to aggressively pursue the issuer’s assets to fully satisfy the issuer’s indebtedness to the client, and the client holding the investment which is junior in the capital structure may not have access to sufficient assets of the issuer to completely satisfy its claim against the issuer and may suffer a loss. It is our understanding that ISG and Apollo have adopted procedures that are designed to enable ISG and Apollo to address such conflicts and to ensure that clients are treated fairly and equitably in these situations. However, given ISG’s or Apollo’s fiduciary obligations to the other client, ISG and Apollo may be unable to manage our investment in the same manner as would have been possible without the conflict of interest. In such event, we may receive less return on such investment than if another ISG or Apollo client was not in a different part of the capital structure of the issuer.

 

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Apollo and its affiliates have diverse and expansive private equity, credit and real estate investment platforms, investing in numerous companies across many industries. If Apollo acquires or forms a company with a business strategy competing with ours, additional conflicts may arise between us and Apollo or between us and such company in executing our plans, including with respect to the allocation of investments or the ability to execute on corporate opportunities. The Bye-laws provide that Apollo and its members and affiliates (including certain of our directors) generally have no duty to refrain from engaging, directly or indirectly, in the same or similar business activities or lines of business that we do.

Apollo and its affiliates regularly obtain material non-public information regarding various potential acquisition or trading targets. When Apollo and its affiliates obtain material non-public information regarding a potential acquisition or trading target, ISG and Apollo become restricted from trading such acquisition or trading target’s outstanding securities. Some of such securities may be potential investment opportunities for us, or may be owned by us and be potential disposition opportunities. The inability of ISG or Apollo to purchase or sell such investments on our behalf as a result of these restrictions may result in us acquiring investments that may otherwise underperform the restricted investments that ISG or Apollo would have acquired, or incurring losses on investments that ISG or Apollo would have sold, on our behalf, had such restrictions not been in place.

James R. Belardi, our Chief Executive Officer, also serves as Chief Executive Officer of ISG, owns a profits interest in the equity of ISG and receives compensation from ISG for services he provides to ISG. Accordingly, his involvement as a member of the Board and management team and as an officer and director of ISG may lead to a conflict of interest. Furthermore, certain members of the Board also serve on the board of directors of ISG or are employees of Apollo or its affiliates, which could also lead to potential conflicts of interest.

There is no public market for the AOG units being received by the Company, the future performance of the AOG units is not guaranteed and the Company’s ability to liquidate the AOG units is limited.

The outstanding AOG units are privately held and are not traded in any public market. In addition, the value of the AOG units may perform in a manner that materially differs from the Company’s current expectations or from the Company’s expectations relative to the future performance of our Class A Common Shares, which the Company is, in part, exchanging for AOG units. Furthermore, the Company may only offer to sell the AOG units on a quarterly basis, subject to the terms, conditions and procedures set forth in the Liquidity Agreement. Accordingly, the Company’s ability to liquidate a portion of the consideration received by the Company under the Proposal will be limited. See the section entitled “Description of Transaction Documents—Liquidity Agreement” for additional detail.

James Belardi, the Chief Executive Officer of the Company, and William Wheeler, the President of the Company entered into a voting agreement pursuant to which each of them appointed AMH, an affiliate of Apollo, as his proxy and attorney-in-fact to vote all of his Class A Common Shares at any meeting of the Company’s shareholders following the Closing Date.

In connection with the Proposal, AMH, an affiliate of Apollo, James Belardi, the Chief Executive Officer of the Company, and William Wheeler, the President of the Company, entered into the Voting Agreement, pursuant to which each such Other Shareholder irrevocably appointed AMH as his proxy and attorney-in-fact to vote all of such Other Shareholder’s Class A Common Shares at any meeting of the Company’s shareholders occurring following the Closing Date and in connection with any written resolution of the Company’s shareholders following the Closing Date. This means that, except as set forth below, all of the Class A Common Shares beneficially owned by Messrs. Belardi and Wheeler and entitled to vote (expected to constitute approximately 0.8% of the voting power of the Company immediately following the Closing Date) will be voted by AHM at any meeting of the Company’s shareholders following the Closing Date and in connection with any written resolution of the Company’s shareholders following the Closing Date.

The Proxy will be of no force and effect, and AMH will not be entitled to vote any of Mr. Belardi’s or Mr. Wheeler’s Class A Common Shares upon the earlier of (i) the Fall-away Parties no longer continuing to hold or beneficially own (excluding any Class A Common Shares to which a valid proxy has been granted to any of the Apollo Shareholders by any employee of the Company) at least 7.5% of the issued and outstanding Class A Common Shares or (ii) the Apollo Shareholders no longer continuing to hold or beneficially own (including any

 

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Class A Common Shares to which a valid proxy has been granted to any Apollo Shareholder) at least 5% of the issued and outstanding Class A Common Shares. In addition, Messrs. Belardi and Wheeler have each entered into a letter agreement with the Company, pursuant to which they have agreed to vote their Class M Common Shares in favor of the proposals on which holders of Class M Common Shares are entitled to vote at the Special Meeting. As a result of the letter agreements, all proposals on which the holders of Class M Common Shares are entitled to vote at the Special Meeting are expected to be approved by the holders of Class M Common Shares, regardless of the votes of holders of Class M Common Shares who have not entered into such agreements.

After giving effect to the Proposal, certain affiliates of Apollo and its related entities, employees and consultants will own a significant percentage of the Class A Common Shares of the Company.

As part of the Proposal, the Company would issue 35,534,942 new shares of Class A Common Shares that the Company (or its subsidiaries) would transfer to certain affiliates of Apollo. After giving effect to the Proposal (and assuming full utilization of the increased share repurchase authorization of $600 million at the closing market price of Class A Common Shares on October 25, 2019, the last trading day prior to the public announcement of the Proposal, and taking into account the voting proxies described herein), it is expected that Apollo and its affiliates will beneficially own approximately 30% of the Class A Common Shares of the Company, and certain other related parties of Apollo (for example, Leon Black, Joshua Harris and Marc Rowan) and employees and consultants of Apollo will collectively beneficially own approximately 5% of the Class A Common Shares of the Company. The price at which the Company’s shares will be repurchased may fluctuate due to the timing of such purchases and market conditions, and as a result actual post-closing ownership may vary. In addition, any share repurchases or share issuances the Company may engage in in the future, as the case may be, will have a proportionate increase or decrease on the beneficial ownership percentage of Class A Common Shares of Apollo, its affiliates, related parties, employees and consultants. No agreement exists among Apollo and any of these other related parties referenced above (or between any of these other related parties) with respect to the voting or disposition of Class A Common Shares and each such persons may vote independently with respect to Class A Common Shares beneficially owned by such persons. As part of the Proposal, the Company would also grant to Apollo the right to purchase additional Class A Common Shares from the Company from the Closing Date until 180 days after the Closing Date to the extent that the Conditional Right Shares do not equal at least 35% of the issued and outstanding Class A Common Shares, on a fully diluted basis. Additionally, the Company would grant to an affiliate of Apollo the right to purchase up to that number of Class A Common Shares that would increase by five percentage points the percentage of the issued and outstanding Class A Common Shares represented by the Conditional Right Shares, calculated on a fully diluted basis. As a result, Apollo, its affiliates, employees and consultants will collectively have significant influence over the outcome of votes on all matters requiring approval by our shareholders, including entering into significant corporate transactions such as mergers, tender offers, and the sale of all or substantially all of our assets and issuance of additional debt or equity. The interests of Apollo and its affiliates, related parties, employees and consultants could conflict with or differ from our interests or the interests of our other shareholders. Additionally, Apollo and its affiliates are in the business of making investments in companies and may, from time to time, acquire and hold interests in or provide advice to businesses that compete directly or indirectly with us, or are suppliers or customers of ours. Apollo and its affiliates may also pursue acquisition opportunities that may be complementary to our business, and as a result, those acquisition opportunities may not be available to us. Any such investment may increase the potential for the conflicts of interest discussed in this risk factor.

In addition, as part of the Proposal, the Company would enter into the Shareholders Agreement with the Apollo Shareholders which will provide for, among other things, the Apollo Shareholders having the right to nominate a number of directors to the Board on a proportionate basis to their beneficial ownership of Class A Common Shares (including any Class A Common Shares to which a valid proxy has been granted to AMH under the Voting Agreement). As of the date hereof, we anticipate that the Apollo Shareholders will have the right to nominate at least five directors to the Board. This right will increase or decrease proportionately with the beneficial ownership of Class A Common Shares of the Apollo Shareholders. See “Description of the Transaction Documents—Voting Agreement”.

 

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Risks Relating to Taxation

The BEAT may significantly increase our tax liability.

Public Law no. 115-97, the Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (the “Tax Act”) introduced a new tax called the Base Erosion and Anti-Abuse Tax (the “BEAT”). The BEAT operates as a minimum tax and is generally calculated as a percentage (10% in 2019 – 2025, and 12.5% in 2026 and thereafter) of the “modified taxable income” of an “applicable taxpayer.” Modified taxable income is calculated by adding back to a taxpayer’s regular taxable income the amount of certain “base erosion tax benefits” with respect to certain payments made to foreign affiliates of the taxpayer, as well as the “base erosion percentage” of any net operating loss deductions. The BEAT applies for a taxable year only to the extent it exceeds a taxpayer’s regular corporate income tax liability for such year (determined without regard to certain tax credits).

Certain of our reinsurance agreements require our U.S. subsidiaries (including any non-U.S. subsidiaries subject to U.S. federal income taxation) to pay or accrue substantial amounts to our non-U.S. reinsurance subsidiaries that would be characterized as “base erosion payments” with respect to which there are “base erosion tax benefits.” However, in certain types of reinsurance transactions, it is not clear whether any amounts paid or accrued by non-U.S. reinsurance entities would be netted against amounts paid or accrued to such entities for purposes of calculating the “base erosion payments” and “base erosion tax benefits.”

In light of the possibility of material additional tax cost to our U.S. subsidiaries and the lack of clear guidance regarding the appropriate method by which to compute the BEAT, we have undertaken certain actions intended to mitigate the potential effect of the BEAT on our results of operations. Such actions may have adverse consequences to our business, such as subjecting profit from our affiliate reinsurance to a layer of withholding tax of up to 30%, which would not have been payable under our prior structure. There can be no assurances that our efforts to mitigate the BEAT will be successful, and our consideration of any further actions may be expensive and time consuming. In addition, we have been, and may continue to be, required to take action before the uncertainty regarding the BEAT is resolved, and accordingly any action we take may, in hindsight, prove to have been unnecessary, ineffective or counterproductive.

The application of the BEAT to our reinsurance arrangements could be affected by further legislative action (including possibly a “technical corrections” bill), administrative guidance or court decisions, any of which could have retroactive effect. In addition, tax authorities may disagree with our BEAT calculations, or the interpretations on which those calculations are based, and assess additional taxes, interest and penalties, and the uncertainty regarding the correct interpretation of the BEAT may make such disagreements more likely. We will establish our tax provision in accordance with GAAP.

However, there can be no assurance that this provision will accurately reflect the amount of federal income tax that we ultimately pay, as that amount could differ materially from the estimate. There may be material adverse consequences to our business if tax authorities successfully challenge our BEAT calculations, in light of the uncertainties described above.

In addition, we have made estimates regarding the effective tax rate we expect to experience, which take into account the impacts of federal income tax and the BEAT. The determination of each such figure, or range of figures, involves numerous estimates and assumptions, including estimates and assumptions regarding our BEAT calculations. Such estimates and assumptions may prove incorrect. To the extent that actual experience differs from the estimates and assumptions inherent in our projections, our future effective and overall tax rates may deviate materially from the estimates provided and our financial condition and results of operations may be materially less favorable than are implied by the projections provided.

 

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The Company or its non-U.S. subsidiaries may be subject to U.S. federal income taxation in an amount greater than expected.

The Company and certain of its subsidiaries are incorporated under the laws of non-U.S. jurisdictions, including Bermuda. The Company and its subsidiaries that are treated as foreign corporations under the Code (the “Non-U.S. Subsidiaries,” and together with the Company, the “Non-U.S. Companies”), have historically intended to operate in a manner that will not cause any of the Non-U.S. Companies to be treated as being engaged in a trade or business within the U.S. or subject to current U.S. federal income taxation on their net income. However, the enactment of the BEAT, the reduction of the federal income tax rate applicable to corporations included in the Tax Act and other factors may cause some or all of our Non-U.S. Companies to conduct business differently. Further, there is considerable uncertainty as to when a foreign corporation is engaged in a trade or business within the United States, as the law is unclear and the determination is highly factual and must be made annually. In addition, because certain members of the AOG are (and others may be) considered to be engaged in a trade or business within the U.S., the Non-U.S. Companies that own interests in such AOG members will also be considered to be engaged in a trade or business within the U.S.

Any Non-U.S. Company that is considered to be engaged in a trade or business in the U.S. generally will be subject to U.S. federal income taxation on a net basis on its income that is effectively connected with such U.S. trade or business (including branch profits tax on the portion of its earnings and profits that is attributable to such income) unless otherwise provided under the income tax treaties between the U.S. and Bermuda (the “Bermuda Treaty”) and between the U.S. and the U.K. (the “U.K. Treaty”). Any such U.S. federal income taxation could result in substantial tax liabilities and consequently could have a material adverse effect on our financial condition, results of operations and cash flows.

The Company and Athene Life Re Ltd., a Bermuda reinsurance subsidiary (“ALRe”), are U.K. tax residents and expect to qualify for the benefits of the U.K. Treaty because the Class A Common Shares are listed and regularly traded on the NYSE. ACRA (as defined below) is also a U.K. tax resident and expects to qualify for the benefits of the U.K. Treaty by reason of satisfying an ownership and base erosion test. Accordingly, the Company, ALRe and ACRA are expected to qualify for exemptions from, or reduced rates of, U.S. tax on certain amounts that are from U.S. sources or connected with a U.S. trade or business, provided that they satisfy all of the requirements of the U.K. Treaty. However, there can be no assurances that the Company, ALRe and ACRA will continue to qualify for treaty benefits, particularly given the potential implications of the Bermuda Economic Substance Act 2018. In addition, the Non-U.S. Companies expect that substantially all of the income derived from their interests in the AOG that is considered to be effectively connected with the conduct of a U.S. trade or business will be attributable to a U.S. permanent establishment and thus generally will not be eligible for exemptions from, or reduced rates of, U.S. tax under the U.K. Treaty, other than an exemption from the branch profits tax. Moreover, the scope of the exemption from the branch profits tax with respect to profits derived through entities that are not fiscally transparent under the income tax laws of the U.K. is not clear, and a substantial portion of the profits of the AOG may be derived through such entities. There can be no assurances that the Non-U.S. Companies will not be considered to have other U.S. permanent establishments to which their income is attributable, or that more of their profits than anticipated will be considered attributable to a U.S. permanent establishment. If the Company, ALRe or ACRA fails to qualify for treaty benefits, is considered to have other U.S. permanent establishments to which its profits are attributable or has more profits that are considered attributable to a U.S. permanent establishment than anticipated, it may incur greater tax costs than expected, which could have a material adverse effect on our financial condition, results of operations and cash flows.

U.S. persons who own our Class A Common Shares may be subject to U.S. federal income taxation at ordinary income rates on our undistributed earnings and profits.

For any taxable year in which a Non-U.S. Company is treated as a “controlled foreign corporation” within the meaning of Section 957 of the Code (a “CFC”) with respect to a 10% U.S. Shareholder (as defined below) of

 

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the Non-U.S. Company that held our Class A Common Shares directly or indirectly through non-U.S. entities as of the last day in such taxable year that the Non-U.S. Company was a CFC, that 10% U.S. Shareholder would generally be required to include in gross income as ordinary income its pro rata share of the Non-U.S. Company’s income, regardless of whether that income was actually distributed to such U.S. person (with certain adjustments). A “10% U.S. Shareholder” of an entity treated as a foreign corporation for U.S. federal income tax purposes is a U.S. person who owns (directly, indirectly through non-U.S. entities or constructively) 10% or more of the total value of all classes of shares of the corporation or 10% or more of the total combined voting power of all classes of voting shares of the corporation.

In general, a non-U.S. corporation is a CFC if 10% U.S. Shareholders, in the aggregate, own (or are treated as owning) stock of the non-U.S. corporation possessing more than 50% of the voting power or value of such corporation’s stock. However, this 50% threshold is lowered to 25% for purposes of taking into account the insurance income of a non-U.S. corporation. Special rules apply for purposes of taking into account any “related person insurance income” (“RPII”) of a non-U.S. corporation, as described below.

In addition, if a U.S. person disposes of shares in a non-U.S. corporation and the U.S. person owned (directly, indirectly through non-U.S. entities or constructively) 10% or more of the total combined voting power of the voting stock of the corporation at any time when the corporation was a CFC during the five-year period ending on the date of disposition, any gain from the disposition will generally be treated as a dividend to the extent of the U.S. person’s share of the corporation’s undistributed earnings and profits that were accumulated during the period or periods that the U.S. person owned the shares while the corporation was a CFC (with certain adjustments). Also, a U.S. person may be required to comply with specified reporting requirements, regardless of the number of shares owned.

The Tax Act eliminated the prohibition on “downward attribution” from non-U.S. persons to U.S. persons under Section 958(b)(4) of the Code for purposes of determining constructive stock ownership under the CFC rules. As a result, our U.S. subsidiaries are deemed to own all of the stock of the Non-U.S. Subsidiaries (other than ALRe) for CFC purposes. Further, we believe that there may be other U.S. persons that are treated as 10% U.S. Shareholders that own more than 25% of the vote (and potentially more than 25% of the value) of ALRe by reason of downward attribution from our direct or indirect shareholders. Moreover, depending on which of our companies acquire interests in the AOG pursuant to the Share Issuance, 10% U.S. Shareholders may own all of the vote and value of ALRe by reason of downward attribution from the Company to certain U.S. persons in which the AOG has an interest. Accordingly, the Non-U.S. Subsidiaries are treated as CFCs, except that ALRe might only be considered a CFC for purposes of taking into account certain insurance income. The legislative history under the Tax Act indicates that this change in law was not intended to cause a foreign corporation to be treated as a CFC with respect to a 10% U.S. Shareholder that is not related to the U.S. persons receiving such downward attribution. However, it is not clear whether the IRS or a court would interpret the change made by the Tax Act in a manner consistent with such indicated intent. Moreover, no assurances can be provided that any of our Non-U.S. Companies would not be a CFC even without regard to the downward attribution of stock from non-U.S. persons to U.S. persons, as such classification depends upon the identity and relationships of the beneficial owners of our stock, over which we have limited knowledge or control. Accordingly, any U.S. person that owns (or is treated as owning) 10% or more of the voting power or value of the Company should consult with their tax advisor regarding their investment in the Company.

U.S. persons who own our Class A Common Shares may be subject to U.S. federal income taxation at ordinary income rates on a disproportionate share of our undistributed earnings and profits attributable to RPII.

If any of the Non-U.S. Companies is treated as recognizing RPII in a taxable year and is also treated as a CFC for such taxable year, each U.S. person that owns our Class A Common Shares directly or indirectly through non-U.S. entities as of the last day in such taxable year must generally include in gross income its pro rata share of the RPII, determined as if the RPII were distributed proportionately only to all such U.S. persons, regardless of whether that income is distributed (with certain adjustments). For this purpose, a Non-U.S.

 

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Company generally will be treated as a CFC if U.S. persons in the aggregate are treated as owning (directly or indirectly through non-U.S. entities) 25% or more of the total voting power or value of the Non-U.S. Company’s stock at any time during the taxable year. We believe that the Non-U.S. Companies will be treated as CFCs for this purpose based on the current and expected ownership of our shares.

RPII generally is any income of a non-U.S. corporation attributable to insuring or reinsuring risks of a U.S. person that owns (or is treated as owning) stock of such non-U.S. corporation, or risks of a person that is “related” to such a U.S. person. For this purpose, (1) a person is “related” to another person if such person “controls,” or is “controlled” by, such other person, or if both are “controlled” by the same persons, and (2) “control” of a corporation means ownership (or deemed ownership) of stock possessing more than 50% of the total voting power or value of such corporation’s stock and “control” of a partnership, trust or estate for U.S. federal income tax purposes means ownership (or deemed ownership) of more than 50% by value of the beneficial interests in such partnership, trust or estate.

We believe it is likely that an exception under the RPII rules for CFCs with de minimis RPII currently applies to the Non-U.S. Companies such that U.S. persons are not required to include any RPII in their gross income with respect to the Non-U.S. Companies. However, Apollo and its affiliates and related parties own, and will continue to own, a substantial amount of our stock, will have rights to acquire additional Class A Common Shares and will hold proxies to vote Class A Common Shares owned by certain of our employees. Further, Athene and Apollo may have considerable overlap in ownership. Nonetheless, we do not expect that Apollo will control us, or that the same persons will control both us and Apollo, as a result of the transactions contemplated by or under the Proposal. If, contrary to such expectation, it is determined that Apollo controls us, or that the same persons control both us and Apollo, substantially all of the income of the Non-U.S. Companies derived from the reinsurance of affiliates likely will constitute RPII. This would trigger the adverse RPII consequences described above to all U.S. persons that hold our Class A Common Shares directly or indirectly through non-U.S. entities and would have a material adverse effect on the value of their investment in our Class A Common Shares.

If the 9.9% Voting Cutback is applicable to any person, additional voting power generally would be reallocated to all other Class A Common Shares, including those held by Apollo and its affiliates. Further, the voting power of Class A Common Shares that are owned (or treated as owned) by certain persons who own (or are treated as owning) any Apollo stock would also be reallocated to all other Class A Common Shares, including those held by Apollo and its affiliates. The Thirteenth Amended and Restated Bye-laws limit these reallocations of voting power so that Apollo, and any person or persons who control Apollo, would not own (or be treated as owning) more than 49.9% of the total voting power of our stock if they do not own (and are not treated as owning) more than 50% of the total value of our stock. These rules are intended to prevent any such reallocation of voting power from causing Apollo to be considered to control us or to be controlled by the same persons who control us for purposes of the RPII provisions. However, because the relevant attribution rules are complex and there is no definitive legal authority on whether these voting provisions are effective for these purposes, there can be no assurance that this will be the case.

Our Bye-laws also generally provide that no person (nor certain direct or indirect beneficial owners or related persons to such person) who owns our shares may acquire any shares of Apollo or otherwise make any investment that would cause such person, or any other person that is a U.S. person, to own (or be treated as owning) more than 50% of the vote or value of our stock. Any holder of our shares that violates this restriction may be required, at the Board’s discretion, to sell its shares or take any other reasonable action that the Board deems necessary. However, this restriction does not apply to members of the Apollo Group.

We have only a limited ability to determine whether any of the Non-U.S. Companies is treated as recognizing RPII in a taxable year, the amount of any such RPII or any U.S. person’s share of such RPII, and to obtain the information necessary to accurately make such determinations or fully enforce the voting provisions and ownership restrictions described above. We will take reasonable steps to obtain such information, but there

 

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can be no assurances that such steps will be adequate or that we will be successful in this regard. Accordingly, no assurances can be provided that the adverse RPII consequences described above will not apply to all U.S. persons that hold our shares directly or indirectly through non-U.S. entities.

U.S. persons who dispose of our Class A Common Shares may be required to treat any gain as ordinary income for U.S. federal income tax purposes and comply with other specified reporting requirements.

If a U.S. person disposes of shares in a non-U.S. corporation that is an insurance company that had RPII and the 25% threshold described above is met at any time when the U.S. person owned any shares in the corporation during the five-year period ending on the date of disposition, any gain from the disposition will generally be treated as a dividend to the extent of the U.S. person’s share of the corporation’s undistributed earnings and profits that were accumulated during the period that the U.S. person owned the shares (possibly whether or not those earnings and profits are attributable to RPII). In addition, the shareholder will be required to comply with specified reporting requirements, regardless of the amount of shares owned. We believe that these rules should not apply to a disposition of our Class A Common Shares because the Company is not itself directly engaged in the insurance business. We cannot assure you, however, that the IRS will not successfully assert that these rules apply to a disposition of our Class A Common Shares.

U.S. tax-exempt organizations that own our Class A Common Shares may recognize unrelated business taxable income.

A U.S. tax-exempt organization that directly or indirectly owns our Class A Common Shares generally will recognize unrelated business taxable income and be subject to additional U.S. tax filing obligations to the extent such tax-exempt organization is required to take into account any of our insurance income or RPII pursuant to the CFC and RPII rules described above. U.S. tax-exempt organizations should consult their own tax advisors regarding the risk of recognizing unrelated business taxable income as a result of the ownership of our Class A Common Shares.

U.S. persons who own our Class A Common Shares may be subject to adverse tax consequences if the Company is considered a passive foreign investment company for U.S. federal income tax purposes.

If the Company is considered a passive foreign investment company for U.S. federal income tax purposes (a “PFIC”), a U.S. person who directly or, in certain cases, indirectly owns our Class A Common Shares could be subject to adverse tax consequences, including a greater tax liability than might otherwise apply, an interest charge on certain taxes that are deemed deferred as a result of the Company’s non-U.S. status and additional U.S. tax filing obligations, regardless of the number of shares owned.

We currently do not expect that the Company will be a PFIC in the current taxable year or the foreseeable future because the Company, through our Non-U.S. Companies that are insurance enterprises (our “Non-U.S. Insurance Companies”), intends to qualify for the “active insurance” exception to PFIC treatment. This exception was amended as part of the Tax Act, and we believe that we qualify for the exception as amended. However, there is significant uncertainty regarding how the exception will be interpreted. The IRS recently proposed regulations providing guidance on the amended exception. The proposed regulations are not effective until adopted in final form.

Under the Code and the proposed regulations, the active insurance exception is available only if a foreign insurance company is considered to be engaged in the “active conduct” of an insurance business. The proposed regulations state that whether a company is engaged in the “active conduct” of an insurance business is a facts and circumstances test, but then introduce a “bright line” rule providing that the “active conduct” requirement is met if, and only if, the insurance company’s “active conduct percentage” is at least 50%. In general, a company’s active conduct percentage is determined by dividing the company’s aggregate expenses for certain insurance-related services of its officers and employees (and the officers and employees of certain affiliates) by the company’s aggregate expenses for such insurance-related services (including those paid to unaffiliated persons).

 

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The precise scope of expenses that should be taken into account in calculating the active conduct percentage is unclear.

Our Non-U.S. Insurance Companies generally pay fees to unaffiliated service providers, including affiliates of Apollo, for investment management and other services. Including such fees in the calculation would have the effect of reducing their active conduct percentages. Due to uncertainty in the scope of expenses that should be taken into account, complexity in tracking and allocating expenses, and variations in expenses from year to year, among other uncertainties, no assurances can be provided that the active conduct percentages of our Non-U.S. Insurance Companies will be at least 50% in any given year. Accordingly, if the proposed regulations were finalized in their proposed form, depending on which expenses are included in the fraction, there is risk that one or more of our Non-U.S. Insurance Companies would be considered a PFIC in one or more taxable years, in which case, the Company may also be a PFIC in such taxable years.

The IRS has requested comments on several aspects of the proposed regulations. It is uncertain when the proposed regulations will be finalized, and whether the provisions of any final or temporary regulations will vary from the proposed regulations. As a result, we cannot assure you that the Company will not be treated as a PFIC. If the Company is treated as a PFIC, the adverse tax consequences described above generally would also apply with respect to a U.S. person’s indirect ownership interest in any PFICs in which the Company directly or, in certain cases, indirectly, owns an interest, including ALRe or ACRA (if they are PFICs).

Changes in U.S. tax law might adversely affect us or our shareholders, including holders of our Class A Common Shares.

The tax treatment of non-U.S. companies and their U.S. and non-U.S. insurance subsidiaries may be the subject of further tax legislation. No prediction can be made as to whether any particular proposed legislation will be enacted or, if enacted, what the specific provisions or the effective date of any such legislation would be, or whether it would have any effect on us. As such, we cannot assure you that future legislative, administrative or judicial developments will not result in an increase in the amount of U.S. tax payable by us or by an investor in our Class A Common Shares or reduce the attractiveness of our products. If any such developments occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected.

Changes in U.S. tax law might adversely affect demand for our products.

Many of the products that we sell and reinsure benefit from one or more forms of tax-favored status under current U.S. federal and state income tax regimes. For example, we sell and reinsure annuity contracts that allow the policyholders to defer the recognition of taxable income earned within the contract. Future changes in U.S. federal or state tax law could reduce or eliminate the attractiveness of such products, which could affect the sale of our products or increase the expected lapse rate with respect to products that have already been sold. Decreases in product sales or increases in lapse rates, in either case, brought about by changes in U.S. tax law, may result in a decrease in invested assets and therefore investment income and may have a material and adverse effect on our business, financial position, results of operations and cash flows.

There is U.S. income tax risk associated with reinsurance between U.S. insurance companies and their Bermuda affiliates.

If a reinsurance agreement is entered into among related parties, the IRS is permitted to reallocate or recharacterize income, deductions or certain other items, and to make any other adjustment, to reflect the proper amount, source or character of the taxable income of each of the parties. If the IRS were to successfully challenge our reinsurance arrangements, our financial condition, results of operations and cash flows could be adversely affected.

 

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We may become subject to U.S. withholding tax under certain U.S. tax provisions commonly known as FATCA.

Certain U.S. tax provisions commonly known as FATCA impose a 30% withholding tax on certain payments of U.S. source income to certain “foreign financial institutions” and “non-financial foreign entities.” The withholding tax may also apply to certain “foreign passthru payments” made by foreign financial institutions at a future date. The U.S. government has signed an intergovernmental agreement to facilitate the implementation of FATCA with the government of Bermuda (the “Bermuda IGA”). The Non-U.S. Companies intend to comply with the obligations imposed on them under FATCA and the Bermuda IGA, as applicable, to avoid being subject to withholding under FATCA on payments made to them or penalties. However, no assurance can be provided in this regard. We may become subject to withholding tax or penalties if we are unable to comply with FATCA.

All or a portion of the dividends on our Class A Common Shares may be treated as U.S. source income and may be subject to withholding and information reporting under FATCA unless a shareholder (and any intermediaries through which the shareholder holds its shares) establishes an exemption from such withholding and information reporting.

We are subject to the risk that Bermuda tax laws may change and that we may become subject to new Bermuda taxes following the expiration of a current exemption after 2035.

The Bermuda Minister of Finance, under the Exempted Undertakings Tax Protection Act 1966 of Bermuda, as amended, has given us an assurance that if any legislation is enacted in Bermuda that would impose tax computed on profits or income, or computed on any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, then the imposition of any such tax will not be applicable to us or any of our operations, shares, debentures or other obligations until March 31, 2035, except insofar as such tax applies to persons ordinarily resident in Bermuda or to any taxes payable by us in respect of real property owned or leased by us in Bermuda. Given the limited duration of the Bermuda Minister of Finance’s assurance, we cannot assure you that we will not be subject to any Bermuda tax after March 31, 2035.

The impact of the Organisation for Economic Co-operation and Development’s recommendations on base erosion and profit shifting is uncertain and could impose adverse tax consequences on us.

In 2015, the Organisation for Economic Co-operation and Development published final recommendations on base erosion and profit shifting (“BEPS”). These BEPS recommendations propose the development of rules directed at counteracting the effects of tax havens and preferential tax regimes in countries around the world. Beginning with 2017, some countries in which we do business, including Bermuda and the U.S., require certain multinational enterprises, including ours, to report detailed information regarding allocation of revenue, profit, and other information, on a country-by-country basis, which could increase scrutiny by foreign tax authorities.

The BEPS recommendations also include revisions to the definition of a “permanent establishment” and the rules for attributing profit to a permanent establishment. Other recommended actions relate to the goal of ensuring that transfer pricing outcomes are in line with value creation, noting that the current rules may facilitate the transfer of risks or capital away from countries where the economic activity takes place. We expect many countries to change their tax laws in response to this project, and several countries (including the U.S.) have already changed or proposed changes to their tax laws. Changes to tax laws could increase their complexity and the burden and costs of compliance. Additionally, such changes could also result in significant modifications to the existing transfer pricing rules and could potentially have an impact on our taxable profits in various jurisdictions.

 

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DESCRIPTION OF THE SHARE TRANSACTIONS, THE CLASS B EXCHANGE AND THE CLASS M EXCHANGE

While we believe that the summary below describes the material terms of the Share Transactions, the Class B Exchange and the Class M Exchange, it may not contain all of the information that is important to you, and is qualified in its entirety by the relevant instruments and agreements themselves, which are attached to this proxy statement. We encourage you to read the relevant instruments and agreements themselves in their entirety. Further, representations, warranties and covenants in the Transaction Agreement are not intended to function or to be relied on as public disclosures. For more information about accessing the information that we file with the SEC, please see the section entitled “Where You Can Find More Information” below.

Overview

On October 27, 2019, the Company entered into the Transaction Agreement with Apollo and certain of its affiliates under which affiliates of Apollo will make a significant investment in the Company. Apollo, through its affiliates, is, before such investment, a significant shareholder of the Company. Pursuant to the Transaction Agreement, the Company is proposing to make certain amendments to the Bye-laws, by way of amending and restating the Bye-laws, and is seeking shareholder approval for the Thirteenth Amended and Restated Bye-laws and for certain other corporate actions related to the Proposal as described in the Transaction Agreement. The amendments to the Bye-laws would reflect, among other items, the elimination of the Company’s current multi-class share structure. In connection with the Multi-Class Share Elimination, we would effect the Class B Exchange and the Class M Exchange. As part of the Proposal, the Company would also issue 35,534,942 new Class A Common Shares that the Company (or its subsidiaries) would transfer to the AOG for approximately $1.55 billion, consisting of (i) 29,154,519 AOG units valued at approximately $1.2 billion (based on the closing market price of Apollo Common Shares on October 25, 2019 and applying a 2.3% premium to the closing market price of the Class A Common Shares on October 25, 2019, the last trading day prior to the public announcement of the Proposal) and (ii) $350 million in cash. As part of the Proposal, the Company would also grant to Apollo the right to purchase additional Class A Common Shares from the Company from the Closing Date until 180 days after the Closing Date to the extent that the Conditional Right Shares do not equal at least 35% of the issued and outstanding Class A Common Shares, on a fully diluted basis. Additionally, the Company would grant to an affiliate of Apollo the right to purchase up to that number of Class A Common Shares that would increase by five percentage points the percentage of the issued and outstanding Class A Common Shares represented by the Conditional Right Shares, calculated on a fully diluted basis. Each of the Thirteenth Amended and Restated Bye-laws, the Class B Exchange, the Class M Exchange, the Share Transactions and the proposal to adjourn the Special Meeting as set forth in this proxy statement for the Special Meeting require the approval of our shareholders.

The Transaction Agreement generally governs the terms and conditions of the Share Issuance and Conditional Right, and provides, among other things, that, subject to the terms and conditions set forth in the Transaction Agreement, (i) the limited partnerships and limited liability companies comprising the AOG will issue 29,154,519 AOG units to the New AOG Subsidiaries in exchange for interests in such New AOG Subsidiary, (ii) the Company will issue and transfer, or cause a subsidiary to transfer, an aggregate of 27,959,184 new Class A Common Shares to the New AOG Subsidiaries in accordance with the allocations designated in writing by Apollo to the Company at least two business days prior to the Closing Date, and, in exchange therefor, the Company or certain subsidiaries of the Company will collectively receive all of the 29,154,519 AOG units received by the New AOG Subsidiaries in clause (i) and (iii) Apollo or members of the AOG will pay, or cause to be paid, in the aggregate, $350 million to the Company or a subsidiary thereof and, in exchange therefor, the Company will issue and sell, or cause such subsidiary to sell, 7,575,758 new Class A Common Shares to such members of the AOG as designated in writing by Apollo to the Company at least two business days prior to the Closing Date. The Company would also grant to Apollo, or its designee as permitted by the Transaction Agreement, the Conditional Right under the Transaction Agreement. The transaction is subject to customary closing conditions, including approval of our shareholders, the receipt of all necessary regulatory and governmental approvals and certain other closing conditions contemplated by the Transaction Agreement.

 

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Contemporaneously with the execution of the Transaction Agreement, AMH and the Other Shareholders entered into the Voting Agreement, pursuant to which each Other Shareholder irrevocably appointed AMH as its Proxy to vote all of such Other Shareholder’s Class A Common Shares (expected to constitute approximately 0.8% of the voting power of the Company immediately following the Closing Date) at any meeting of the Company’s shareholders occurring following the Closing Date and in connection with any written resolution of the Company’s shareholders following the Closing Date. The Proxy will be of no force and effect, and AMH will not be entitled to vote any of such Other Shareholder’s Class A Common Shares upon the earlier of (i) the Fall-away Parties no longer continuing to hold or beneficially own (excluding any Class A Common Shares to which a valid proxy has been granted to any of the Apollo Shareholders by any employee of the Company) at least 7.5% of the issued and outstanding Class A Common Shares or (ii) the Apollo Shareholders no longer continuing to hold or beneficially own (including any Class A Common Shares to which a valid proxy has been granted to any Apollo Shareholder) at least 5% of the issued and outstanding Class A Common Shares. In addition, Messrs. Belardi and Wheeler have each entered into a letter agreement with the Company, pursuant to which they have agreed to vote their Class M Common Shares (defined below) in favor of the proposals on which holders of Class M Common Shares are entitled to vote at the Special Meeting. As a result of the letter agreements, all proposals on which the holders of Class M Common Shares are entitled to vote at the Special Meeting are expected to be approved by the holders of Class M Common Shares, regardless of the votes of holders of Class M Common Shares who have not entered into such agreements.

In connection with the Transaction Agreement, we will enter into the Shareholders Agreement with the Apollo Shareholders, which will provide for (i) the Company granting the Apollo Shareholders certain nomination rights to the Board, (ii) subjecting the Class A Common Shares held by the Apollo Shareholders to a lock-up period and certain other transfer restrictions and (iii) the Company granting the Facility Right to a representative of the AOG, in each case, on the terms and subject to the conditions set forth therein. The Shareholders Agreement also sets forth certain information and inspection rights in favor of, and imposes certain confidentiality obligations on, the Apollo Shareholders. Also in connection with the Transaction Agreement, we will enter into the Registration Rights Agreement with Apollo, which will provide for the obligation of the Company, at the request of Apollo, to register the resale of the Class A Common Shares held by Apollo and its affiliates with the SEC under the Act, as well as piggyback and shelf registration rights with respect to such Class A Common Shares. The Company and Apollo will also enter into the Liquidity Agreement, which will provide that once each quarter, the Company will be entitled to request that Apollo (i) purchase from the Company a number of AOG units or sell a number of Apollo Common Shares or AOG units representing at least $50 million in exchange for payment of cash proceeds, (ii) conduct a public offering of an equivalent number of Apollo Common Shares, (iii) assist with a private placement of an equivalent number of Apollo Common Shares or (iv) assist with the private placement of AOG units to a buyer meeting certain criteria and subject to certain additional transfer restrictions, in each of clauses (i)—(iv) as set forth in the Liquidity Agreement. The Transaction Agreement, the Voting Agreement, the Shareholders Agreement, the Registration Rights Agreement and the Liquidity Agreement are described in more detail in the section entitled “Description of the Transaction Documents” below.

Share Exchange

Pursuant to and subject to the terms of the Transaction Agreement, the Company agreed to issue and transfer, or cause a subsidiary to transfer, an aggregate of 27,959,184 new Class A Common Shares to the New AOG Subsidiaries in accordance with the allocations designated in writing by Apollo to the Company at least two business days prior to the Closing Date, and, in exchange therefor, the Company or certain subsidiaries of the Company will collectively receive all of the 29,154,519 AOG units received by the New AOG Subsidiaries from the members of the AOG. The sale price of such new Class A Common Shares represents a 2.3% premium to the closing market price of the Class A Common Shares on October 25, 2019, the last trading day prior to the public announcement of the Proposal. The date and time of the closing of the Share Issuance will be at 10:00 a.m., New York City time, on the second business day after the satisfaction or waiver of the conditions to the closing set forth in the Transaction Agreement (other than those conditions that by their nature are to be satisfied at the

 

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closing, but subject to fulfillment or waiver of those conditions), or such other date as is mutually agreed upon in writing by the Company and Apollo, provided that, without the prior written consent of the Company and Apollo, the closing will not occur prior to January 6, 2020.

Share Sale

Pursuant to and subject to the terms of the Transaction Agreement, Apollo or certain members of the AOG will pay, or cause to be paid, in the aggregate, $350 million to the Company or a subsidiary thereof and, in exchange therefor, the Company will issue and sell, or cause such subsidiary to sell, 7,575,758 new Class A Common Shares to such members of the AOG as designated in writing by Apollo to the Company at least two business days prior to the Closing Date. The sale price of $46.20 per share represents a 10% premium to the closing price of Class A Common Shares on October 25, 2019, the last trading day prior to the public announcement of the Proposal.

Conditional Right

Pursuant to the Transaction Agreement, the Company agreed to grant to Apollo the right to purchase additional Class A Common Shares from the Company from the Closing Date until 180 days after the Closing Date to the extent that the Conditional Right Shares do not equal at least 35% of the issued and outstanding Class A Common Shares, on a fully diluted basis. In the event that Apollo exercises its Conditional Right, Apollo will pay the Company a price per share of Class A Common Shares equal to the volume-weighted average price for Class A Common Shares for the 30 calendar days prior to the date Apollo delivers notice to the Company that it has exercised the Conditional Right, in accordance with the Transaction Agreement. The Conditional Right may be exercised in whole or in part and on up to three separate occasions. If Apollo delivers notice to the Company that it has exercised the Conditional Right, Apollo and the Company will effect the closing of the purchase contemplated by the Conditional Right within five business days of the delivery of such notice. The Conditional Right will automatically terminate on the date that is 181 days after the Closing Date.

Facility Right

Additionally, pursuant to the Shareholders Agreement, the Company agreed to grant to AMH (or its designated replacement) the right to purchase up to that number of Class A Common Shares that would increase by five percentage points the percentage of the issued and outstanding Class A Common Shares represented by the Conditional Right Shares, calculated on a fully diluted basis. The Facility Right may be exercised on more than one occasion in increments that would increase by no less than one percentage point the percentage of the issued and outstanding Class A Common Shares represented by the Conditional Right Shares. The purchase price for the Class A Common Shares issued in connection with the exercise of the Facility Right will be equal to the greater of the closing price of Class A Common Shares on the last trading day immediately prior to the applicable exercise of the Facility Right and (i) for the first year following the Closing Date, $42.92, and (ii) thereafter, the 60 calendar day trailing volume-weighted average price of such Class A Common Shares as of the applicable exercise date of the Facility Right.

Use of Proceeds

The Company expects to use the cash proceeds from the Share Issuance for general corporate purposes, including (i) to fund the Company’s organic and inorganic growth, (ii) repurchases of the Company’s outstanding Class A Common Shares and (iii) the payment of fees and expenses in connection with the transaction.

Class B Exchange

In connection with the Multi-Class Share Elimination, the Company seeks to convert all of the Class B Common Shares into an equal number of Class A Common Shares on a one-for-one basis. If the proposal to

 

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approve the Class B Exchange is approved, the Class B Exchange will occur automatically, without any further action by the holder of any Class B Common Shares or the Company, contemporaneously with the closing of the Share Issuance. The adoption of this proposal is conditioned upon the approval of the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class M Exchange and the proposal to approve the Share Transactions. Even if this proposal is approved by our shareholders, it will not be adopted unless the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class M Exchange and the proposal to approve the Share Transactions are approved.

Class M Exchange

In connection with the Multi-Class Share Elimination, the Company seeks to convert all of the Class M Common Shares, including those that will vest at the time of the closing of the Share Issuance, into a combination of Class A Common Shares and Warrants to purchase Class A Common Shares (as further described herein). If the Class M Exchange is approved by the holders of vested Class M Common Shares and all other conditions to the closing of the Share Issuance are satisfied or waived by the applicable parties, immediately before the closing of the Share Issuance, all vesting conditions with respect to the outstanding Class M-4 common shares and Class M-4 Prime common shares (as described below) will be accelerated, and the holder will hold the relevant Class M-4 common shares and Class M-4 Prime common shares subject to such shares not being subject to any further vesting conditions (the “Acceleration”). If the proposal to approve the Class M Exchange is approved, the Class M Exchange will occur automatically, without any further action by the holder of any Class M Common Shares or the Company, contemporaneously with the closing of the Share Issuance. The adoption of this proposal is conditioned upon the approval of the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class B Exchange and the proposal to approve the Share Transactions. Even if this proposal is approved by our shareholders, it will not be adopted unless the proposal to adopt the Thirteenth Amended and Restated Bye-laws, the proposal to approve the Class B Exchange and the proposal to approve the Share Transactions are approved.

In connection with the Class M Exchange, we expect that certain of our current executive officers, including each of our named executive officers, will have the following number of Class M Common Shares converted into a combination of Class A Common Shares and Warrants to purchase Class A Common Shares:

 

EXECUTIVE OFFICER		Class M Common Share Type		Vested Class M Common Shares (Time)				Vested Class M Common Shares (Performance)				Unvested Class M Common Shares (Time)(1)				Unvested Class M Common Shares (Performance)(1)
James R. Belardi		M1			782,051.66				1,564,103.34				—				—
		M2			420,505.38				420,505.38				—				—
		M3			250,000.00				750,000.00				—				—
William J. Wheeler		M4 Prime			666,666.68				833,333.33				166,666.66				833,333.33
Grant Kvalheim		M4 Prime			51,731.39				76,344.20				58,666.40				146,667.00
Martin P. Klein		M4 Prime			29,903.61				44,641.16				34,666.67				86,666.67
John Rhodes		M4 Prime			22,779.18				39,442.75				26,666.40				66,667.00
Executive Officers as a Group		M1			1,198,519.16				2,074,870.84				—				—
		M2			420,505.38				420,505.38				—				—
		M3			250,000.00				750,000.00				—				—
		M4			5,000.00				4,282.48				—				—
		M4 Prime			795,935.10				1,035,509.95				313,332.53				1,200,001.00

 

(1)	The vesting conditions for such Class M Common Shares will be waived at the time of the closing of the Share Issuance.

The Compensation Committee of the Board weighed various alternatives for the unvested Class M Common Shares and determined that accelerating the vesting of such shares, both time and performance-based, was the

 

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most efficient outcome for the Company in light of expected tax consequences and out-of-pocket expenses and the significant complexity that would have been needed to design an economically equivalent replacement award for the unvested Class M Common Shares.

Parties to the Transactions

Athene Holding Ltd.

Athene Holding Ltd. (NYSE: ATH) is a leading retirement services company that issues, reinsures and acquires retirement savings products designed for the increasing number of individuals and institutions seeking to fund retirement needs. The Company generates attractive financial results for its policyholders and shareholders by combining its two core competencies of (1) sourcing long-term, generally illiquid liabilities and (2) investing in a high-quality investment portfolio, which takes advantage of the illiquid nature of its liabilities. The Company’s steady and significant base of earnings generates capital that the Company opportunistically invests across its business to source attractively-priced liabilities and capitalize on opportunities. The Company’s differentiated investment strategy benefits from its strategic relationship with Apollo and its indirect subsidiary, ISG. Apollo and ISG provide a full suite of services for our investment portfolio, including direct investment management, asset allocation, mergers and acquisition asset diligence and certain operational support services, including investment compliance, tax, legal and risk management support. Our relationship with Apollo and ISG also provides us with access to Apollo’s investment professionals around the world as well as Apollo’s global asset management infrastructure across a broad array of asset classes. The Company is led by a highly skilled management team with extensive industry experience. We are based in Bermuda with our U.S. subsidiaries’ headquarters located in Iowa.

Apollo Global Management, Inc.

Founded in 1990, Apollo is a leading global alternative investment manager. Apollo is a contrarian, value-oriented investment manager in credit, private equity and real assets, with significant distressed investment expertise. Apollo has a flexible mandate in many of the funds it manages which enables its funds to invest opportunistically across a company’s capital structure. Apollo raises, invests and manages funds on behalf of some of the world’s most prominent pension, endowment and sovereign wealth funds, as well as other institutional and individual investors. As of December 31, 2018, Apollo had total AUM of $280 billion, including approximately $193 billion in credit, $69 billion in private equity and $18 billion in real assets. Apollo has consistently produced attractive long-term investment returns in its traditional private equity funds, generating a 39% gross IRR and a 25% net IRR on a compound annual basis from inception through December 31, 2018.

Apollo Operating Group

The “Apollo Operating Group” refers to, collectively, Apollo Principal Holdings I, L.P., Apollo Principal Holdings II, L.P., Apollo Principal Holdings III, L.P., Apollo Principal Holdings IV, L.P., Apollo Principal Holdings V, L.P., Apollo Principal Holdings VI, L.P., Apollo Principal Holdings VII, L.P., Apollo Principal Holdings VIII, L.P., Apollo Principal Holdings IX, L.P., Apollo Principal Holdings X, L.P., Apollo Principal Holdings XI, LLC, Apollo Principal Holdings XII, L.P. and AMH Holdings (Cayman), L.P.

Related Party Transactions

The following is a description of certain relationships and transactions that have existed or that we have entered into since January 1, 2018, for which the amount involved exceeds $120,000 and our directors, executive officers or shareholders who are known to us to beneficially own more than five percent of our voting Class A Common Shares or Class B Common Shares, including Apollo, have a direct or indirect material interest as well as certain other transactions.

 

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Relationships and Related Party Transactions involving Apollo or its Affiliates

We have a strategic relationship with Apollo. In addition to being our co-founder, Apollo assists us in identifying and capitalizing on acquisition opportunities that have been critical to our ability to significantly grow our business. Members of the Apollo Group are significant owners of our Common Shares and control 45% of the aggregate voting power of our equity securities, which may be subject to certain adjustments, as described above. James R. Belardi, our Chief Executive Officer and a member of the Board, is the Chief Executive Officer, Chief Investment Officer and a director of ISG, a subsidiary of Apollo that manages our alternative investments. He receives remuneration from acting as Chief Executive Officer of ISG and owns a profits interest in ISG. Three of our other directors, Messrs. Lohr, Michelini, and Rowan, also serve as directors of ISG. Additionally, employees of Apollo and its affiliates serve on the Board. We expect our strategic relationship with Apollo to continue for the foreseeable future.

Mr. Belardi owns a 5% profits interest in ISG (the “Interest”). Reflecting the increasing importance of sourcing differentiated assets to drive performance in today’s low-yield, low-spread environment, we expect that, subject to certain approvals, the Interest will be reset at 4% of profits plus an amount equal to 4.5% of the sub-allocation fees described within “—Investment Management Relationships—Current Fee Structure” below. Under these arrangements, Mr. Belardi will retain the Interest only during employment; and if Mr. Belardi remains employed with ISG through December 31, 2023, then following his employment termination, he will be eligible to receive a one-time payment equal to a multiple of the annual amount historically earned through the Interest.

The following table summarizes the amounts we have incurred, directly and indirectly, from Apollo and its affiliates for periods indicated below (dollars in millions):

 

		Nine months ended September 30, 2019				Year ended December 31, 2018
IMAs(1)(2)(3)		$	309.7			$	345.9
Apollo Fund Investments(4)			58.9				75.3
AmeriHome			8.9				11.1
Shared Services Agreement			5.8				7.1
Commercial Mortgage Loan Servicing Agreement			0.2				0.2
Out-of-Pocket Expenses			2.5				5.4

 

(1)	Excludes $2.4 million and $2.3 million of sub-advisory fees paid to ISG for the benefit of third-party sub-advisors for the nine months ended September 30, 2019 and year ended December 31, 2018, respectively.

(2)

Excludes fees charged by Apollo to third-party cedants with respect to assets supporting obligations reinsured to us. Third-party cedants bear legal responsibility for payment of the investment management fees charged; however, we are the beneficiaries of the services performed and the fees ultimately reduce the settlement payments received from such third-party cedants. For the nine months ended September 30, 2019 and the year ended December 31, 2018 such fees were $66.9 million and $51.6 million, respectively.

(3)	For purposes of comparability, amounts previously disclosed separately for MSAA fees, have been included in the IMA totals for the year ended December 31, 2018. See Investment Management Relationships—Current Fee Structure for further discussion.

(4)	Includes total management, carried interest (including unrealized but accrued carried interest fees) and other fees, including those we hold as equity method investments.

Investment Management Relationships

Substantially all of our invested assets are managed by Apollo pursuant to our IMAs. Apollo provides a full array of asset and portfolio management services to us. Apollo has deep sector experience in the asset management industry and has overseen our investment portfolio since our founding. The Apollo investment platform provides us with access to Apollo’s investment expertise and fully-built infrastructure without the burden of incurring the development and maintenance costs of building an in-house investment asset manager with the capabilities of Apollo. As of September 30, 2019 and December 31, 2018, Apollo managed approximately $125.1 and $107.1 billion, respectively, of our invested assets.

 

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As of September 30, 2019, Apollo’s investment professionals managed substantially all of the assets in accounts owned by us or in accounts supporting reinsurance ceded to our subsidiaries by third-party issuers (the “Accounts”) in a number of asset classes, including investment grade corporate credit, residential mortgage backed securities (“RMBS”), high yield credit, commercial mortgage loans (“CMLs”), collateralized loan obligations (“CLOs”), commercial mortgage backed securities (“CMBS”) and certain asset backed securities (“ABS”). Having extensive knowledge of our corporate structure and business targets, Apollo often creates or sources unique investment opportunities, such as our investments in MidCap FinCo Limited (“MidCap”) and AmeriHome Mortgage Company, LLC (“AmeriHome”), described under “—MidCap” and “—AmeriHome” below.

We have historically relied on Apollo to efficiently reinvest large blocks of invested assets we have acquired. Apollo’s investment professionals have developed an intimate knowledge of our liability profile, which is long-dated and predominantly surrender charge protected. This knowledge serves as the foundation of our asset management strategy by enabling us to take advantage of our generally illiquid liability profile and identify asset opportunities with an emphasis on earning incremental yield by taking liquidity risk and complexity risk, rather than assuming solely credit risk. Through Apollo, we are able to source, value and invest in these high-quality assets to target and drive greater investment returns. Additionally, Apollo has tailored its service offering to our evolving needs. For example, in response to unfavorable macroeconomic conditions, driving diminishing credit spreads on investment grade marketable securities, Apollo is making significant investment in asset origination capabilities to provide higher yielding assets to our investment portfolio.

Current Fee Structure

During the second quarter of 2019, we entered into the Seventh Amended and Restated Fee Agreement, dated as of June 10, 2019, between us and AAM (the “Fee Agreement”). Under the Fee Agreement, effective retroactive to January 1, 2019, we pay Apollo:

 

(1)

a base management fee equal to the sum of (i) 0.225% per year of the lesser of (A) the aggregate market value of the Accounts on December 31, 2018 of $103.4 billion (the “Backbook Value”) and (B) the aggregate market value of substantially all of the assets in the Accounts at the end of the respective month, plus (ii) 0.15% per year of the amount, if any, by which the aggregate market value of substantially all of the assets in the Accounts at the end of the respective month exceeds the Backbook Value (the “Incremental Value”); plus

 

(2)

with respect to each asset in an Account, subject to certain exceptions, that is managed by Apollo and that belongs to a specified asset class tier (Core, Core Plus, Yield and High Alpha), a sub-allocation fee as follows, which will, in the case of assets acquired after January 1, 2019, be subject to a cap of 10% of the applicable asset’s gross book yield:

 

(i)

0.065% of the market value of Core assets, which include public investment grade corporate bonds, municipal securities, agency RMBS or CMBS, and obligations of governmental agencies or government sponsored entities that are not expressly backed by the U.S. government;

 

(ii)

0.13% of the market value of Core Plus assets, which include private investment grade corporate bonds, fixed rate first lien CMLs, and certain obligations issued or assumed by financial institutions and determined by Apollo to be “Tier 2 Capital” under Basel III, a set of recommendations for international banking regulations developed by the Bank for International Settlements;

 

(iii)

0.375% of the market value of Yield assets, which include non-agency RMBS, investment grade CLOs, CMBS and other ABS (other than RMBS and CLOs), emerging market investments, below investment grade corporate bonds, subordinated debt obligations, hybrid securities or surplus notes issued or assumed by a financial institution, rated preferred equity, residential mortgage loans (“RML”), bank loans, investment grade infrastructure debt, and floating rate CMLs on slightly transitional or stabilized traditional real estate;

 

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(iv)

0.70% of the market value of High Alpha assets, which include subordinated CMLs, below investment grade CLOs, unrated preferred equity, debt obligations originated by MidCap, CMLs for redevelopment or construction loans or secured by non-traditional real estate, below investment grade infrastructure debt, certain loans originated directly by Apollo (other than MidCap loans), and agency mortgage derivatives; and

 

(v)

0.00% of the market value of cash and cash equivalents, U.S. treasuries, non-preferred equities and alternatives.

The following represents assets based on the above sub-allocation structure:

 

(In millions, except percentages)		September 30, 2019				Percent of Total
Core		$	33,514				26.8	%
Core Plus			31,770				25.4	%
Yield			46,081				36.8	%
High Alpha			4,347				3.5	%
Other(1)			9,426				7.5	%
Total sub-allocation assets			125,138				100.0	%

 

(1)

Other includes assets within sub-allocation category (v) (which includes Apollo Fund Investments discussed below) and assets that do not fall within any of the sub-allocation categories described above. Assets that do not fall within the sub-allocation categories above are termed “Special Assets” and are subject to the base management fee and separately negotiated sub-allocation fees.

The Fee Agreement provides for a possible payment by Apollo to us, or a possible payment by us to Apollo, equal to 0.025% of the Incremental Value as of the end of each year, beginning on December 31, 2019, depending upon the percentage of our investments that consist of Core and Core Plus assets. If more than 60% of our invested assets that are subject to the sub-allocation fees are invested in Core and Core Plus assets, we will receive a 0.025% fee reduction on the Incremental Value. If less than 50% of our invested assets that are subject to the sub-allocation fee are invested in Core and Core Plus assets, we will pay an additional fee of 0.025% on Incremental Value. Under the Fee Agreement, fees payable to Apollo for sub-advisory services are encompassed within the current fee structure and are no longer paid separately as Sub-Advisory Fees (as defined below). See “—Historical fee structure” below for further discussion of the prior fee structure. However, in certain instances, Apollo earns an incentive fee in its capacity as sub-advisor of our invested assets.

Since January 1, 2018, ISG has provided us an investment management fee discount of 0.075% on all liabilities in excess of $5.1 billion sourced through our organic distribution channels during 2016, subject to amortization of the liabilities from the time they were written.

Affiliates of Apollo also earn additional fees paid by funds or other collective investment vehicles in which we are invested for management and other services provided by such affiliates of Apollo to such funds and investment vehicles.

We believe that our relationships with Apollo and Apollo’s affiliates have contributed to and will continue to contribute to our strong financial performance. For the nine months ended September 30, 2019 and the year ended December 31, 2018, we generated net investment income of $3.3 billion and $4.0 billion, respectively. Net of the aforementioned investment management fees, we achieved consolidated net investment earned rates of 4.43% and 4.54% for the nine months ended September 30, 2019 and year ended December 31, 2018, respectively.

Historical Fee Structure

Prior to January 1, 2019, we paid AAM an annual fee of 0.40%, subject to certain discounts and exceptions, on all assets that AAM managed in Accounts up to $65,846 million and 0.30% per year on assets managed in

 

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excess of such amount. Additionally, for certain assets which required specialized sourcing and underwriting capabilities, AAM had chosen to mandate sub-advisors rather than build out in-house capabilities. AAM entered into Master Sub-Advisory Agreements (MSAAs) with certain Apollo affiliates to sub-advise AAM with respect to a portion of our assets, with the fees recharged to us, in addition to the gross fee paid to AAM.

The MSAAs covered services rendered by Apollo-affiliated sub-advisors relating to the following investments:

 

(In millions, except for percentages)		December 31, 2018
AFS securities
Foreign governments		$	153
Corporate			3,398
CLO			5,703
ABS			663
CMBS			880
Trading securities			87
Equity securities			2
Mortgage loans			3,507
Investment funds			157
Funds withheld at interest			4,126
Other investments			70
Total assets sub-advised by Apollo affiliates		$	18,746
Percent of assets sub-advised by Apollo affiliates to total AAM-managed assets			18	%

Through the IMAs with AAM and the MSAAs between AAM and Apollo, we paid Apollo 0.40% per year on all assets in the Accounts explicitly sub-advised by Apollo up to $10,000 million, 0.35% per year on all assets in such accounts explicitly sub-advised by Apollo in excess of $10,000 million up to $12,441 million, 0.40% per year on all assets in such accounts explicitly sub-advised by Apollo in excess of $12,441 million up to $16,000 million, and 0.35% per year on all assets in such accounts explicitly sub-advised by Apollo in excess of $16,000 million, subject to certain exceptions (“Sub-Advisory Fees”).

Termination of Investment Management or Advisory Agreements with Apollo

The investment management or advisory agreements between us and the applicable Apollo subsidiary have no stated term and may be terminated by either the applicable Apollo subsidiary, the Company or the relevant Company subsidiary, as applicable, upon notice at any time. However, the Bye-laws currently provide that we may not, and will cause our subsidiaries not to, terminate any IMA among us or any of our subsidiaries, on the one hand, and the applicable Apollo subsidiary, on the other hand, other than on June 4, 2023 or any two year anniversary of such date (each such date, an “IMA Termination Election Date”) and any termination on an IMA Termination Election Date requires (i) the approval of two-thirds of our Independent Directors (as defined below) and (ii) prior written notice to the applicable Apollo subsidiary of such termination at least 30 days, but not more than 90 days, prior to an IMA Termination Election Date. If our Independent Directors make such election to terminate and notice of such termination is delivered, the termination will be effective no earlier than the second anniversary of the applicable IMA Termination Election Date (the “IMA Termination Effective Date”). Notwithstanding the foregoing, (A) except as set forth in clause (B) below, the Board may only elect to terminate an IMA on an IMA Termination Election Date if two-thirds of our Independent Directors determine, in

 

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their sole discretion and acting in good faith, that either (i) there has been unsatisfactory long-term performance materially detrimental to us by the applicable Apollo subsidiary or (ii) the fees being charged by the applicable Apollo subsidiary are unfair and excessive compared to a comparable asset manager (provided, that in either case such Independent Directors must deliver notice of any such determination to the applicable Apollo subsidiary and the applicable Apollo subsidiary will have until the applicable IMA Termination Effective Date to address such concerns, and provided, further, that in the case of such a determination that the fees being charged by the applicable Apollo subsidiary are unfair and excessive, the applicable Apollo subsidiary has the right to lower its fees to match the fees of such comparable asset manager) and (B) upon the determination by two-thirds of our Independent Directors, we or our subsidiaries may also terminate an IMA with the applicable Apollo subsidiary, on a date other than an IMA Termination Effective Date, as a result of either (i) a material violation of law relating to the applicable Apollo subsidiary’s advisory business, or (ii) the applicable Apollo subsidiary’s gross negligence, willful misconduct or reckless disregard of its obligations under the relevant agreement, in each case of this clause (B), that is materially detrimental to us, and in either case of this clause (B), subject to the delivery of written notice at least 30 days prior to such termination; provided, that in connection with an event described in clause (B)(i) or (B)(ii), the applicable Apollo subsidiary shall have the right to dispute such determination of the Independent Directors within 30 days after receiving notice from us of such determination, in which case the matter will be submitted to binding arbitration and such IMA shall continue to remain in effect during the period of the arbitration (the events described in the foregoing clauses (A) and (B) are referred to in more detail in the Bye-laws as “AHL Cause”). For purposes of these provisions of the Bye-laws, an “Independent Director” cannot be (x) an officer or employee of ours or any of our subsidiaries or (y) an officer or employee of (1) any member of the Apollo Group described in clauses (i) through (iv) of the definition of “Apollo Group” as set forth in the Bye-laws or (2) AGM or any of its subsidiaries (excluding any subsidiary that constitutes any portfolio company (or investment) of (A) an investment fund or other investment vehicle whose general partner, managing member or similar governing person is owned, directly or indirectly, by AGM or by one or more of its subsidiaries or (B) a managed account agreement (or similar arrangement) whereby AGM or one or more of its subsidiaries serves as general partner, managing member or in a similar governing position). The limitations on our ability to terminate the IMAs with the applicable Apollo subsidiary could have a material adverse effect on our financial condition and results of operations.

Our organizational documents give our Independent Directors complete discretion, while acting in good faith, as to whether to determine if an AHL Cause event has occurred with respect to any IMA with the applicable Apollo subsidiary, and therefore our Independent Directors are under no obligation to make, and accordingly may exercise their discretion never to make, such a determination.

The boards of directors of the Company’s subsidiaries may terminate an IMA with the applicable Apollo subsidiary relating to the applicable Company subsidiary if such subsidiary’s board of directors determines that such termination is required in the exercise of its fiduciary duties. If our subsidiaries do elect to terminate any such agreement, other than as provided above, we may be in breach of the Bye-laws, which could subject us to regulatory scrutiny, expose us to shareholder lawsuits and could have a negative effect on our financial condition and results of operations.

Apollo Fund Investments

Apollo invests certain of our assets in investment funds or other collective investment vehicles whose general partner, managing member, investment manager or collateral manager is owned, directly or indirectly, by Apollo or by one or more of Apollo’s subsidiaries (“Apollo Fund Investments”). Apollo Fund Investments comprised 83.3% and 83.7% of our alternative investment portfolio as of September 30, 2019 and December 31, 2018, respectively. Apollo’s alternative investment strategy is inherently opportunistic and subject to concentration limits on specific risks. We have opportunistically allocated approximately 5% of the assets in the Accounts to alternative investments. Individual alternative investments are selected based on the investment’s risk-reward profile, incremental effect on diversification and potential for attractive returns due to sector and/or market dislocations. There is a preference for alternative investments that have some or all of the following

 

39

characteristics, among others: (i) investments that constitute a direct investment or an investment in a fund with a high degree of co-investment; (ii) investments with credit- or debt-like characteristics (for example, a stipulated maturity and par value), or alternatively, investments with reduced volatility when compared to pure equity; or (iii) investments that have less downside risk. As of September 30, 2019 and December 31, 2018, 3.8% and 3.4%, respectively, of our assets in the Accounts were invested in Apollo fund investments. Fees related to such invested assets varied from 0% per annum to 2.00% per annum with respect to management fees and 0% to 20% of profits for carried interest, subject in many cases to preferred return hurdles.

As of September 30, 2019 and December 31, 2018, our Apollo Fund Investments consisted of the following (dollars in millions):

 

		September 30, 2019								December 31, 2018
(In millions, except percentages)		Invested Asset Value				% of total				Invested Asset Value				% of total
Differentiated investments
AmeriHome Mortgage Company, LLC (AmeriHome)		$	574				12	%		$	568				15	%
MidCap FinCo Designated Activity Company (MidCap)			556				12	%			553				15	%
Catalina Holdings Ltd. (Catalina)			270				6	%			232				6	%
Athora Holding Ltd. (Athora)			138				3	%			130				3	%
Venerable Holdings, Inc. (Venerable)			94				2	%			92				2	%
Other			210				5	%			229				6	%
Total differentiated investments			1,842				40	%			1804				48	%
Real estate			984				21	%			753				20	%
Credit funds			1,113				24	%			722				19	%
Private equity			86				2	%			21				1	%
Real assets			213				5	%			200				5	%
Natural resources			260				6	%			194				5	%
Public equities			101				2	%			64				2	%
Total Apollo fund investments		$	4,599				100	%		$	3,758				100	%

As of September 30, 2019 and December 31, 2018, 16.5% and 17.5%, respectively, of our total investments, including related parties and consolidated VIEs, are comprised of securities, including investment funds, in which Apollo, or an Apollo affiliate, has significant influence or control over the issuer of a security or the sponsor of the investment fund. The following table summarizes our cash flow activity related to these investments for the period presented below (dollars in millions):

 

		Nine months ended September 30, 2019				Year ended December 31, 2018
Sales, maturities, and repayments		$	417			$	935
Purchases			(2,317	)			(2,795	)

For additional information regarding these investments, refer to our condensed consolidated financial statements in our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 and our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2018.

Certain members of the Board of directors may directly receive carried interest or may receive a portion of the carried interest that Apollo receives from fund investments in which we are invested. Certain directors may

 

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invest in fund investments in which we have invested. Additionally, Mr. Belardi and Mr. Kvalheim also have interests in certain of these fund investments. Certain officers from time to time may invest in Apollo funds or co-investments.

AmeriHome

We hold a significant investment in AmeriHome, a mortgage lender and mortgage servicer, through our investment A-A Mortgage Opportunities, L.P. (“A-A Mortgage”), an investment fund managed by Apollo. AmeriHome originates assets that we may acquire that are consistent with our investment strategy. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Investment Portfolio in our quarterly report on Form 10-Q for the quarterly period ended September 30, 2019, which is incorporated by reference into this proxy statement. Through September 30, 2019, we made equity investments of $315 million in A-A Mortgage. We have approximately 71% of the economic interests in A-A Mortgage, A-A Mortgage owns 100% of the equity interests in Aris Mortgage Holding Company LLC (“Aris Holdco”) (not including profits interests in Aris Holdco held by AmeriHome management), and Aris Holdco owns 100% of the equity interests in AmeriHome. In addition, two of our executive officers, James R. Belardi (also a director) and Martin P. Klein, as well as one of our other directors, Marc Rowan, currently serve on the board of Aris Holdco. In connection with our equity investment in A-A Mortgage, we agreed that Aris Holdco will pay Apollo a management fee equal to 1.5% of Aris Holdco’s consolidated equity, in addition to the 10% carried interest that Apollo receives subject to an 8% hurdle. This management fee is paid in respect of certain management and oversight services provided by Apollo to A-A Mortgage and its subsidiaries. In connection with transaction advice that may be rendered by Apollo Global Securities, LLC (“AGS”) relating to certain strategic transactions that may be entered into by Aris Holdco and/or its subsidiaries, Aris Holdco has agreed, subject to certain limitations, to pay AGS transaction fees equal to 1% of the aggregate consideration in such transactions for which AGS provides advice. In addition, certain other investors in A-A Mortgage, including an Apollo-affiliated fund, as a condition to their commitments to invest in A-A Mortgage, required that the amounts paid by Aris Holdco to Apollo in respect of the management fee and amounts paid to AGS in respect of transaction fees would be rebated to such investors.

Gross management fees incurred by Aris Holdco for services rendered by Apollo for the nine months ended September 30, 2019 and the year ended December 31, 2018, totaling $0.9 million and $2.7 million, respectively, were rebated to other investors in A-A Mortgage. Apollo also recognized approximately $ 6.6 million and $8.1 million in unrealized incentive income for nine months ended September 30, 2019 and the year ended December 31, 2018, respectively.

In 2015, we entered into loan purchase and servicing agreements with AmeriHome. The agreements allow us to purchase certain RMLs which AmeriHome has originated or purchased from correspondent sellers and pooled for sale in the secondary market. AmeriHome retains the servicing rights to the loans sold and generally charges a fee of 25 basis points on the loans serviced. For the nine months ended September 30, 2019 and the year ended December 31, 2018, we purchased $254 million and $722 million, respectively, of RMLs under this agreement. Additionally, we purchased ABS securities issued by AmeriHome affiliates in the amount of $0 and $125 million during the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively (includes purchases made by third-party cedents with respect to assets backing obligations reinsured to us).

Previously, we had loans due from A-A Mortgage affiliates, of which the largest aggregate amount of principal outstanding during the year ended December 31, 2018 was $162 million. The loans were repaid in 2018 and we received $5.7 million in interest in connection with the loans. We also have commitments to make additional equity investments in A-A Mortgage of $254 million as of September 30, 2019 (includes $85 million of commitments made by third-party cedents with respect to assets backing obligations ceded to us).

 

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MidCap

We hold a significant investment in MidCap through AAA Investments (Co-Invest VII), L.P. (“CoInvest VII”), a consolidated investment fund managed by an affiliate of Apollo. In addition, one of our directors, Hope Taitz, currently serves on the board of MidCap. When we originally invested in MidCap Financial Holdings, LLC (“MidCap Financial”) in November 2013, MidCap Financial was a specialty finance company which primarily originated lending opportunities in the healthcare sector. With the assistance of Apollo, MidCap Financial entered new lending markets, raised substantial equity capital and restructured as MidCap in January 2015. MidCap represents a unique investment in an origination platform made available to us through our relationship with Apollo and, from time to time, provides us with access to assets for our investment portfolio. As of September 30, 2019, CoInvest VII owned 25% of the outstanding economic interests of MidCap valued at $554 million.

Additionally, we have made loans directly to MidCap Financial to which subsidiaries of MidCap succeeded as borrower. In connection with the acquisition of MidCap Financial by CoInvest VII in 2013, we entered into a subordinated debt facility with MidCap Financial with a principal amount of $245 million and a maturity date of July 2018. In connection with the restructuring of MidCap Financial into MidCap in January 2015, subsidiaries of MidCap Holdings succeeded as borrower under the subordinated debt facility, and the maturity date of the facility was extended to January 2022. In January 2016, the subordinated debt facility was amended and restated in connection with new loans made by third-party lenders. The loans under the amended and restated facility mature in January 2026 and earn interest at a rate of 9.0% per annum. For the nine months ended September 30, 2019 and the year ended December 31, 2018, we earned income of $18 million and $23 million, respectively, in connection with the subordinated debt financing. The principal balance under the financing was $245 million as of September 30, 2019.

Additionally, we purchased, net of paydowns, $469 million and $151 million in ABS and CLO securities issued by MidCap affiliates during the nine months ended September 30, 2019 and the year ended December 31, 2018, respectively (includes purchases made by third-party cedents with respect to assets backing obligations reinsured to us). From time to time, we have entered into participation arrangements with MidCap Holdings with respect to loans we purchase that were originated or otherwise sourced by MidCap Holdings. In January 2016, we purchased a pool of loans that were sourced by MidCap and contemporaneously sold subordinated participation interests in the loans to a subsidiary of MidCap receiving aggregate consideration of $24 million. As of September 30, 2019, no subordinated participation interest was due to MidCap under the subordinated participation agreement. In addition, from time to time, MidCap may originate or source loans that we purchase directly. As is customary practice for loan originators, MidCap may retain a percentage of the origination fees on the loans we purchase that are paid by the borrowers and may also act as agent for the lenders under the related loan agreements.

Athora Holding Ltd. (formerly known as AGER Bermuda Holding Ltd.)

On April 14, 2017, in connection with a private offering, Athora Holding Ltd. (“Athora”) entered into subscription agreements with us, certain affiliates of Apollo and a number of other third-party investors pursuant to which Athora secured commitments from such parties to purchase new common shares in Athora (the “Athora Offering”), subject to required regulatory approval and certain other customary closing conditions.

On November 28, 2017, the Athora board of directors approved resolutions authorizing the closing of the Athora Offering (the “Athora Closing”) to occur on January 1, 2018 and approving a capital call from all of the Athora investors, excluding us. In connection with the Athora Closing and the issuance of shares in respect of the capital call, each of which occurred on January 1, 2018, our equity interest in the Athora Group was exchanged for 9,000,000 common shares of Athora equity securities. Prior to the Athora Closing and issuance of shares in respect of the capital call, Athora was our wholly-owned subsidiary. Immediately after the Athora Closing and issuance of shares in respect of the capital call, we held 10% of the aggregate voting power of and less than 50%

 

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of the economic interest in Athora’s equity securities. We now hold the Athora Group as an investment rather than as consolidated subsidiaries. As of September 30, 2019, Apollo indirectly owns a 6.0% equity interest in Athora and a subsidiary of Apollo acts as the investment manager for Athora’s investment portfolio.

In connection with the Athora Closing, we entered into a Cooperation Agreement (the “Cooperation Agreement”), dated January 1, 2018, between us and Athora. Pursuant to the Cooperation Agreement, among other things, (i) for a period of 30 days from the receipt of notice of a cession, we have the right of first refusal to reinsure (A) up to 50% of the liabilities ceded from Athora’s reinsurance subsidiaries to Athora Life Re Ltd. and (B) up to 20% of the liabilities ceded from a third party to any of Athora’s insurance subsidiaries, subject to a limitation in the aggregate of 20% of Athora’s liabilities, (ii) Athora agreed to cause its insurance subsidiaries to consider the purchase of certain funding agreements and/or other spread instruments issued by our insurance subsidiaries, subject to a limitation that the fair market value of such funding agreements purchased by any of Athora’s insurance subsidiaries may generally not exceed 3% of the fair market value of such subsidiary’s total assets, (iii) we provide Athora with a right of first refusal to pursue acquisition and reinsurance transactions in Europe (other than the United Kingdom) and (iv) Athora provides us and our subsidiaries with a right of first refusal to pursue acquisition and reinsurance transactions in North America and the United Kingdom. Notwithstanding the foregoing, pursuant to the Cooperation Agreement, Athora is only required to use its reasonable best efforts to cause its subsidiaries to adhere to the provisions set forth in the Cooperation Agreement and therefore Athora’s ability to cause its subsidiaries to act pursuant to the Cooperation Agreement may be limited by, among other things, legal prohibitions or the inability to obtain the approval of the board of directors or other applicable governing body of the applicable subsidiary, which approval is solely at the discretion of such governing body. As of September 30, 2019, we have not exercised our right of first refusal to reinsure liabilities ceded to Athora’s insurance or reinsurance subsidiaries.

Our investment in Athora was $138 million and $130 million as of September 30, 2019 and December 31, 2018, respectively. Additionally, as of September 30, 2019 and December 31, 2018, we had $158 million and $166 million, respectively, of funding agreements outstanding to Athora. We also have commitments to make additional equity investments in Athora of $443 million as of September 30, 2019.

During the fourth quarter of 2018, we entered into a coinsurance agreement with Athora Lebensversicherung AG (“ALV”), a subsidiary of Athora, to reinsure endowment contracts and annuities, effective December 31, 2018. We retroceded a 100% quota share of liabilities arising under such endowment contracts and annuities pursuant to a modco retrocession agreement with Athora Life Re Ltd. (“ARE”) that was also effective December 31, 2018. For the nine months ended September 30, 2019, we accrued approximately $769,000 in commissions on the retrocession to ARE as a result of ARE’s quarterly obligation to pay ALRe a fee equivalent to 0.2% per annum of ceded reserves plus the greater of 0.1% per annum of such reserves and $500,000. In connection with this reinsurance transaction, we entered into an asset management agreement, between ALRe and Apollo Asset Management Europe LLP (“AAME”), pursuant to which AAME will manage certain ALRe assets that are backing the block ceded to us by ALV. AAME will earn a management fee of 0.175% per annum on such assets other than sovereign debt and cash or cash equivalents and 0.10% per annum on such assets constituting sovereign debt or cash or cash equivalents.

Two of our executive officers, William J. Wheeler and Martin P. Klein, as well as two of our directors, Marc Rowan and Gernot Lohr, currently serve on the board of Athora. One of our executive officers, Mr. Wheeler, and certain of our directors are indirect investors in Athora.

Third Party Sub-Advisory Agreements

In the limited instances in which Apollo desires to invest in asset classes for which it does not possess the investment expertise or sourcing abilities required to manage the assets, or in instances in which Apollo makes the determination that it is more effective or efficient to do so, Apollo mandates third-party sub-advisors to invest in such asset classes, and we reimburse Apollo for fees paid to such sub-advisors. For the nine months ended

 

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September 30, 2019 and the year ended December 31, 2018, we reimbursed $2.4 million and $2.3 million, respectively, of sub-advisory fees to Apollo for the benefit of third-party sub-advisors.

Reinsurance of Voya Financial, Inc. and Investment in VA Capital Company LLC and Debt Financing to Venerable Holdings, Inc.

In December 2017 a consortium of investors, led by affiliates of Apollo, and certain other investors including us, agreed to purchase Voya Insurance and Annuity Company (“VIAC”), including its closed block variable annuity segment, and create a newly-formed standalone entity, Venerable Holdings, Inc. (“Venerable”), to be the holding company of VIAC. On June 1, 2018, we entered into reinsurance agreements with VIAC and ReliaStar Life Insurance Company (“RLI”), pursuant to which we reinsured a block of fixed and fixed indexed annuity liabilities from VIAC and RLI (the “FA Business Reinsurance Agreements”). The aggregate reserves of VIAC and RLI that are subject to the FA Business Reinsurance Agreements as of June 1, 2018 were approximately $19 billion. As consideration for the transactions contemplated by the FA Business Reinsurance Agreements, we paid to VIAC and RLI an aggregate ceding commission of approximately $396 million. Prior to the closing of the transactions contemplated by the Transaction Agreement, all of the business that is currently ceded by VIAC to ALRe will be recaptured by VIAC. Immediately following such recapture, VIAC will cede to Athene Annuity Re Ltd. (“AARe”) all of the recaptured business previously reinsured by ALRe. Such recapture and new reinsurance are subject to the prior approval of the Arizona Department of Insurance and the Iowa Insurance Division. ALRe, AARe and VIAC consummated such recapture and new reinsurance on December 31, 2019. VIAC was acquired by Venerable on June 1, 2018. Also on June 1, 2018, we made a $75 million minority equity investment in VA Capital Company LLC (“VA Capital”), the parent of Venerable, and we provided $150 million in debt financing to Venerable in the form of a 15-year term loan receivable. As of September 30, 2019, the amortized cost of the receivable was $148 million. While management views the overall transactions with VIAC and Venerable as favorable to us, the stated interest rate of 6.257% on the term loan to Venerable represents a below-market interest rate, and management considered such rate as part of its evaluation and pricing of the Voya reinsurance transactions.

Certain of our directors and executive officers are co-investors with us in our minority equity investment in VA Capital and the term loan to Venerable made in connection with the Voya reinsurance transactions. Subsequent to the approval of the transaction, certain of our directors and executive officers were offered the opportunity to co-invest with us in debt issued by Venerable and equity issued by VA Capital. Specifically, Messrs. Belardi, Wheeler and Michelini each purchased a portion of the investment in equity in which we had invested through co-invest vehicles and a portion of the debt in which we had invested, in each case, directly from us. Mr. Belardi purchased $1,000,000 of equity and $1,000,000 of debt, Mr. Wheeler purchased $1,000,000 of equity and $1,000,000 of debt and Mr. Michelini purchased $250,000 of equity and $250,000 of debt. In each case, these directors and executive officers purchased the securities on the same terms and conditions, including price, as we did. We did not receive any separate fee or consideration from such transactions. Messrs. Wheeler and Michelini also serve on the board of directors of VA Capital.

Strategic Partnership

On October 24, 2018, we entered into an agreement pursuant to which we may invest up to $2.5 billion over three years in funds managed by Apollo entities (the “Strategic Partnership”). This arrangement is intended to permit us to invest across the Apollo alternatives platform into credit-oriented, strategic and other alternative investments in a manner and size that is consistent with our existing investment strategy. Fees for such investments payable by us to Apollo are designed to be more favorable to us than market rates, and consistent with our existing alternative investments, investments made under the Strategic Partnership remain subject to our existing governance processes, including approval by our conflicts committee, where applicable. During each of the nine months ended September 30, 2019 and the fourth quarter of 2018, we invested $16 million under the Strategic Partnership.

 

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PK AirFinance

During December 2019 we and Apollo purchased PK AirFinance (“PK”), an aviation lending business, including PK’s in force loan portfolio (the “Aviation Loans”), from the Aviation Services Unit of GE Capital (“GE”). The Aviation Loans are generally fully secured by aircraft leases and aircraft. In connection with such transaction, Apollo agreed to acquire from GE the PK loan origination platform, including personnel and systems, for $30 million, and, pursuant to certain agreements entered into between us, Apollo, and certain entities managed by Apollo (collectively, the “PK Transaction Agreements”), the existing Aviation Loans were acquired and securitized by a newly formed SPV for which Apollo acts as ABS manager (the “ABS-SPV”). The ABS-SPV issued tranches of senior notes (the “Senior Notes”) and subordinated notes (the “Subordinated Notes”), which are secured by the Aviation Loans.

In connection with the acquisition of the existing Aviation Loans by the ABS-SPV (i) a tranche of senior notes was acquired by third-party investors and (ii) certain of our subsidiaries purchased mezzanine tranches of the Senior Notes and the Subordinated Notes.

In addition to the investment in the Senior Notes and Subordinated Notes, we also have a right to acquire, whether directly, through the ABS-SPV or through a similar vehicle, all Aviation Loans originated by PK (the “Forward Flow Loans”). All servicing and administrative costs and expenses of Apollo (determined at cost, without mark-up) that are incurred in connection with the sourcing, origination, servicing and maintaining the Forward Flow Loans, net of any service fees and servicing and administrative cost and expense reimbursement amounts received directly from the ABS-SPV or other entities investing in the Forward Flow Loans will be allocated to, and reimbursed by us, subject to an agreed-upon annual cap.

In addition to the payment of the expenses described in the preceding paragraph and the base management fee paid to Apollo on all assets managed by Apollo, we have paid or expect to pay the following fees to Apollo or certain service providers that are affiliates of, or are companies managed by, Apollo in connection with the PK Transaction Agreements:

 

(A)

To Apollo, sub-allocation fees on the Senior Notes based on the sub-allocation rates applicable to Yield Assets and sub-allocation fees on the Subordinated Notes based on the sub-allocation rates applicable to High Alpha Assets. See—Investment Management Relationships—Current Fee Structure.

 

(B)

To Redding Ridge Asset Management LLC, a company in which certain funds managed by Apollo have an interest, as consideration for assistance with the structuring, monitoring, support and maintenance of the securitization transactions, a one-time structuring fee of approximately $1.6 million, as well as ongoing support fees equal to 1.5 bps on the total capitalization amount and certain other fees, which may become due upon the occurrence of certain events; and

 

(C)

To Merx Aviation Servicing Limited, a company externally managed by Apollo Investment Management, L.P., an affiliate of Apollo, with respect to certain diligence, technical support and enforcement, remarketing and restructuring services with respect to the existing Aviation Loans and the Forward Flow Loans, a one-time servicing fee of $1 million, as well as certain special situations fees, which may become due upon the occurrence of certain events.

ACRA

Athene Co-Invest Reinsurance Affiliate 1A Ltd. (“ACRA”) was initially formed as a wholly owned subsidiary of ALRe with the objective of raising third-party capital for the purpose of pursuing Qualifying Transactions (as defined below). On September 11, 2019, ALRe entered into a master framework agreement (the “Framework Agreement”) and related transaction documents with ACRA. Pursuant to the Framework Agreement

 

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and related transaction documents, ACRA received capital commitments from ALRe and certain funds referred to collectively as the Apollo/Athene Dedicated Investment Program (“ADIP”), which are managed by Apollo. As of October 31, 2019, approximately $3 billion of capital commitments have been raised to ADIP.

On October 1, 2019, ALRe sold 67% of its economic interests in ACRA to ADIP for $575 million. The shares held by ADIP are non-voting. The shares held by ALRe represent 100% of the voting power and 33% of the economic interests in ACRA. In connection with the sale of ACRA economic interests to ADIP, ALRe entered into a shareholders agreement (the “ALRe Shareholders Agreement”) with ACRA and ADIP. The terms of the Framework Agreement and the ALRe Shareholders Agreement were approved by the Disinterested Directors, acting under authority granted by the Board.

Pursuant to the Framework Agreement entered into between ALRe and ACRA, for a period expiring approximately three years following the one-year anniversary of the first ADIP fund closing (subject to two one-year extension periods exercisable by ADIP, the “Commitment Period”), ACRA has the right to participate (through itself or other legal entities formed pursuant to the Framework Agreement for purposes of entering into such transactions) in substantially all legal entity acquisition transactions, third-party block reinsurance transactions and pension risk transfer transactions, as well as certain flow reinsurance transactions with third-party counterparties (each, a “Qualifying Transaction”). ALRe may also offer ACRA the right to participate in flow reinsurance transactions with existing third-party counterparties and reinsurance transactions involving new funding agreements from time to time, subject to certain conditions. ACRA’s election to participate in Qualifying Transactions is determined by the Transaction Committee of ACRA, which is a committee of the board of directors of ACRA comprised of our representatives and those of AGM. If ACRA elects not to participate in a Qualifying Transaction, we will have the right to pursue the Qualifying Transaction without ACRA. ACRA’s right to participate in Qualifying Transactions is subject to capital requirements applicable to ACRA and other terms and conditions.

In connection with each transaction in which ACRA elects to participate (each, a “Participating Transaction”), subject to the applicable terms and conditions of the Framework Agreement and related transaction documents, ACRA will pay ALRe a fee (the “Wrap Fee”) expected to be approximately 15 basis points per annum multiplied by the total reserves with respect to the assumed or acquired business, under a schedule where the Wrap Fee increases from 10 basis points as business assumed or acquired by ACRA increases.

In general, (a) on or about the 10th anniversary of the effective date of any Participating Transaction (other than a flow reinsurance transaction) or (b) on or about the 10th anniversary of the date on which reinsurance is terminated as to new business under any Participating Transaction that is a flow reinsurance transaction (which would occur no later than the end of the Commitment Period), ALRe or its applicable affiliate has the right (Commutation Right) to terminate ACRA’s participation in such Participating Transaction based on a book value pricing mechanism and subject to ADIP achieving a minimum return with respect to such Participating Transaction. If ALRe does not exercise the Commutation Right with respect to a Participating Transaction, then ACRA’s obligation to pay the Wrap Fee in connection with such Participating Transaction will terminate, and, subject to certain exceptions (and the applicable terms and conditions of the Framework Agreement and related transaction documents), ALRe will be required to pay ACRA a fee calculated in the same manner as the Wrap Fee. In addition, if ACRA fails to satisfy minimum aggregate capital requirements, ALRe has the right to recapture or assign to another of our subsidiaries a portion of the business retroceded to ACRA (and/or any of its insurance or reinsurance subsidiaries) to the extent necessary to cure such failure.

ACRA is expected to have a board of directors comprised of eleven directors (the “ACRA Board”). ALRe is permitted to nominate seven directors to serve on the ACRA Board: (i) one will be the Chairman, (ii) one will be a representative of Apollo, (iii) one will be our representative, (iv) two will be representatives of Apollo or us and (v) two will be independent directors. ADIP and its investors are permitted to nominate the other four directors to serve on the ACRA Board.

 

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As of September 30, 2019, ALRe had retroceded to ACRA 100% of approximately $6.6 billion of certain fixed deferred and fixed indexed annuities and 100% of approximately $2.5 billion of group annuities. In connection with future Participating Transactions, ACRA will draw from ADIP and from ALRe their respective share of the amount of capital necessary to consummate such Participating Transactions.

In addition, ACRA pays a monthly fee to Apollo for asset management services in an amount equal to the marginal base investment management fees and sub-allocation fees we pay to Apollo pursuant to the Fee Agreement. See “—Investment Management Relationships—Current Fee Structure” for further discussion regarding the Fee Agreement.

Shared Service Agreements

We have entered into shared services agreements with ISG. Under these agreements, we and ISG make available to each other certain personnel and services. Expenses for such services are based on the amount of time spent on the affairs of the other party in addition to actual expenses incurred and cost reimbursements. These shared services agreements can be terminated for any reason upon thirty days’ notice. The shared services agreements can also be terminated immediately with respect to a specific party in the event of the insolvency by another party to the agreements, among other things.

Registration Rights Agreement

On April 4, 2014, we entered into a Registration Rights Agreement (as amended by amendments No. 1 and No. 2 thereto, dated October 6, 2015 and November 22, 2016, respectively, the “AHL Registration Rights Agreement”) with our shareholders, including each shareholder that beneficially owns more than five percent of a voting class of our common shares. The AHL Registration Rights Agreement, subject to the restrictions and limitations contained therein, sets forth the conditions under which our shareholders may demand or otherwise require us to register shares held by them and the conditions under which we may require certain shareholders to register shares held by them, in each case such registration to be effected pursuant to Act. Pursuant to the AHL Registration Rights Agreement: (i) following our initial public offering and subject to certain holding restrictions, certain holders of 5% or greater of our common shares may request and thereby require us to use our reasonable best efforts to effect registration under the Securities Act; and (ii) upon registration by us of any of our authorized but unissued Class A Common Shares or upon registration by us of any Other Shares (as defined in the AHL Registration Rights Agreement), in each case, other than registration on Form S-4 or Form S-8, holders of Registrable Shares (as defined in the AHL Registration Rights Agreement) may require us to include in such registration some or all of their Registrable Shares on the same terms and conditions as the securities otherwise being sold in such registration, subject to certain limitations and holding restrictions.

Investment Portfolio Trades with Affiliates

From time to time, Apollo executes cross trades which involve the purchase or sale of assets in a transaction between us, on the one hand, and a third party or an Apollo affiliated entity, in either case, to which Apollo or its affiliate acts in an investment advisor, general partner, managing member, collateral manager or other advisory or management capacity, on the other hand. In addition, from time to time, we may purchase or sell securities from or to related parties, other than through a cross trade transaction. We believe that these transactions are undertaken at market rates and are executed based on third-party valuations where possible. For the nine months ended September 30, 2019 and the year ended December 31, 2018, the aggregate value of such transactions where we acquired investments from related parties amounted to $346 million and $96 million, respectively. For the nine months ended September 30, 2019 and the year ended December 31, 2018, we sold $485 million and $14 million, respectively, of investments to related parties.

Commercial Mortgage Loan Servicing Agreements

We have entered into commercial mortgage loan servicing agreements with Apollo. Pursuant to these agreements, we have engaged Apollo to (1) assist with the origination of and provide servicing of, commercial

 

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loans owned by us or in which we participate, secured by mortgages, deeds of trust or documents of similar effect encumbering certain real property and commercial improvements thereon and (2) provide for management and sale of real estate owned properties.

Advisory Services Agreement

On August 23, 2016, we entered into an advisory services agreement (the “Advisory Services Agreement”) with AMH. Pursuant to the Advisory Services Agreement, AMH or certain other affiliates of Apollo may provide certain non-exclusive management, consulting, financial and other advisory services to us and our subsidiaries. Such services, which differ from those covered under our IMAs and the Fee Agreement, involve advice and recommendations related to future acquisitions, capital market activities and strategic priorities (including growth). Apollo and its affiliates do not charge us or our subsidiaries for their services and may determine not to provide any services. Apollo and its affiliates have the right to request a fee for any service they provide; however, such a request is subject to prior approval by us or the applicable subsidiary. We are responsible for all reasonable third-party out-of-pocket expenses incurred by Apollo or its affiliates related to the services they offer and provide such entities indemnification against any loss or liability arising out of the Advisory Services Agreement. The Advisory Services Agreement is effective until December 31, 2025. For the nine months ended September 30, 2019 and the year ended December 31, 2018, we paid or reimbursed Apollo or its affiliates for approximately $2.5 million and $5.4 million, respectively, in out-of-pocket expenses pursuant to the Advisory Services Agreement.

Rackspace Global Services Agreement

In September 2018, we entered into a Global Services Agreement with Rackspace US, Inc. (“Rackspace”), an Apollo portfolio company, pursuant to which Rackspace provides us with certain information technology services. The term of the agreement is three years and we expect to pay Rackspace approximately $576,000 per year under the agreement. During the nine months ended September 30, 2019, we paid or accrued Rackspace $315,000 for services rendered. We did not pay Rackspace any amounts for the year ended December 31, 2018.

Other Related Party Transactions and Relationships

We have entered into side letters with certain of our shareholders and have granted them certain rights pursuant to the respective side letters.

We entered into a side letter with AAA (the “AAA Side Letter”) in connection with our 2014 private placement. Pursuant to the AAA Side Letter, for so long as AAA holds any of our equity securities directly or indirectly, it shall have the right to have one representative present at all meetings of our Board (and committees thereof); provided that such representative shall not be entitled to vote at such meetings.

We have established an employee annuity program, pursuant to which any U.S. employee, including each of our named executive officers, may purchase certain of the annuities that we sell through our retail channel. Annuities purchased through the program are free of commissions, and amounts that we would have otherwise paid as commissions are added to the value of the contract at the time of issuance. In August 2019, one of our named executive officers purchased an annuity under the program for $1 million. Pursuant to the terms of the program, $20,500 was added to the value of his contract in lieu of commissions.

In connection with the Class M Exchange, we expect that certain of our current executive officers, including each of our named executive officers, will have their Class M Common Shares converted into a combination of Class A Common Shares and Warrants to purchase Class A Common Shares, as described in more detail in the section entitled “Description of the Share Transactions, the Class B Exchange and the Class M Exchange.”

 

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Related Party Transaction Policy

We have established a related party transaction policy which provides procedures for the review of transactions in excess of $120,000 in any year between us and any covered person having a direct or indirect material interest with certain exceptions. Covered persons include any director, executive officer, director nominee, shareholders known to us to beneficially own 5% or more of our Class A Common Shares and Class B Common Shares or any immediate family members of the foregoing. Any such related party transactions requires advance approval by a majority of our independent directors or by our conflicts committee to the extent that such transactions constitute Apollo Conflicts (as described below), related party transactions incidental or ancillary thereto, or related party transactions relating to or involving, directly or indirectly, Apollo or any member of the Apollo Group. To the extent that the related party transaction is other than an Apollo Conflict, a related party transaction that is incidental or ancillary thereto, or a related party transaction relating to or involving, directly or indirectly, Apollo or any member of the Apollo Group, our audit committee charter provides that the audit committee has the authority to review and approve all such transactions.

Because the Apollo Group has a significant voting interest in the Company, and because the Company and its subsidiaries have entered into, and will continue in the future to enter into, transactions with Apollo and its affiliates, the Bye-laws require us to maintain a conflicts committee designated by the Board, consisting of directors who are not officers, general partners, directors, managers or employees of any member of the Apollo Group. The conflicts committee consists of Messrs. Beilinson and Borden and Ms. Taitz. The conflicts committee reviews and approves material transactions by and between the Company and its subsidiaries, on the one hand, and the Apollo Group, on the other hand, including any modification or waiver of the IMAs with the applicable Apollo subsidiary, subject to certain exceptions.

An “Apollo Conflict” is:

 

•

the entering into or material amendment of any material agreement by and between us and any member of the Apollo Group;

 

•

the imposition of any new fee on or increase in the rate of fees charged to us or any of our subsidiaries by a member of the Apollo Group, or the provision for any additional expense reimbursement to or offset by a member of the Apollo Group to be borne by us or any of our subsidiaries, directly or indirectly, pursuant to any material agreement by and between us and any member of the Apollo Group (except to the extent that any such material agreement sets forth the actual amount or formula for calculating the amount of any new fee or increase in the rate at which such fee is charged and such material agreement has been approved or is exempt from approval under the conflicts committee charter);

 

•

any acquisition or reinsurance transaction not contemplated by the definition of Qualifying Transaction (as defined in the Master Framework Agreement, dated September 11, 2019, by and between ACRA (together with any alternative investment vehicle formed from time to time in which the shareholders of ACRA will make a direct investment for purposes of entering into Qualifying Transactions, the “ACRA Investment Entities”) and ALRe) to be offered to any ACRA Investment Entity except for (i) new production from in-force flow reinsurance transactions and (ii) new funding arrangements; or

 

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the exercise of ALRe’s commutation right under the terms of the Reinsurance Program Agreement, dated September 11, 2019, by and between ACRA and ALRe or the commutation right of Athene Annuity Re Ltd. under the terms of the Reinsurance Program Agreement, dated September 11, 2019, by and between Athene Co-Invest Reinsurance Affiliate 1B Ltd. and ALRe, in each case, as recommended by management of the Company.

 

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Under the current Bye-laws, we require that any new (or amendments to any existing) transactions by and between us and any member of the Apollo Group be, prior to the time such transaction is entered into:

 

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fair and reasonable, taking into account the totality of the relationships between the parties involved (including other transactions that may be or have been particularly favorable to us or any of our subsidiaries);

 

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entered into on an arms-length basis;

 

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approved by a majority of our Disinterested Directors;

 

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approved by the holders of a majority of our issued and outstanding Class A Common Shares;

 

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approved by the conflicts committee; or

 

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approved by a committee consisting solely of two or more Disinterested Directors duly appointed by the Board to review such transaction instead of the conflicts committee, and provided that any such approval of a transaction by such committee complies with the Bye-laws.

Under the Thirteenth Amended and Restated Bye-laws, these requirements remain applicable to the extent that the Apollo Group (as defined in the Thirteenth Amended and Restated Bye-laws, but for purposes of these requirements, excluding any persons identified in clauses (v) and (vi) of such definition) owns shares constituting at least 7.5% of the total voting power of the Company.

In connection with any matter submitted to the conflicts committee, materials are prepared by management summarizing the applicable conflict and recommending the proposed transaction. The conflicts committee reviews market comparison data (to the extent available) relating to the reasonableness of any proposed fees to be paid.

For operational and administrative ease, certain transactions that fall within the definition of an Apollo Conflict but do not pose a material risk to us need not be approved by the conflicts committee. As described below, these exceptions include specific thresholds under which we may engage Apollo or its affiliates in an investment management or advisory (or sub-management or sub-advisory) capacity without prior conflicts committee review or approval. The following transactions, among others, are expressly excluded from the definition of Apollo Conflict and do not require the consent or review of the conflicts committee:

 

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(i) transactions, rights or agreements specifically contemplated by existing agreements between the Company and Athora, (ii) entering into new IMAs or MSAAs with members of the Apollo Group on terms similar to and not more economically favorable in the aggregate to the Apollo Group than those currently in effect (provided, that payment of additional total fees and/or expenses at the same or no greater fee and/or expense reimbursement rate shall not be deemed to be more economically favorable to the Apollo Group), (iii) amendments to the agreements described in (i) and (ii) above for the purpose of adding a subsidiary of the Company thereto, or (iv) any reinsurance transaction between Athora or any of its subsidiaries and the Company or any of its subsidiaries;

 

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any (i) transfer of equity securities of the Company to or by any member of the Apollo Group, (ii) acquisition by any member of the Apollo Group of any newly issued equity securities that are offered to the public in a public offering, to substantially all of the holders of the Company’s common stock on a substantially pro-rata basis or at a price which is equal to or greater than the then-prevailing market price, (iii) issuance of securities to any employee or director of the Company or ISG (including allocating blocks of incentive securities to ISG for allocation by ISG to its employees and directors) pursuant to any stock incentive plan or similar equity based compensation plan approved by the Board;

 

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the provision of any insurance related products by or to the Company or any of its subsidiaries to or by the Apollo Group; provided that the provision of such products is an ordinary course transaction entered into on an arms-length basis on terms no less favorable to the Company or its subsidiaries than could be contemporaneously obtained from or provided to an unaffiliated party;

 

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any transactions, rights or agreements between the Company or any of its subsidiaries and any portfolio company of the Apollo Group that pertain to the ordinary course business of such portfolio company; provided, that any such transactions, rights or agreements (taken as a whole) are no less favorable to the Company or the applicable subsidiary than could be obtained from or provided to an unaffiliated party;

 

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an investment by the Company or any subsidiary thereof in an Apollo-sponsored vehicle; provided, that an officer of a member of the Apollo Group provides a written certificate to the Board that such investment provides the Company or its subsidiary, as applicable, with the same or better terms or a most favored nations clause (in all cases, taken as a whole with respect to such Apollo-sponsored vehicle and without consideration of any Designated Terms (as defined below)) as those applicable to other investors (excluding Designated Investors (as defined below)) in the same Apollo-sponsored vehicle who invested an amount in such vehicle equal to or less than that invested by the Company and its subsidiaries; and provided, further, that such investment represents no more than 25% of the outstanding or expected equity interests of such Apollo-sponsored vehicle (based on prior record related to the strategy), Designed Investor and Designated Terms shall have the meanings set forth for such terms or other similar terms in any customary side letter entered into by the applicable Apollo Group advisor or manager, Apollo-sponsored vehicle or other Apollo Group entity, on the one hand, and investors, other than the Company or a subsidiary thereof, who have invested in the same Apollo-sponsored vehicle, or entered into an investment management, sub-advisory or similar agreement with the Apollo Group for the same asset class, on the other hand;

 

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a transaction that has been approved by a majority of our Disinterested Directors, provided that the Disinterested Directors are notified that such transaction would otherwise constitute an Apollo Conflict prior to such approval;

 

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any modification, supplement, amendment or restatement of the Bye-laws that has been approved in accordance with the Bye-laws and applicable Bermuda law;

 

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material amendments to contracts or transactions previously approved by the conflicts committee or a majority of our Disinterested Directors, or which are not required to be approved by either, so long as, in each case, such amendments either (i) are not materially adverse to the Company or any of its subsidiaries, or (ii) would not cause the relevant contract or transaction to require approval by the conflicts committee or a majority of our Disinterested Directors under the Bye-laws after giving effect to the relevant amendment;

 

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the entry into any IMA with the Apollo Group or amending an MSAA currently in effect (or entering into a new MSAA), so long as (i) such agreement is on terms in the aggregate (including expense reimbursement and indemnities) no less favorable to the Company than customary market terms (excluding the fees charged under the IMA); and (ii) either (a) the rates on assets under management (“AUM”) under such agreement (including any carried interest or similar profit allocation, but, for the avoidance of doubt, excluding the fees charged under the IMA) do not exceed 50 basis points per annum for non-alternative assets; (b) the rates on AUM under such agreement (including any carried interest or similar profit allocation, but, for the avoidance of doubt, excluding the fees charged under the IMA) do not exceed 100 basis points per annum for alternative assets; or (c) an officer of a member of the Apollo Group provides a written certification to the Board that such agreement provides the Company or its subsidiary, as applicable, with the same or better terms or a most favored nations clause (in all cases, taken as a whole with respect to such agreement and without consideration of any Designated Terms) with respect to other investors (excluding Designated Investors) who have entered into an investment management agreement or sub-advisory or similar agreement with the Apollo Group for the same asset class and whose AUM with respect to such agreement and asset class are all equal or less than those subject to the agreement between the Company and the Apollo Group with respect to such asset class. In addition, investments in an Apollo-sponsored vehicle are not deemed Apollo Conflicts so long as such Apollo-sponsored vehicle charges fees in line with those discussed in (a) and (b) above;

 

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allocations of costs or expenses between the Company or any of its subsidiaries and the Apollo Group not in excess of five basis points per annum, calculated on the total investible assets of the Company and its subsidiaries including accounts supporting reinsurance agreements for which the Company or a subsidiary thereof acts as reinsurer as of the effective date of such allocation (provided that any such allocation of costs or expenses may not be used to pay investment management fees);

 

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one or more investments by the Company or any subsidiary thereof in an Apollo-sponsored vehicle, including any upsize, renewal or extension of an existing investment, up to and including $250 million per investment (or series of related investments), provided that (i) any such investment is on terms, including with respect to fees, which a member of the Apollo Group certifies that it believes are in the aggregate no less favorable to the Company or a subsidiary thereof than terms a similarly situated but unaffiliated person would receive in an arm’s length transaction, (ii) the (a) management fees earned by the Apollo Group shall not exceed 2% of assets or commitment, as applicable, and (b) carried interest or performance fees earned by the Apollo Group for any such investment shall not exceed 20% of the profits, and (iii) any special fees or other fees earned by any member of the Apollo Group in connection with any such investment shall offset management fees (to the extent of management fees) or if such fees do not offset management fees, they shall be arm’s length or approved by the Apollo-sponsored vehicle’s limited partner advisory board;

 

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the inclusion of (i) new production from in-force flow reinsurance transactions and (ii) new funding arrangements as Qualifying Transactions to be offered to an ACRA Investment Entity; provided, that, management of the Company shall notify members of the conflicts committee of such inclusion by email and that absent any objection or call for a meeting by a member of the conflicts committee within two business days of such notice, the inclusion of such transaction as a Qualifying Transaction to be offered to an ACRA Investment Entity will be deemed approved by the conflicts committee; and

 

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any other class of transactions, rights, fees or agreements determined by approval of the conflicts committee to not be an Apollo Conflict nor require approval of the conflicts committee.

Each strategy that is managed, advised or sub-advised for the Company or any of its subsidiaries by any member of the Apollo Group through a managed account and was previously subject to conflicts committee approval (other than the existing IMA or new IMAs previously approved) may be re-examined by the conflicts committee if such strategy underwent a material change in the amount of AUM in the immediately preceding 12 months.

Our conflicts committee or applicable Disinterested Directors have previously approved the existing transactions described above that are required to be approved by the terms of our conflicts committee charter.

Background of the Proposal and the Share Transactions

Members of the Board and the Company’s senior management regularly review and evaluate a wide range of financial and strategic alternatives with a view to enhancing shareholder value and identifying potential opportunities that are in the best interests of the Company. The Company has a strategic relationship with Apollo and the Company’s senior management maintain regular dialogue with management of Apollo, who assist the Company in identifying and capitalizing on acquisition and other opportunities that have been critical to the Company’s ability to grow its business.

On September 3, 2019, James Belardi, the Company’s Chairman and Chief Executive Officer, Marc Rowan, a director of the Company and co-founder of Apollo, and Leon Black, Apollo’s Chairman, Chief Executive Officer and co-founder, had meetings and dinner during which they discussed a variety of potential ways that Apollo and the Company might work together in a mutually beneficial manner.

On September 5, 2019, Mr. Rowan sent a letter to Marc Beilinson, as the Company’s lead independent director, indicating that Apollo had been considering alternatives subsequent to that dinner with Mr. Belardi. The

 

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letter noted that Apollo was not making a proposal but would provide a specific proposal at Beilinson’s invitation. Mr. Beilinson responded that he would give it further thought following his return from the Company’s September 11, 2019 Board meeting in London.

On September 19, 2019, Mr. Beilinson, after consulting with Mr. Belardi and certain other Disinterested Directors regarding Mr. Rowan’s letter, responded to Mr. Rowan indicating that the Company would be willing to consider and review a proposal from Apollo.

On September 23, 2019, Apollo sent Mr. Beilinson a non-binding letter proposing (the “Initial Proposal”): (i) a $1.2 billion share exchange, pursuant to which Apollo would issue $1.2 billion of AOG units to the Company in exchange for the issuance of $1.2 billion of Class A Common Shares based on the market price at the time of signing; (ii) the Company issuing and selling to Apollo $350 million of Class A Common Shares at the same valuation as the shares being issued pursuant to the exchange, coupled with a Dutch auction self-tender by the Company for an equivalent dollar value of Class A Common Shares; (iii) the elimination of the Company’s multi-class share structure, leaving a single class of the Company’s common shares with one vote per share; and (iv) stockholder agreements between Apollo and the Company, pursuant to which (a) the Company would be entitled to nominate a director to Apollo’s board, (b) both Apollo and the Company would agree to a one-year lock-up in connection with the shares issued, exchanged and/or sold in connection with the transactions, (c) the Company would grant Apollo with the right to purchase up to an additional 5% of the Company’s shares, pro forma for the issuance, at market price, and (d) certain other restrictions, including with respect to the Company’s ability to transfer the AOG units.

Following receipt of the Initial Proposal, Mr. Beilinson and John Golden, General Counsel of the Company, spoke by telephone with representatives of Latham & Watkins LLP (“Latham”), which acts as legal counsel to the conflicts committee of the Board and special committees comprised of Disinterested Directors from time to time, regarding the Initial Proposal and next steps, including the potential retention of a financial advisor in connection with the evaluation of the Initial Proposal by a to-be-formed special committee of the Board. Mr. Beilinson directed Latham to contact representatives of Lazard Frères & Co. LLC (“Lazard”) in connection with the possibility of Lazard acting as a financial advisor to the to-be-formed special committee. In addition, Mr. Beilinson directed Latham to confirm Lazard’s financial advisory expertise and to assess Lazard’s relationships with Apollo in order to determine whether any such relationships might negatively impact the ability of Lazard to provide independent financial advisory services to the to-be-formed special committee. It is not in Lazard’s practice to opine on the fairness of transactions involving a stock-for-stock equity exchange or a cash investment into stock of the issuer (unless, in either case, the applicable transaction constitutes a change of control).

On September 24, 2019, representatives of Latham discussed the Initial Proposal with Mr. Beilinson and Mr. Golden. Later on September 24, 2019, Mr. Beilinson and representatives of Latham sought clarification from representatives of Apollo on a number of points in the Initial Proposal.

On or around September 24, 2019, the Company engaged Sidley Austin LLP (“Sidley”) as its counsel in connection with the Proposed Transaction (as defined below).

On September 25, 2019, at the request of Mr. Beilinson, representatives of Latham and Lazard discussed the terms of the Initial Proposal and the scope of a potential engagement of Lazard as financial advisor to the to-be-formed special committee.

On September 26, 2019, Mr. Beilinson held an informational discussion with two additional Disinterested Directors, Mitra Hormozi and Brian Leach, during which representatives of Lazard and Latham also participated to review the terms of the Initial Proposal and discuss certain initial considerations raised by some of the Disinterested Directors, and representatives of Lazard and Latham, including a discussion of the duty of the Company’s directors to act solely in the interest of the Company’s shareholders.

 

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On September 28, 2019, the Board held a special meeting in the United Kingdom of the following members of the Board to discuss the transactions described in the Initial Proposal (the “Proposed Transaction”), Marc Beilinson, Fehmi Zeko, Brian Leach, Hope Taitz, Mitra Hormozi, and Robert Borden (the members of the Board who attended the meeting on September 28, 2019, together with the following members of the Board who did not attend the meeting on September 28, 2019, Arthur Wrubel, Carl McCall and Lawrence Ruisi, collectively, the “Disinterested Directors” and each, a “Disinterested Director”). Mr. Golden and representatives of Latham also attended the meeting telephonically. Each Disinterested Director at the meeting was given an opportunity to disclose any direct or indirect interest in connection with the Proposed Transaction or material relationship with Apollo and each Disinterested Director confirmed that no such interest or relationship existed. The Disinterested Directors at the meeting discussed the Proposed Transaction and determined to explore the Proposed Transaction in more detail and engage financial advisors to assist with that process. The Disinterested Directors at the meeting discussed potential candidates to act as financial advisors to the to-be-formed special committee, including Lazard. The Disinterested Directors noted that Lazard was a well-regarded investment bank that, based on information provided to them, did not have any relationships with Apollo that might negatively impact the ability of Lazard to provide independent financial advisory services to the to-be-formed special committee. The Disinterested Directors at the meeting then discussed other potential relationships between Lazard and Apollo and decided to request additional information from Lazard regarding its relationships with Apollo, and from Apollo, regarding its financial relationships with a number of well-known top tier investment banks, including Lazard. The Disinterested Directors at the meeting then established a Special Committee comprised only of Disinterested Directors to (a) consider, review, evaluate and negotiate the Proposed Transaction, including any agreements or arrangements related thereto, and any related alternative transactions to the Proposed Transaction and (b) provide a recommendation to the Board and/or the Disinterested Directors as to whether or not the Company should enter into the Proposed Transaction or any related alternative transaction. The Disinterested Directors at the meeting appointed Mr. Beilinson, Ms. Hormozi, Mr. Leach and Mr. Borden as the members of the Special Committee, with Mr. Beilinson appointed as the Chairperson of the Special Committee.

From September 29 until October 23, the Company, Apollo and their respective advisors engaged in reciprocal financial and legal due diligence, including numerous diligence calls relating to finance, accounting, tax, regulatory, corporate, compliance and other matters. During this time, the parties also agreed that the AOG units acquired by the Company in the Proposed Transaction would not be subject to the base management fee or any sub-allocation fees under the existing investment management agreements between Apollo (and its affiliates) and the Company (and its subsidiaries).

On October 3, 2019, the Special Committee held a telephonic meeting, also attended by representatives of Lazard and Latham. Members of the Special Committee discussed the terms of the Proposed Transaction with representatives of Latham and Lazard and requested that Mr. Beilinson prepare a letter to Apollo setting forth the Special Committee’s preliminary observations with respect to the Proposed Transaction. Representatives of Latham, with the advice of Bermuda counsel, then reminded the members of the Special Committee of the duties of directors under Bermuda law in the context of considering, negotiating and deciding whether or not to enter into the Proposed Transaction. Representatives of Lazard then presented to the Special Committee regarding certain of Lazard’s preliminary financial analysis and financial diligence relating to the Proposed Transaction. The representatives of Lazard were then excused from the meeting, and the members of the Special Committee discussed the potential engagement of Lazard as financial advisor to the Special Committee with representatives of Latham. The members of the Special Committee agreed that based on the information provided there did not appear to exist any conflicts of interest that would interfere with Lazard serving as financial advisor to the Special Committee in connection with the Proposed Transaction. Members of the Special Committee discussed with representatives of Latham the terms of the initial draft of Lazard’s engagement letter and directed representatives of Latham to prepare a revised draft for the Special Committee’s review and approval.

On October 4, 2019, at the direction of the Special Committee, Mr. Beilinson sent a letter to Apollo setting forth the Special Committee’s preliminary observations with respect to the Proposed Transaction. Among other things, Mr. Beilinson expressed the view that the valuation of Class A Common Shares in the exchange should

 

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be based on intrinsic value rather than market price, that any shares issued for cash would be at a premium of 10-15% to the current market price, and he objected to the pricing mechanism for exercising options to purchase additional shares, the existence of an issuer self-tender and certain other terms that the Special Committee viewed as unfavorable to the Company. Mr. Beilinson also expressed his view that Class A Common Shares acquired by Apollo in connection with the Proposed Transaction should not be eligible to be sold or otherwise transferred by Apollo for a period of 3 to 5 years (the “Proposed Lock-Up Period”).

On October 5, 2019, representatives of Paul, Weiss, Rifkind, Wharton & Garrison LLP (“Paul Weiss”), outside legal counsel to Apollo, provided initial drafts of the Transaction Agreement and Apollo Stockholders Agreement to representatives of Latham.

Between October 5 and October 10, 2019, representatives of Lazard, Latham and Sidley, as well as members of senior management of the Company, conducted diligence on Apollo and considered the potential impact on the Company of the Proposed Transaction.

On October 9, 2019, Mr. Beilinson contacted representatives of Houlihan Lokey, regarding potentially engaging Houlihan Lokey as an additional financial advisor to the Special Committee and to provide a fairness opinion to the Special Committee in connection with certain aspects of the Proposed Transaction.

On October 10, 2019, members of senior management of Apollo, including Gary Parr, senior Managing Director at Apollo, and Joshua Harris, a co-founder of Apollo, provided a management presentation regarding Apollo’s business, strategy and financial performance to certain members of senior management of the Company, including Martin Klein, the Company’s Chief Financial Officer, as well as Mr. Beilinson, who attended the meeting on behalf of the Special Committee, and representatives of Lazard and Latham, at Latham’s offices in New York; Mr. Belardi, William Wheeler, the Company’s President, Grant Kvalheim, Chief Executive Officer and President, Athene USA and Sidley also were in attendance telephonically.

On October 12, Mr. Beilinson met with Mr. Parr to discuss transaction terms, primarily relating to the letter sent on October 4.

On October 13, 2019, representatives of Paul Weiss provided a draft of the Shareholders Agreement to representatives of Latham.

On October 14, 2019, Mr. Beilinson and Mr. Parr spoke by phone to continue discussion regarding transaction terms.

Later on October 14, 2019, representatives of Latham provided revised drafts of the Transaction Agreement and Apollo Stockholders Agreement to representatives of Paul Weiss.

On October 15, 2019, the Special Committee held a telephonic meeting, also attended by representatives of Lazard and Latham. Representatives of Lazard presented to the Special Committee certain preliminary financial analysis in respect of Apollo and the Proposed Transaction. Lazard discussed the financial diligence that Lazard had conducted to date relating to Apollo’s financial information and the assumptions underlying Lazard’s analysis. Representatives of Lazard then presented to the Special Committee information and analysis related to the potential inclusion of Class A Common Shares in certain of the S&P indices in the event that the Proposed Transaction was consummated and in accordance therewith the Company’s multi-class share structure was eliminated. Representatives of Latham then presented to the Special Committee regarding the initial legal diligence Latham had conducted on Apollo. Members of the Special Committee discussed potential counterproposals with representatives of Latham and Lazard.

On October 16, 2019, representatives of Paul Weiss provided a revised draft of the Transaction Agreement to representatives of Latham.

 

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Later on October 16, 2019, Mr. Beilinson again contacted representatives of Houlihan Lokey regarding the Special Committee’s potential engagement of Houlihan Lokey as an additional financial advisor in connection with the Proposed Transaction, as well as regarding Houlihan Lokey’s delivery of a fairness opinion to the Special Committee in connection with certain aspects of the Proposed Transaction as part of such engagement.

Later on October 16, 2019, the Special Committee entered into an engagement letter with Lazard in connection with the Proposed Transaction.

On October 17, 2019, representatives of Latham provided a revised draft of the Shareholders Agreement to representatives of Paul Weiss.

Later on October 17, 2019, representatives of Paul Weiss provided an initial draft of the Liquidity Agreement and a revised draft of the Apollo Stockholders Agreement to representatives of Latham and Sidley.

On October 18, 2019, the Special Committee held a telephonic meeting, also attended by representatives of Lazard and Latham. Representatives of Lazard presented to the Special Committee regarding Lazard’s ongoing financial analyses of the Company and the Proposed Transaction, including the financial diligence that Lazard had conducted to date regarding the Company’s financial information. The Special Committee directed representatives of Lazard to prepare financial analyses of the Proposed Transaction that would be informed by discussions with the Company’s management for a meeting of the Special Committee to be held on October 21, 2019. Members of the Special Committee then discussed the various issues open for negotiation with Apollo and the current status of those negotiations.

Later on October 18, 2019, Mr. Beilinson and Mr. Parr spoke by phone to discuss transaction terms based on feedback from the Special Committee.

On October 19 and 20, 2019, representatives of Apollo, including Mr. Parr, and its legal counsel Paul Weiss met in New York at the offices of Paul Weiss with representatives of the Special Committee, including Mr. Beilinson and the Company, together with representatives of Latham and Sidley, to continue reviewing and negotiating the agreements to be entered in connection with the Proposed Transaction (the “Transaction Agreements”). During those meetings, Mr. Beilinson reiterated, among other things, the view of the Special Committee that any issuance of Class A Common Shares for cash be done at a premium to the market and that the share exchange be valued on an intrinsic basis rather than simply being done “at the market.” In addition, the parties also agreed that the Proposed Lock-Up Period would be 3 years.

On October 21, 2019, the Special Committee held a telephonic meeting, also attended by Company legal counsel and representatives of Lazard and Latham. Representatives of Lazard presented to the Special Committee regarding Lazard’s updated preliminary financial analyses of the Company, Apollo and the Proposed Transaction, including the financial diligence that Lazard conducted regarding the Company’s financial information. Representatives of Latham then presented to the Special Committee regarding the progress of negotiations over the previous weekend, material items that remained subject to continuing negotiation. Representatives of Latham also reminded the Special Committee of their fiduciary duties to the Company’s shareholders (to the exclusion of the interests of other parties, including, without limitation, the interests of Apollo) under Bermuda law (having discussed the content and extent of such duties with Bermuda counsel) and alternatives as next steps with respect to its negotiations relating to the Proposed Transaction.

Later on October 21, 2019, Mr. Beilinson and Mr. Parr spoke by phone to negotiate the exchange ratio of the two companies’ shares. Mr. Beilinson and Mr. Parr considered various timeframes for using a volume-weighted average price to set the exchange ratio, in both calendar and trading days.

On October 22, 2019, representatives of Latham, Paul Weiss and Sidley continued to negotiate the various Transaction Agreements.

 

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On October 22, 2019, the Special Committee held a telephonic meeting, also attended by Company legal counsel and representatives of Lazard and Latham, respectively. Representatives of Lazard presented to the Special Committee regarding Lazard’s further updated preliminary financial analysis of the Company, Apollo and the Proposed Transaction. Members of the Special Committee discussed with representatives of Lazard other factors that may be relevant to the Special Committee in its evaluation of the Proposed Transaction, such as the potential for the inclusion of Class A Common Shares in certain of the S&P indices. Latham provided an update on the terms and status of negotiation of the Transaction Agreements.

Later on October 22, 2019, the Disinterested Directors held a telephonic information session, also attended by the Company’s legal counsel and representatives of Lazard and Latham. Mr. Beilinson updated the Disinterested Directors regarding the status of negotiations with Apollo and indicated that the Disinterested Directors would receive Lazard’s detailed preliminary financial analysis during an information session on October 23, 2019. The Disinterested Directors discussed the status of the Proposed Transaction and the desire to hear the perspective of Company management regarding the Proposed Transaction after the presentation on October 23, 2019. The Disinterested Directors discussed the various elements of the Proposed Transaction.

On October 23, 2019, the Disinterested Directors held a telephonic information session, also attended by the Company’s legal counsel and representatives of Lazard and Latham. Representatives of Lazard presented to the Disinterested Directors regarding Lazard’s financial analyses of the Company, Apollo and the Proposed Transaction, including the financial diligence that Lazard conducted regarding the Company’s and Apollo’s financial information, respectively. The Disinterested Directors also discussed with representatives of Lazard other factors that may be relevant to the Disinterested Directors in their evaluation of the Proposed Transaction, such as the potential market reaction to the Proposed Transaction and the potential for the inclusion of Class A Common Shares in certain of the S&P indices. Messrs. Belardi, Wheeler, Klein and Kvalheim then joined the information session. The management team discussed with the Disinterested Directors their views of the Proposed Transaction. The members of the Company’s management and representatives of Lazard were then excused from the information session. The Disinterested Directors continued discussing the terms of the Proposed Transaction and the views expressed by the Company’s management. The Disinterested Directors thanked Mr. Beilinson for leading the negotiations with Apollo and planned to reconvene for another information session on October 25, 2019. All Disinterested Directors other than the members of the Special Committee were then excused. The members of the Special Committee then met and discussed the proposed engagement letter with Houlihan Lokey. The Special Committee resolved to enter into the engagement letter and engage Houlihan Lokey as an additional financial advisor to the Special Committee. The Special Committee also directed Mr. Beilinson to seek to obtain a premium to the Company’s market price consisting of a 10% premium to market price for Class A Common Shares issued for cash and a premium to market price for shares issued in the exchange (recognizing that the premium would be smaller to reflect the potential future appreciation of Apollo’s AOG units).

Later on October 23, 2019, Mr. Beilinson and Mr. Parr held a call in which they continued their negotiation of remaining terms, which included discussion of the appropriate transaction exchange ratio based on varying volume-weighted average price metrics.

Between October 23 and October 25, 2019, Mr. Beilinson, Mr. Parr, Neil Mehta, Partner at Apollo and representatives of Latham, Paul Weiss and Sidley continued to negotiate and exchange drafts of the Transaction Agreements (which included the elimination of the Apollo Stockholders Agreement and incorporation of the relevant provisions thereof regarding restrictions on equity transfers into the Liquidity Agreement). On October 24, 2019, Mr. Beilinson and Mr. Parr reached a tentative agreement, subject to approval by the boards of both companies, that Apollo would pay a 10% premium to the closing price of Class A Common Shares on October 25, 2019, for Class A Common Shares purchased for cash and would exchange shares at a ratio of 0.959 to 1 (the “Class A Exchange”), which represented an approximately 2.3% premium for Class A Common Shares, based on the closing price of Class A Common Shares on October 25, 2019.

 

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On October 25, 2019, the Disinterested Directors held another information session during which representatives of Lazard presented their updated financial analyses of the Company, Apollo and the Proposed Transaction and the Disinterested Directors received a review of the terms of the Transaction Agreements from representatives of Latham and an update on negotiations of the remaining unresolved issues.

On October 26, 2019, the Special Committee and the Board (with only the Disinterested Directors in attendance) met in the United Kingdom and telephonically to consider the Proposed Transaction, with members of Company management and representatives of Latham, Lazard and Houlihan Lokey participating telephonically. Representatives of Lazard presented to a joint session of the Special Committee and the Disinterested Directors an update of their financial analyses that reflected the pricing terms arrived at between Mr. Beilinson and Mr. Parr. At the request of the Special Committee, representatives of Houlihan Lokey were then invited to join the meeting, and reviewed and discussed with the Special Committee and the Disinterested Directors their financial analysis related to the Aggregate Consideration. Thereafter, at the request of the Special Committee, representatives of Houlihan Lokey verbally rendered Houlihan Lokey’s opinion to the Special Committee (which was subsequently confirmed in writing by the delivery of Houlihan Lokey’s written opinion addressed to the Special Committee dated October 26, 2019) to the effect that, as of such date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth in its written opinion, the Aggregate Consideration to be received by the Company in the Share Issuance was fair to the Company from a financial point of view. Houlihan Lokey’s opinion is more fully described in the section entitled “Opinion of the Special Committee’s Financial Advisor—Houlihan Lokey” on page 62. Following further discussion by the members of the Special Committee, the Special Committee recommended that the Board approve the Proposed Transaction. Upon such recommendation of the Special Committee, both the Board (with only the Disinterested Directors voting) and the Special Committee approved the Proposed Transaction and the Board (with only the Disinterested Directors voting) then delegated authority to the Special Committee to finalize the Transaction Agreements in substantially the form approved by the Disinterested Directors.

Between October 26 and October 27, 2019, representatives of Latham, Paul Weiss and Sidley finalized the Transaction Agreements. During this period, Latham continued to discuss and consult with Mr. Beilinson regarding the Transaction Agreements.

On October 27, 2019, the Company and Apollo executed the Transaction Agreement. Contemporaneously with the execution of the Transaction Agreement, AMH and the Other Shareholders entered into the Voting Agreement. In addition, Messrs. Belardi and Wheeler each entered into a letter of agreement with the Company, pursuant to which they have agreed to vote their Class M Common Shares in favor of the proposals on which holders of Class M Common Shares are entitled to vote at the Special Meeting. On October  28, 2019, the Company and Apollo issued a joint press release announcing the execution of the Transaction Agreement.

Reasons for the Transaction; Recommendation of the Special Committee

In reaching its decision to recommend approval of the Share Transactions and related actions to the Disinterested Directors and approve the Share Transactions and related actions, the Special Committee considered a number of factors, including, but not limited to:

 

•

The expectation that eliminating the Company’s multi-class share structure would (a) increase alignment of interests between Apollo’s voting and economic interests in the Company and (b) remove material impediments for additional index inclusion, which the Special Committee believes should serve to increase the Company’s appeal to a broader group of active and passive investors.

 

•

That Apollo’s acquisition of an incremental stake in Class A Common Shares at a premium to the market price at the signing of the Transaction Agreement would represent a strong, public commitment to the Company by Apollo that would enhance the alignment of interests between the Company and Apollo.

 

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•

The fact that the Company’s ownership in the AOG units would give it an approximately 7% economic stake in Apollo’s operating subsidiaries, providing meaningful participation in their results, including their asset management income.

 

•

The expectation that the Share Transactions would strengthen the capital base for the Company, with an attractive equity asset that generates current cash income and an opportunity for future capital appreciation.

 

•

The terms of the Transaction Agreement and related agreements, including:

 

•

the lock-up requiring Apollo and certain other affiliated parties to continue to hold the Class A Common Shares acquired in the Share Transactions for at least three years following the Closing Date.

 

•

the absence of a reciprocal lock-up on the Company’s ownership of the AOG units.

 

•

The financial analyses prepared by each of Lazard and Houlihan Lokey.

 

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The opinion delivered by Houlihan Lokey to the Special Committee, dated October 26, 2019, to the effect that, as of such date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth in its written opinion, the Aggregate Consideration to be received by the Company in the Share Issuance was fair to the Company from a financial point of view, as more fully described in the section entitled “Opinion of the Special Committee’s Financial Advisor—Houlihan Lokey” on page 62.

In view of the wide variety of factors considered in connection with its evaluation of the Share Transactions and the complexity of these matters, the Special Committee did not find it useful and did not attempt to quantify or assign any relative or specific weights to the various factors that it considered in reaching its determination to recommend the approval of the Share Transactions and related actions to the Disinterested Directors. Individual members of the Special Committee may have given differing weights to different factors.

Based on the reasons described above, the Special Committee unanimously recommended approval of the Share Transactions and related actions to the Disinterested Directors, the Special Committee and the Disinterested Directors approved the Share Transactions and related actions, and the Disinterested Directors unanimously recommend that the Company’s shareholders vote “FOR” the proposal to approve the proposed Thirteenth Amended and Restated Bye-laws, and unanimously recommend that the Company’s shareholders vote “FOR” the proposal to approve the Class B Exchange, and unanimously recommend that the Company’s shareholders vote “FOR” the proposal to approve the Class M Exchange and unanimously recommend that the Company’s shareholders vote “FOR” the proposal to approve the Share Transactions.

Certain Projected Financial Information

Neither the Company nor Apollo as a matter of normal course publicly discloses financial projections or forecasts as to its future performance, revenues, earnings or other results due to, among other reasons, the unpredictability, uncertainty and subjectivity of the underlying assumptions and estimates inherent in preparing any such financial projections and forecasts. In order to assist the Special Committee in its evaluation of the Share Transactions, however, the Company’s management and the Special Committee approved for use by Houlihan Lokey certain unaudited financial projections concerning the Company (the “Company Projected Financial Information”) and concerning Apollo (the “Apollo Projected Financial Information”, and together with the Company Projected Financial Information, the “Projected Financial Information”) for purposes of Houlihan Lokey’s opinion and financial analyses. The Projected Financial Information was prepared on the basis of estimates and assumptions made at the time of its preparation, and speaks only to the judgments and projections made on the basis of the currently-available information as of such time. The Company Projected Financial Information was not prepared in the same manner or process used by the Company for budgeting or other planning purposes. The Apollo Projected Financial Information was not provided by Apollo but was based on publicly available information, including earnings releases and consensus earnings estimates and forecasts published by equity analysts. The Apollo

 

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Projected Financial Information reflects various assumptions made by Lazard at the time such information was prepared through discussions based on publicly available information between Lazard and Apollo. None of the Apollo Projected Financial Information was prepared by Apollo and it is not used for budgeting or other planning purposes and speaks only to the assumptions and projections made on the basis of the currently-available information as of the date such projections were prepared. Such projections were prepared solely for assisting the Special Committee in its evaluation of the Share Transactions, for Houlihan Lokey’s use in connection with its opinion and financial analyses, as described in the section entitled “Opinion of the Special Committee’s Financial Advisor—Houlihan Lokey” on page 62, and for providing the Special Committee with additional perspective on the potential transaction, including the long-term growth and value of the respective companies, and not for the purpose of providing quarterly or annual guidance for specific periods.

The Projected Financial Information is not being included in this proxy statement to influence the voting decision of any shareholder with respect to any proposal, but instead because the Projected Financial Information was provided to the Special Committee and to Houlihan Lokey for purposes of Houlihan Lokey’s opinion and financial analyses.

Except as required by law, the Company does not have an obligation to update or otherwise revise or reconcile the Projected Financial Information included in this section to reflect circumstances existing after the date when made, including events or circumstances that may have occurred during the period between that date and the date of this proxy statement, or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying such forecasts are shown to be in error or any or all of the projected results are not being realized. The Company has not updated, revised or reconciled the Projected Financial Information and does not intend to do so.

You should note that the Projected Financial Information constitutes forward-looking statements. See “Cautionary Statements Regarding Forward-Looking Statements” in this proxy statement. You should also note that the Projected Financial Information was not prepared with a view toward public disclosure or with a view toward complying with GAAP, the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information and does not give effect to the adoption of any new accounting pronouncements. Neither the Company’s nor Apollo’s respective independent registered public accountants, nor any other independent accountants or financial advisors, have compiled or performed any procedures with respect to the unaudited financial projections set forth below, nor have they expressed any opinion, judgment or any other form of assurance on such information or its achievability, and none of them assumes any responsibility for the Projected Financial Information.

The Projected Financial Information set forth below should not be relied upon as necessarily indicative of actual future results, and readers of this proxy statement are cautioned not to place undue reliance on such information. Furthermore, since the Projected Financial Information covers multiple years, such information by its nature becomes less predictive with each successive year. Although certain of the Projected Financial Information is presented with numerical specificity, the Projected Financial Information reflects assumptions, estimates and judgments that are inherently uncertain and, although considered reasonable by the Company’s management as of the date of their use, are subject to significant business, economic and competitive risks and uncertainties that could cause actual results to differ materially from those contained in the Projected Financial Information, including, among others, risks and uncertainties due to general business, economic, regulatory, market and financial conditions, as well as changes in the Company’s or Apollo’s respective businesses, financial condition or results of operations of the transactions contemplated by the Share Transactions, and other risks and uncertainties described in this proxy statement under the headings “Risk Factors” and “Cautionary Statements Regarding Forward-Looking Statements”. Accordingly, the Projected Financial Information set forth below may not necessarily be indicative of the actual future performance of the Company or Apollo, and actual results may differ materially from those presented. Inclusion of the Projected Financial Information set forth below should not be regarded as a representation by the Company or any person that the results projected will necessarily be achieved, and they should not be relied on as such. The inclusion of this information should not be regarded as an

 

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indication that the Company, the Board, the Special Committee, Apollo, any of their advisors or any other person considered, or now considers, it to be material or to be a reliable prediction of actual future results, which may be significantly more favorable or less favorable. Furthermore, the Projected Financial Information set forth below may differ from publicized analyst estimates and forecasts for the Company or Apollo and does not take into account any circumstances or events occurring after the date on which it was prepared.

Company Projected Financial Information

The Company Projected Financial Information presented below was prepared in connection with the Special Committee’s evaluation of the Share Transactions and approved by the Company’s management and the Special Committee for use by Houlihan Lokey for purposes of Houlihan Lokey’s opinion and financial analyses, and reflected, as of October 23, 2019, the Company’s management’s best available estimates and judgments with respect to the future financial results and condition of the Company. The Company Projected Financial Information reflects various assumptions made at the time such information was prepared, including but not limited to certain assumptions regarding the current and future economic and interest rate environments, the Company’s organic and inorganic growth rate and corresponding returns, alternative asset deployment, expenses, applicable tax rates and the timing and amount of share repurchases and other capital management actions.

 

		Fiscal Year Ended December 31,
(In millions)		2019E				2020E
Adjusted Net Income		$	1,249.0			$	1,447.0
Adjusted Book Value		$	9,272.0			$	10,219.0

“Adjusted Net Income” in the table above was calculated as net income, adjusted for (as applicable) investment gains or losses, changes in the fair values of derivatives and embedded derivatives, integration, restructuring and other non-operating expenses, stock compensation expense, and bargain purchase gains. “Adjusted Book Value” in the table above is calculated as shareholders’ equity, less accumulated other comprehensive income and less accumulated reinsurance unrealized gains and losses.

Apollo Projected Financial Information

The Apollo Projected Financial Information presented below was prepared in connection with the Special Committee’s evaluation of the Share Transactions and approved by the Company’s management and the Special Committee for use by Houlihan Lokey for purposes of Houlihan Lokey’s opinion and financial analyses. This information was based on publicly-available information, including earnings releases and consensus earnings estimates and forecasts published by equity analysts. The Apollo Projected Financial Information reflects various assumptions made at the time such information was prepared, including but not limited to certain assumptions regarding current and future economic and interest rate environments, Apollo’s growth rate, applicable tax rate, investment income, fee-related earnings margins and net realized carry.

 

		Fiscal Year Ended December 31,
(In millions, except for per share figures)		2019E				2020E				2021E				2022E				2023E				2024E
Distributable Earnings		$	881.0			$	1,175.0			$	1,397.0			$	2,147.0			$	2,120.0			$	2,331.0
Distributable Earnings per Share		$	2.14			$	2.85			$	3.39			$	5.21			$	5.15			$	5.66
Fee-Related Earnings		$	884.0			$	1,013.0			$	1,162.0			$	1,331.0			$	1,526.0			$	1,749.0
Performance-Related Earnings		$	200.0			$	412.0			$	515.0			$	1,235.0			$	978.0			$	978.0

 

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The Distributable Earnings calculated on a per share basis assumed 412.1 million shares outstanding on a fully-diluted basis, including outstanding AOG units. “Distributable Earnings” in the table above were calculated as the sum of (as applicable) (i) total management fees and advisory and transaction fees, (ii) other income (loss), (iii) realized performance fees, excluding realizations received in the form of shares, and (iv) realized investment income, less (w) compensation expense, excluding the expense related to equity-based awards, (x) realized profit sharing expense, (y) non-compensation expenses, and (z) estimated current corporate, local and non-U.S. taxes. “Fee-Related Earnings” in the table above were calculated on a pre-tax basis as the sum of (i) management fees, (ii) advisory and transaction fees, (iii) performance fees earned from business development companies and Redding Ridge Holdings, and (iv) other income, net, less (x) salary, bonus and benefits, excluding equity-based compensation, (y) other associated operating expenses, and (z) non-controlling interests in the management companies of certain funds that Apollo manages. “Performance-Related Earnings” in the table above were calculated on a pre-tax basis as income earned from certain funds and accounts governed by agreements whereby a portion of profits are allocated to the general partner, less associated costs.

Opinion of the Special Committee’s Financial Advisor—Houlihan Lokey

On October 26, 2019, Houlihan Lokey verbally rendered its opinion to the Special Committee (which was subsequently confirmed in writing by delivery of Houlihan Lokey’s written opinion addressed to the Special Committee dated October 26, 2019) to the effect that, as of such date and based upon and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations set forth therein, the Aggregate Consideration to be received by the Company in the Share Issuance was fair to the Company from a financial point of view.

Houlihan Lokey’s opinion was directed to the Special Committee (in its capacity as such) and only addressed the fairness, from a financial point of view, to the Company, of the Aggregate Consideration to be received by the Company in the Share Issuance pursuant to the Transaction Agreement and did not address any other aspect or implication of the Share Issuance or any other agreement, arrangement or understanding. The summary of Houlihan Lokey’s opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is attached as Annex D to this proxy statement and describes the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Houlihan Lokey in connection with the preparation of its opinion. However, neither Houlihan Lokey’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, a recommendation to the Special Committee, the Board, any security holder or any other party as to how to act or vote with respect to any matter relating to the Share Issuance or otherwise.

In arriving at its opinion, Houlihan Lokey, among other things:

 

•

reviewed a draft dated October 25, 2019 of each of (a) the Transaction Agreement; (b) the Liquidity Agreement; and (c) the Shareholders Agreement;

 

•

reviewed certain publicly available business and financial information relating to the Company and Apollo that Houlihan Lokey deemed to be relevant, including certain publicly available research analyst estimates with respect to the future financial performance of the Company and Apollo;

 

•

reviewed certain information relating to the historical, current and future operations, financial condition and prospects of the Company, as approved for Houlihan Lokey’s use by the Company’s management and the Special Committee, including financial projections (the “Athene Financial Information”);

 

•

reviewed certain information relating to the historical, current and future operations, financial condition and prospects of Apollo, as approved for Houlihan Lokey’s use by the Company’s management and the Special Committee, including financial projections (the “Apollo Financial Information”);

 

•

spoke with certain members of the management of the Company and representatives of Apollo and certain of their and the Special Committee’s representatives and advisors regarding the respective businesses, operations, financial condition and prospects of the Company and Apollo, the Share Issuance and related matters;

 

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•

compared the financial and operating performance of the Company and Apollo with that of other public companies that Houlihan Lokey deemed to be relevant;

 

•

reviewed the current and historical market prices and trading volume for certain of the Company’s and Apollo’s publicly traded securities, and the current and historical market prices and trading volume of the publicly traded securities of certain other companies that Houlihan Lokey deemed to be relevant; and

 

•

conducted certain other financial studies, analyses and inquiries and considered certain other information and factors as Houlihan Lokey deemed appropriate.

Houlihan Lokey relied upon and assumed, without independent verification, the accuracy and completeness of all data, material and other information furnished, or otherwise made available, to Houlihan Lokey, discussed with or reviewed by Houlihan Lokey, or publicly available, and did not assume any responsibility with respect to such data, material and other information. In addition, management of the Company advised Houlihan Lokey, and Houlihan Lokey assumed, that the Athene Financial Information reviewed by Houlihan Lokey and discussed with the Company’s management reflects the best currently available estimates and judgments of the Company’s management as to the future financial results and condition of the Company and the other matters covered thereby, Houlihan Lokey was directed by the Company’s management and the Special Committee to use and rely upon the Athene Financial Information for purposes of its analyses and opinion, and Houlihan Lokey expressed no opinion with respect to the Athene Financial Information or the assumptions on which it was based. With respect to the Apollo Financial Information, Houlihan Lokey reviewed and discussed the information with the management of the Company and representatives of Apollo, Houlihan Lokey assumed that the Apollo Financial Information represents reasonable estimates and judgments as to the future financial results and condition of Apollo and the other matters covered thereby, and Houlihan Lokey expressed no opinion with respect to the Apollo Financial Information or the assumptions on which it was based. Houlihan Lokey relied upon and assumed, without independent verification, that there was no change in the businesses, assets, liabilities, financial condition, results of operations, cash flows or prospects of the Company or Apollo since the respective dates of the most recent financial statements and other information, financial or otherwise, provided to Houlihan Lokey that would be material to Houlihan Lokey’s analyses or its opinion, and that there was no information or any facts that would make any of the information reviewed by Houlihan Lokey incomplete or misleading.

Houlihan Lokey relied upon and assumed, without independent verification, that (a) the representations and warranties of all parties to the Transaction Agreement and all other related documents and instruments that are referred to therein were true and correct, (b) each party to the Transaction Agreement, the Liquidity Agreement and the Shareholders Agreement would fully and timely perform all of the covenants and agreements required to be performed by such party, (c) all conditions to the consummation of the Share Issuance would be satisfied without waiver thereof, and (d) the Share Issuance would be consummated in a timely manner in accordance with the terms described in the Transaction Agreement and other related documents and instruments, without any amendments or modifications thereto. Houlihan Lokey also assumed, with the consent of the Special Committee, that the Equity Exchange Transaction would be treated as a contribution and exchange as provided in Section 721 of the Code. Houlihan Lokey relied upon and assumed, without independent verification, that (i) the Share Issuance would be consummated in a manner that complies in all respects with all applicable foreign, federal and state statutes, rules and regulations, and (ii) all governmental, regulatory, and other consents and approvals necessary for the consummation of the Share Issuance would be obtained and that no delay, limitations, restrictions or conditions would be imposed or amendments, modifications or waivers made that would result in the disposition of any assets of the Company or Apollo, or otherwise have an effect on the Share Issuance, or the Company or Apollo or any expected benefits of the Share Issuance that would be material to Houlihan Lokey’s analyses or its opinion. In addition, Houlihan Lokey relied upon and assumed, without independent verification, that the final form of each of the Transaction Agreement, the Liquidity Agreement and the Shareholders Agreement would not differ in any respect from the drafts thereof.

Furthermore, in connection with its opinion, Houlihan Lokey was not requested to make, and did not make, any physical inspection or independent appraisal or evaluation of any of the assets, properties or liabilities (fixed,

 

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contingent, derivative, off-balance-sheet or otherwise) of the Company, Apollo, any member of the AOG, any New AOG Subsidiary or any other party, nor was Houlihan Lokey provided with any such appraisal or evaluation. Houlihan Lokey did not estimate, and expressed no opinion regarding, the liquidation value of any entity or business. Houlihan Lokey did not undertake any independent analysis of any potential or actual litigation, regulatory action, possible unasserted claims or other contingent liabilities, to which the Company, Apollo, any member of the AOG or any New AOG Subsidiary was or may be a party or was or may be subject, or of any governmental investigation of any possible unasserted claims or other contingent liabilities to which the Company, Apollo, any member of the AOG or any New AOG Subsidiary was or may be a party or was or may be subject.

Houlihan Lokey was not requested to, and did not, (a) initiate or participate in any discussions or negotiations with, or solicit any indications of interest from, third parties with respect to the Share Issuance, the securities, assets, businesses or operations of the Company or any other party, or any alternatives to the Share Issuance, (b) negotiate the terms of the Share Issuance, or (c) advise the Special Committee, the Board or any other party with respect to alternatives to the Share Issuance. Houlihan Lokey’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Houlihan Lokey as of the date thereof. Houlihan Lokey did not undertake, and is under no obligation, to update, revise, reaffirm or withdraw its opinion, or otherwise comment on or consider events occurring or coming to Houlihan Lokey’s attention after the date thereof. Houlihan Lokey did not express any opinion as to what the value of the Class A Common Shares or AOG units actually will be when issued or exchanged, respectively, pursuant to the Share Issuance or the price or range of prices at which the Class A Common Shares, AOG units or Apollo Common Shares may be purchased or sold, or otherwise be transferable, at any time (including, without limitation, any disposition of the AOG units by the Company pursuant to the Liquidity Agreement).

Houlihan Lokey’s opinion was furnished for the use of the Special Committee (in its capacity as such) in connection with its evaluation of the Share Issuance and may not be used for any other purpose without Houlihan Lokey’s prior written consent. Houlihan Lokey’s opinion was not intended to be, and does not constitute, a recommendation to the Special Committee, the Company, the Board, any security holder of the Company or any other party as to how to act or vote with respect to any matter relating to the Share Issuance or otherwise.

Houlihan Lokey was not requested to opine as to, and its opinion did not express an opinion as to or otherwise address, among other things: (i) the underlying business decision of the Special Committee, the Board, the Company or any other party to proceed with or effect the Share Issuance, (ii) the terms of any arrangements, understandings, agreements or documents related to, or the form, structure or any other portion or aspect of, the Share Issuance or otherwise (other than the Aggregate Consideration to the extent expressly specified in the opinion), (iii) the fairness of any portion or aspect of the Share Issuance to the holders of any class of securities, creditors or other constituencies of the Company or to any other party, (iv) the relative merits of the Share Issuance as compared to any alternative business strategies or transactions that might have been available for the Company or any other party, (v) the fairness of any portion or aspect of the Share Issuance to any one class or group of the Company’s or any other party’s security holders or other constituents vis-à-vis any other class or group of the Company’s or such other party’s security holders or other constituents, (vi) whether or not the Company, Apollo, members of the AOG, any New AOG Subsidiary or their respective security holders or any other party is receiving or paying reasonably equivalent value in the Share Issuance, (vii) the solvency, creditworthiness or fair value of the Company, Apollo, members of the AOG, any New AOG Subsidiary or any other participant in the Share Issuance, or any of their respective assets, under any applicable laws relating to bankruptcy, insolvency, fraudulent conveyance or similar matters, (viii) the fairness, financial or otherwise, of the amount, nature or any other aspect of any compensation to or consideration payable to or received by any officers, directors or employees of any party to the Share Issuance, or any class of such persons or any other party, relative to the Aggregate Consideration or otherwise, (ix) the fairness of the Equity Exchange Transaction or the Equity Sale Transaction, taken individually, (x) the fairness, financial or otherwise, of any other transactions contemplated by the Transaction Agreement or subsequent transactions arising out of or in connection with the Share Issuance (including, without limitation, any options or conditional rights granted to

 

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Apollo to purchase Class A Common Shares), or (xi) the use by the Company of the Cash Consideration. For purposes of Houlihan Lokey’s analyses and its opinion, Houlihan Lokey did not apply any minority or illiquidity discounts or other discounts or premiums or otherwise give effect to any such rights, restrictions, limitations or factors. In addition, at the direction of the Special Committee, for purposes of Houlihan Lokey’s analyses and its opinion, Houlihan Lokey treated the AOG units and the Apollo Common Shares as having identical economic value. Furthermore, no opinion, counsel or interpretation was intended in matters that require legal, regulatory, accounting, insurance, tax or other similar professional advice. It was assumed that such opinions, counsel or interpretations were or will be obtained from the appropriate professional sources. Furthermore, Houlihan Lokey relied, with the consent of the Special Committee, on the assessments by the Board, the Special Committee, the Company and their respective advisors, as to all legal, regulatory, accounting, insurance, tax and other similar matters with respect to the Company, Apollo, members of the AOG, the New AOG Subsidiaries and the Share Issuance or otherwise.

In performing its analyses, Houlihan Lokey considered general business, economic, industry and market conditions, financial and otherwise, and other matters as they existed on, and could be evaluated as of, the date of its opinion. No company or business used in Houlihan Lokey’s analyses for comparative purposes is identical to the Company and an evaluation of the results of those analyses is not entirely mathematical. As a consequence, mathematical derivations (such as the high, low, mean and median) of financial data are not by themselves meaningful and in selecting the ranges of multiples to be applied were considered in conjunction with experience and the exercise of judgment. The estimates contained in the financial forecasts prepared by the management of the Company and the implied reference range values indicated by Houlihan Lokey’s analyses are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by the analyses. In addition, any analyses relating to the value of assets, businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold, which may depend on a variety of factors, many of which are beyond the control of the Company. Much of the information used in, and accordingly the results of, Houlihan Lokey’s analyses are inherently subject to substantial uncertainty.

Houlihan Lokey’s opinion was only one of many factors considered by the Special Committee in evaluating the proposed Share Issuance. Neither Houlihan Lokey’s opinion nor its analyses were determinative of the Aggregate Consideration or of the views of the Special Committee or management of the Company with respect to the Share Issuance or the Aggregate Consideration. Under the terms of its engagement by the Special Committee, neither Houlihan Lokey’s opinion nor any other advice or services rendered by it in connection with the proposed Share Issuance or otherwise, should be construed as creating, and Houlihan Lokey should not be deemed to have, any fiduciary duty to, or agency relationships with, the Board, the Company, Apollo, any security holder or creditor of the Company or Apollo or any other person, regardless of any prior or ongoing advice or relationships. The type and amount of the Aggregate Consideration payable in the Share Issuance were determined through negotiation between the Special Committee and Apollo, and the decision to enter into the Transaction Agreement was solely that of the Special Committee and the Board.

Financial Analyses

In preparing its opinion to the Special Committee, Houlihan Lokey performed a variety of analyses, including those described below. The summary of Houlihan Lokey’s analyses is not a complete description of the analyses underlying Houlihan Lokey’s opinion. The preparation of such an opinion is a complex process involving various quantitative and qualitative judgments and determinations with respect to the financial, comparative and other analytical methods employed and the adaptation and application of these methods to the unique facts and circumstances presented. As a consequence, neither Houlihan Lokey’s opinion nor its underlying analyses is readily susceptible to summary description. Houlihan Lokey arrived at its opinion based on the results of all analyses undertaken by it and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, methodology or factor. While the results of each analysis were taken into account in reaching Houlihan Lokey’s overall conclusion with respect to fairness, Houlihan Lokey did

 

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not make separate or quantifiable judgments regarding individual analyses. Accordingly, Houlihan Lokey believes that its analyses and the following summary must be considered as a whole and that selecting portions of its analyses, methodologies and factors, without considering all analyses, methodologies and factors, could create a misleading or incomplete view of the processes underlying Houlihan Lokey’s analyses and opinion.

The following is a summary of the material financial analyses performed by Houlihan Lokey in connection with the preparation of its opinion and reviewed with the Special Committee on October 26, 2019. The order of the analyses does not represent relative importance or weight given to those analyses by Houlihan Lokey. The analyses summarized below include information presented in tabular format. The tables alone do not constitute a complete description of the analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies underlying, and the assumptions, qualifications and limitations affecting, each analysis, could create a misleading or incomplete view of Houlihan Lokey’s analyses.

For purposes of its analyses, Houlihan Lokey reviewed a number of financial metrics, including:

 

•

Adjusted Book Value—generally, is calculated as shareholders’ equity, less accumulated other comprehensive income and, with respect to the Company, less accumulated reinsurance unrealized gains and losses;

 

•

Adjusted Net Income—generally, is calculated as net income, adjusted for (as applicable) investment gains or losses, changes in the fair values of derivatives and embedded derivatives, integration, restructuring and other non-operating expenses, stock compensation expense, and bargain purchase gains;

 

•

Book Value—generally, is calculated as shareholders’ equity;

 

•

Distributable Earnings—generally, is the sum of (as applicable) (i) total management fees and advisory and transaction fees, (ii) other income (loss), (iii) realized performance fees, excluding realizations received in the form of shares, and (iv) realized investment income, less (w) compensation expense, excluding the expense related to equity-based awards, (x) realized profit sharing expense, (y) non-compensation expenses, and (z) estimated current corporate, local and non-U.S. taxes;

 

•

Distribution Per Share—generally, is total dividends paid or expected to be paid, divided by shares outstanding;

 

•

Equity Value—generally, is the market value as of a specified date of the relevant company’s outstanding equity securities (taking into account outstanding options and other securities convertible, exercisable or exchangeable into or for equity securities of the company);

 

•

Enterprise Value—generally, is the market value as of a specified date of the relevant company’s outstanding equity securities (taking into account outstanding options and other securities convertible, exercisable or exchangeable into or for equity securities of the company), plus the amount of its net debt (the amount of its outstanding indebtedness, non-convertible preferred stock, capital lease obligations and non-controlling interests), less the amount of cash and cash equivalents on its balance sheet;

 

•

Fee-Related Earnings—with respect to Apollo, is the sum of (i) management fees, (ii) advisory and transaction fees, (iii) performance fees earned from business development companies and Redding Ridge Holdings, and (iv) other income, net, less (x) salary, bonus and benefits, excluding equity-based compensation, (y) other associated operating expenses, and (z) non-controlling interests in the management companies of certain funds that Apollo manages; and

 

•

Performance-Related Earnings—with respect to Apollo, is income earned from certain funds and accounts governed by agreements whereby a portion of profits are allocated to the general partner, less associated costs.

 

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Unless the context indicates otherwise, enterprise values and equity values used in the selected companies analysis described below were calculated using the closing price of the Class A Common Shares, Apollo Common Shares and the common stock of the selected companies listed below as of October 25, 2019. The estimates of the future financial performance of the Company and Apollo relied upon for the financial analyses described below were based on the Athene Financial Information and the Apollo Financial Information, respectively. The estimates of the future financial performance of the selected companies listed below were based on certain publicly available Wall Street consensus analyst estimates for those companies.

Selected Companies Analysis—the Company. Houlihan Lokey reviewed certain data for selected companies, with publicly traded equity securities, that Houlihan Lokey deemed relevant with respect to its analysis of the Company.

The financial data reviewed included:

 

•

Equity Value as a multiple of Book Value as of June 30, 2019, or “Book Value as of June 30, 2019”;

 

•

Equity Value as a multiple of Adjusted Book Value as of June 30, 2019, or “Adjusted Book Value as of June 30, 2019”;

 

•

Equity Value as a multiple of Adjusted Net Income for the last twelve months ended June 30, 2019, or “LTM Adjusted Net Income as of June 30, 2019”;

 

•

Equity Value as a multiple of estimated 2019 Adjusted Net Income, or “2019E Adjusted Net Income”; and

 

•

Equity Value as a multiple of estimated 2020 Adjusted Net Income, or “2020E Adjusted Net Income”.

The selected companies included the following:

 

•

American Equity Investment Life Holding Company;

 

•

AXA Equitable Holdings, Inc.;

 

•

Brighthouse Financial, Inc.;

 

•

CNO Financial Group, Inc.;

 

•

FGL Holdings;

 

•

Lincoln National Corporation;

 

•

Principal Financial Group, Inc.; and

 

•

Prudential Financial, Inc.

The resulting data were as follows:

Equity Value Multiples

 

Financial Metric

Low

High

Median

Mean

Book Value as of June 30, 2019

0.26x

1.09x

0.66x

0.68x

Adjusted Book Value as of June 30, 2019

0.30x

1.14x

0.90x

0.84x

LTM Adjusted Net Income as of June 30, 2019

4.5x

10.2x

5.9x

6.8x

2019E Adjusted Net Income

5.1x

9.6x

6.5x

6.8x

2020E Adjusted Net Income

4.4x

9.0x

6.1x

6.5x

 

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Taking into account the results of the selected companies analysis, Houlihan Lokey applied the selected multiples ranges for the financial metrics set forth below to the corresponding financial data for the Company (based on the Athene Financial Information) to calculate an implied total equity value reference range. These figures were then divided by the fully-diluted number of Class A Common Shares outstanding to calculate a reference range of implied values per Class A Common Share. This analysis indicated the following implied values per Class A Common Share, compared in each case to the 30-day volume weighted average price per Class A Common Share of $40.81 as of October 25, 2019.

 

Athene Financial Metric		Selected Multiples Range				Implied Value Per Class A Common Share
Book Value as of June 30, 2019			0.6x—0.7x			$	37.50—$43.75
Adjusted Book Value as of June 30, 2019			0.8x—0.9x			$	39.60—$44.55
LTM Adjusted Net Income as of June 30, 2019			5.5x—6.5x			$	37.82—$44.70
2019E Adjusted Net Income			5.5x—6.5x			$	37.25—$44.03
2020E Adjusted Net Income			5.0x—6.0x			$	39.24—$47.08

Selected Companies Analysis—Apollo. Houlihan Lokey reviewed certain data for selected companies, with publicly traded equity securities, that Houlihan Lokey deemed relevant with respect to its analysis of Apollo.

The financial data reviewed included:

 

•

Equity Value as a multiple of Distributable Earnings for the last twelve months ended June 30, 2019, or “LTM Distributable Earnings as of June 30, 2019”;

 

•

Equity Value as a multiple of estimated 2019 Distributable Earnings, or “2019E Distributable Earnings”; and

 

•

Equity Value as a multiple of estimated 2020 Distributable Earnings, or “2020E Distributable Earnings”.

The selected companies included the following:

 

•

Ares Management Corporation;

 

•

The Blackstone Group Inc.;

 

•

The Carlyle Group L.P.; and

 

•

KKR & Co. Inc.

The resulting data were as follows:

Equity Value Multiples

 

Financial Metric

Low

High

Median

Mean

LTM Distributable Earnings as of June 30, 2019

14.4x

23.6x

16.6x

17.8x

2019E Distributable Earnings

15.8x

23.1x

17.2x

18.3x

2020E Distributable Earnings

10.7x

17.1x

13.8x

13.9x

Taking into account the results of the selected companies analysis, Houlihan Lokey applied the selected multiples ranges for the financial metrics set forth below to the corresponding financial data for Apollo (based on the Apollo Financial Information) to calculate an implied equity value reference range. These figures were then divided by the fully-diluted number of shares of Apollo Common Shares (including dilutive AOG units)

 

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