================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 31, 1999
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
(Exact Name of Registrant as Specified in its Charter)
Cayman Islands 0-29788 N/A
(State or Other (Commission (IRS Employer
Jurisdiction of File Number) Identification No.)
Incorporation)
Grand Pavilion Commercial Centre, 802 West Bay Road N/A
George Town, Grand Cayman, Cayman Islands, BWI (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (345) 949-2800
(Former Name or Former Address, if Changed Since Last Report)
================================================================================
ITEM 2. Acquisition or Disposition of Assets.
On December 31, 1999 Scottish Annuity & Life Holdings, Ltd. ("Scottish
Holdings") acquired all of the outstanding shares of The Scottish Annuity
Company (Cayman) Ltd. ("Scottish Annuity") from Scottish Holdings Ltd. ("SHL")
for $ 11,601,464 in cash. The purchase price, though negotiated between related
parties, was assessed for fairness by an independent party.
The purchase price consisted of $10,500,000 for the fair value of the in-force
variable annuity contracts, and $1,101,464 for the fair value of the net current
assets of Scottish Annuity. The purchase price is subject to adjustment based
on the audited values of the net current assets acquired as of December 31,
1999. The fair value of the variable annuity contracts was determined using a
discounted cash flow analysis of the expected fee revenue less expenses expected
to be generated from the variable annuity business. The fee revenue was based
on estimated separate account assets as of December 31, 1999, and then factoring
in expected asset growth, as well as estimated surrenders. The fee revenue was
then discounted to determine the value of the in-force business.
The unaudited fair values of the net assets acquired as of December 31, 1999
were (in thousands):
Segregated assets $ 256,275
Fees receivable 862
Cash & cash equivilants 254
Other assets 4
Segregated liabilites (256,275)
Other liabilities (18)
---------
$ 1,102
=========
Scottish Annuity is a Cayman Islands company licensed with the Cayman Islands
Monetary Authority. It writes variable annuity business targeted at high net
worth US individuals.
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Historical Financial Statements:
(i) Report of Independent Auditors................................. F-4
(ii) Audited Balance Sheets as of December 31, 1998
and 1997....................................................... F-5
(iii) Audited Statements of Operations for the years ended
December 31, 1998 and 1997..................................... F-6
(iv) Audited Statements of Shareholder's Equity for the years
ended December 31, 1998 and 1997............................... F-7
(v) Audited Statements of Cash Flows for the years ended
December 31, 1998 and 1997..................................... F-8
(vi) Audited Notes to the Financial Statements...................... F-9
(vii) Unaudited Balance Sheet as of September 30, 1999............... F-14
(viii) Unaudited Statements of Operations for the nine months
ended September 30, 1999 and 1998.............................. F-15
(ix) Unaudited Statements of Cash Flows for the nine
months ended September 30, 1999 and 1998....................... F-16
ITEM 7. Financial Statements, Pro Forma Financial Information and Exhibits
(cont'd)
(a) Historical Financial Statements (cont'd):
(x) Scottish Annuity & Life Holdings, Ltd., Audited Consolidated Financial
Statements for the period from May 12, 1998 (date of incorporation) to
December 31, 1998 (incorporated by reference to Item 14(A)(1) of
Scottish Annuity & Life Holdings, Ltd.'s annual report on Form 10K for
the fiscal year ended December 31, 1998.)
(b) Pro Forma Financial Information:
(i) Unaudited Pro Forma Combined Condensed Balance
Sheet for Scottish Annuity & Life Holdings, Ltd. as of
September 30, 1999............................................. F-18
(ii) Unaudited Pro Forma Combined Condensed Statement
of Operations for the Period from May 12, 1998 (Date of
Incorporation) to December 31, 1998............................ F-19
(iii) Unaudited Pro Forma Combined Condensed Statement
of Operations for the Nine Months Ended September 30, 1999..... F-20
(iv) Notes to the Unaudited Pro Forma Combined Condensed
Financial Statements........................................... F-21
(c) Exhibits:
Exhibit
Number Exhibit
------- -------
10.1 Share Purchase Agreement by and between Scottish Annuity
& Life Holdings, Ltd. and Scottish Holdings, Ltd. dated
as of December 31, 1999 (Incorporated by reference to
Current Report on Form 8-K filed on January 18, 2000)
23.1 Consent of Ernst & Young, Grand Cayman
23.2 Consent of Ernst & Young, Grand Cayman
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 ANNUITY & LIFE HOLDINGS, LTD.
By: /s/ BRUCE CROZIER
-------------------------------------
Bruce Crozier
Senior Vice President and
Chief Financial Officer
Dated: March 20, 2000
INDEX TO EXHIBITS
Exhibit
Number Exhibit
------- -------
10.1 Share Purchase Agreement by and between Scottish Annuity
& Life Holdings, Ltd. and Scottish Holdings, Ltd. dated
as of December 31, 1999 (Incorporated by reference to
Current Report on Form 8-K filed on January 18, 2000)
23.1 Consent of Ernst & Young, Grand Cayman
23.2 Consent of Ernst & Young, Grand Cayman
Report of Independent Auditors
To the Shareholder and Board of Directors
The Scottish Annuity Company (Cayman) Ltd.
We have audited the accompanying balance sheets of The Scottish Annuity Company
(Cayman) Ltd. (the "Company") as of December 31, 1998 and 1997, and the related
statements of operations, shareholder's equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of The Scottish Annuity Company
(Cayman) Ltd. at December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
March 26, 1999
/s/ ERNST & YOUNG
F-4
The Scottish Annuity Company (Cayman) Ltd.
Balance Sheets
(Stated in United States Dollars)
December 31
1998 1997
--------------------------------------
Assets
Cash and cash equivalents $ 638,764 $ 1,431,886
Investment, at fair value
(cost: $22,007,307; 1997: $22,007,307) 29,916,307 24,525,921
Segregated account fees receivable 713,925 498,144
Other assets 354,905 82,075
Segregated account assets 180,627,929 143,728,432
--------------------------------------
Total assets $212,251,830 $170,266,458
======================================
Liabilities and shareholder's equity
Liabilities:
Accounts payable and accrued liabilities $ 145,344 $ 181,949
Segregated account liabilities 180,627,929 143,728,432
--------------------------------------
Total liabilities 180,773,273 143,910,381
Shareholder's equity:
Share capital 250,000 250,000
Additional paid in capital 23,591,345 23,591,345
Retained earnings 7,637,212 2,514,732
--------------------------------------
Total shareholder's equity 31,478,557 26,356,077
--------------------------------------
Total liabilities and shareholder's equity $212,251,830 $170,266,458
======================================
See accompanying notes.
F-5
The Scottish Annuity Company (Cayman) Ltd.
Statements of Operations
(Stated in United States Dollars)
Year ended December 31
1998 1997
--------------------------------------
Income
Segregated account fees $ 1,291,521 $ 928,715
Investment income 5,402,569 1,351,226
Other income 49,785 73,914
--------------------------------------
6,743,875 2,353,855
Expenses
Professional fees 376,938 442,158
Administration fee 209,886 -
Salaries and benefits 190,336 146,005
Travel and promotion expenses 183,395 287,958
Other operating expenses 160,840 193,984
--------------------------------------
1,121,395 1,070,105
--------------------------------------
Net Income $ 5,622,480 $ 1,283,750
======================================
See accompanying notes.
F-6
The Scottish Annuity Company (Cayman) Ltd.
Statements of Shareholder's Equity
(Stated in United States Dollars)
Years ended December 31, 1998 and 1997
Number of Share Additional Retained
Shares Capital paid in capital Earnings Total
--------------------------------------------------------------------------------------
Balance at
December 31, 1996 250,000 $250,000 $ 2,258,013 $1,230,982 $ 3,738,995
Capital contribution - - 21,333,332 - 21,333,332
Net income - - - 1,283,750 1,283,750
--------------------------------------------------------------------------------------
Balance at
December 31, 1997 250,000 250,000 23,591,345 2,514,732 26,356,077
Dividends - - - (500,000) (500,000)
Capital contribution - - - - -
Net income - - - 5,622,480 5,622,480
--------------------------------------------------------------------------------------
Balance at
December 31, 1998 250,000 $250,000 $23,591,345 $7,637,212 $31,478,557
======================================================================================
See accompanying notes.
F-7
The Scottish Annuity Company (Cayman) Ltd.
Statements of Cash Flows
(Stated in United States Dollars)
Year ended December 31
1998 1997
---------------------------------------
Operating activities
Net income $ 5,622,480 $ 1,283,750
Adjustments to reconcile net income to net cash
used in operating activities
Movements in assets and liabilities:
Appreciation on investment (5,390,386) (1,351,226)
Segregated account fees receivable (215,781) (199,339)
Other assets (272,830) (23,135)
Accounts payable and accrued liabilities (36,605) 123,183
---------------------------------------
Net cash used in operating activities (293,122) (166,767)
Financing activities
Distribution to shareholders (500,000) -
Additional paid in capital - 1,333,332
---------------------------------------
Net cash (used in) provided by financing activities (500,000) 1,333,332
---------------------------------------
Net (decrease) increase in cash and cash equivalents (793,122) 1,166,565
Cash and cash equivalents at the beginning of the year 1,431,886 265,321
---------------------------------------
Cash and cash equivalents at the end of the year $ 638,764 $ 1,431,886
=======================================
F-8
See accompanying notes.
The Scottish Annuity Company (Cayman) Ltd.
Notes to Financial Statements
December 31, 1998
1. Organization
The Scottish Annuity Company (Cayman) Ltd., (the "Company"), is a wholly owned
subsidiary of Scottish Holdings Ltd. (a Cayman Islands Corporation) (the
"Parent"). The Company operates as a life insurance company and engages in
writing deferred variable annuities with a fixed annuity option with persons who
are not resident in the Cayman Islands. Under the terms of the policies, the
purchaser (a "Contract Holder") pays a lump sum or multiple amounts to the
Company. These amounts are invested in segregated accounts managed by unrelated
third parties selected by the Contract Holder, subject to the approval of the
Company. The Company does not provide any investment management or advisory
services to any Contract Holder. The Company undertakes, upon the election by
the Contract Holder of the fixed annuity option, to provide the Contract Holder
with fixed periodic payments beginning at a particular time designated by the
Contract Holder. The Contract Holder also has the right to make a partial or
total surrender of his policy at any time and, upon surrender, to receive the
funds in his segregated account.
The Company was incorporated in the Cayman Islands on June 7, 1994, and operates
under the provisions of an unrestricted Class 'B' insurer's licence which
enables the Company to transact insurance business, other than domestic
business, from within the Cayman Islands.
2. Significant Accounting Policies
The financial statements of the Company are prepared in conformity with
accounting principles generally accepted in the United States of America and are
stated in United States Dollars. The following is a summary of the significant
accounting and reporting policies used in preparing the financial statements.
Investments
The Company categorizes all investments as trading. Realized gains and losses
are determined on a specific identification method. Realized and unrealized
gains and losses are recorded in the statement of operations and included in
investment income.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers fixed
deposits with an original maturity, when purchased, of three months or less to
be cash equivalents. Cash and cash equivalents are recorded at face value,
which approximates fair value. All cash and cash equivalents are held with a
single international financial institution in the Cayman Islands.
F-9
The Scottish Annuity Company (Cayman) Ltd.
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Segregated Account Assets and Liabilities
Segregated account investments are recorded at the net asset values of the
underlying funds invested in plus segregated cash and cash equivalent balances,
less segregated account fees payable to the Company. The funds in the segregated
accounts are not part of the Company's general funds and are not available to
meet the general obligations of the Company.
Segregated account liabilities are the amounts set aside to pay the deferred
variable annuities. They consist of the initial premiums paid after
consideration of net investment gains/losses attributable to each segregated
account, less fees and withdrawals.
Segregated Account Fees
The Company charges segregated account fees quarterly in advance. Such fees are
recognized into income ratably. Segregated account fees consist of Mortality,
Expense and Distribution Risk Charges and Set-Up Fees based on total assets in
each Contract Holder's segregated account. The Company charges an annual flat
fee for contract administration to substantially all Contract Holders, however,
a few of the original Contract Holders continue to be charged Maintenance and
Supervisory Fees. In addition, a Contract Holder may be charged a fee upon a
partial or total surrender of the policy.
Promotional Expenses
The Company expenses all promotional costs as incurred.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Disclosure About Fair Value of Financial Instruments
All financial instruments are carried at their fair value in the balance sheets.
F-10
The Scottish Annuity Company (Cayman) Ltd.
Notes to Financial Statements (continued)
2. Significant Accounting Policies (continued)
Fixed Annuity Reserve
Reserves related to the Company's undertaking to provide fixed periodic payments
to annuitants represent general obligations of the Company. Such reserves will
be established using the 1971 Individual Mortality Table with a guaranteed
interest rate of 4% per year. As of December 31, 1998, the Company has not
entered into any such fixed periodic payment contracts.
Reclassification
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
3. Investment
The investment reflected on the balance sheets consists of an investment in
Maverick Fund, Ltd. ("Maverick") and is valued at fair value which is based upon
the net asset value of Maverick. The net asset value per share of Maverick is
determined on a monthly basis after aggregating the value of the assets of
Maverick (consisting primarily of securities), deducting therefrom its
liabilities and dividing the resulting sum by the total number of outstanding
shares. The assets of Maverick comprising of securities that are listed on an
exchange or traded over-the-counter are valued at the last sales price on the
day of valuation; however, if there are no sales on such day, the underlying
security is valued at the closing bid price. Such assets not listed on an
exchange or traded over-the-counter are valued by the investment manager of
Maverick (the "Investment Manager"). For the years ended December 31, 1998 and
1997, investment income of the Company consists primarily of unrealized
appreciation of the Company's investment in Maverick. Maverick is related to
the Company by way of common directors.
4. Share Capital
The Company is authorized to issue 1,000,000 ordinary shares of $1 par value
each. Each share carries the right to one vote.
Under The Insurance Law of the Cayman Islands (1997 Revision), the Company must
maintain a net capital worth requirement of $240,000.
During the year the Company declared and paid a dividend of US$2.00 per share to
the shareholder of record as at June 9, 1998.
F-11
The Scottish Annuity Company (Cayman) Ltd.
Notes to Financial Statements (continued)
5. Related Party Transactions
The following is a summary of account balances and transactions with companies
affiliated by way of common directors:
1998 1997
------------- -------------
Asset:
Investment, at fair value $29,916,307 $24,525,921
Other assets $ - $ 6,367
Liabilities:
Accounts payable and accrued liabilities $ 62,344 $ 90,704
Income:
Appreciation on investment $ 5,390,386 $ 1,351,226
During 1997, the Company received a $20,000,000 non-cash capital contribution
from Scottish Holdings Ltd. which consisted of approximately 65,000 shares of
Maverick.
During 1997, the Company had entered into a Legal Services Agreement with a
director of the Company and paid fees under the agreement amounting to $330,000
(1997: $360,000). The agreement was terminated effective December 1, 1998.
6. Administration Agreement
Effective October 1, 1998, the Company entered into an Insurance Administration,
Services and Referral Agreement (the "Agreement") with Scottish Annuity & Life
Holdings, Ltd. ("Holdings"). Holdings provides a variety of insurance
administration, accounting and other services and receives compensation for
these services equal to 0.50% per annum of the quarterly separate account value
of each annuity contract issued by the Company subject to a minimum of $25,000
per year.
In addition, pursuant to this agreement (i) the Company will refrain from the
direct or indirect offer or sale of any life insurance products and will refer
only to Holdings any opportunity or inquiry that it may receive to issue and
sell any life insurance products, and (ii) Holdings will refrain from the direct
or indirect offer or sale of any variable annuity products and will refer only
to the Company any opportunity or inquiry that it may receive to issue and sell
any variable annuity products.
The agreement will continue in effect until December 31, 1999 and will
thereafter be automatically renewed for successive one-year periods, unless
canceled by either party prior to the commencement of a renewal term. In
addition, the agreement may terminate earlier under specified circumstances
(e.g. bankruptcy or uncured defaults under the agreement).
F-12
The Scottish Annuity Company (Cayman) Ltd.
Notes to Financial Statements (continued)
7. Taxation
There is presently no taxation imposed on income by the Government of the Cayman
Islands. If any form of taxation were to be enacted, the Company has been
granted an exemption therefrom until 2014.
8. Commitments
Effective July 1, 1998, the Company entered into a sublease with Holdings. The
term of the sublease is one year and will be extended for four additional one
year periods unless it is canceled by the Company ninety days prior to the
expiration of the initial term. During 1997, the Company had entered into no
non-cancelable operating leases. Rent expense was approximately $9,000 in 1998
and $15,000 in 1997.
9. Year 2000 (Unaudited)
Like other organizations, the Company could be adversely affected if the
computer systems it uses and those used by its major service providers do not
properly process and calculate date-related information from and after January
1, 2000. This is commonly known as the "Year 2000 Issue." The Company is taking
steps that it believes are reasonably designed to address the Year 2000 Issue
with respect to the computer systems it uses and to obtain satisfactory
assurances that comparable steps are being taken by its major service providers.
At this time, however, there can be no assurance that these steps will be
sufficient to avoid any material adverse impact on the Company. For the year
ended December 31, 1998, the Company incurred no significant Year 2000 related
expenses and it does not expect to incur significant Year 2000 expenses in the
future. The Company is in the process of establishing a contingency plan to
address recovery from unavoided or unavoidable Year 2000 problems, if any.
F-13
The Scottish Annuity Company (Cayman) Ltd.
Unaudited Balance Sheet
(Stated in United States Dollars)
September 30,
1998
--------------
Assets
Cash and cash equivalents $ 1,261,937
Investment, at fair value
(cost: $22,007,307) 32,682,000
Segregated account fees receivable 583,056
Other assets 95,331
Segregated account assets 211,095,228
--------------
Total assets $245,717,552
==============
Liabilities and shareholder's equity
Liabilities:
Accounts payable and accrued liabilities $ 380,919
Segregated account liabilities 211,095,228
--------------
Total liabilities 211,476,147
Shareholder's equity:
Share capital 250,000
Additional paid in capital 23,591,346
Retained earnings 10,400,059
--------------
Total shareholder's equity 34,241,405
--------------
Total liabilities and shareholder's equity $245,717,552
==============
F-14
The Scottish Annuity Company (Cayman) Ltd.
Unaudited Statements of Operations
(Stated in United States Dollars)
Nine Months ended September 30,
1999 1998
-------------- ---------------
Income
Segregated account fees $1,150,195 $ 954,317
Investment income 2,765,693 3,423,335
Other income 29,758 41,602
-------------- --------------
3,945,646 4,419,254
Expenses
Professional fees 18,968 297,729
Administration fee 728,659 -
Salaries and benefits - 102,451
Travel and promotion expenses 66,831 181,146
Other operating expenses 43,340 138,015
-------------- --------------
857,798 719,341
-------------- --------------
Net Income $3,087,848 $3,699,913
============== ==============
F-15
The Scottish Annuity Company (Cayman) Ltd.
Unaudited Statements of Cash Flows
(Stated in United States Dollars)
Nine Months ended September 30,
1999 1998
---------------- ----------------
Operating activities
Net income $ 3,087,848 $ 3,699,913
Adjustments to reconcile net income to net cash
provided by operating activities
Movements in assets and liabilities:
Appreciation on investment (2,765,693) (3,411,152)
Segregated account fees receivable 130,868 114,111
Other assets 214,183 (126,170)
Accounts payable and accrued liabilities 280,967 (82,195)
---------------- ----------------
Net cash provided by operating activities 948,168 194,507
---------------- ----------------
Financing activities
Distribution to shareholders (325,000) (500,000)
---------------- ----------------
Net cash used in financing activities (325,000) (500,000)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents 623,173 (305,493)
Cash and cash equivalents at the beginning of the
period 638,764 1,431,886
---------------- ----------------
Cash and cash equivalents at the end of the year $ 1,261,937 $ 1,126,393
================ ================
F-16
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements are
based on the historical consolidated statements of Scottish Holdings and
Scottish Annuity combined and adjusted to give effect to the acquisition.
Certain reclassifications have been made to the historical financial statements
to conform with this pro forma presentation. These statements should be read in
conjunction with the historical financial statements and notes thereto.
The unaudited pro forma combined condensed statements of operations for the
period from May 12, 1998 (Date of Incorporation) to December 31, 1998 and for
the nine months ended September 30, 1999 present the results for Scottish
Holdings and Scottish Annuity as if the acquisition occurred at the beginning of
each period presented. The accompanying unaudited pro forma combined condensed
balance sheet as of September 30, 1999 gives effect to the acquisition as of
that date.
The pro forma adjustments are based upon preliminary estimates, information
currently available and certain assumptions that management believes are
reasonable under the circumstances. Scottish Holdings's actual consolidated
financial statements will reflect the effects of the acquisition on and after
the effective time rather than the dates indicated above. The unaudited pro
forma combined condensed financial statements neither purport to represent what
the combined results of operations or financial condition actually would have
been had the acquisition in fact occurred on the assumed dates, nor to project
the combined results of operations and financial position for any future period.
The acquisition will be accounted for by the purchase method and, therefore,
assets and liabilities of Scottish Annuity will be recorded at their fair
values. The excess of the purchase cost over the fair value of net assets
acquired at the effective time of the acquisition will be recorded as goodwill.
Allocations contained in the pro forma statements are based on analysis which
may differ, perhaps significantly, from final allocations.
F-17
Scottish Annuity & Life Holdings, Ltd.
Unaudited Pro Forma Combined Condensed Balance Sheet
September 30, 1999
Scottish Scottish Pro Forma
Scottish Annuity Annuity Scottish
Holdings Historical Adjustments Adjusted Adjustments Holdings
-----------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)=(a)+(d)+(e)
ASSETS
Fixed maturity investments $441,646,362 $ - $ $ - $(12,059,405) (2) $429,586,957
Investments, at fair value - 32,682,000 (32,682,000) (1) - -
Cash and cash equivalents 60,102,596 1,261,937 1,261,937 61,364,533
Receivables: -
Reinsurance premiums 13,690,867 - - 13,690,867
Insurance administration fees 240,940 583,056 583,056 823,996
Accrued interest 3,662,376 - - 3,662,376
Deferred acquisition costs 2,162,459 - - 2,162,459
Segregated assets 458,634 211,095,228 211,095,228 211,553,862
Other assets 82,272 95,331 95,331 10,500,000 (3) 10,677,603
Goodwill - - - 200,000 (4) 200,000
Net fixed assets and leasehold
improvements 821,311 - - 821,311
-----------------------------------------------------------------------------------------------------
Total assets $522,867,817 $245,717,552 $(32,682,000) $213,035,552 $ (1,359,405) $734,543,964
=====================================================================================================
LIABILITIES
Reserves for future policy
benefits $283,215,197 $ - $ - $ - $ - $283,215,197
Segregated liabilities 458,634 211,095,228 211,095,228 211,553,862
Accounts payable and accrued
expenses 6,963,962 380,919 380,919 200,000 (5) 7,544,881
-----------------------------------------------------------------------------------------------------
Total liabilities 290,637,793 211,476,147 211,476,147 200,000 502,313,940
SHAREHOLDERS' EQUITY
Capital stock - 250,000 250,000 (250,000) (6) -
Share capital, par value $0.01
per share: 170,886 - - 170,886
Additional paid in capital 237,617,984 23,591,346 (23,591,346) (1) - 237,617,984
Unrealized depreciation on
investments (10,210,558) - - (10,210,558)
Retained earnings 4,651,712 10,400,059 (9,090,654) (1) 1,309,405 (1,309,405) (7) 4,651,712
-----------------------------------------------------------------------------------------------------
Total shareholders' equity 232,230,024 34,241,405 $(32,682,000) 1,559,405 (1,559,405) 232,230,024
-----------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $522,867,817 $245,717,552 $(32,682,000) $213,035,552 $ (1,359,405) $734,543,964
=====================================================================================================
See accompanying notes.
F-18
Scottish Annuity & Life Holdings, Ltd.
Unaudited Pro Forma Combined Condensed Statement of Operations
Period from May 12, 1998 (Date of Incorporation) to December 31, 1998
Scottish Scottish Pro Forma
Scottish Annuity Annuity Scottish
Holdings Historical Adjustments Adjusted Adjustments Holdings
----------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)=(a)+(d)+(e)
REVENUES
Segregated account fees $ - $ 826,715 $ - $826,715 $ - $ 826,715
Investment income, net 1,142,501 3,458,238 (3,458,238) (8) - (52,993) (9) 1,089,508
Realized losses on securities, net (14,236) - - (14,236)
Other - 31,868 31,868 31,868
Insurance administration and variable life
fees 209,886 - - (209,886) (10) -
----------------------------------------------------------------------------------------
Total revenues 1,338,151 4,316,821 (3,458,238) 858,583 (262,879) 1,933,855
----------------------------------------------------------------------------------------
EXPENSES
Acquisition costs and other insurance
expenses - - - - 108,933 (11) 108,933
Operating expenses 901,830 717,816 (209,886) (10) 507,930 1,409,760
----------------------------------------------------------------------------------------
Total expenses 901,830 717,816 (209,886) 507,930 108,933 1,518,693
----------------------------------------------------------------------------------------
Net income $ 436,321 $3,599,005 $(3,248,352) $350,653 $(371,812) $ 415,162
========================================================================================
Net operating earnings $ 450,557 $3,599,005 $(3,248,352) $350,653 $(371,812) $ 429,398
=========================================================================================
BASIC and DILUTED EARNINGS PER SHARE
Net income $ 0.12 $ 0.12
============ ============
Net operating earnings $ 0.13 $ 0.12
============ ============
------------
Weighted average shares outstanding 3,586,788 3,586,788
============ ============
See accompanying notes.
F-19
Scottish Annuity & Life Holdings, Ltd.
Unaudited Pro Forma Combined Condensed Statement of Operations
Nine Months ended September 30, 1999
Scottish Scottish Pro Forma
Scottish Annuity Annuity Scottish
Holdings Historical Adjustments Adjusted Adjustments Holdings
----------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)=(a)+(d)+(e)
REVENUES
Segregated account fees $ - $1,150,195 $ - $1,150,195 $ - $ 1,150,195
Investment income, net 14,591,701 2,765,693 (2,765,693) (8) - (525,906) (9) 14,065,795
Realized losses on securities, net (2,497,268) - - (2,497,268)
Other - 29,759 29,759 29,759
Insurance administration and variable life
fees 744,279 - - (744,279) (10) -
----------------------------------------------------------------------------------------
Total revenues 12,838,712 3,945,647 (2,765,693) 1,179,954 (1,270,185) 12,748,481
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EXPENSES
Claims and other policy benefits 2,980,330 - - 2,980,330
Acquisition costs and other insuranc
expenses 2,002,899 - - 130,720 (11) 2,133,619
Operating expenses 1,782,448 857,798 (744,279) (10) 113,519 1,895,967
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Total expenses 6,765,677 857,798 (744,279) 113,519 130,720 7,009,916
----------------------------------------------------------------------------------------
Net income $ 6,073,035 $3,087,849 $(2,021,414) $1,066,435 (1,400,905) $ 5,738,565
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Net operating earnings $ 8,570,303 $3,087,849 (2,021,414) 1,066,435 $(1,400,905) $ 8,235,833
========================================================================================
BASIC and DILUTED EARNINGS PER SHARE
Net income $ 0.33 $ 0.31
============= ===============
Net operating earnings $ 0.46 $ 0.45
============= ===============
Weighted average shares outstanding 18,487,447 18,487,447
============= ===============
See accompanying notes
F-20
Scottish Annuity & Life Holdings, Ltd.
Notes to the Unaudited Pro Forma Combined Condensed Financial Statements
(1) Represents the disposition of $32,682,000 of investments prior to the
acquisition and the payment of the proceeds as a dividend to SHL.
(2) Represents the proforma purchase price based on the fair value of the in-
force annuity business of $10,500,000 plus the net current assets purchased
at their book value as of September 30, 1999 of $1,559,405.
(3) Represents the present value of estimated net future cash flows of Scottish
Annuity's variable annuity business.
(4) Represents the excess of the purchase price (including acquisition costs)
over the fair value of net assets acquired.
(5) Represents the estimated accrued acquistion costs.
(6) Represents the elimination of Scottish Annuity's capital stock.
(7) Represents the elimination of Scottish Annuity's retained earnings.
(8) Represents foregone investment income due to the disposition of portfolio
investments prior to the acquisition and the payment of the proceeds as a
dividend to SHL.
(9) Represents foregone investment income on the assets used in the purchase of
Scottish Annuity.
(10) Represents the elimination of administration fees paid by Scottish Annuity
to Scottish Holdings.
(11) Represents the amortization of the fair value of the in-force business
purchased and acquisition costs.
F-21