LEHMAN BROTHERS VARIABLE EQUITY FORWARD ISSUANCE TRANSACTION Date: December 15, 2005 To: Scottish Re Group Limited Crown House, Third Floor 4 Par-la-Ville Road Hamilton, Bermuda HM 08 Attention: Dean Miller Facsimile: 441-295-7576 Telephone: 441-298-4395 From: Lehman Brothers, Inc., acting as Agent, Lehman Brothers OTC Derivatives Inc., acting as Principal Attention: Andrew Yare - Transaction Management Group Facsimile: 646-885-9546 (United States of America) Telephone: 212-526-9986 Ref. Numbers: - -------------------------------------------------------------------------------- Dear Sir or Madam: The purpose of this communication (this "CONFIRMATION") is to confirm the terms and conditions of the transaction (the "TRANSACTION") entered into between Lehman Brothers OTC Derivatives Inc. ("PARTY A") and Scottish Re Group Limited ("PARTY B") on the Trade Date specified below. This Confirmation constitutes a "Confirmation" as referred to in the Agreement specified below. This Confirmation is sent on behalf of both Lehman Brothers, Inc. and Lehman Brothers OTC Derivatives Inc.. LEHMAN BROTHERS OTC DERIVATIVES INC. IS NOT A MEMBER OF THE SECURITIES INVESTOR PROTECTION CORPORATION. This Confirmation evidences a complete and binding agreement between Party A and Party B as to the terms of the Transaction to which this Confirmation relates. This Confirmation shall supplement, form a part of, and be subject to an agreement in the form of the 1992 ISDA Master Agreement (Multicurrency-Cross Border) (the "AGREEMENT") as if we had executed an agreement in such form (but without any Schedule) on the Trade Date of this Transaction. In the event of any inconsistency between the provisions of that Agreement, and this Confirmation, this Confirmation will prevail for the purpose of this Transaction. The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the "EQUITY DEFINITIONS") and the 2000 ISDA Definitions (the "SWAP DEFINITIONS", and together with the Equity Definitions, the "DEFINITIONS"), in each case as published by the International Swaps and Derivatives Association, Inc. ("ISDA"), are incorporated into this Confirmation. References herein to "Transaction" shall be deemed references to "Swap Transaction" for purposes of the Swap Definitions. In the event of any inconsistency between the Equity Definitions and the Swap Definitions, the Equity Definitions will govern. In the event of any inconsistency between either set of Definitions and this Confirmation, this Confirmation will govern. Party A and Party B each represents that entering into the Transaction is within its capacity, is duly authorized and does not violate any laws of its jurisdiction of organization or residence or the terms of any agreement to which it is a party. Party A and Party B each represents that (a) it is not relying on the other party in connection with its decision to enter into this Transaction, and neither party is acting as an advisor to or fiduciary of the other party in connection with this Transaction regardless of whether the other party provides it with market information or its views; (b) it understands the risks of the Transaction and any legal, regulatory, tax, accounting and economic consequences resulting therefrom; and (c) it has determined based upon its own judgment and upon any advice received from its own professional advisors as it has deemed necessary to consult that entering into the Transaction is appropriate for such party in light of its financial capabilities and objectives. Party A and Party B each represents that upon due execution and delivery of this Confirmation, it will constitute a legally valid and binding obligation, enforceable against it in accordance with its terms, subject to applicable principles of bankruptcy and creditors' rights generally and to equitable principles of general application. The terms of the Transaction to which this Confirmation relates are as follows: Agent: Lehman Brothers Inc. ("LBI") is acting as agent on behalf of Party A and Party B for this Transaction. LBI has no obligations, by guarantee, endorsement or otherwise, with respect to the performance of this Transaction by either party. Trade Date: December 15, 2005 Effective Date: December 21, 2005 Buyer: Party A Seller: Party B Shares: Ordinary shares of Scottish Re Group Limited (the "ISSUER") Ticker Symbol: ("SCT") Number of Shares: 1,644,737 (such Number of Shares, absent adjustments made pursuant to "Share Adjustments" and "Extraordinary Events" hereunder, being the maximum number of Shares deliverable under this Transaction); provided that if Party A determines at any time that it (or its affiliates) will be unable to complete the public sale of Shares pursuant to "Registration" below in compliance with all applicable securities laws and regulations in an amount equal to the Number of Shares for any reason whatsoever (including, without limitation, the unavailability of an effective Registration Statement (as defined below) or legally sufficient Prospectus (as defined below) required for such sales), Party A shall have the right to reduce the Number of Shares (and correspondingly the Forward Price) to an amount elected by it in its sole discretion that is no more than the number of Shares that Party A has publicly sold prior to such time under the Registration Statement, and the Calculation Agent shall make adjustments to this Transaction to account for such lesser Number of Shares so selected by Party A. If Party A makes an adjustment pursuant to this provision, Party A shall pay to Party B within 5 Currency Business Days an amount equal to (a) the product of (i) the Gross Spread Effort ID: [ ]/ Global Deal ID: [ ] 2 multiplied by (ii) the difference between (A) one minus (B) the quotient of (x) the Number of Shares after making such an adjustment divided by (y) the Number of Shares prior to making such an adjustment, plus (b) the product of (i) the Premium multiplied by (ii) the difference between (A) one minus (B) the quotient of (x) the Number of Shares after making such an adjustment divided by (y) the Number of Shares prior to making such an adjustment, minus (c) the amount of any loss incurred by Party A due to the inability to hedge or in unwinding or re-establishing hedges to this Transaction as a result of the adjustment in Number of Shares, including benefit of the bargain. Forward Price: USD 37,500,000 Fees: On the third Currency Business Day following the Trade Date, Party B shall pay to Party A an amount equal to the sum of (i) the Premium and (ii) the Gross Spread by wire transfer of immediately available funds to an account specified by Party A Premium: USD 1,578,947.52 (USD 0.96 per Share) Gross Spread: 4.75% multiplied by the Number of Shares multiplied by USD 24.00 Prepayment: Inapplicable Variable Obligation: Applicable Forward Floor Price: USD 22.80 Forward Cap Price: USD 28.80 Exchange: New York Stock Exchange Related Exchange: All Exchanges EARLY PAYMENTS: Draw Down Notional Amount: An amount specified by Party B to Party A upon five Scheduled Trading Days' notice prior to the Draw Down Payment Date; provided that the aggregate amount of all Draw Down Notional Amounts (the "AGGREGATE DRAW DOWN NOTIONAL AMOUNT") specified by Party B from time to time shall not exceed 75% of the Forward Price. Each Draw Down Notional Amount will be at least USD 10,000,000, unless the amount permitted to be drawn in accordance with the preceding paragraph is less than USD 10,000,000, in which case such lesser amount may be drawn. Effort ID: [ ]/ Global Deal ID: [ ] 3 Draw Down Amount: With respect to a Draw Down Notional Amount, the amount calculated by the Calculation Agent as of the Draw Down Payment Date equal to the quotient of (i) the Draw Down Notional Amount divided by (ii) (1 + Days Discount Rate) ---- 360 Where, "DISCOUNT RATE" is the sum of (i) the zero coupon rate derived by the Calculation Agent from the swaps curve shown on Bloomberg Page USSW as of 11:00 a.m. London time. The rate will be determined (using linear interpolation as needed) for a tenor equal to Days. The rate will be expressed as a simple, non-compounded interest rate on an Actual/360 day-count basis. If that Bloomberg page is no longer published, is unavailable or reflects information which the Calculation Agent believes erroneous, then the Calculation Agent may select a different third party source of like curves and (ii) 30 basis points. "DAYS" means the number of days from and including the Draw Down Payment Date to but excluding the Scheduled Maturity Date. Draw Down Payment Date: The date specified by Party B as the payment date for the related Draw Down Amount; provided that no Draw Down Payment Date shall occur (i) prior to Party B receiving notice from Party A that Party A has completed the public sale of the Number of Shares pursuant to "Registration" below in compliance with all applicable securities laws and regulations and (ii) after the first Valuation Date. Early Payment: On each Draw Down Payment Date, Party A shall pay to Party B the Draw Down Amount by wire transfer of immediately available funds to an account specified by Party B. VALUATION: Settlement Calculations: For purposes of determining the Forward Cash Settlement Amount and the Number of Shares to be Delivered, the Transaction shall be split into 30 components of equal size (each, a "COMPONENT"), with the Number of Shares allocated equally among them. Each Component will have its own Valuation Date, with the Number of Shares to be Delivered for such Component being determined as if it were a separate Transaction; provided that the Settlement Date in respect of all Components shall be the Effort ID: [ ]/ Global Deal ID: [ ] 4 Settlement Date determined as set forth in Section 9.4 of the Equity Definitions for the Valuation Date of the final Component hereunder; provided further that if Party B elects Cash Settlement or Net Share Settlement pursuant to "Settlement Method Election" below, Party A may increase the number of Components and the corresponding number of Valuation Dates if in its sole good faith discretion Party A deems such increase prudent in light of the federal securities laws; provided further that, the Calculation Agent may increase the number of Components and the corresponding number of Valuation Dates (and, if such increase occurs following the first Valuation Date, make the appropriate corresponding adjustment to the Number of Shares to be Delivered), such number of Components and Valuation Dates not to exceed 60, if in the sole good faith discretion of the Calculation Agent market conditions necessitate such an increase. Valuation Time: The close of trading on the Exchange, without regard to extended trading hours. Valuation Date: For each Component, as set forth in Annex A hereto, with all Valuation Dates for all Components to be the 30 consecutive Scheduled Trading Days beginning on, and including, the twenty-ninth Scheduled Trading Day immediately preceding the Scheduled Maturity Date, subject to any adjustment pursuant to "Settlement Calculations"; provided that if any such date is a Disrupted Day, the Valuation Date for the relevant Component shall be the first succeeding Scheduled Trading Day that is not a Disrupted Day and which is not, or is not deemed to be, a Valuation Date in respect of any other Component under this Transaction; provided further that if the Valuation Date for the relevant Component has not occurred pursuant to the preceding proviso as of the eighth Scheduled Trading Day following the scheduled Valuation Date for the final Component, that eighth Scheduled Trading Day shall be the Valuation Date (irrespective of whether such day is a Valuation Date in respect of any other Component under this Transaction) and the Settlement Price shall be the price determined by the Calculation Agent. Market Disruption Event: For purposes of this Transaction (including the provisions relating to Forward Price), Section 6.3(a)(ii) of the 2002 Definitions is replaced by the following: "(ii) an Exchange Disruption, which in either case the Calculation Agent determines is material, occurs at Effort ID: [ ]/ Global Deal ID: [ ] 5 any time during regular trading hours on the Exchange on the relevant Scheduled Trading Day, or" Scheduled Maturity Date: December 29, 2006 SETTLEMENT TERMS: Settlement Currency: USD Settlement Price: The volume-weighted average price calculated based on the prices of the Shares traded on the Exchange on the relevant Valuation Date. Settlement Method Election: Applicable; provided that Party B shall also be entitled to elect Net Share Settlement (as defined below); provided further that if Party B elects Cash Settlement or Net Share Settlement with respect to this Transaction, Party B shall, on the Settlement Method Election Date, deemed to have made the representation contained in the last sentence of paragraph (i) of "Additional Representations, Warranties and Agreements of Party B" below to Party A. For the avoidance of doubt, the parties hereto agree that the election that Party B makes pursuant to this paragraph shall apply to all Components. Electing Party: Party B Settlement Method Election Date: The 75th Scheduled Trading Day prior to the Scheduled Maturity Date Default Settlement Method: Physical Settlement PHYSICAL SETTLEMENT TERMS: Physical Settlement: Applicable; provided that, notwithstanding Section 9.2(a)(ii) of the Equity Definitions, on the Settlement Date, Party A will pay to Party B an amount equal to the difference between (i) the Forward Price minus (ii) the Aggregate Draw Down Notional Amount, and Party B will deliver to Party A the Number of Shares to be Delivered and will pay to Party A the Fractional Share Amount, if any, in respect of all Valuation Dates for all Components hereunder. Number of Shares to be Delivered: Notwithstanding Section 9.5 of the Equity Definitions, the Number of Shares to be Delivered in respect of each Component shall be: (i) if the Settlement Price is less than or equal to the Forward Floor Price, the Number of Shares for such Component; (ii) if the Settlement Price is greater than the Forward Floor Price but less than or equal to the Forward Cap Price, a number of Shares equal to Effort ID: [ ]/ Global Deal ID: [ ] 6 the Forward Price divided by the Settlement Price divided by the number of Components; and (iii) if the Settlement Price is greater than the Forward Cap Price, a number of Shares equal to the product of (A) 1 minus the quotient of (1) the difference between (x) Forward Cap Price minus (y) the Forward Floor Price divided by (2) the Settlement Price, multiplied by (B) the Number of Shares for such Component. Failure to Deliver Inapplicable. CASH SETTLEMENT TERMS: Cash Settlement: Applicable, provided that Party B properly elects cash settlement in accordance with the conditions set forth in the "Settlement Method Election" provision above. (i) If the Cash Settlement Amount is a positive number, Party B shall pay to Party A the Cash Settlement Amount on the Cash Settlement Payment Date. (ii) If the Cash Settlement Amount is a negative number, Party A shall pay to Party B the absolute value of the Cash Settlement Amount on the Cash Settlement Payment Date. Cash Settlement Amount: An amount, as calculated by the Calculation Agent, equal to the sum of (i) the Forward Cash Settlement Amount plus (ii) the Aggregate Draw Down Notional Amount. Cash Settlement Payment Date Three (3) Currency Business Days following the final Valuation Date. NET SHARE SETTLEMENT TERMS: Net Share Settlement: Applicable; provided that Party B properly elects net share settlement in accordance with the conditions set forth in the "Settlement Method Election" provision above. (i) If the Cash Settlement Amount is a positive number, Party B shall deliver to Party A a number of Shares equal to the quotient of (A) the Cash Settlement Amount divided by (B) the Settlement Price on the Valuation Date. (ii) If the Cash Settlement Amount is negative, Party A shall deliver to Party B a number of Shares equal to the quotient of (A) the absolute value of the Cash Settlement Amount divided by (B) the Settlement Price on the Valuation Date. Effort ID: [ ]/ Global Deal ID: [ ] 7 No fractional Shares shall be delivered in connection with Net Share Settlement, and the value of any fractional Share otherwise deliverable shall be paid in cash on the relevant Net Share Settlement Date (such value to be determined by multiplying such fractional Share by the Settlement Price on the relevant Valuation Date). If the Transaction is to be Net Share Settled, the provisions of Sections 9.8, 9.9, 9.10, 9.11 and 9.12 of the Equity Definitions will be applicable, except that all references in such provisions to "Physically Settled" shall be read as references to "Net Share Settled". "Net Share Settled" in relation to a Transaction means that Net Share Settled is applicable to the Transaction. SHARE ADJUSTMENTS: Method of Adjustment: Calculation Agent Adjustment; provided, however, that adjustments may be made to account for changes in volatility, expected dividends, stock loan rate and liquidity relative to the relevant Share but only in respect of Potential Adjustment Events of the types described in Sections 11.2(e)(ii)(B) and 11.2(e)(ii)(C) or Section 11.2(e)(vi) of the 2002 Definitions, any Announcement Event, and events of the types described in Sections and 11.2(e)(vii) to the extent analogous to the foregoing. "Announcement Event" shall mean the occurrence of the Announcement Date of a Merger Event or Tender Event and will constitute a Potential Adjustment Event, if the Merger Date or Closing Date does not occur on or prior to the final Valuation Date. EXTRAORDINARY EVENTS: CONSEQUENCES OF MERGER EVENTS: Share-for-Share: Modified Calculation Agent Adjustment Share-for-Other: Cancellation and Payment (Calculation Agent Determination) Share-for-Combined: Modified Calculation Agent Adjustment TENDER OFFER: Applicable CONSEQUENCES OF TENDER OFFERS: Share-for-Share: Modified Calculation Agent Adjustment Effort ID: [ ]/ Global Deal ID: [ ] 8 Share-for-Other: Modified Calculation Agent Adjustment Share-for-Combined: Modified Calculation Agent Adjustment New Shares: The definition of "New Shares" in Section 12.1 of the Equity Definitions shall be amended by deleting subsection (i) in its entirety and replacing it with the following: "(i) the shares are re-listed, re-traded or re-quoted on any exchange or quotation system which qualifies as an Exchange under Section 1.25(b) of the Definitions and". Tender Offers: The definition of "Tender Offer" in Section 12.1 of the Equity Definitions will be amended by replacing the phrase "outstanding voting shares of the Issuer" in the fourth line thereof with "outstanding Shares of the Issuer". Modified Calculation Agent Adjustment: For greater certainty, the definition of "Modified Calculation Adjustment" in Sections 12.2 and 12.3 of the Equity Definitions shall be amended by adding the following italicized language after the stipulated parenthetical provision: "(including adjustments to account for changes in volatility, expected dividends, stock loan rate or liquidity relevant to the Shares or to the Transaction) from the Announcement Date to the Merger Date (Section 12.2) or Tender Offer Date (Section 12.3)," Composition of Combined Consideration: Not Applicable Nationalization or Delisting: Applicable Delisting: Notwithstanding Section 12.6(a)(iii) of the 2002 Definitions, it will constitute a Delisting if the shares are re-listed, re-traded or re-quoted on any exchange or quotation system which does not qualify as an Exchange under Section 1.25(b) of the Definitions. ADDITIONAL DISRUPTION EVENTS: Change in Law: Applicable Insolvency, Insolvency Filing and Other Bankruptcy Events: Notwithstanding anything to the contrary in the Equity Definitions, upon an Insolvency, Insolvency Filing or any event set forth under Section 5(a)(vii) of the Agreement, this Confirmation and all obligations and rights of Party A and Party B hereunder, including the rights and obligations of Party A to pay the Forward Price and Party B to deliver Shares, shall immediately and automatically terminate, without the necessity of any notice, payment or action by any party. The definition of "Insolvency Filing" in Section 12.9 of the Equity Definitions shall be amended by deleting the clause "provided that such proceedings instituted Effort ID: [ ]/ Global Deal ID: [ ] 9 or petitions presented by creditors and not consented to by the Issuer shall not be deemed an Insolvency Filing" at the end of such definition and replacing it with the following: "; or it has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors' rights, or a petition is presented for its winding-up or liquidation by a creditor and such proceeding is not dismissed, discharged, stayed or restrained in each case within fifteen (15) days of the institution or presentation thereof." Hedging Disruption: Applicable Increased Cost of Hedging: Applicable Loss of Stock Borrow: Applicable Section 12.9(a)(vii) and Section 12.9(b)(iv) of the Equity Definitions are amended by deleting all references to "a rate equal to or less than the Maximum Stock Loan Rate" and replacing them with "a Stock Collateral Rate that is equal to or greater than the Minimum Stock Loan Rate." For greater certainty, the Stock Collateral Rate will be deemed to be greater than the Minimum Stock Loan Rate if the spread below the applicable floating rate decreases. "STOCK COLLATERAL RATE" means the rate of return on collateral posted in connection with any Shares borrowed in connection with a Transaction, net of any costs or fees (including, for greater certainty, any lender's borrow fees). Minimum Stock Loan Rate: Fed Funds - 2.0% Increased Cost of Stock Borrow: Applicable Section 12.9(a)(viii) of the Equity Definitions shall be deleted in its entirety and replaced with the following: "Increased Cost of Stock Borrow" means that the Hedging Party would earn a Stock Collateral Rate that is less than the Initial Stock Loan Rate. For greater certainty, the Stock Collateral Rate will be deemed to be less than the Initial Stock Loan Rate if the spread below the applicable floating rate increases. Section 12.9 (b)(v) of the Equity Definitions is amended by deleting all references to "a rate equal to or less than the Initial Stock Loan Rate" and replacing them with "a Stock Collateral Rate that is equal to or Effort ID: [ ]/ Global Deal ID: [ ] 10 greater than the Initial Stock Loan Rate". Initial Stock Loan Rate: USD-Federal Funds Rate minus 20 basis points, as adjusted by the Calculation Agent to reflect any subsequent Price Adjustment due to an Increased Cost of Stock Borrow. Hedging Party: Party A Determining Party: Party A Agreements and Acknowledgments Regarding Hedging Activities: Applicable Additional Event of Default: In addition to the Events of Default set forth in the Agreement, it shall be an Event of Default with respect to which Party B is the Defaulting Party if (i) any representation made at the time the Underwriting Agreement is entered into or repeated on the Closing Date (as defined in the Underwriting Agreement) by Party B in the Underwriting Agreement (or any certificate delivered thereunder) proves to have been incorrect or misleading in any material respect when made or repeated or (ii) any representation contained in Sections 1(I) (b), (q) or (y) of the Underwriting Agreement deemed to be made on any day proves to have been incorrect or misleading in any material respect when deemed to have been made unless Party B shall have given notice to Party A that such representation is not to be deemed to be made on such day. MISCELLANEOUS: Additional Provisions: (a) Party B represents and warrants that it has received and read and understands the Notice of Regulatory Treatment and the OTC Option Risk Disclosure Statement. (b) The Agent will furnish Party B upon written request a statement as to the source and amount of any remuneration received or to be received by the Agent in connection with the Transaction evidenced hereby. (c) Notwithstanding any provision of the Agreement, or any other agreement between the parties to the contrary, the obligations of Party B hereunder are not secured by any collateral. Party A may set off its obligations under this Confirmation against any other contract or agreement with Party B relating to Shares entered into on the same Trade Date, whether such contract or agreement settles in Shares, cash or any other property or securities. Effort ID: [ ]/ Global Deal ID: [ ] 11 (d) Immediately upon the Registration Statement and the Prospectus first becoming available following the Issuer's first earnings announcement date in 2006 (the "EARNINGS ANNOUNCEMENT"), if the price of the Shares is less than the price of the Shares on Trade Date, Party A may elect to reduce the Number of Shares (and correspondingly the Forward Price by an amount that Party A reasonably deems necessary to reflect increases in its "hedge ratio" against this Transaction. For the avoidance of doubt, the parties hereto agree that (i) Party A shall be entitled to make an election pursuant to this paragraph only once, (ii) in making such adjustments, Party A shall act reasonably to preserve the value of the initial transaction to Party A. If Party A makes an adjustment pursuant to this provision, Party A shall pay to Party B within 5 Currency Business Days an amount equal to (a) the product of (i) the Gross Spread multiplied by (ii) the difference between (A) one minus (B) the quotient of (x) the Number of Shares after making such an adjustment divided by (y) the Number of Shares prior to making such an adjustment, plus (b) the product of (i) the Premium multiplied by (ii) the difference between (A) one minus (B) the quotient of (x) the Number of Shares after making such an adjustment divided by (y) the Number of Shares prior to making such an adjustment, minus (c) the amount of any loss incurred by Party A due to the inability to hedge or in unwinding or re-establishing hedges to this Transaction as a result of the adjustment in Number of Shares, including benefit of the bargain. (e) For the avoidance of doubt, both parties hereto acknowledge and agree that any Shares issued by Party B hereunder shall be issued at a price not less than their par value and any Shares delivered by Party A to Party B pursuant to Net Share Settlement hereunder shall be redeemed or repurchased by Party B in accordance with the provisions, terms and conditions of the Companies Law (2004 Revisions) of the Cayman Islands and Party B's articles of association. Conditions to Effectiveness: The obligations of Party A hereunder shall be subject to the conditions precedent that (i) the representations and warranties of Party B contained in the Underwriting Agreement, dated the date hereof, among Party A, Party B, Bear, Stearns & Co. Inc., Lehman Brothers Inc. and the other underwriters named therein (the "UNDERWRITING AGREEMENT") and any certificate delivered pursuant thereto by Party B Effort ID: [ ]/ Global Deal ID: [ ] 12 be true and correct on the Effective Date as if made on the Effective Date, (ii) Party B have performed all of the obligations required to be performed by it under the Underwriting Agreement on or prior to the Effective Date and (iii) the conditions set forth in Section 6 of the Underwriting Agreement shall have been satisfied or waived by the representatives of the underwriters thereunder. Additional Termination Events: Each of the following shall constitute an "ADDITIONAL TERMINATION EVENT" and Party B shall be the sole Affected Party pursuant to such Additional Termination Event: (a) Party B declares, on any day following the Trade Date, a distribution, issue or dividend to existing holders of the Shares of (i) an extraordinary cash dividend, (ii) a regular quarterly dividend in an amount greater than USD 0.05 per Share per quarter (such quarterly dividends, adjusted by the Calculation Agent for stock splits, or stock dividends relating to the Shares), or (iii) securities or share capital of another issuer acquired or owned (directly or indirectly) by Party B as a result of a spin-off or other similar transaction or (iv) any other type of securities (other than Shares, which may constitute a Potential Adjustment Event), rights or warrants or other assets, in any case for payment (cash or other consideration) at less than the prevailing market price as determined by Party A. Additional Representations, Warranties and Agreements of Party B: In addition to the representations set forth in the Agreement, Party B further represents, warrants and agrees that; (a) It is not entering into this Transaction on behalf of or for the accounts of any other person or entity, and will not transfer or assign its obligations under this Transaction or any portion of such obligations to any other person or entity except in compliance with applicable laws and the terms of this Transaction. (b) If Party B purchases any Shares pursuant to this Transaction, such purchase(s) will comply with (i) all laws and regulations applicable to it and (ii) all contractual obligations of Party B. (c) At all times until termination of this Transaction, Party B is an "eligible contract participant" as the term is defined in the Commodity Futures Modernization Act of 2000. (d) Any Shares, when issued and delivered in Effort ID: [ ]/ Global Deal ID: [ ] 13 accordance with the terms of the Transaction, will be duly authorized and validly issued, fully paid and nonassessable, and the issuance thereof will not be subject to any preemptive or similar rights. (e) Party B has reserved and will keep available, free from preemptive rights, out of its authorized but unissued Shares, solely for the purpose of issuance upon settlement of the Transaction as herein provided the full number of Shares as shall then be issuable upon Physical Settlement of the Transaction. For the avoidance of doubt, the parties hereto acknowledge that such number of reserved shares does not need to exceed the Number of Shares. All Shares so issuable upon Physical Settlement or Net Physical Settlement of the Transaction shall, upon such issuance, be accepted for listing on the Exchange. (f) Party B agrees not to repurchase any Shares if, immediately following such repurchase, the Number of Shares would be equal to or greater than 4.0% of the number of then-outstanding Shares. (g) Party B is not insolvent, nor will Party B be rendered insolvent as a result of this Transaction. (h) Neither Party A nor any of its affiliates has advised Party B with respect to any legal, regulatory, tax, accounting or economic consequences arising from this Transaction, and neither Party A nor any of its affiliates is acting as agent (other than LBI as dual agent if specified above), or advisor for Party B in connection with this Transaction. (i) Each of Party B's required filings under the Securities Act (as defined below) and the Securities Exchange Act of 1934, as amended (the "Exchange Act") have been filed and that, as of the respective dates thereof, such filings (when considered together with the Issuer's filings under the Exchange Act) did not include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading. It is not entering into this Transaction while in possession of material non-public information concerning the business, operations or prospects of the Issuer. (j) It is not entering into this Transaction to create actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for Shares), to manipulate the price of the Shares (or any Effort ID: [ ]/ Global Deal ID: [ ] 14 security convertible into or exchangeable for Shares) or to facilitate a distribution of Shares (or any security convertible into or exchangeable for Shares). (k) It has not entered into any obligation that would contractually limit it from effecting its performance of the transactions contemplated hereby and it agrees not to enter into any such obligation during the term of this Transaction. (l) The Transaction has been approved by its board of directors and that such Transaction has been publicly disclosed. Registration: (a) A registration statement ("REGISTRATION STATEMENT"), which shall be a shelf registration statement filed pursuant to Rule 415 under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and a prospectus thereunder (the "PROSPECTUS"), covering the public sale of the Number of Shares hereunder shall have been filed with, and become effective pursuant to the rules of, the Securities and Exchange Commission no later than one Exchange Business Day prior to the Trade Date, and such Registration Statement shall continue to be in effect and such Prospectus shall be legally usable at all times (other than the period commencing on the first day of each fiscal quarter of the Issuer to the day of the Earnings Announcement; provided that solely for the first fiscal quarter of 2006 such period shall commence on January 7, 2006, and during such other periods when Party B notifies Party A that it is in possession of material non-public information that the board of directors of Party B has determined would be in the best interests of Party B not to disclose publicly) to and including the date that Party A or it's affiliate(s) has fully and completely established its hedge by selling an amount of Shares equal to the Number of Shares under such Registration Statement and such Prospectus. (b) The contents of such Registration Statement and Prospectus (including, without limitation, any sections describing the plan of distribution) shall be reasonably satisfactory to Party A and such affiliate(s), (c) Party A and such affiliate(s) shall have been afforded a reasonable opportunity to conduct a due diligence investigation with respect to Party B customary in scope for transactions pursuant to which such affiliate acts as an underwriter of equity securities and the results of such investigation are Effort ID: [ ]/ Global Deal ID: [ ] 15 satisfactory to Party A or such affiliate, in its respective discretion, and (d) As of the Trade Date, the Underwriting Agreement shall have been entered into with Party A in connection with the public resale by Party A of the Shares comprising Party A's hedge. Covenant of Party B: The parties acknowledge and agree that any Shares delivered by Party B to Party A on any Settlement Date and returned by Party A to securities lenders from whom Party A borrowed Shares in connection with hedging its exposure to the Transaction will be freely saleable without further registration or other restrictions under the Securities Act, in the hands of those securities lenders. Accordingly, Party B agrees that the Shares that it delivers to Party A on the Settlement Date will not bear a restrictive legend and that such Shares will be deposited in, and the delivery thereof shall be effected through the facilities of, the Clearance System. Private Placement Procedures: If Party B is unable to comply with the provisions of "Covenant of Party B" above because of a change in law, or Party A otherwise determines that in its reasonable opinion any Shares or Share Termination Delivery Units to be delivered to Party A by Party B hereunder may not be freely returned by Party A to securities lenders as described under "Covenant of Party B" above, then delivery of any such Shares or Share Termination Delivery Units (the "PRIVATE SECURITIES") shall be effected pursuant to this provision, unless waived by Party A. If Party B delivers the Private Securities pursuant to this provision (a "PRIVATE PLACEMENT SETTLEMENT"), then delivery of Private Securities by Party B shall be effected pursuant to the private placement procedures set forth in Annex B; provided that Party B shall not effect a Private Placement Settlement if, on the date of any anticipated delivery as set forth hereunder, it has taken, or caused to be taken, any action that would make unavailable either the exemption pursuant to Section 4(2) of the Securities Act for the sale by Party B to Party A (or any affiliate designated by Party A) of the Private Securities or the exemption pursuant to Section 4(1) or Section 4(3) of the Securities Act for resales of the Private Securities by Party A (or any such affiliate of Party A), in which case such delivery shall be delayed until, in the opinion of Party A, such exemptions are available and Party A may make an adjustment to the number of Private Securities to be Effort ID: [ ]/ Global Deal ID: [ ] 16 delivered to account for any such delay. Maximum Share Delivery: Notwithstanding any other provision of this Confirmation, in no event will Party B be required to deliver more than 5,000,000 Shares to Party A (as adjusted by the Calculation Agent for any stock splits, stock dividends or similar events). No Collateral: Notwithstanding any other provision of the Agreement or any other agreement between the parties to the contrary, the obligations of Party A and Party B hereunder are not secured by any collateral. Status of Claims in Bankruptcy: Party A acknowledges and agrees that this Confirmation is not intended to convey to Party A rights with respect to the transactions contemplated hereby that are senior to the claims of ordinary shareholders in any bankruptcy proceedings of Party B; provided, however, that nothing herein shall limit or shall be deemed to limit Party A's right to pursue remedies in the event of a breach by Party B of its obligations and agreements with respect to this Confirmation and the Agreement. For the avoidance of doubt, nothing in this Confirmation shall limit the claim of Party A in any bankruptcy proceedings of Party B in respect of any debt obligations held by Party A. Alternative Calculations and Payment on Early Termination and on Certain Extraordinary Events: If, in respect of the Transaction, an amount is payable by Party A to Party B, (i) pursuant to Sections 12.2, 12.3, 12.6, 12.7 or 12.9 of the Equity Definitions (except in the event of a Nationalization, Insolvency, Tender Offer or a Merger Event, in each case, in which the consideration to be paid to holders of Shares consists solely of cash) or (ii) pursuant to Section 6(d)(ii) of the Agreement (except in the event of an Event of Default in which Party B is the Defaulting Party or a Termination Event in which Party B is the Affected Party that resulted from an event or events outside Party B's control) (a "Payment Obligation"), Party B shall have the right, in its sole discretion, to satisfy or, if applicable, require Party A to satisfy any such Payment Obligation by the Share Termination Alternative (as defined below) by giving irrevocable telephonic notice to Party A, confirmed in writing within one Currency Business Day, no later than 4:00 p.m. New York local time on the Merger Date, Tender Offer Date, Announcement Date or Early Termination Date, as applicable ("Notice of Share Termination"). Upon Notice of Share Termination the following provisions shall apply: Effort ID: [ ]/ Global Deal ID: [ ] 17 Share Termination Alternative: Applicable and means that Party A shall deliver to Party B the Share Termination Delivery Property on the date when the Payment Obligation would otherwise be due pursuant to Section 12.7 or 12.9 of the Equity Definitions or Section 6(d)(ii) and 6(e) of the Agreement, as applicable or such later date as the Calculation Agent may determine (the "SHARE TERMINATION PAYMENT DATE"), in satisfaction of the Payment Obligation. Share Termination Delivery Property: A number of Share Termination Delivery Units, as calculated by the Calculation Agent, equal to the Payment Obligation divided by the Share Termination Unit Price. The Calculation Agent shall adjust the Share Termination Delivery Property by replacing any fractional portion of a security therein with an amount of cash equal to the value of such fractional security based on the values used to calculate the Share Termination Unit Price. Share Termination Unit Price: The value to Party A of property contained in one Share Termination Delivery Unit on the date such Share Termination Delivery Units are to be delivered as Share Termination Delivery Property, as determined by the Party A in its discretion by commercially reasonable means and notified by the Calculation Agent to Party A at the time of notification of the Payment Obligation and, if such value is insufficient or incorrect, from time to time thereafter.. Share Termination Delivery Unit: In the case of a Termination Event or Event of Default, one Share or, in the case of Nationalization, Insolvency or Merger Event or Tender Offer, a unit consisting of the number or amount of each type of property received by a holder of one Share (without consideration of any requirement to pay cash or other consideration in lieu of fractional amounts of any securities) in such Nationalization, Insolvency, Merger Event or Tender Offer, as determined by the Calculation Agent. If a Share Termination Delivery Unit consists of property other than cash or New Shares and if Party B provides irrevocable written notice to the Calculation Agent on or prior to the Merger Date that it elects to have Party A deliver cash, New Shares or a combination thereof (in such proportion as Party B designates) in lieu of such other property, the Calculation Agent will Effort ID: [ ]/ Global Deal ID: [ ] 18 replace such property with cash, New Shares or a combination thereof as components of a Share Termination Delivery Unit in such amounts, as determined by the Calculation Agent in its discretion by commercially reasonable means, as shall have a value equal to the value of the property so replaced. If such Nationalization, Insolvency, Merger Event or Tender Offer involves a choice of consideration to be received by holders, such holder shall be deemed to have elected to receive the maximum possible amount of cash. Failure to Deliver: Applicable Other applicable provisions: If the Transaction is to be Share Termination Settled, the provisions of Sections 9.8, 9.9, 9.10, 9.11 and 9.12 (as modified above) of the Equity Definitions will be applicable, except that all references in such provisions to "Physically-Settled" shall be read as references to "Share Termination Settled" and all references to "Shares" shall be read as references to "Share Termination Delivery Units". "Share Termination Settled" in relation to a Transaction means that Share Termination Settlement is applicable to the Transaction. Limit on Beneficial Ownership: Notwithstanding any other provisions hereof, Party A shall not be entitled to receive Shares hereunder (whether in connection with the purchase of Shares on the Settlement Date or otherwise) to the extent (but only to the extent) that such receipt would result in Party A and its affiliates beneficially owning (as such term is defined for purposes of Section 13(d) of the Exchange Act) at any time in excess of 4.9% of the outstanding Shares. Any purported delivery hereunder shall be void and have no effect to the extent (but only to the extent) that such delivery would result in Party A and its affiliates directly or indirectly so beneficially owning in excess of 4.9% of the outstanding Shares. If any delivery owed to Party A hereunder is not made, in whole or in part, as a result of this provision, Party B's obligation to make such delivery shall not be extinguished and Party B shall make such delivery as promptly as practicable after, but in no event later than one Exchange Business Day after, Party A gives notice to Party B that such delivery would not result in Party A and its affiliates directly or indirectly so beneficially owning in excess of 4.9% of the outstanding Shares. Effort ID: [ ]/ Global Deal ID: [ ] 19 Bankruptcy Code: Without limiting any other protections under the Bankruptcy Code (Title 11 of the United States Code) (the "Bankruptcy Code"), the Parties hereto intend for: (a) This Transaction and the Agreement to be a "swap agreement" as defined in the Bankruptcy Code, and the parties hereto to be entitled to the protections afforded by, among other Sections, Section 560 of the Bankruptcy Code. (b) A party's right to liquidate this Transaction and to exercise any other remedies upon the occurrence of any Event of Default or Termination Event under the Agreement or this Transaction to constitute a "contractual right" as described in Section 560 of the Bankruptcy Code. (c) All payments for, under or in connection with this Transaction or the Agreement, all payments for any securities or other assets and the transfer of such securities or other assets to constitute "transfers" under a "swap agreement" as defined in the Bankruptcy Code. Right to Extend: Party A may extend, for as long as it is reasonably necessary, any Settlement Date or any other date of delivery by Party A, with respect to some or all of the Shares hereunder, if Party A determines, in its reasonable discretion, that such extension is reasonably necessary to enable Party A to effect purchases of Shares in connection with its hedging activity hereunder in a manner that would, if Party A were Party B or an affiliated purchaser of Party B, be in compliance with applicable legal and regulatory requirements. Addresses for Notices: For the purpose of Section 12(a) of the Agreement: Address for notices or communications to Party A: Address: Lehman Brothers OTC Derivatives Inc. 745 Seventh Avenue New York NY 10019 Attention: Stephen Roti Telephone No.: 212-526-0055 Facsimile No.: 917-522-0561 With a copy to: Address: Lehman Brothers, Inc 745 Seventh Avenue New York NY 10019 Attention: Andrew Yare Telephone No.: 212-526-9986 Effort ID: [ ]/ Global Deal ID: [ ] 20 Facsimile No.: 646-885-9546 Address for notices or communications to Party B: Address: Scottish Re Group Limited Crown House, Third Floor 4 Par-la-Ville Road Hamilton, Bermuda HM 08 Attention: Dean Miller Telephone No.: 441-298-4395 Facsimile No.: 441-295-7576 Office: For the purposes of this Transaction, Party A is not a Multibranch Party, and Party B is not a Multibranch Party. Transfer: Notwithstanding Section 7 of the Agreement, Party A may assign its rights and obligations under this Transaction, in whole and not in part, to any Affiliate of Lehman Brothers Holdings Inc. ("HOLDINGS") effective upon delivery to Party B of the full unconditional guarantee by Holdings, in favor of Party B, of the obligations of such Affiliate; provided, however, any provision to the contrary in the Agreement, when executed, shall take precedence over this election. Payments on Early Termination: Party A and Party B agree that for this Transaction, for the purposes of Section 6(e) of the Agreement, Loss and the Second Method will apply Governing Law: The laws of the State of New York (without reference to choice of law doctrine). Guarantee: The Guarantee of Holdings, which will be a Credit Support Document and which Party A will provide upon execution of this Confirmation. Holdings will be a Credit Support Provider with respect to Party A. Termination Currency: USD Calculation Agent: Lehman Brothers Inc. Waiver of Jury Trial: Each party waives, to the fullest extent permitted by applicable law, any right it may have to a trial by jury in respect of any suit, action or proceeding relating to the Transaction. Each party (i) certifies that no representative, agent or attorney of the other party has represented, expressly or otherwise, that such other party would not, in the event of such a suit, action or proceeding, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other party have been induced to enter into the Transaction, as applicable, by, among other things, the mutual waivers and certifications provided herein. Effort ID: [ ]/ Global Deal ID: [ ] 21 THE SECURITIES REPRESENTED BY THE CONFIRMATION HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 OR ANY OTHER UNITED STATES FEDERAL OR STATE SECURITIES LAWS; SUCH SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF APPROPRIATE REGISTRATION UNDER SUCH SECURITIES LAWS OR EXCEPT IN A TRANSACTION EXEMPT FROM OR NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF SUCH SECURITIES LAWS. Please confirm your agreement with the foregoing by executing this Confirmation and returning such Confirmation, in its entirety, to us at facsimile number (+1) 646-885-9546 (United States of America), Attention: Confirmations Group. Yours sincerely, Accepted and agreed to: LEHMAN BROTHERS OTC DERIVATIVES INC. SCOTTISH RE GROUP LIMITED By: /s/ Anatoly Kozlov By: /s/ Paul Goldean ---------------------------------- ---------------------- Name: Anatoly Kozlov Name: Paul Goldean Title: Authorized Signatory Title: EVP General Counsel Execution time will be furnished upon Counterparty's written request. ANNEX A SCHEDULE OF NUMBER OF COMPONENTS AND VALUATION DATES Component No. Valuation Date Number of Shares - ------------- -------------- ---------------- 1 August 18, 2006 54,824 2 August 21, 2006 54,824 3 August 22, 2006 54,824 4 August 23, 2006 54,824 5 August 24, 2006 54,824 6 August 25, 2006 54,824 7 August 28, 2006 54,824 8 August 29, 2006 54,824 9 August 30, 2006 54,824 10 August 31, 2006 54,824 11 September 01, 2006 54,824 12 September 05, 2006 54,824 13 September 06, 2006 54,824 14 September 07, 2006 54,825 15 September 08, 2006 54,825 16 September 11, 2006 54,825 17 September 12, 2006 54,825 18 September 13, 2006 54,825 19 September 14, 2006 54,825 20 September 15, 2006 54,825 21 September 18, 2006 54,825 22 September 19, 2006 54,825 23 September 20, 2006 54,825 24 September 21, 2006 54,825 25 September 22, 2006 54,825 26 September 25, 2006 54,825 27 September 26, 2006 54,825 28 September 27, 2006 54,825 29 September 28, 2006 54,825 30 September 29, 2006 54,825 ANNEX B PRIVATE PLACEMENT PROCEDURES (a) Party B shall afford Party A, and any potential buyers of the Private Securities designated by Party A a reasonable opportunity to conduct a due diligence investigation with respect to Party B customary in scope for private offerings of such type of securities (including, without limitation, the availability of senior management to respond to questions regarding the business and financial condition of Party B and the right to have made available to them for inspection all financial and other records, pertinent corporate documents and other information reasonably requested by them), and Party A (or any such potential buyer) shall be satisfied in all material respects with such opportunity and with the resolution of any disclosure issues arising from such due diligence investigation of Party B. (b) Prior to or contemporaneously with the determination of the Private Placement Price (as described below), Party B shall enter into an agreement (a "PRIVATE PLACEMENT AGREEMENT") with Party A (or any affiliate of Party A designated by Party A) providing for the purchase and resale by Party A (or such affiliate) in a private placement (or other transaction exempt from registration under the Securities Act) of the Private Securities, which agreement shall be on commercially reasonable terms and in form and substance reasonably satisfactory to Party B and Party A (or such affiliate) and (without limitation of the foregoing) shall: (i) contain customary restrictions on Party A's ability to dispose of the Private Securities other than pursuant to a registration statement or an applicable exemption from the registration requirements of the Securities Act; (ii) contain indemnification and contribution provisions in connection with the potential liability of Party A and its affiliates relating to the resale by Party A (or such affiliate) of the Private Securities; (iii) provide for the delivery of related certificates and representations, warranties and agreements of Party B, including those necessary or advisable to establish and maintain the availability of an exemption from the registration requirements of the Securities Act for Party A and resales of the Private Securities by Party A (or such affiliate); and (iv) provide (i) for the delivery to Party A (or such affiliate) of customary opinions of counsel (including, without limitation, opinions relating to the due authorization, valid issuance and fully paid and non-assessable nature of the Private Securities and the availability of an exemption from the registration requirements of the Securities Act for Party A (such opinions being subject to the satisfaction of safe harbor requirements relating to such exemption and the adequacy of the terms of the Private Placement Agreement with respect to such exemption), and (ii) for the delivery to Party A (or such affiliate) of negative assurance with respect to material misstatements or omissions in filings by Party B under the Exchange Act identified by such counsel. (c) Party A shall determine the Private Placement Price (or, in the case of alternative termination settlement, the Termination Price) in its discretion by commercially reasonable means, which may include (without limitation): (i) basing such price on indicative bids from investors; (ii) taking into account any factors that are customary in pricing private sales and any and all risks and costs in connection with the resale of the Private Securities by Party A (or any affiliate of Party A designated by Party A), including, without limitation, a reasonable placement fee or spread to be retained by Party A (or such affiliate); and (iii) providing for the payment by Party B of all fees and expenses in connection with such sale and resale, including all fees and expenses of counsel for Party A or such affiliate. (d) Party A shall notify Party B of the number of Private Securities required to be delivered by Party B and the Private Placement Price (or, in the case of alternative termination settlement, the Termination Price) by 6:00 p.m. on the day such price is determined. (e) Party B expressly agrees and acknowledges that the public disclosure of all material information relating to Party B is within Party B's control and that Party B shall promptly so disclose all such material information during the period from the Expiration Date to and including the Settlement Date. Party B agrees to use its best efforts to make any filings required to be made by it with the SEC, any securities exchange or any other regulatory body with respect to the issuance of the Private Securities.
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8-K Filing
Scottish Re (SKRRF) Inactive 8-KEntry into a Material Definitive Agreement
Filed: 21 Dec 05, 12:00am