<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-23625
ANNUITY AND LIFE RE (HOLDINGS), LTD.
(Exact name of registrant as specified in its charter)
Bermuda Not applicable
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
Cumberland House, Victoria Street, Hamilton, Bermuda
(Address of principal executive offices)
441-296-7667
(Registrant's Telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes /x/ No
The number of the Registrant's Common Shares (par value $1.00 per share)
outstanding as of May 7, 1999 was 25,499,999.
<PAGE> 2
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
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PAGE
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ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998 ....................................... 3
Consolidated Statements of Operations
Three Months ended March 31, 1999 and March 31, 1998 ....................... 4
Consolidated Statements of Comprehensive Income
Three Months ended March 31, 1999 and March 31, 1998 ....................... 5
Consolidated Statements of Cash Flows
Three Months ended March 31, 1999 and March 31, 1998 ....................... 6
Consolidated Statements of Changes in Stockholders' Equity
Three Months ended March 31, 1999 and March 31, 1998 ....................... 7
Notes to Unaudited Consolidated Financial Statements ....................... 8-9
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .............................. 10-13
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 14
Signatures
Exhibits
</TABLE>
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED BALANCE SHEETS
UNAUDITED
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
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ASSETS
Cash and cash equivalents $ 25,764,739 $ 66,586,267
Fixed maturity investments, available for sale,
at fair value (amortized cost of $295,993,175
at March 31, 1999: December 31, 1998:
$272,305,333) 296,261,447 276,027,927
Funds withheld at interest 1,411,829,191 1,200,101,268
Accrued investment income 3,945,407 3,812,062
Deferred policy acquisition costs 189,514,383 159,582,286
Other assets 726,770 400,370
--------------- ---------------
Total Assets $ 1,928,041,937 $ 1,706,510,180
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Reserves for future policy benefits $ 27,443,909 $ 22,026,409
Interest-sensitive contracts liabilities 1,510,638,757 1,283,675,809
Other reinsurance liabilities 5,393,099 22,455,437
Payable for investments purchased 1,493,775
Accounts payable and accrued expenses 3,560,318 3,012,279
--------------- ---------------
Total Liabilities $ 1,548,529,858 $ 1,331,169,934
--------------- ---------------
STOCKHOLDERS' EQUITY
Preferred Shares (par value $1.00; 50,000,000
shares authorized; no shares outstanding) -- --
Common Shares (par value $1.00; 100,000,000
shares authorized; 25,499,999 shares
outstanding) $ 25,499,999 $ 25,499,999
Additional paid-in capital 329,517,104 329,517,104
Notes receivable from stock sales (1,227,192) (1,391,068)
Accumulated other comprehensive income 268,272 3,722,594
Retained earnings 25,453,896 17,991,617
--------------- ---------------
Total Stockholders' Equity $ 379,512,079 $ 375,340,246
--------------- ---------------
Total Liabilities and Stockholders' Equity $ 1,928,041,937 $ 1,706,510,180
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
3
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(Expressed in United States Dollars)
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Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
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REVENUES
Net premiums $18,247,012 $
Investment income, net of related expenses 18,159,060 --
Net realized investment gains 263,458
Other 239,701 --
----------- -----------
Total Revenues 36,909,231 $ --
----------- -----------
BENEFITS AND EXPENSES
Claims and policy benefits $15,765,869 $ --
Net cost on interest sensitive
Contract liabilities 3,876,829
Policy acquisition costs and other
insurance expenses 7,405,339 --
Operating expenses 1,378,915 407,372
Organizational expenses -- 41,614
----------- -----------
Total Benefits and Expenses $28,426,952 $ 448,986
----------- -----------
Net Income (loss) $ 8,482,279 $ (448,986)
=========== ===========
NET INCOME PER COMMON SHARE (NOTE 3):
Basic $ 0.33 $ --
Diluted $ 0.31 $ --
</TABLE>
See accompanying notes to consolidated financial statements
4
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
UNAUDITED
(Expressed in United States Dollars)
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Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
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Net Income (loss) for period $ 8,482,279 $ (448,986)
----------- -----------
Other comprehensive income;
Unrealized holding gains (losses) on securities
arising during period (3,717,780) --
Plus reclassification adjustment for gains
Realized in net income 263,458 --
----------- -----------
Total other comprehensive income (3,454,322) --
----------- -----------
Total Comprehensive income (loss) $ 5,027,957 $ (448,986)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
-------------- --------------
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 8,482,279 $ (448,986)
Adjustments to reconcile net income to cash
flow from operating activities
Net realized investment gains (263,458) --
Changes in:
Accrued investment income (133,345) --
Deferred policy acquisition costs (29,932,097)
Other assets (326,400) (110,920)
Reserves for future policy benefits and interest
Sensitive contracts, net of funds withheld 20,652,525
Other reinsurance liabilities (17,062,338)
Accounts payable 548,039 559,900
------------ ------------
Net cash provided (used) by operating activities (18,034,795) (6)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed maturity securities 69,565,470 --
Purchase of fixed maturity securities 91,496,079 --
------------ ------------
Net cash provided (used) by
investing activities (21,930,609) --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Note Receivable, less
Interest accrued 163,876
Dividends paid to stockholders (1,020,000)
------------
Net cash provided (used) by financing activities (856,124) --
------------ ------------
Increase (decrease) in cash and cash equivalents (40,821,528) (6)
Cash and cash equivalents, beginning of period 66,586,267 250,000
------------ ------------
Cash and cash equivalents, end of period $ 25,764,739 $ 249,994
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
6
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
UNAUDITED
(Expressed in United States Dollars)
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Three months Ended Three months Ended
March 31, 1999 March 31, 1998
-------------- --------------
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PREFERRED SHARES PAR VALUE $1.00
Balance at beginning and end of period $ -- $ --
------------- -------------
COMMON SHARES PAR VALUE $1.00
Balance of beginning of period $ 25,499,999 $ 12,000
Issuance of shares --
Retirement of shares --
------------- -------------
Balance at end of period $ 25,499,999 $ 12,000
------------- -------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period $ 329,517,104 $ 238,000
Issuance of shares --
Direct equity offering expenses --
------------- -------------
Balance at end of period $ 329,517,104 $ 238,000
------------- -------------
NOTES RECEIVABLE FROM STOCK SALES
Balance at beginning of period $ (1,391,068) $ --
Notes issued --
Repayments 174,950
Accrued interest during period 11,074 --
------------- -------------
Balance at end of period $ (1,227,192) $ --
------------- -------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at beginning of period $ 3,722,594 $ --
Net unrealized holding gains on securities (3,454,322) --
------------- -------------
Balance at end of period $ 268,272 $ --
------------- -------------
RETAINED EARNINGS
Balance at beginning of period $ 17,991,617 $ --
Net income 8,482,279 (448,986)
Stockholder Dividends (1,020,000) --
------------- -------------
Balance at end of period $ 25,453,896 $ (448,986)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY $ 379,512,079 $ (198,986)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
7
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on
December 2, 1997 under the laws of Bermuda to provide annuity and life
reinsurance to insurers and reinsurers through its wholly-owned subsidiary,
Annuity and Life Reassurance, Ltd. ("Annuity Reassurance" and, together
with Holdings, the "Company"). Annuity Reassurance is licensed under the
insurance laws of Bermuda as a long term insurer.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of the Company
have been prepared in accordance with generally accepted accounting
principles for interim financial information and in accordance with
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. These consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
notes thereto contained in the Company's Form 10K for the fiscal year ended
December 31,1998. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included in these financial
statements.
It should be noted that, in view of the Company's limited operating
history, the financial data included herein is not necessarily indicative
of the results of operations or financial condition of the Company in the
future.
3. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share. The Company was nominally capitalized with 12,000
common shares of par value $1.00 each during the period from its
incorporation to the date of its initial public offering and did not
commence operations until April 17, 1998. For this reason earnings per
share for the three months ended March 31, 1998 is not presented as, in the
opinion of management, it is not meaningful.
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Three Months Ended
March 31, 1999
--------------
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Net Income $ 8,482,279
Weighted average number of common 25,499,999
shares outstanding
Weighted average number of common
shares outstanding including shares
issuable from exercise of options and warrants 27,181,315
Earnings per share $ 0.33
Earnings per share assuming dilution $ 0.31
</TABLE>
8
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4. ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This Statement is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. The Company
is currently reviewing the impact of this standard on its financial
reporting.
9
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
1. GENERAL
Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on
December 2, 1997 under the laws of Bermuda to provide annuity and life
reinsurance to insurers and reinsurers through its wholly-owned
subsidiary, Annuity and Life Reassurance, Ltd. ("Annuity Reassurance"
and together with Holdings, the "Company"). Annuity Reassurance is
licensed under the insurance laws of Bermuda as a long term insurer.
2. OPERATING RESULTS
Net Income. For the three-month period ending March 31,1999, the
Company had consolidated net Income of approximately $8,482,000 or
$0.33 per common share , $0.31 per common share on a fully diluted
basis. A loss of approximately $449,000 was incurred during the three
month period ended March 31, 1998 relating to expenses and costs
incurred in the formation and organization of the Company; the Company
began its insurance operations on April 17,1998 following the
completion of its initial public offering and direct sales of its
Common Shares.
Net Operating Income. In addition to net income, the Company reports
net operating income which excludes realized investment gains and
losses. Net Operating Income is commonly used in the insurance industry
as a measure of on-going earnings performance.
Net Operating Income for the three month period ending March 31, 1999
was approximately $8,219,000 or $0.32 per common share, $0.30 per
common share on a fully diluted basis.
Net Premiums. Net premium revenue was approximately $18.2 million for
the three-month period ending March 31,1999. All premium revenue was
derived from traditional ordinary life reinsurance. At March 31, 1999
the total face amount of life insurance in force was approximately$30.0
billion compared with approximately $22.5 billion at December 31,1998 ,
an increase of 33.3%. This increase reflects the level of new business
written by the Company which became effective during the period. The
Company expects premium revenue to follow the level and growth of the
face amount of insurance in-force.
Net Investment Income. Total Net investment income for the three month
period ending March 31,1999 was approximately $18.2 million. This
includes approximately $12.7 million in income earned on funds withheld
under modified coinsurance agreements related to the Company's interest
sensitive contract liabilities. Total assets increased approximately
13% from December 31,1998. The average yield rate earned on an
annualized basis on the invested assets, excluding the funds withheld,
for this period was approximately 6.27%.
Realized Investment Gains. Realized investment gains were
approximately$263,000 resulting from activity within the Company's
investment portfolios. At March 31, 1999 the Company's portfolio of
fixed maturity securities had unrealized gains of approximately
$268,000. Due to the increase in interest rates during the period the
Company had unrealized losses of approximately $3.4 million which were
included in Other Comprehensive Income.
10
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Realized gains and losses are not considered by the Company to be
recurring components of earnings. The Company makes decisions
concerning the sales of invested assets based on a variety of market,
business and other factors.
Claims and Policy Benefits. Claims and policy benefits were
approximately $15.8 million for the period ending March 31,1999. This
represents 86% of the net premium revenue. The Company expects
mortality to be fairly constant over long periods of time, but to
fluctuate from period to period. Reserve levels will in part be
determined by the Company's experience and overall mortality trends.
Policy Acquisition and Other Insurance Expenses. Policy acquisition and
other insurance expenses, consisting primarily of allowances and
amortization of deferred policy acquisition costs , were approximately
$7.4 million for the period ending March 31, 1999. Of this amount
approximately $6.3 million is related to the Company's annuity
reinsurance product line and approximately $1.1 million to the life
reinsurance product line. Generally, policy acquisition costs and other
insurance expenses fluctuate with product mix and business volumes.
Other Operating Expenses. Operating expenses for the three month period
ending March 31, 1999 were approximately $1.4 million or 3.7% of total
revenue. The operating expense level is considered by Company
Management to be very low by industry standards and is in line with the
Company's plan to be a low cost provider.
3. FINANCIAL CONDITION
Investments
Invested assets, including cash and cash equivalents, amounted to
approximately $322.0 million at March 31,1999. Net unrealized gains on
invested assets total $268,000 at March 31,1999 and generally reflect
the increase in interest rates during the period.
The Company's investment policy is designed to achieve above average
risk adjusted returns, maintain a high quality portfolio, maximize
current income, maintain an adequate level of liquidity and match the
cash flows of the portfolio to the required cash flows for the related
liabilities.
Funds Withheld at Interest - Interest Sensitive Contracts Liabilities
Assets with a carrying value of approximately $1,411.8 million relate
to an annuity reinsurance agreement with the Company are held by and
managed by the ceding company in segmented portfolios. The liability
for the annuity reinsurance is included on the Company's Balance Sheet
as Interest Sensitive Contracts Liabilities. During the period these
assets and liabilities each grew approximately 17% primarily due to the
level of new deposits accepted by the Company under the reinsurance
agreement.
Liquidity and Capital Resources
The Company's liquidity and capital resources are a measure of the
overall financial strength of the Company and its ability to generate
cash flows from its operations to meet operating and growth needs. The
Company's principal sources of funds are premiums received, net
investment income, proceeds from investments called, redeemed or sold,
cash and short term investments. The principal obligations and uses of
the funds are the payment of policy benefits, acquisition and operating
costs and the purchase of investments.
11
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For the three month period ended March 31,1999 the Company used
approximately $18.0 million in its operating activities. This is
primarily related to initial costs associated with writing new life
reinsurance and annuity reinsurance business. The funds to meet these
obligations were provided by the cash and cash equivalent balances held
at December 31,1998.
The Company's capital structure currently consists entirely of equity.
At March 31,1999 total capitalization of the Company after deducting
certain loans to management and including retained earnings and
accumulated other comprehensive income amounted to approximately $379.5
million. Management believes this level of capital is sufficient to
support the Company's insurance writings and growth for the near
future.
At March 31,1999 the Company had no outstanding debt. At March 31, 1999
letters of credit totaling approximately $46.4 million issued in the
ordinary course of the Company's business have been issued by the
Company's bankers in favor of certain ceding insurance companies; these
letters of credit are fully collateralized by investments of the
Company. The Company may incur indebtedness in the future in connection
with possible acquisitions of, investments in, joint ventures with or
strategic alliances with companies whose businesses compliment the
Company's business.
On April 17, 1998 the Company completed an initial public offering of
19,640,579 common shares; total proceeds received net of underwriting
discounts and commissions were approximately$276.9 million.
Simultaneous with the initial closing of the public offering, direct
sales of 5,859,420 common shares and 397,500 Class B warrants were made
to strategic investors, certain members of the Board of Directors and
Company management; total net proceeds were approximately $82.6
million. Substantially all of the net proceeds from these offerings
were used to provide working capital and to capitalize the operating
subsidiary, Annuity and Life Reassurance, Ltd.
On February 11, 1999 the Board of Directors declared a quarterly
stockholder dividend of $.04 per share payable to shareholders of
record on March 10, 1999. The continued payment of dividends is
dependent on the ability of Annuity and Life Reassurance, Ltd., to
achieve satisfactory underwriting and investment results and other
factors determined to be relevant by the Company's Board of Directors.
The Company currently has no material commitments for capital
expenditures.
4. YEAR 2000
Many existing computer programs use only two digits to identify a year
in the date field. These programs, if not corrected, could fail or
create erroneous results by or at the year 2000. This "Year 2000" issue
is believed to affect virtually all companies and organizations. All of
the Company's data processing and related systems were purchased after
April 17, 1998. Therefore, the Company believes that its exposure with
respect to its own computer systems to Year 2000-related problems will
not be significant. The Company does not expect to incur any material
costs in connection with Year 2000-related issues.
However, the Company will be exposed to the risk that its third-party
service providers and client companies may be exposed to Year
2000-related problems. The Company has no direct control over the Year
2000 compliance efforts of its third party service providers and client
companies. The Company is monitoring whether such parties will be Year
2000 compliant on a timely basis and has received assurances that they
will be. There can be no assurance, however, that the Company's
operations will not experience material disruptions due to the failure
of the Company's third-party service providers or
12
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client companies to become fully Year 2000 compliant in a timely manner
or that such failure will not otherwise have an adverse effect on the
Company. Furthermore, the Company's interaction with third-party
service providers and client companies outside the United States may
subject the Company to additional Year 2000 risk as foreign entities
have in general not addressed Year 2000 compliance issues as
comprehensively as their United States counterparts. The Company will
continue to monitor developments relating to the issue, including the
development of additional contingency plans to supplement its current
contingency plan, which provides for the replacement of existing
third-party service providers which are not Year 2000 compliant with
comparable third-party service providers which are Year 2000 compliant,
and including the development of contingency plans for providing
back-up services in the event of a systems failure.
5. FORWARD-LOOKING AND CAUTIONARY STATEMENTS
The Company and its representatives may from time to time make written
or oral forward-looking statements, including those contained in the
foregoing Management's Discussion and Analysis. In order to take
advantage of the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby identifying
certain important factors which could cause the Company's actual
results, performance or achievement to differ materially from those
that may be contained in or implied by any forward-looking statement
made by or on behalf of the Company. The factors that could cause such
forward-looking statements not to be realized include, without
limitation, acceptance in the market of the Company's reinsurance
products; pricing competition; the amount of underwriting capacity from
time to time in the market; general economic conditions and conditions
specific to the reinsurance and investment markets in which the Company
operates; material fluctuations in interest rate levels; regulatory
changes and conditions; rating agency policies and practices; claims
development; and loss of key executives. The Company cautions that the
foregoing list of important factors is not intended to be, and is not,
exhaustive, The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on
behalf of the Company.
13
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as part of this
report on Form 10-Q:
4 Annuity and Life Re (Holdings), Ltd. Initial Stock Option
Plan (as amended, effective April 29,1999.
11 Computation of Earnings per share
27 Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K filed
during the period ended March 31, 1999.
14
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
SIGNATURES
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 thereunto duly authorized.
Annuity and Life Re (Holdings), Ltd.
Date:
------------------- ----------------------------------------
Name: Lawrence S. Doyle
Title: President and Chief
Executive Officer
(Principal Executive Officer)
Date:
------------------- ----------------------------------------
Name: William W. Atkin
Title: Chief Financial Officer and
Treasurer
(Principal Accounting and
Financial Officer)
15
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Exhibit 4
ANNUITY AND LIFE RE (HOLDINGS), LTD.
INITIAL STOCK OPTION PLAN
(as amended and restated effective April 29, 1999)
<PAGE> 2
TABLE OF CONTENTS
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SECTION 1 Definitions..............................................................1
SECTION 2 Administration...........................................................4
SECTION 3 Eligibility..............................................................4
SECTION 4 Common Shares............................................................4
SECTION 5 Annual Limit.............................................................5
SECTION 6 Granting of Options to Key Employees and Consultants.....................5
SECTION 7 Terms and Conditions of Options to Key Employees and Consultants ........6
SECTION 8 Options for Non-Employee Directors......................................11
SECTION 9 Option Agreements - Other Provisions....................................14
SECTION 10 Capital Adjustments.....................................................14
SECTION 11 Amendment or Discontinuance of the Plan.................................15
SECTION 12 Termination of Plan.....................................................16
SECTION 13 Shareholder Approval....................................................16
SECTION 14 Miscellaneous...........................................................17
SECTION 15 Change in Control.......................................................18
</TABLE>
<PAGE> 3
ANNUITY AND LIFE RE (HOLDINGS), LTD.
INITIAL STOCK OPTION PLAN
PURPOSE
This ANNUITY AND LIFE RE (HOLDINGS), LTD. INITIAL STOCK OPTION
PLAN is intended to provide a means whereby Annuity and Life Re (Holdings), Ltd.
may, through the grant of Options to purchase Common Shares of the Company to
Key Employees, Non-Employee Directors, and Consultants attract and retain such
individuals and motivate them to exercise their best efforts on behalf of the
Company and of any Related Corporation.
SECTION 1 DEFINITIONS
As used in the Plan the following words and terms shall have
the meaning hereinafter set forth unless the context clearly indicates
otherwise:
(a) BOARD. The term "Board" shall mean the Board of Directors
of the Company.
(b) CODE. The term "Code" shall mean the Internal Revenue Code
of 1986, as amended.
(c) COMMITTEE. The term "Committee" shall mean the Company's
Compensation Committee which shall consist of not less than two (2)
directors of the Company and who shall be appointed by, and shall serve
at the pleasure of, the Board. Each member of such Committee, while
serving as such, shall be deemed to be acting in his or her capacity as
a director of the Company. On and after the date the Company first
registers equity securities under Section 12 of the Exchange Act, it is
intended that each member of the Committee shall be a Rule 16b-3
Non-Employee Director. Notwithstanding the foregoing, if the Committee
does not consist solely of two (2) or more Rule 16b-3 Non-Employee
Directors, the full Board shall serve as the Committee if it is
intended that Options satisfy the advance approval requirements of 17
CFR Section 240.16b-3.
(d) COMMON SHARES. The term "Common Shares" shall mean the
common shares of the Company, par value $1.00 per share.
(e) COMPANY. The term "Company" shall mean Annuity and Life Re
(Holdings), Ltd., a Bermuda corporation.
(f) CONSULTANT. The term "Consultant" shall mean a consultant
or advisor who is not an employee of the Company or a Related
Corporation and is not a Non-
-1-
<PAGE> 4
Employee Director, but may include directors, officers, employees and
partners of Inter-Atlantic Capital Partners, Inc. or its affiliates.
(g) ELIGIBLE NON-EMPLOYEE DIRECTORS. The term "Eligible
Non-Employee Director" shall mean a Non-Employee Director who is not a
director, officer or employee of Inter-Atlantic Capital Partners, Inc.
or its affiliates.
(h) EXCHANGE ACT. The term "Exchange Act" shall mean the
Securities Exchange Act of 1934, as amended.
(i) FAIR MARKET VALUE. The term "Fair Market Value" shall mean
the fair market value of the optioned Common Shares arrived at by a
good faith determination of the Committee and shall be:
(1) The quoted closing price, if there is a market
for the Common Shares on a registered securities exchange or
in an over the counter market, on the date of grant;
(2) The weighted average of the quoted closing prices
on the nearest date before and the nearest date after the date
of grant, if there are no sales on the date of grant but there
are sales on dates within a reasonable period both before and
after the date of grant;
(3) The mean between the bid and asked prices, as
reported by the National Quotation Bureau on the date of
grant, if actual sales are not available during a reasonable
period beginning before and ending after the date of grant; or
(4) Such other method of determining fair market
value as shall be authorized by the Code, or the rules or
regulations thereunder, and adopted by the Committee.
Where the fair market value of the optioned Common Shares is
determined under (2) above, the average of the quoted closing prices on
the nearest date before and the nearest date after the date of grant is
to be weighted inversely by the respective numbers of trading days
between the selling dates and the date of grant (i.e., the valuation
date), in accordance with Treas. Reg. Section 20.2031-2(b)(1).
(j) ISO. The term "ISO" shall mean an Option which, at the
time such Option is granted, qualifies as an incentive stock option
within the meaning of Section 422 of the Code.
(k) KEY EMPLOYEE. The term "Key Employee" shall mean an
officer or any other key employee of the Company or of a Related
Corporation.
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(l) NON-EMPLOYEE DIRECTOR. The term "Non-Employee Director"
shall mean a director of the Company who is not an employee of the
Company or a Related Corporation.
(m) NQSO. The term "NQSO" shall mean an Option which is not an
ISO, and/or is designated as an NQSO in the Option Agreement.
(n) OPTION. The term "Option" shall mean any stock option
granted to a Key Employee, Non-Employee Director, or Consultant under
Sections 7 and 8 hereof.
(o) OPTION AGREEMENT. The term "Option Agreement" shall mean a
written document evidencing the grant of an Option, as described in
Section 9.
(p) OPTIONEE. The term "Optionee" shall mean a Key Employee,
Non-Employee Director, or Consultant to whom an Option has been
granted.
(q) PLAN. The term "Plan" shall mean the Annuity and Life Re
(Holdings), Ltd. Initial Stock Option Plan, as set forth herein and as
amended from time to time.
(r) RELATED CORPORATION. The term "Related Corporation" shall
mean either a corporate subsidiary of the Company, as defined in
section 424(f) of the Code, or the corporate parent of the Company, as
defined in section 424(e) of the Code.
(s) RULE 16B-3 NON-EMPLOYEE DIRECTOR. The term "Rule 16b-3
Non-Employee Director" shall mean a director who:
(1) Is not currently an officer (as defined in 17 CFR
Section 240.16a-1(f)) of, or otherwise currently employed by,
the Company or a parent or subsidiary of the Company within
the meaning of 17 CFR Section 240.16b-3(b)(3);
(2) Does not receive compensation, either directly or
indirectly, from the Company or a parent or subsidiary of the
Company within the meaning of 17 CFR Section 240.16b-3(b)(3)
for services rendered as a consultant or in any other capacity
other than as a director, except for an amount that does not
exceed the dollar amount for which disclosure would be
required under 17 CFR Section 229.404(a);
(3) Does not possess an interest in any other
transaction for which disclosure would be required pursuant to
17 CFR Section 229.404(a); and
(4) Is not engaged in a business relationship for
which disclosure would be required pursuant to 17 CFR Section
229.404(b).
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SECTION 2 ADMINISTRATION
The Plan shall be administered by the Committee. The Committee
shall have full authority, subject to the terms of the Plan, to select the Key
Employees and Consultants to be granted ISOs and/or NQSOs under the Plan, to
grant Options on behalf of the Company and to set the date of grant and the
other terms of such Options. Options granted to Non-Employee Directors shall be
granted pursuant to the formula set forth in Section 8(a) hereof.
The Committee may correct any defect, supply any omission and
reconcile any inconsistency in this Plan and in any Option granted hereunder in
the manner and to the extent it shall deem desirable. The Committee also shall
have the authority to establish such rules and regulations, not inconsistent
with the provisions of the Plan, for the proper administration of the Plan, and
to amend, modify or rescind any such rules and regulations, and to make such
determinations and interpretations under, or in connection with, the Plan, as it
deems necessary or advisable. All such rules, regulations, determinations and
interpretations shall be binding and conclusive upon the Company, its
shareholders and all employees, directors, and consultants, and upon their
respective legal representatives, beneficiaries, successors and assigns and upon
all other persons claiming under or through any of them.
No member of the Board or the Committee shall be liable for
any action or determination made in good faith with respect to the Plan or any
Option granted under it.
SECTION 3 ELIGIBILITY
Key Employees, Non-Employee Directors, and Consultants shall
be eligible to receive Options under the Plan. Key Employees shall be eligible
to receive ISOs and/or NQSOs. Non-Employee Directors and Consultants shall be
eligible to receive only NQSOs. More than one Option may be granted to a Key
Employee, Non-Employee Director, or Consultant under the Plan.
SECTION 4 COMMON SHARES
Options may be granted under the Plan to purchase up to a
maximum of 1,552,500 Common Shares. In addition, effective as of April 29, 1999,
Options may be granted each calendar year to purchase up to a number of Common
Shares equal to two percent (2.0%) of the adjusted average of the outstanding
Common Shares of the Company for the preceding fiscal year, as that number is
determined by the Company to calculate fully diluted earnings per share for the
Company's Form 10-K. (For 1999, the additional number of shares available
pursuant to the preceding sentence is 510,416.) However, in no event may more
than 2,062,916 Common Shares be issued under ISOs. The maximum number of Common
Shares available under the Plan shall be subject to further adjustment as
provided in Section 10 hereof. Shares issuable under the Plan may be authorized
but unissued shares or reacquired shares, and the Company may purchase shares
required for this purpose, from time to time, if it deems such purchase to be
advisable.
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If any Option granted under the Plan expires or otherwise
terminates for any reason whatever (including, without limitation, the
Optionee's surrender thereof) without having been exercised, the shares subject
to the unexercised portion of such Option shall continue to be available for the
granting of Options under the Plan as fully as if such shares had never been
subject to an Option.
SECTION 5 ANNUAL LIMIT
(a) ISOs. The aggregate Fair Market Value (determined as of
the date the ISO is granted) of the Common Shares with respect to which
ISOs are exercisable for the first time by a Key Employee during any
calendar year (under this Plan and any other ISO plan of the Company or
a Related Corporation) shall not exceed one hundred thousand dollars
($100,000).
(b) OPTIONS OVER ANNUAL LIMIT. If an Option intended as an ISO
is granted to a Key Employee and such Option may not be treated in
whole or in part as an ISO pursuant to the limitation in subsection (a)
above, such Option shall be treated as an ISO to the extent it may be
so treated under such limitation and as an NQSO as to the remainder,
but shall continue to be subject to the provisions of the Plan that
apply to ISOs. For purposes of determining whether an ISO would cause
such limitation to be exceeded, the Key Employee's incentive stock
options shall be taken into account in the order granted.
(c) NQSOs. The annual limit set forth above for ISOs shall not
apply to NQSOs.
SECTION 6 GRANTING OF OPTIONS TO KEY EMPLOYEES AND CONSULTANTS
From time to time until the expiration or earlier suspension
or discontinuance of the Plan, the Committee may, on behalf of the Company,
grant to Key Employees and Consultants under the Plan such Options as it
determines are warranted; provided, however, that grants of ISOs and NQSOs shall
be separate and not in tandem. The granting of an Option under the Plan shall
not be deemed either to entitle the Key Employee or Consultant to, or to
disqualify the Key Employee or Consultant from, any participation in any other
grant of Options under the Plan. In making any determination as to whether a Key
Employee or Consultant shall be granted an Option and as to the number of shares
to be covered by such Option, the Committee shall take into account the duties
of the Key Employee or Consultant, his or her present and potential
contributions to the success of the Company or a Related Corporation, and such
other factors as the Committee shall deem relevant in accomplishing the purposes
of the Plan. Moreover, the Committee may provide in the Option that said Option
may be exercised only if certain conditions, as determined by the Committee, are
fulfilled.
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SECTION 7 TERMS AND CONDITIONS OF OPTIONS TO KEY EMPLOYEES AND
CONSULTANTS
The Options granted pursuant to the Plan to Key Employees and
Consultants shall include expressly or by reference the following terms and
conditions, as well as such other provisions not inconsistent with the
provisions of this Plan and, for ISOs, the provisions of section 422(b) of the
Code, as the Committee shall deem desirable:
(a) NUMBER OF SHARES. A statement of the number of Common
Shares to which the Option pertains.
(b) PRICE. A statement of the Option exercise price, which
shall be determined and fixed by the Committee in its discretion but,
in the case of an ISO, shall not be less than the higher of one hundred
percent (100%) (one hundred ten percent (110%) in the case of more than
ten percent (10%) shareholders as discussed in Subsection (j) below) of
the Fair Market Value of the optioned Common Shares, or the par value
thereof, on the date the ISO is granted.
(c) TERM.
(1) ISOs. Subject to earlier termination as provided
in Subsections (e), (f) and (g) below and in Section 10
hereof, the term of each ISO shall be not more than ten (10)
years (five (5) years in the case of more than ten percent
(10%) shareholders as discussed in (j) below) from the date of
grant.
(2) NQSOs. Subject to earlier termination as provided
in Subsections (e), (f) and (g) below and in Section 9 hereof,
the term of each NQSO shall be not more than ten (10) years
from the date of grant.
(d) EXERCISE.
(1) GENERAL. Unless otherwise provided in the Option
Agreement, Options shall become exercisable in three (3) equal
annual installments, commencing with the first anniversary of
the grant date; provided that the Committee may accelerate the
exercise date of any outstanding Options, in its discretion,
if it deems such acceleration to be desirable.
Any Common Shares, the right to the purchase of which
has accrued under an Option, may be purchased at any time up
to the expiration or termination of the Option. Exercisable
Options may be exercised, in whole or in part, from time to
time by giving written notice of exercise to the Company at
its principal office, specifying the number of Common Shares
to be purchased and accompanied by payment in full of the
aggregate Option exercise price for such shares. Only full
shares shall be issued under the Plan, and any fractional
share which might otherwise be issuable upon exercise of an
Option granted hereunder shall be forfeited.
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(2) MANNER OF PAYMENT. The Option exercise price
shall be payable:
(A) In cash or its equivalent;
(B) If the Committee, in its discretion, so
provides in the Option Agreement (as hereinafter
defined) or, in the case of Options which are not
ISOs, if the Committee, in its discretion, so
determines at or prior to the time of exercise, in
whole or in part, in Common Shares previously
acquired by the Optionee, provided that the
Committee, in its discretion, may require (i) if such
Common Shares were acquired through the exercise of
an ISO and are used to pay the Option exercise price
of an ISO, such shares have been held by the Optionee
for a period of not less than the holding period
described in section 422(a)(1) of the Code on the
date of exercise, or (ii) if such Common Shares were
acquired through exercise of an NQSO or of an option
under a similar plan or through exercise of an ISO
and are used to pay the Option exercise price of an
NQSO, such shares have been held by the Optionee for
a period of more than six (6) months on the date of
exercise;
(C) If the Committee, in its discretion, so
provides in the Option Agreement or, in the case of
Options which are not ISOs, if the Committee, in its
discretion, so determines at or prior to the time of
exercise, in whole or in part, in Common Shares newly
acquired by the Optionee upon exercise of such Option
(which shall constitute a disqualifying disposition
in the case of an Option which is an ISO);
(D) If the Committee, in its discretion, so
provides in the Option Agreement or, in the case of
Options which are not ISOs, if the Committee, in its
discretion, so determines at or prior to the time of
exercise, in any combination of (A), (B) and/or (C)
above; or
(E) If the Committee, in its discretion, so
provides in the Option Agreement or, in the case of
Options which are not ISOs, if the Committee, in its
discretion, so determines at or prior to the time of
exercise, by permitting the Optionee to deliver a
properly executed notice of exercise of the Option to
the Company and a broker, with irrevocable
instructions to the broker promptly to deliver to the
Company the amount of sale or loan proceeds necessary
to pay the exercise price of the Option.
In the event such Option exercise price is paid, in
whole or in part, with Common Shares, the portion of the
Option exercise price so paid shall be equal to the Fair
Market Value on the date of exercise of the Option of the
Common Shares surrendered in payment of such Option exercise
price.
(e) TERMINATION OF EMPLOYMENT OR SERVICE.
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(1) GENERAL. If an Optionee's employment or service
with the Company (and Related Corporations) is terminated by
either party prior to the expiration date fixed for his or her
Option for any reason other than death, disability, or Cause
(as described in paragraph (2) below), such Option may be
exercised, to the extent of the number of Common Shares with
respect to which the Optionee could have exercised it on the
date of such termination, or to any greater extent permitted
by the Committee, by the Optionee at any time prior to the
earlier of:
(A) The expiration date fixed for such
Option; or
(B) An accelerated termination date
determined by the Committee, in its discretion,
except that, subject to Section 9 hereof, such
accelerated termination date shall not be earlier
than the date of the Optionee's termination of
employment or service and, unless otherwise
determined by the Committee, in its discretion, shall
not be later than three (3) months after the date of
such termination of employment.
If an Optionee's employment or service with the
Company or a Related Corporation terminates by reason of Cause
prior to the expiration date fixed for his or her Option, such
Option shall terminate immediately.
(2) CAUSE. For purposes of this Plan, unless
otherwise defined in an Optionee's employment or service
contract with the Company or a Related Corporation, "Cause"
shall include insubordination, gross incompetence or
misconduct in the performance of, or gross neglect of,
Optionee's duties, willful violation of any express direction
or of any rule or regulation applicable to such Optionee, any
act of fraud or intentional misrepresentation, or
embezzlement, misappropriation, or conversion of assets or
opportunities of the Company or a Related Corporation.
(f) EXERCISE UPON DISABILITY OF OPTIONEE. If an Optionee shall
become disabled (within the meaning of section 22(e)(3) of the Code)
during his or her employment or service and, prior to the expiration
date fixed for his or her Option, his or her employment or service is
terminated as a consequence of such disability, such Option may be
exercised, to the extent of the number of Common Shares with respect to
which the Optionee could have exercised it on the date of such
termination, or to any greater extent permitted by the Committee, by
the Optionee at any time prior to the earlier of:
(1) The expiration date fixed for the Option; or
(2) An accelerated termination date determined by the
Committee, in its discretion, except that, subject to Section
9 hereof, such accelerated termination date shall not be
earlier than the date of termination of employment or service
by reason of disability and, unless otherwise determined by
the Committee, in its
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discretion, shall not be later than one (1) year after the
date of such termination of employment.
In the event of the Optionee's legal disability, such Option may be so
exercised by the Optionee's legal representative.
(g) EXERCISE UPON DEATH OF OPTIONEE. If an Optionee shall die
during his or her employment or service and prior to the expiration
date fixed for his or her Option, or if an Optionee whose employment or
service is terminated for any reason shall die following his or her
termination of employment or service, but prior to the earlier of:
(1) The expiration date fixed for such Option; or
(2) The expiration of the period determined under
Subsections (e) and (f) above, if applicable;
such Option may be exercised, to the extent of the number of Common
Shares with respect to which the Optionee could have exercised it on
the date of his or her death, or to any greater extent permitted by the
Committee, by the Optionee's estate, personal representative or
beneficiary who acquired the right to exercise such Option by bequest
or inheritance or by reason of the death of the Optionee, at any time
prior to the earlier of:
(A) The expiration date specified in such
Option (which may be the expiration date determined
under Subsections (e) and (f) above, if applicable);
or
(B) An accelerated termination date
determined by the Committee, in its discretion except
that, subject to Section 9 hereof, such accelerated
termination date shall not be later than one (1) year
after the date of death.
(h) NON-TRANSFERABILITY.
(1) ISOs. No ISO shall be assignable or transferable
by a Key Employee otherwise than by will or by the laws of
descent and distribution, and during the lifetime of the Key
Employee, the ISO shall be exercisable only by him or by his
or her guardian or legal representative. If the Key Employee
is married at the time of exercise and if the Key Employee so
requests at the time of exercise, the certificate or
certificates shall be registered in the name of the Key
Employee and the Key Employee's spouse, jointly, with right of
survivorship.
(2) NQSOs. Except as otherwise provided in any Option
Agreement, no NQSO shall be assignable or transferable by the
Optionee otherwise than by will or by the laws of descent and
distribution, and during the lifetime of the Optionee, the
NQSO shall be exercisable only by him or by his or her
guardian or legal representative. If the Optionee is married
at the time of exercise and if the Optionee
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so requests at the time of exercise, the certificate or
certificates shall be registered in the name of the Optionee
and his or her spouse, jointly, with right of survivorship.
(i) RIGHTS AS A SHAREHOLDER. An Optionee shall have no rights
as a shareholder with respect to any shares covered by his or her
Option until the issuance of a share certificate to him or her for such
shares.
(j) TEN PERCENT SHAREHOLDER. If a Key Employee owns more than
ten percent (10%) of the total combined voting power of all shares of
stock of the Company or of a Related Corporation at the time an ISO is
granted to such Key Employee, the Option exercise price for the ISO
shall be not less than one hundred ten percent (110%) of the Fair
Market Value of the optioned Common Shares on the date the ISO is
granted, and such ISO, by its terms, shall not be exercisable after the
expiration of five (5) years from the date the ISO is granted. The
conditions set forth in this Subsection (j) shall not apply to NQSOs.
(k) LISTING AND REGISTRATION OF SHARES. Each Option shall be
subject to the requirement that, if at any time the Committee shall
determine, in its discretion, that the listing, registration or
qualification of the shares covered thereby upon any securities
exchange or under any applicable law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition
of, or in connection with, the granting of such Option or the purchase
of shares thereunder, or that action by the Company or by the Optionee
should be taken in order to obtain an exemption from any such
requirement, no such Option may be exercised, in whole or in part,
unless and until such listing, registration, qualification, consent,
approval, or action shall have been effected, obtained, or taken under
conditions acceptable to the Committee. Without limiting the generality
of the foregoing, each Optionee or his or her legal representative or
beneficiary may also be required to give satisfactory assurance that
shares purchased upon exercise of an Option are being purchased for
investment and not with a view to distribution, and certificates
representing such shares may be legended accordingly.
(l) WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS.
The obligation of the Company to deliver Common Shares upon the
exercise of any Option shall be subject to applicable tax withholding
requirements.
If the exercise of any Option is subject to the withholding
requirements of applicable tax laws, the Committee, in its discretion
(and subject to such withholding rules ("Withholding Rules") as shall
be adopted by the Committee), may permit the Optionee to satisfy the
minimum required withholding tax, in whole or in part, by electing to
have the Company withhold (or by returning to the Company) Common
Shares, which shares shall be valued, for this purpose, at their Fair
Market Value on the date of exercise of the Option (or if later, the
date on which the Optionee recognizes ordinary income with respect to
such exercise). An election to use Common Shares to satisfy tax
withholding requirements must be made in compliance with and subject to
the Withholding Rules. The Committee may not
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withhold shares in excess of the number necessary to satisfy the
minimum tax withholding requirements.
SECTION 8 OPTIONS FOR NON-EMPLOYEE DIRECTORS
(a) Granting of Options to Outside Directors.
(1) Each person who becomes an Eligible Non-Employee
Director shall be granted an NQSO to purchase 15,000 Common
Shares on the later of (A) the date he or she becomes an
Eligible Non-Employee Director and (B) the date of the
Company's initial public offering of its Common Shares.
(2) In addition, with respect to the Company's first
annual shareholder's meeting after December 31, 1998 and each
subsequent annual shareholder's meeting of the Company, each
Non-Employee Director whose term as a director has not ended
as of the date of such annual shareholder's meeting shall be
granted an NQSO to purchase 2,000 Common Shares as of the day
of such annual shareholder's meeting.
(b) TERMS AND CONDITIONS OF OPTIONS. Options granted to
Non-Employee Directors shall expressly specify that they are NQSOs. In
addition, such Options shall include expressly or by reference the
following terms and conditions, as well as such other provisions not
inconsistent with the provisions of this Plan:
(1) NUMBER OF SHARES. A statement of the number of
Common Shares to which the Option pertains.
(2) PRICE. A statement of the Option exercise price,
which shall be one hundred percent (100%) of the Fair Market
Value of the optioned Common Shares on the date the Option is
granted.
(3) TERM. Subject to earlier termination as provided
in Subsections (5), (6) and (7) below, the term of each Option
granted under this Section 8 shall be 10 years from the date
of grant.
(4) EXERCISE.
(A) GENERAL. Options granted under Section
8(a)(1) shall become exercisable in three (3) equal
annual installments, commencing with the first
anniversary of the grant date. Options granted under
Section 8(a)(2) shall be immediately exercisable as
of the grant date, provided that if such date is not
at least one year after the date upon which the
Company's initial public offering of its Common
Shares was consummated, such Options shall become
exercisable on the first anniversary of the
consummation of such initial public offering. Any
Common Shares, the right to the purchase of which has
accrued under an Option,
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may be purchased at any time up to the expiration or
termination of the Option. Exercisable Options may be
exercised, in whole or in part, from time to time by
giving written notice of exercise to the Company at
its principal office, specifying the number of Common
Shares to be purchased and accompanied by payment in
full of the aggregate Option exercise price for such
shares. Only full shares shall be issued under the
Plan, and any fractional share which might otherwise
be issuable upon the exercise of an Option granted
hereunder shall be forfeited.
(B) MANNER OF PAYMENT. The Option exercise
price shall be payable:
(i) In cash or its equivalent;
(ii) Unless in the opinion of counsel to the Company
to do so may result in a possible violation of law, in whole
or in part through the transfer of Common Shares previously
acquired by the Non-Employee Director, provided that if such
Common Shares were acquired through exercise of an NQSO or of
an option under a similar plan, such Common Shares so
transferred shall have been held by the Non-Employee Director
for more than six (6) months on the date of exercise;
(iii) Unless in the opinion of counsel to the Company
to do so may result in a possible violation of law, in whole
or in part, in Common Shares newly acquired by the
Non-Employee Director upon the exercise of such Option; or
(iv) In any combination of (i), (ii), and/or (iii)
above.
In the event such Option exercise price is
paid, in whole or in part, with Common Shares, the portion of
the Option exercise price so paid shall equal the Fair Market
Value on the date of exercise of the Option of the Common
Shares surrendered in payment of such Option exercise price.
(5) EXPIRATION OF TERM OR REMOVAL AS DIRECTOR. If a
Non-Employee Director's service as a director of the Company
terminates prior to the expiration date fixed for his or her
Option for any reason (such as, without limitation, failure to
be re-elected by the Company's shareholders) other than by
disability, death, or Cause (as described in Section 7(e)(2)
above), such Option may be exercised, to the extent of the
number of Common Shares with respect to which the Non-Employee
Director could have exercised it on the date of such
termination, by the Non-Employee Director at any time prior to
the earlier of:
(A) The expiration date fixed for such
Option; or
(B) Three (3) months after the date of such
termination of service as a director.
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If a Non-Employee Director's service as a director of
the Company terminates by reason of Cause prior to the
expiration date fixed for his or her Option, such Option shall
terminate immediately.
(6) EXERCISE UPON DISABILITY OF NON-EMPLOYEE
DIRECTOR. If a Non-Employee Director shall become disabled (within the meaning
of section 22(e)(3) of the Code) during his or her term as a director of the
Company and, prior to the expiration date fixed for his or her Option, his or
her term as a director is terminated as a consequence of such disability, such
Option may be exercised, to the extent of the number of Common Shares with
respect to which the Non-Employee Director could have exercised it on the date
of such termination, by the Non-Employee Director at any time prior to the
earlier of:
(A) The expiration date fixed for such
Option; or
(B) One year after the date of such
termination of service as a director.
In the event of the Non-Employee Director's legal
disability, such Option may be so exercised by his or her
legal representative.
(7) EXERCISE UPON DEATH OF NON-EMPLOYEE DIRECTOR. If a
Non-Employee Director shall die during his or her term as a director of
the Company and prior to the expiration date fixed for his or her
Option, or if a Non-Employee Director whose term as a director has been
terminated for any reason shall die following his or her termination as
a director, but prior to the earlier of:
(A) The expiration date fixed for such Option; or
(B) The expiration of the period determined under
Subsections (5) and (6) above, if applicable;
such Option may be exercised, to the extent of the number of
Common Shares with respect to which the Non-Employee Director
could have exercised it on the date of his or her death, by
the Non-Employee Director's estate, personal representative or
beneficiary who acquired the right to exercise such Option by
bequest or inheritance or by reason of the death of the
Non-Employee Director, at any time prior to the earlier of:
(i) The expiration date specified in such Option
(which may be the expiration date determined under Subsections
(5) and (6) above, if applicable); or
(ii) One year after the date of death.
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(8) RIGHTS AS A SHAREHOLDER. A Non-Employee Director
shall have no rights as a shareholder with respect to any
shares covered by his or her Option until the issuance of a
share certificate to him or her for such shares.
(9) LISTING AND REGISTRATION OF SHARES. Each Option
shall be subject to the requirement that, if at any time the
Committee shall determine, in its discretion, that the
listing, registration or qualification of the shares covered
thereby upon any securities exchange or under any applicable
law, or the consent or approval of any governmental regulatory
body, is necessary or desirable as a condition of, or in
connection with, the granting of such Option or the purchase
of shares thereunder, or that action by the Company or by the
Optionee should be taken in order to obtain an exemption from
any such requirement, no such Option may be exercised, in
whole or in part, unless and until such listing, registration,
qualification, consent, approval, or action shall have been
effected, obtained, or taken under conditions acceptable to
the Committee. Without limiting the generality of the
foregoing, each Optionee or his or her legal representative or
beneficiary may also be required to give satisfactory
assurance that shares purchased upon exercise of an Option are
being purchased for investment and not with a view to
distribution, and certificates representing such shares may be
legended accordingly.
SECTION 9 OPTION AGREEMENTS - OTHER PROVISIONS
Options granted under the Plan shall be evidenced by Option
Agreements in such form as the Committee shall, from time to time, approve,
which Option Agreements shall contain such provisions, not inconsistent with the
provisions of the Plan for NQSOs granted pursuant to the Plan, and such
conditions, not inconsistent with section 422(b) of the Code or the provisions
of the Plan for ISOs granted pursuant to the Plan, as the Committee shall deem
advisable, and which Option Agreements shall specify whether the Option is an
ISO or NQSO; provided, however, if the Option is not designated in the Option
Agreement as an ISO or NQSO, the Option shall constitute an ISO if it complies
with the terms of section 422 of the Code, and otherwise, it shall constitute an
NQSO. Each Optionee shall enter into, and be bound by, such Option Agreement.
SECTION 10 CAPITAL ADJUSTMENTS
The number of shares which may be issued under the Plan, and
the maximum number of shares with respect to which options may be granted during
a specified period to any Key Employee, Non-Employee Director, or Consultant
under the Plan, as stated in Section 4 hereof, and the number of shares issuable
upon exercise of outstanding Options under the Plan (as well as the Option
exercise price per share under such outstanding Options), shall, subject to the
provisions of section 424(a) of the Code, be adjusted to reflect any stock
dividend, stock split, share combination, or similar change in the
capitalization of the Company.
-14-
<PAGE> 17
In the event of a corporate transaction (as that term is
described in section 424(a) of the Code and the Treasury Regulations issued
thereunder as, for example, a merger, consolidation, acquisition of property or
stock, separation, reorganization, or liquidation), each outstanding Option
shall be assumed by the surviving or successor corporation or by a parent or
subsidiary of such corporation if such corporation is the employer corporation
(as provided in section 424(a) of the Code and the regulations thereunder);
provided, however, that, in the event of a proposed corporate transaction, the
Committee may terminate all or a portion of the outstanding Options to Key
Employees and Consultants if it determines that such termination is in the best
interests of the Company. If the Committee decides to terminate outstanding
Options, the Committee shall give each Key Employee and Consultant holding an
Option to be terminated not less than seven (7) days' notice prior to any such
termination by reason of such a corporate transaction, and any such Option which
is to be so terminated may be exercised (if and only to the extent that it is
then exercisable) up to, and including the date immediately preceding such
termination. Further, as provided in Section 7 hereof the Committee, in its
discretion, may accelerate, in whole or in part, the date on which any or all
Options granted to Key Employees and Consultants become exercisable.
The Committee also may, in its discretion, change the terms of
any outstanding Option to reflect any such corporate transaction, provided that,
in the case of ISOs, such change is excluded from the definition of a
"modification" under section 424(h) of the Code.
SECTION 11 AMENDMENT OR DISCONTINUANCE OF THE PLAN
(a) GENERAL. The Board from time to time may suspend or
discontinue the Plan or amend it in any respect whatsoever, except that the
following amendments shall require shareholder approval (given in the manner set
forth in Section 11(b) below):
(1) With respect to ISOs, any amendment which would:
(A) Change the class of employees eligible
to participate in the Plan;
(B) Except as permitted under Sections 4 and
10 hereof, increase the maximum number of Common
Shares with respect to which ISOs may be granted
under the Plan; or
(C) Extend the duration of the Plan under
Section 12 hereof with respect to any ISOs granted
hereunder; and
(2) Any amendment which would require shareholder approval
under 17 CFR Section 240.16b-3 in order for the Plan to continue to
constitute a "formula plan" with respect to Options granted to
Non-Employee Directors, unless (i) the Plan is amended in a manner that
takes advantage of another method of complying with 17 CFR
Section 240.16b-3 with respect to Options granted to Non-Employee
Directors, or (ii) compliance with 17 CFR Section 240.16b-3 is not
intended.
-15-
<PAGE> 18
Notwithstanding the foregoing, no such suspension,
discontinuance or amendment shall materially impair the rights of any
holder of an outstanding Option without the consent of such holder.
(b) SHAREHOLDER APPROVAL REQUIREMENTS. Shareholder approval
must meet the following requirements:
(1) The approval of shareholders must be by a
majority of the votes cast at a meeting duly held in
accordance with the applicable laws of Bermuda; and
(2) The approval of shareholders must comply with all
applicable provisions of the corporate charter, bye-laws, and
applicable law prescribing the method and degree of
shareholder approval required for the issuance of corporate
stock or options. If the applicable law does not prescribe a
method and degree of shareholder approval in such case, the
approval of shareholders must be effected:
(A) By a method and in a degree that would
be treated as adequate under applicable law of
Bermuda in the case of an action requiring
shareholder approval (i.e., an action on which
shareholders would be entitled to vote if the action
were taken at a duly held shareholders' meeting); or
(B) By a majority of the votes cast at a
duly held shareholders' meeting at which a quorum
representing a majority of all outstanding voting
stock is, either in person or by proxy, present and
voting on the Plan.
SECTION 12 TERMINATION OF PLAN
Unless earlier terminated as provided in the Plan, the Plan
and all authority granted hereunder shall terminate absolutely at 12:00 midnight
on December 2, 2007, which date is within ten (10) years after the date the Plan
was adopted by the Board (or the date the Plan was approved by the shareholders
of the Company, whichever is earlier), and no Options hereunder shall be granted
thereafter. Nothing contained in this Section 12, however, shall terminate or
affect the continued existence of rights created under Options issued hereunder
and outstanding on December 2, 2007, which by their terms extend beyond such
date.
SECTION 13 SHAREHOLDER APPROVAL
This Plan shall become effective on December 3, 1997 (the date
the Plan was adopted by the Board); provided, however, that if the Plan is not
approved by the shareholders in the manner described in Section 11(b), within
twelve (12) months before or after said date, ISOs granted hereunder shall be
null and void and no additional ISOs shall be granted hereunder.
-16-
<PAGE> 19
SECTION 14 MISCELLANEOUS
(a) GOVERNING LAW. With respect to any ISOs granted pursuant
to the Plan and the Option Agreements thereunder, the Plan, such Option
Agreements and any ISOs granted pursuant thereto shall be governed by
the applicable Code provisions to the maximum extent possible.
Otherwise, the operation of, and the rights of Optionees under, the
Plan, the Option Agreements and any Options granted thereunder shall be
governed by applicable United States law and otherwise by the laws of
Bermuda.
(b) RIGHTS. Neither the adoption of the Plan nor any action of
the Board or the Committee shall be deemed to give any individual any
right to be granted an Option, or any other right hereunder, unless and
until the Committee shall have granted such individual an Option, and
then his or her rights shall be only such as are provided by the Option
Agreement.
Any Option under the Plan shall not entitle the holder thereof
to any rights as a shareholder of the Company prior to the exercise of
such Option and the issuance of the shares pursuant thereto. Further,
notwithstanding any provisions of the Plan or the Option Agreement with
an Optionee, the Company shall have the right, in its discretion, to
retire a Key Employee at any time pursuant to its retirement rules or
otherwise to terminate an Optionee's employment or service at any time
for any reason whatsoever.
(c) INDEMNIFICATION OF BOARD AND COMMITTEE. Without limiting
any other rights of indemnification which they may have from the
Company and any Related Corporation, the members of the Board and the
members of the Committee shall be indemnified by the Company against
all costs and expenses reasonably incurred by them in connection with
any claim, action, suit, or proceeding to which they or any of them may
be a party by reason of any action taken or failure to act under, or in
connection with, the Plan, or any Option granted thereunder, and
against all amounts paid by them in settlement thereof (provided such
settlement is approved by legal counsel selected by the Company) or
paid by them in satisfaction of a judgment in any such action, suit, or
proceeding, except a judgment based upon a finding of willful
misconduct or recklessness on their part. Upon the making or
institution of any such claim, action, suit, or proceeding, the Board
or Committee member shall notify the Company in writing, giving the
Company an opportunity, at its own expense, to handle and defend the
same before such Board or Committee member undertakes to handle it on
his or her own behalf.
(d) APPLICATION OF FUNDS. Any cash received in payment for
Common Shares upon exercise of an Option shall be added to the general
funds of the Company and shall be used for its corporate purposes. Any
Common Shares received in payment for Common Shares upon exercise of an
Option shall be cancelled.
(e) NO OBLIGATION TO EXERCISE OPTION. The granting of an
Option shall impose no obligation upon an Optionee to exercise such
Option.
-17-
<PAGE> 20
SECTION 15 CHANGE IN CONTROL
(a) GENERAL. All outstanding Options shall become fully vested
and exercisable upon a Change in Control of the Company. In the event
of a Change in Control in which outstanding Options are not assumed by
the surviving entity, the Committee shall terminate all outstanding
Options on at least seven days' notice. Any such Option which is to be
so terminated may be exercised up to, and including the date
immediately preceding such termination. In any transaction to which
both Section 10 and this Section 15 are applicable, only the provisions
of this Section 15 shall apply.
(b) DEFINITION OF CHANGE IN CONTROL. For purposes of this
Section 15, a "Change in Control" of the Company shall be deemed to
have occurred if:
(1) Any person, including a group of persons acting
in concert, becomes the beneficial owner of shares of the
Company having 50 percent or more of the total number of votes
that may be cast for the election of directors of the Company;
(2) There occurs any cash tender or exchange offer
for shares of the Company, merger or other business
combination, or any combination of the foregoing transactions,
and as a result of or in connection with any such event
persons who were directors of the Company before the event
shall cease to constitute a majority of the board of directors
of the Company or any successor to the Company; or
(3) The sale, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the
assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to have
occurred by reason of a change in beneficial ownership occurring in connection
with the initial public offering of the Common Shares.
(c) In the event of a Change in Control of the
Company in which holders of Common Shares are entitled only to receive money or
other property exclusive of securities, then in lieu of outstanding Options
being terminated or assumed by the Surviving Entity, each Optionee shall have
the right, at its sole option, to require the Company or such surviving entity
to purchase such Optionee's Options (without prior exercise by Optionee) at its
fair value as of the day before such transaction became publicly known, as
determined by an unaffiliated internationally recognized accounting firm or
investment bank selected by the Company or such surviving entity and reasonably
acceptable to all electing Optionees.
-18-
<PAGE> 21
IN WITNESS WHEREOF, Annuity and Life Re (Holdings), Ltd. has
caused these presents to be duly executed, under seal, as of this 29th day of
April, 1999.
ANNUITY AND LIFE RE (HOLDINGS), LTD.
By: /s/ Lawrence S. Doyle
-----------------------------------------
President and Chief Executive Officer
-19-
<PAGE> 1
Exhibit 11
ANNUITY AND LIFE RE (HOLDINGS), LTD.
STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE
UNAUDITED
(EXPRESSED IN UNITED STATES DOLLARS EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended
March 31, 1999
--------------
Basic Diluted
<S> <C> <C>
Net Income: $ 8,482,279 $ 8,482,279
----------- -----------
Net Income available to common
shareholders $ 8,482,279 $ 8,482,279
----------- -----------
Number of shares:
Weighted average shares
outstanding 25,499,999 27,181,315
----------- -----------
Earnings per share: $ 0.33 $ 0.31
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 296,261,447
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 296,261,447
<CASH> 25,764,739
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 189,514,383
<TOTAL-ASSETS> 1,928,041,937
<POLICY-LOSSES> 27,443,909
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 1,510,638,757
<NOTES-PAYABLE> 0
0
0
<COMMON> 25,499,999
<OTHER-SE> 354,012,080
<TOTAL-LIABILITY-AND-EQUITY> 1,928,041,937
18,247,012
<INVESTMENT-INCOME> 18,159,060
<INVESTMENT-GAINS> 263,458
<OTHER-INCOME> 239,701
<BENEFITS> 19,642,698
<UNDERWRITING-AMORTIZATION> 7,405,339
<UNDERWRITING-OTHER> 1,378,915
<INCOME-PRETAX> 8,482,279
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,482,279
<EPS-PRIMARY> 0.33
<EPS-DILUTED> 0.31
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
