LEHMAN BROTHERS
VARIABLE EQUITY FORWARD ISSUANCE TRANSACTION
Date:
December 15, 2005
To:
Scottish Re Group Limited
Crown House, Third Floor
4 Par-la-Ville Road
Hamilton, Bermuda HM 08
Attention:
Dean Miller
Facsimile:
441-295-7576
Telephone:
441-298-4395
From:
Lehman Brothers, Inc., acting as Agent,
Lehman Brothers OTC Derivatives Inc., acting as Principal
Attention:
Andrew Yare - Transaction Management Group
Facsimile:
646-885-9546 (United States of America)
Telephone:
212-526-9986
Ref. Numbers:
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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 (ii) (1 +
Days
Discount Rate)
----
360
Where,
"DISCOUNT RATE" is the sum of (i) the
zero coupon rate derived by the
Calculation Agent from the swaps curve
shown on Bloomberg Page USSW as of 11:00
a.m. London time. The rate will be
determined (using linear interpolation
as needed) for a tenor equal to Days.
The rate will be expressed as a simple,
non-compounded interest rate on an
Actual/360 day-count basis. If that
Bloomberg page is no longer published,
is unavailable or reflects information
which the Calculation Agent believes
erroneous, then the Calculation Agent
may select a different third party
source of like curves and (ii) 30 basis
points.
"DAYS" means the number of days from and
including the Draw Down Payment Date to
but excluding the Scheduled Maturity
Date.
Draw Down Payment Date:
The date specified by Party B as the
payment date for the related Draw Down
Amount; provided that no Draw Down
Payment Date shall occur (i) prior to
Party B receiving notice from Party A
that Party A has completed the public
sale of the Number of Shares pursuant to
"Registration" below in compliance with
all applicable securities laws and
regulations and (ii) after the first
Valuation Date.
Early Payment:
On each Draw Down Payment Date, Party A
shall pay to Party B the Draw Down
Amount by wire transfer of immediately
available funds to an account specified
by Party B.
VALUATION:
Settlement Calculations:
For purposes of determining the Forward
Cash Settlement Amount and the Number of
Shares to be Delivered, the Transaction
shall be split into 30 components of
equal size (each, a "COMPONENT"), with
the Number of Shares allocated equally
among them. Each Component will have its
own Valuation Date, with the Number of
Shares to be Delivered for such
Component being determined as if it were
a separate Transaction; provided that
the Settlement Date in respect of all
Components shall be the
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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
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the Forward Price divided by the
Settlement Price divided by the
number of Components; and
(iii) if the Settlement Price is greater
than the Forward Cap Price, a
number of Shares equal to the
product of (A) 1 minus the
quotient of (1) the difference
between (x) Forward Cap Price
minus (y) the Forward Floor Price
divided by (2) the Settlement
Price, multiplied by (B) the
Number of Shares for such
Component.
Failure to Deliver
Inapplicable.
CASH SETTLEMENT TERMS:
Cash Settlement:
Applicable, provided that Party B
properly elects cash settlement in
accordance with the conditions set forth
in the "Settlement Method Election"
provision above.
(i) If the Cash Settlement Amount is a
positive number, Party B shall pay to
Party A the Cash Settlement Amount on
the Cash Settlement Payment Date.
(ii) If the Cash Settlement Amount is a
negative number, Party A shall pay to
Party B the absolute value of the Cash
Settlement Amount on the Cash Settlement
Payment Date.
Cash Settlement Amount:
An amount, as calculated by the
Calculation Agent, equal to the sum of
(i) the Forward Cash Settlement Amount
plus (ii) the Aggregate Draw Down
Notional Amount.
Cash Settlement Payment Date
Three (3) Currency Business Days
following the final Valuation Date.
NET SHARE SETTLEMENT TERMS:
Net Share Settlement:
Applicable; provided that Party B
properly elects net share settlement in
accordance with the conditions set forth
in the "Settlement Method Election"
provision above.
(i) If the Cash Settlement Amount is a
positive number, Party B shall deliver
to Party A a number of Shares equal to
the quotient of (A) the Cash Settlement
Amount divided by (B) the Settlement
Price on the Valuation Date.
(ii) If the Cash Settlement Amount is
negative, Party A shall deliver to Party
B a number of Shares equal to the
quotient of (A) the absolute value of
the Cash Settlement Amount divided by
(B) the Settlement Price on the
Valuation Date.
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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 Adjustment:
For greater certainty, the definition of
"Modified Calculation Adjustment" in
Sections 12.2 and 12.3 of the Equity
Definitions shall be amended by adding
the following italicized language after
the stipulated parenthetical provision:
"(including adjustments to account for
changes in volatility, expected
dividends, stock loan rate or liquidity
relevant to the Shares or to the
Transaction) from the Announcement Date
to the Merger Date (Section 12.2) or
Tender Offer Date (Section 12.3),"
Composition of Combined
Consideration:
Not Applicable
Nationalization or Delisting:
Applicable
Delisting:
Notwithstanding Section 12.6(a)(iii) of
the 2002 Definitions, it will constitute
a Delisting if the shares are re-listed,
re-traded or re-quoted on any exchange
or quotation system which does not
qualify as an Exchange under Section
1.25(b) of the Definitions.
ADDITIONAL DISRUPTION EVENTS:
Change in Law:
Applicable
Insolvency, Insolvency
Filing and Other
Bankruptcy Events:
Notwithstanding anything to the contrary
in the Equity Definitions, upon an
Insolvency, Insolvency Filing or any
event set forth under Section 5(a)(vii)
of the Agreement, this Confirmation and
all obligations and rights of Party A
and Party B hereunder, including the
rights and obligations of Party A to pay
the Forward Price and Party B to deliver
Shares, shall immediately and
automatically terminate, without the
necessity of any notice, payment or
action by any party.
The definition of "Insolvency Filing" in
Section 12.9 of the Equity Definitions
shall be amended by deleting the clause
"provided that such proceedings
instituted
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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:
F
