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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 26, 2006
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SCOTTISH RE GROUP LIMITED
(Exact name of registrant as specified in its charter)
___________________
Cayman Islands 001-16855 98-0362785
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
P.O. Box HM 2939
Crown House, Third Floor, 4 Par-la-Ville Road
Hamilton HM12
Bermuda N/A
(Address of Principal Executive Offices) (Zip Code)
(441) 295-4451
Registrant's telephone number, including area code
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[X] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01. Entry into a Material Definitive Agreement.
Securities Purchase Agreement
As of November 26, 2006, Scottish Re Group Limited (the "Company"),
MassMutual Capital Partners LLC ("MassMutual") and SRGL Acquisition, LLC, a
newly formed affiliate of Cerberus Capital Management, L.P. ("Cerberus" and
together with MassMutual, the "Investors") entered into a Securities Purchase
Agreement (together with the exhibits thereto, the "Securities Purchase
Agreement"). A copy of the Securities Purchase Agreement is attached hereto as
Exhibit 10.1 and is incorporated herein by reference.
The Securities Purchase Agreement contemplates the Investors making a
$600 million investment in the Company by means of a purchase of newly issued
convertible cumulative participating preferred shares of the Company (the
"Convertible Shares"), representing a 68.8% ordinary share ownership on a fully
diluted basis at the time of investment. A copy of the form of the Certificate
of Designations for the Convertible Shares, which sets forth their terms, is
attached hereto as Exhibit 10.2 and is incorporated herein by reference. A
description of the Convertible Shares is set forth below.
In order to complete the transactions contemplated by the Securities
Purchase Agreement, the Company must obtain antitrust clearance under the
Hart-Scott-Rodino Antitrust Improvements Act. In addition, the approval of the
insurance departments of the State of Delaware and the State of South Carolina,
the Bermuda Monetary Authority, the Cayman Islands Monetary Authority, the U.K.
Financial Services Authority and the Guernsey Financial Services Commission,
among others, are required.
The consummation of the transactions contemplated by the Securities
Purchase Agreement will require the approval of two-thirds of the outstanding
ordinary shares of the Company entitled to vote at an extraordinary general
meeting of shareholders, voting as a single class. In addition, pursuant to the
rules of the New York Stock Exchange, the issuance will require the approval of
a majority of the votes cast at the extraordinary general meeting, provided that
the total votes cast represents at least 50% in interest of the outstanding
shares entitled to vote.
The Company has made customary representations, warranties and
covenants in the Securities Purchase Agreement, including, among others,
covenants to conduct its business in the ordinary course between the execution
of the Securities Purchase Agreement and the consummation of the transactions
contemplated thereby and not to engage in certain kinds of transactions during
that period without the consent of the Investors. In addition, the Company has
made certain additional covenants, including, among others, covenants, subject
to certain exceptions, (A) to cause an extraordinary general meeting of
shareholders to be held to consider approval of the transactions contemplated by
the Securities Purchase Agreement, (B) not to solicit proposals from parties
other than the Investors as an alternative to the transactions contemplated by
the Securities Purchase Agreement, subject to the board of directors' fiduciary
duty to consider any superior proposals, and (C) not to enter into discussions,
or provide confidential information in connection with, alternative
transactions.
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The Securities Purchase Agreement contains certain termination rights
for both the Company and the Investors, and further provides that, upon
termination of the Securities Purchase Agreement under specified circumstances,
the Company would be required to pay the Investors an aggregate standby
commitment fee of $30,520,000.
The Securities Purchase Agreement provides that, after the
consummation of the transactions contemplated by the Securities Purchase
Agreement, the Company will indemnify the Investors for breaches of
representations, warranties and covenants and the uncollectability of certain
reinsurance recoverables, subject to certain limitations. Other than
indemnification with respect to the Investors' out-of-pocket costs, the
Company's indemnification obligations will be satisfied not through a cash
payment but rather through adjustment of the conversion ratio of the Convertible
Shares.
Certificate of Designations
The Certificate of Designations will set forth the terms of the
Convertible Shares, and will be effective at the time of the closing of the
transactions contemplated by the Securities Purchase Agreement. The Convertible
Shares will rank senior to the Company's ordinary shares but subordinate to all
other existing securities of the Company that are senior to the ordinary shares.
The Convertible Shares are subject to mandatory conversion to an aggregate of
150,000,000 ordinary shares on the ninth anniversary of issuance. In addition,
the Convertible Shares are convertible into ordinary shares at any time at the
option of the holder. The rate at which the Convertible Shares may be converted
into ordinary shares will be adjusted to provide for the issuance of additional
ordinary shares to the extent the Company is required to provide indemnification
to the Investors pursuant to the Securities Purchase Agreement, as described
above, and to prevent certain kinds of dilution of the holders of Convertible
Shares.
Dividends on the Convertible Shares are cumulative and accrete daily
on a non-compounding basis at a rate of 7.25% per annum, and are made solely by
increasing the stated value of the Convertible Shares, other than in the case of
participation in any dividends paid on the ordinary shares. To the extent that
the Convertible Shares participate in dividends paid on ordinary shares, a
corresponding reduction will be made to the accreted value for preferred
dividends, subject to certain exceptions.
The Convertible Shares have a liquidation preference equal to their
stated value (which is equal to the aggregate purchase price of the Convertible
Shares), as adjusted for dividends. The holders of Convertible Shares may
require redemption of the Convertible Shares upon a change of control of the
Company. Upon a change of control of the Company, the redemption price is an
amount equal to the greater of (i) the aggregate liquidation preference
attributable to the Convertible Shares, plus an amount equal to the sum of all
accrued dividends through the earlier of (A) the date of payment of the
consideration payable upon a change of control, or (B) the fifth anniversary of
the issue date of the Convertible Shares, or (ii) the amount that the holder of
the Convertible Shares would have been entitled to receive with respect to such
change of control if it had exercised its right to convert all or such portion
of its Convertible Shares for ordinary shares immediately prior to date of such
change of control. The liquidation preference of
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the Convertible Shares is not applicable once the Convertible Shares have been
converted into ordinary shares, as described above.
The Convertible Shares will vote at all shareholders meetings together
with, and as part of one class with, the ordinary shares. In addition, the
approval of a majority in interest (or a greater percentage if required by law)
of the Convertible Shares will be required (i) to create new series of preferred
shares, (ii) to amend the terms of, or certificate of designations relating to,
the Convertible Shares, (iii) to amend the memorandum or articles of association
of the Company, (iv) for any change of control or liquidation event of the
Company or any of its subsidiaries, (v) to effect the reclassification of any
ordinary shares into preferred shares, (vi) for any transaction that would
adversely affect the rights of the holders of Convertible Shares, (vii) for the
Company to incur or guarantee indebtedness in excess of $10,000,000 or (viii) to
enter into any agreement in respect of the foregoing.
Registration Rights and Shareholders Agreement
In connection with the execution of the Securities Purchase Agreement,
the Company has agreed to enter into a Registration Rights and Shareholders
Agreement (the "Registration Rights and Shareholders Agreement") at the time of
the closing of the transactions contemplated by the Securities Purchase
Agreement. A copy of the form of Registration Rights and Shareholders Agreement
is attached hereto as Exhibit 10.3 and is incorporated herein by reference.
Pursuant to the Registration Rights and Shareholders Agreement, the Company will
grant the Investors demand and piggyback registration rights as well as, subject
to certain exceptions, preemptive rights with respect to issuances of equity
securities by the Company. The Company also granted the Cypress Entities (as
defined below), in exchange for their agreement to terminate the Shareholder
Agreement (as defined below), certain demand and piggyback registration rights.
For so long as the Investors in the aggregate own at least 51% of the
outstanding voting shares of the Company on a fully diluted basis, the Investors
will be entitled to designate two-thirds of the Company's board of directors.
After falling below this ownership threshold, the Investors will continue to
have the foregoing right for the following 12 months. Thereafter, the Investors
will have the right to designate the number of directors that is proportionate
to their ownership percentage of the equity of the Company. For so long as the
Investors in the aggregate own at least 5% of the outstanding voting shares of
the Company, they will be entitled to designate at least one director. In
addition, for so long as the Cypress Entities in the aggregate beneficially own
at least 2.5% of the outstanding voting shares of the Company on a fully diluted
basis, the Cypress Entities will be entitled to designate at least one
individual for election to the board of directors. Such individual shall be
approved by the Investors as a designee of the Cypress Entities, such approval
not to be unreasonably withheld or delayed, but subject in any event to
Investors' fiduciary duties and applicable law.
The Investors will be restricted from entering into affiliate
transactions with the Company without the approval of the independent directors
of the Company or the approval of a majority of the ordinary shares (excluding
any shares held by the Investors), subject to an exception for certain
transactions entered into in the ordinary course of business on terms that are
no less favorable to the Company than those that
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could have been obtained in a comparable transaction by the Company with an
unrelated person.
Voting Agreement
In connection with the transactions contemplated by the Securities
Purchase Agreement, on November 26, 2006, Cypress Merchant B Partners II
(Cayman) L.P., Cypress Merchant B II-A C.V., Cypress Side-By-Side (Cayman) L.P.
and 55th Street Partners II (Cayman) L.P. (collectively the "Cypress Entities"),
MassMutual, Cerberus and the Company entered into a voting agreement (the
"Voting Agreement") pursuant to which, among other things, the Cypress Entities
agreed to vote in favor of, and granted, subject to receipt of applicable
regulatory approvals, an irrevocable proxy to representatives of the Investors
to vote in favor of, the transactions contemplated by the Securities Purchase
Agreement at any meeting of the shareholders of the Company. A copy of the
Voting Agreement is attached hereto as Exhibit 10.4 and is incorporated herein
by reference.
In addition, subject to the terms of the Voting Agreement, the Cypress
Entities agreed not to solicit proposals from parties other than the Investors
as an alternative to the transactions contemplated by the Securities Purchase
Agreement. The Cypress Entities also agreed that, upon consummation of the
transactions contemplated by the Securities Purchase Agreement, each of the
Cypress Entities would waive the rights arising under, and would terminate, the
Shareholders Agreement, dated October 17, 2004 (the "Shareholders Agreement") to
which the Cypress Entities and the Company are party and to enter into at, and
subject to, the closing of the transactions contemplated by the Securities
Purchase Agreement, the Registration Rights and Shareholders Agreement described
above.
The Voting Agreement shall terminate on the earliest of (a)
termination of the Securities Purchase Agreement, (b) the written agreement of
the parties thereto to terminate the Voting Agreement or (c) the closing of the
transactions contemplated by the Securities Purchase Agreement.
ING Amendment
On November 26, 2006, the Company, and its subsidiaries Scottish Re
(U.S.), Inc. and Scottish Re Life (Bermuda) Limited, entered into a First
Amendment to Asset Purchase Agreement (the "First Amendment") with Security Life
of Denver Insurance Company ("SLD") and Security Life of Denver International
Limited ("SLDI" and, together with SLD, the "ING Entities"). A copy of the First
Amendment is attached hereto as Exhibit 10.5 and is incorporated herein by
reference. Pursuant to this amendment, the Company is no longer obligated to
include business acquired from the ING Entities in connection with the
implementation of a permanent capital relief facility or financing facility used
to collateralize reinsurance reserve credit with a duration longer than one
year. In addition, the fees payable by the Company under certain credit
facilities maintained for the benefit of the business acquired from the ING
Entities was reduced to 0.85% from 1.25% and 1.50%, respectively, for fiscal
years 2007 and 2008, 1.05% from 1.75% for fiscal year 2009 and 1.25% from 1.75%
for all fiscal years thereafter (calculated on a per annum basis).
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The foregoing descriptions of the Securities Purchase Agreement,
Certificate of Designations, Registration Rights and Shareholders Agreement,
Voting Agreement and First Amendment are only summaries and do not purport to be
complete.
Item 3.02. Unregistered Sales of Equity Securities.
The sale of the Convertible Shares by the Company to the Investors is
being made in reliance upon the exemption from securities registration afforded
by Section 4(2) of the United States Securities Act of 1933, as amended (the
"Securities Act"), and Rule 506 of Regulation D ("Regulation D") as promulgated
by the United States Securities and Exchange Commission under the Securities
Act. Each Investor has represented to the Company in the Securities Purchase
Agreement that such Investor is an "accredited investor" (as that term is
defined in Rule 501(a) of Regulation D).
The information included in Item 1.01 above is incorporated by
reference into this Item 3.02.
Item 9.01. Financial Statements and Exhibits.
(c) Exhibits.
10.1 Securities Purchase Agreement, dated as of November 26, 2006, by and
among Scottish Re Group Limited, MassMutual Capital Partners LLC and
SRGL Acquisition, LLC.
10.2 Form of the Certificate of Designations for the 7.25% Convertible
Participating Preferred Shares of the Company.
10.3 Form of Registration Rights and Shareholders Agreement.
10.4 Voting Agreement, dated as of November 26, 2006, by and among Scottish
Re Group Limited, MassMutual Capital Partners LLC, SRGL Acquisition,
LLC, Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant B
II-A C.V., Cypress Side-By-Side (Cayman) L.P. and 55th Street Partners
II (Cayman) L.P.
10.5 First Amendment to Asset Purchase Agreement, dated as of November 26,
2006, by and among Scottish Re (U.S.), Inc., Scottish Re Life
(Bermuda) Limited, Security Life of Denver Insurance Company and
Security Life of Denver International Limited.
Additional Information and Where to Find It
In connection with the transactions contemplated by the Securities
Purchase Agreement, the Company plans to file a proxy statement with the
Securities and Exchange Commission (the "Commission"). INVESTORS AND SECURITY
HOLDERS OF THE COMPANY ARE ADVISED TO READ THE PROXY STATEMENT AND ANY OTHER
RELEVANT DOCUMENTS FILED WITH THE COMMISSION WHEN THEY BECOME AVAILABLE BECAUSE
THOSE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION. The final proxy statement will be mailed to shareholders of the
Company. Investors and security holders may obtain a free copy of the proxy
statement, when it becomes available, and other documents filed by the Company
with the Commission, at the Commission's website at http://www.sec.gov. Free
copies of the proxy statement, when it becomes available, and the Company's
other filings with the Commission may also be obtained from the Company by
directing a request to Scottish Re Group Limited, Post Office Box HM 2939,
Hamilton, HM MX, Bermuda, Attention: Secretary.
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Participants in the Solicitation
The Company and its directors, executive officers and certain other
members of its management and employees may be deemed to be soliciting proxies
from the Company's shareholders in favor of the proposed sale. Information
regarding the Company's directors and executive officers is available in the
Company's proxy statement for its 2006 annual general meeting of shareholders,
which was filed with the Commission on April 4, 2006. Additional information
regarding the interests of such potential participants will be included in the
proxy statement and the other relevant documents filed with the Commission when
they become available.
Forward Looking Statements
Certain statements included or incorporated by reference herein are
"forward-looking statements" within the meaning of the federal securities laws.
The management of the Company cautions that forward-looking statements are not
guarantees and actual results could differ materially from those expressed or
implied in the forward-looking statements. Important events that could cause the
actual results of operations or financial condition of the Company to differ
include, but are not necessarily limited to, the Company 's ability to attract
clients and generate business; the competitive environment; the Company's
ability to underwrite business; mortality risk; surrender risk; investment risk
(including asset value risk, reinvestment risk and disintermediation risk); the
impact of unforeseen economic changes (such as changes in interest rates,
currency exchange rate, inflation rates, recession and other external economic
factors); the impact of terrorist activities on the economy, the insurance and
related industries in general and the Company in particular; regulatory changes
(such as changes in U.S. tax law and insurance regulation which directly affect
the competitive environment for the Company's products); changes in expectations
regarding future realization of gross deferred tax assets; uncertainties about
our ability to raise equity capital or other sources of liquidity; rating agency
policies and practices; loss of key executives; and the Company's ability to
consummate the transactions contemplated by the Securities Purchase Agreement
(including obtaining necessary regulatory approvals and shareholder approval)
and realize the benefits of such issuance. Investors are also directed to
consider the risks and uncertainties discussed in documents filed by the Company
with the Commission.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
SCOTTISH RE GROUP LIMITED
By: /s/ Paul Goldean
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Paul Goldean
President and Chief Executive Officer
Dated: November 29, 2006
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INDEX TO EXHIBITS
Number Description
- ------ -----------
10.1 Securities Purchase Agreement, dated as of November 26, 2006, by and
among Scottish Re Group Limited, MassMutual Capital Partners LLC and
SRGL Acquisition, LLC.
10.2 Form of the Certificate of Designations for the 7.25% Convertible
Participating Preferred Shares of the Company.
10.3 Form of Registration Rights and Shareholders Agreement.
10.4 Voting Agreement, dated as of November 26, 2006, by and among Scottish
Re Group Limited, MassMutual Capital Partners LLC, SRGL Acquisition,
LLC, Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant B
II-A C.V., Cypress Side-By-Side (Cayman) L.P. and 55th Street Partners
II (Cayman) L.P.
10.5 First Amendment to Asset Purchase Agreement, dated as of November 26,
2006, by and among Scottish Re (U.S.), Inc., Scottish Re Life
(Bermuda) Limited, Security Life of Denver Insurance Company and
Security Life of Denver International Limited.
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