Exhibit 1.5
[LEHMAN BROTHERS LOGO OMITTED]
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
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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.
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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
Days
(ii) (1 + 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
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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
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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 the
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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.
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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
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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 For greater certainty, the definition of
Adjustment: "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 Notwithstanding anything to the contrary in the
and Other Bankruptcy Events: 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
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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 Applicable
Borrow:
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
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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 Applicable
Regarding Hedging Activities:
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.
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(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
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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, In addition to the representations set forth in
Warranties and Agreements the Agreement, Party B further represents,
of Party B: 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
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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
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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
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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
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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 Party A acknowledges and agrees that this
Bankruptcy: 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 If, in respect of the on, an amount is payable
Payment on Early Termination by Party A to Party B, (i) pursuant to Sections
and on Certain Extraordinary 12.2, 12.3, 12.6, 12.7 or 12.9 of the Equity
Events: 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:
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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 A number of Share Termination Delivery Units,
Property: 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 In the case of a Termination Event or Event of
Unit: 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
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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.
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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
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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.
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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 November 15, 2006 54,824
2 November 16, 2006 54,824
3 November 17, 2006 54,824
4 November 20, 2006 54,824
5 November 21, 2006 54,824
6 November 22, 2006 54,824
7 November 27, 2006 54,824
8 November 28, 2006 54,824
9 November 29, 2006 54,824
10 November 30, 2006 54,824
11 December 01, 2006 54,824
12 December 04, 2006 54,824
13 December 05, 2006 54,824
14 December 06, 2006 54,825
15 December 07, 2006 54,825
16 December 08, 2006 54,825
17 December 11, 2006 54,825
18 December 12, 2006 54,825
19 December 13, 2006 54,825
20 December 14, 2006 54,825
21 December 15, 2006 54,825
22 December 18, 2006 54,825
23 December 19, 2006 54,825
24 December 20, 2006 54,825
25 December 21, 2006 54,825
26 December 22, 2006 54,825
27 December 26, 2006 54,825
28 December 27, 2006 54,825
29 December 28, 2006 54,825
30 December 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.
