<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1998
REGISTRATION STATEMENT NO. 333-57227
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SCOTTISH LIFE HOLDINGS, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<S> <C> <C>
CAYMAN ISLANDS 6311 NOT APPLICABLE
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD (I.R.S. EMPLOYER
OF INCORPORATION OR INDUSTRIAL CLASSIFICATION CODE
ORGANIZATION) NUMBER) IDENTIFICATION NUMBER)
</TABLE>
UGLAND HOUSE, 113 SOUTH CHURCH STREET CT CORPORATION SYSTEM
GEORGE TOWN, GRAND CAYMAN 1633 BROADWAY
CAYMAN ISLANDS, BRITISH WEST INDIES NEW YORK, NEW YORK 10019
(345) 949-2800 (212) 664-1666
(Address, including zip code, and (Name, address, including zip code, and
telephone number, including area code, telephone number, including area code,
of Registrant's principal executive of agent for service)
offices)
COPIES TO:
ROBERT L. ESTEP, ESQ. HENRY SMITH, ESQ. CRAIG B. BROD, ESQ.
JONES, DAY, REAVIS & MAPLES AND CALDER CLEARY, GOTTLIEB, STEEN &
POGUE P.O. BOX 309, UGLAND HAMILTON
2300 TRAMMELL CROW CENTER HOUSE GEORGE TOWN, GRAND ONE LIBERTY PLAZA
2001 ROSS AVENUE CAYMAN NEW YORK, NEW YORK 10006
DALLAS, TEXAS 75201 CAYMAN ISLANDS, BWI (212) 225-2000
(214) 220-3939 (345) 949-8066
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION--DATED AUGUST 13, 1998
PROSPECTUS
- --------------------------------------------------------------------------------
16,750,000 Shares
SCOTTISH LIFE HOLDINGS, LTD.
Ordinary Shares
- --------------------------------------------------------------------------------
All of the 16,750,000 ordinary shares, par value $0.01 per share (the "Ordinary
Shares"), offered hereby (the "Offering") are being sold by Scottish Life
Holdings, Ltd., a Cayman Islands company (the "Company"). Prior to the
Offering, the Company has not conducted any business and there has been no
public market for the Ordinary Shares. The initial public offering price will
be $15.00 per Ordinary Share.
Application will be made to include the Ordinary Shares for quotation in The
Nasdaq Stock Market's National Market (the "Nasdaq National Market") under the
symbol "SCTLF ."
The Ordinary Shares offered hereby are subject to limitations on ownership,
transfers and voting rights which, among other things, generally prevent
transfers to holders beneficially owning 10% or more of the Ordinary Shares of
the Company (other than as described herein), require divestiture of Ordinary
Shares to reduce the beneficial ownership of any holder to less than 10% of the
Ordinary Shares of the Company and reduce the voting power of any holder
beneficially owning 10% or more of the Ordinary Shares of the Company to less
than 10% of the total voting power of the Company's shares. See "Description of
Shares."
SEE "RISK FACTORS" ON PAGES 9 TO 18 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE
ORDINARY SHARES OFFERED HEREBY.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Ordinary Share....................... $ $ $
- --------------------------------------------------------------------------------------------
Total(3)................................. $ $ $
============================================================================================
</TABLE>
(1)The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2)Before deducting certain advisory fees and Offering expenses payable by the
Company estimated to be $ . See "Underwriting."
(3)The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 2,512,500 additional Ordinary Shares on the same
terms and conditions as set forth above. If all such additional Ordinary
Shares are purchased by the Underwriters, the total Price to Public will be
$ , the total Underwriting Discounts and Commissions will be $ and
the total Proceeds to Company will be $ . See "Underwriting."
- --------------------------------------------------------------------------------
The Ordinary Shares are offered by the several Underwriters subject to delivery
by the Company and acceptance by the Underwriters, to prior sale and to
withdrawal, cancellation or modification of the offer without notice. Delivery
of the Ordinary Shares to the Underwriters is expected to be made through the
facilities of The Depository Trust Company, New York, New York, on or about
, 1998.
PRUDENTIAL SECURITIES INCORPORATED
, 1998
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS
The Company is organized pursuant to the laws of the Cayman Islands. In
addition, certain of the directors and officers of the Company, as well as
certain of the experts named herein, reside outside the United States, and all
or a substantial portion of their assets and the assets of the Company are or
may be located in jurisdictions outside the United States. In particular,
Scottish Life Assurance (Cayman) Ltd., the Company's only subsidiary, through
which the Company expects to conduct all its operations, is also a Cayman
Islands company. Therefore, it may be difficult for investors to effect
service of process within the United States upon such persons or to recover
against the Company or such persons on judgments of courts in the United
States, including judgments predicated upon the civil liability provisions of
the United States federal securities laws. However, the Company may be served
with process in the United States with respect to actions against it arising
out of or in connection with violations of United States federal securities
laws relating to offers and sales of Ordinary Shares made hereby by serving CT
Corporation System, 1633 Broadway, New York, New York 10019, its United States
agent irrevocably appointed for that purpose.
The Company has been advised by Maples and Calder, its Cayman Islands
counsel, that there is doubt as to whether the courts of the Cayman Islands
would enforce (i) judgments of United States courts obtained in actions
against the Company or its directors and officers, as well as the experts
named herein, who reside outside the United States predicated upon the civil
liability provisions of the United States federal securities laws, or
(ii) original actions brought in the Cayman Islands against the Company or
such persons predicated solely upon United States federal securities laws. The
Company has also been advised by Maples and Calder that there is no treaty in
effect between the United States and the Cayman Islands providing for such
enforcement, and there are grounds upon which the Cayman Islands courts may
not enforce judgments of United States courts. Certain remedies available
under the laws of United States jurisdictions, including certain remedies
available under the United States federal securities laws, may not be allowed
in the Cayman Islands courts as contrary to that nation's public policy.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER, INVITATION OR SOLICITATION TO
ANY MEMBER OF THE PUBLIC IN THE CAYMAN ISLANDS TO SUBSCRIBE FOR ANY OF THE
ORDINARY SHARES.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE ORDINARY SHARES,
INCLUDING PURCHASES OF THE ORDINARY SHARES TO STABILIZE THEIR MARKET PRICE,
PURCHASES OF THE ORDINARY SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN
THE ORDINARY SHARES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1, of which this
Prospectus is a part (the "Registration Statement"), with the United States
Securities and Exchange Commission (the "Commission") under the Securities
Act, with respect to the Ordinary Shares offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement and
the exhibits thereto. For further information with respect to the Company and
the Ordinary Shares offered hereby, reference is made to the Registration
Statement, including the exhibits filed therewith. Statements made in this
Prospectus as to the contents of any contract, agreement or other document are
not necessarily complete, and, in each instance, reference is made to the copy
of such document filed as an exhibit to the Registration Statement. Each such
statement shall be deemed qualified in its entirety by such reference.
Upon completion of the Offering, the Company will be subject to the
informational reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act") and, in accordance therewith, will file
reports, proxy and information statements and other information with the
Commission. The Registration Statement, and the exhibits forming a part
thereof, as well as such reports, proxy and information statements and other
information may be inspected and copied at the public reference section
maintained by the Commission at 450 Fifth Street N.W., Washington, D.C.
20549-1004 and at the following regional offices of the Commission: Seven
World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such materials can be obtained from the public reference section of the
Commission at its Washington address at prescribed rates. The Commission also
maintains an Internet web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding issuers, such
as the Company, that file electronically with the Commission.
After giving effect to the Offering, the Company will be treated as a
domestic corporation for purposes of certain requirements of the Exchange Act,
including the proxy rules. Pursuant to Rule 3b-4 under the Exchange Act, a
"foreign private issuer" is a non-United States issuer other than an issuer
that meets the following conditions: (1) more than 50% of the outstanding
voting securities of the issuer are held of record by residents of the United
States and (2) any of the following: (i) the majority of the executive
officers or directors of the issuer are United States citizens or residents,
(ii) more than 50% of the assets of the issuer are located in the United
States or (iii) the business of the issuer is administered principally in the
United States. By virtue of (1) and (2) (i), the Company does not expect that
it will be a "foreign private issuer," although there is no assurance of such.
If the Company were to be treated as a "foreign private issuer," it would be
exempted from the proxy and short-swing profit rules under Sections 14 and 16
of the Exchange Act and, for reporting purposes under the Exchange Act, would
be subject to rules applicable to "foreign private issuers."
The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial statements for the first
three quarters of each fiscal year.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the balance sheet,
including the notes thereto, included elsewhere in this Prospectus. Unless the
context otherwise requires, references herein to the "Company" mean Scottish
Life Holdings, Ltd., a Cayman Islands company ("Holdings"), together with its
wholly-owned subsidiary, Scottish Life Assurance (Cayman) Ltd., a Cayman
Islands insurance company ("Scottish Life"), through which Holdings expects to
conduct all of its operations. Holdings and Scottish Life were incorporated on
May 12, 1998 and June 3, 1998, respectively, in the Cayman Islands and neither
has any operating history. Scottish Life was licensed in the Cayman Islands on
July 8, 1998 as an unrestricted Class B insurer, which license authorizes it to
write variable life insurance and fixed annuity reinsurance. See "Glossary of
Selected Life Insurance and Annuity Terms" for definitions of certain terms
used in this Prospectus. In this Prospectus, amounts are expressed in United
States dollars and the balance sheet contained herein has been prepared in
accordance with United States generally accepted accounting principles
("GAAP"). Unless otherwise noted, this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised.
THE COMPANY
Holdings and Scottish Life were recently formed to provide customized
variable life insurance products to high net worth individuals and families who
are or may become U.S. taxpayers and to provide reinsurance of fixed annuities
and similar contracts to insurers no longer actively offering such products or
otherwise seeking to more efficiently manage capital allocated to existing
businesses. The Company's business plan and product focus has been developed to
respond to certain insurance industry trends affecting both policyholders and
issuers of such policies. The Company's objective is to become a leading
provider of variable life insurance and fixed annuity reinsurance products in
its target markets.
The Company's variable life insurance business seeks to respond to what the
Company believes are increasing demands of high net worth individuals and
families for customized life insurance products that can be utilized as part of
sophisticated estate planning strategies. The Company's variable life insurance
products offer both a specified death benefit as well as a cash value component
which is placed in a separate account and invested on behalf of the
policyholder by a money manager. Because of the Company's domicile and target
customers, the Company can offer policies that permit private independent money
managers to manage a policy's separate account utilizing investment strategies
not typically available in policies issued to the general public.
The Company's fixed annuity reinsurance business seeks to focus on what the
Company believes are meaningful opportunities to reinsure lines of business
that are subject to significant reserve or risk capital requirements under
rating agency requirements and applicable accounting standards. The Company
expects to focus its reinsurance activities on blocks of existing fixed annuity
contracts such as structured settlements, single premium deferred annuities,
immediate annuities or similar contracts. The Company will target insurance
companies that have discontinued writing new fixed annuities or similar
contracts or that seek relief from the reserve and capital requirements
associated with such contracts. The Company believes that, in response to
heightened regulatory and rating agency scrutiny, insurers are increasingly
seeking to reinsure as a means to improve earnings or risk-based capital or
other financial ratios. The Company believes that its planned low cost
operating strategy and its investment strategy for capital surplus not
otherwise dedicated from time to time to policy reserves or other corporate
purposes, as well as the absence of a corporate level tax in the Cayman
Islands, will enable it to offer competitive pricing for its reinsurance
products.
BUSINESS STRATEGY
In order to achieve its objective to become a leading provider of variable
life insurance and fixed annuity reinsurance products in its target markets,
the Company intends to utilize a business strategy with the following
components:
4
<PAGE>
LEVERAGE MANAGEMENT EXPERTISE
The Company was organized by the management and shareholders of The Scottish
Annuity Company (Cayman) Ltd. ("Scottish Annuity"), a privately held Cayman
Islands insurance company that commenced operations in 1994. Scottish Annuity
offers outside the United States variable annuity contracts to persons who are
or may become U.S. taxpayers that have the same cash value management features
and target market as the Company's variable life insurance policies. The
Company intends to draw on management's experience in developing Scottish
Annuity's variable annuity products and business to develop the Company's
variable life insurance products and business. Also, the Company intends to
build on the relationships with potential clients as well as intermediaries and
other referral sources that members of its management have developed with
Scottish Annuity. In addition, Henryk Sulikowski, the Company's Senior Vice
President and Chief Insurance Officer, has over 17 years experience in the
insurance and reinsurance industry. The Company intends to draw in particular
on his experience and relationships with international insurance brokers,
insurance consultants, members of the actuarial profession and senior insurance
company executives to implement its reinsurance business plan. See "Business--
Management--Executive Officers and Directors."
UTILIZE THIRD PARTY SERVICE PROVIDERS
In order to minimize its initial investment in systems and personnel and to
create and maintain a low cost operating structure, the Company has entered
into agreements with a number of third party service providers to provide key
services to the Company. In June 1998, the Company entered into an agreement
with BT Reinsurance Limited, a Jersey, Channel Islands company ("BT Re"), to
provide the Company with certain administration, underwriting and other
services for its variable life insurance business. In addition, in June 1998,
the Company also entered into an insurance administration, services and
referral agreement with Scottish Annuity (the "Scottish Annuity Agreement"),
under which Scottish Annuity will refer potential clients to the Company as
part of the consideration for the insurance administration and other services
the Company is to provide to Scottish Annuity under such agreement. The Company
has retained International Risk Management (Cayman) Ltd. ("IRM Cayman") to act
as the Company's licensed insurance manager in the Cayman Islands and to
provide to the Company certain additional administrative services. The Company
will also retain certain investment managers to manage the Company's investment
portfolio consistent with the Company's Investment Guidelines. See "Business--
Investment Portfolio--Investment Guidelines," "--Investment Portfolio--
Investment Managers," "--Marketing" and "--Administration." The Company intends
to administer its fixed annuity reinsurance business primarily with its own
personnel.
BUILD ON SIGNIFICANT CAPITAL BASE
Upon consummation of the Offering, the Company will have an equity
capitalization of approximately $ million. The Company believes that
this level of capitalization will demonstrate a strong financial position and a
high level of commitment to potential clients and the variable life insurance
and fixed annuity reinsurance marketplace and is necessary in establishing it
as a competitive insurance company. The Company does not anticipate that it
will incur any material indebtedness in the ordinary course of its business
other than possibly obtaining letters of credit in connection with its
reinsurance agreements. The Company should also benefit from the fact that, as
a recently formed entity, its capital is presently unencumbered by issues such
as reserve adequacy, unrealized losses in its investment portfolio and
uncollectible reinsurance. In part because of the Company's expected
capitalization following the Offering, has assigned Scottish Life
a preliminary claims-paying ability rating of " ". The rating is
contingent on the Company raising gross proceeds of $ million in the
Offering.
APPLY PRUDENT RISK MANAGEMENT POLICY
The principal risk associated with the Company's variable life insurance
policies is mortality risk. Mortality risk tends to be more stable when spread
across large numbers of insureds. The Company's variable life
5
<PAGE>
insurance policies are expected to be placed with a relatively small number of
high net worth policyholders and to provide substantial death benefits given
expected initial premiums of at least $1.0 million per policy. As a
consequence, the Company's associated mortality risk exposure is likely to be
greater in the aggregate, and its probability of loss less predictable, than an
insurer with a broader risk pool. As a result, the Company intends to allocate
a significant portion of its capital, in addition to any policy reserves
required under GAAP and any additional Cayman Islands regulatory requirements,
to cover possible volatility in mortality experience. The Company's current
Underwriting Guidelines limit the maximum aggregate net amount at risk the
Company will initially assume on any one life to $500,000. In order to comply
with this guideline, the Company intends to reinsure a substantial portion of
the Company's mortality risk.
The principal risk associated with the Company's fixed annuity reinsurance
activities is investment risk. Specifically, the Company is subject to (i)
asset value risk, which is the risk that invested assets supporting the
reinsured business will decrease in value, (ii) reinvestment risk, which is the
risk that interest rates will decline and funds reinvested will earn less than
is necessary to match anticipated liabilities, and (iii) disintermediation
risk, which is the risk that the Company may have to sell assets at a loss to
provide for policyholder withdrawals or to satisfy liabilities not otherwise
properly matched. The Company will establish reserves and risk capital in
accordance with GAAP and any additional Cayman Islands regulatory requirements
in an effort to reflect the level of investment and other risks associated with
the fixed annuities it will reinsure. An additional risk associated with the
Company's fixed annuity reinsurance business is the risk that the ceding
insurer will be unable to pay amounts due the Company because of its own
financial difficulties. The Company believes this risk can be mitigated by
conducting an appropriate financial due diligence review of each cedent.
EMPLOY PROFESSIONAL INVESTMENT STRATEGY
The Company will seek to generate attractive levels of investment income
through a professionally managed investment portfolio. Following the Offering,
the Company will have approximately $ of capital available for
policy reserves and other corporate purposes as well as to allocate to cover
possible volatility in mortality experience with respect to its variable life
insurance policies. The Company's investment activities will be governed by the
Company's Investment Guidelines as approved by the Investment Committee of the
Board of Directors. The Company's investment portfolio for policy reserves will
consist of investment grade, fixed income securities invested with the
objective of matching the Company's anticipated asset and liability cash flows.
Capital surplus not otherwise dedicated from time to time to policy reserves
and other corporate purposes will be invested by the Company with the objective
of maximizing investment income while maintaining adequate liquidity in order
to provide for additional policy reserves or other corporate purposes as
needed. In order to achieve this investment objective, the Company initially
expects to invest approximately 30% to 40% of such capital surplus in
investment grade, fixed income securities, and to invest the balance with
independent investment managers who use investment strategies that are intended
to reduce investment volatility and correlation to the traditional equity and
fixed income investment markets. These investment strategies, frequently
referred to as "non-traditional" or "alternative" strategies, involve long and
short positions and arbitrage strategies in equity securities that seek to
hedge overall risk and reduce volatility and market correlation.
The Company has retained Cambridge Capital Advisors, Inc. ("Cambridge") and
Maverick Capital, Ltd. ("Maverick") to advise it in the development and
management of its alternative investment activities. The Company intends to
allocate no more than 50% of its capital surplus dedicated to alternative
investments to Maverick, and the balance to investment managers that the
Investment Committee will select with the advice and assistance of Cambridge.
In performing its advisory services, Cambridge will take into account the
Company's entire alternative investment portfolio, with the objective of
recommending to the Company investment managers that would provide
complementary alternative investment strategies.
6
<PAGE>
The Company believes that using alternative investment strategies for a
substantial portion of its capital surplus will enhance the Company's ability
to preserve its capital and achieve superior investment returns. As the
Company's variable life insurance and fixed annuity reinsurance business
expands, the Company will dedicate an increasing portion of its capital surplus
to policy reserves, resulting in an increase in the proportion of its capital
invested in investment grade, fixed income securities.
The Company's principal executive office is located at Ugland House, 113
South Church Street, George Town, Grand Cayman, Cayman Islands, British West
Indies, and its telephone number is (345) 949-2800.
7
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Ordinary Shares Offered Hereby.................. 16,750,000 Ordinary Shares
Ordinary Shares to be Outstanding after the
Offering(1).................................... 18,250,000 Ordinary Shares
Use of Proceeds................................. Substantially all of the net
proceeds will be contributed
to the net capital of
Scottish Life to support its
insurance and reinsurance
activities. See "Use of
Proceeds."
Proposed Nasdaq National Market Symbol.......... SCTLF
</TABLE>
- --------
(1) Scottish Holdings, Ltd., a Cayman Islands company ("SHL"), owns 1,500,000
Ordinary Shares, which constitute all of the currently outstanding Ordinary
Shares of the Company. Prior to the consummation of the Offering, SHL will
distribute such Ordinary Shares to its stockholders (the "SHL
Distribution"). The SHL Distribution is being made to eliminate the top
tier of a multi-tier holding company structure. Ordinary Shares to be
outstanding after the Offering excludes 1,550,000 Ordinary Shares issuable
upon exercise of Class A Warrants, 200,000 Ordinary Shares issuable upon
exercise of Class B Warrants, 930,000 Ordinary Shares issuable upon
exercise of options to be granted to management and non-employee Directors
of the Company upon consummation of the Offering and 570,000 Ordinary
Shares reserved for future issuance pursuant to the Company's 1998 Stock
Option Plan (the "Stock Option Plan"). If the Underwriters' over-allotment
option is exercised in full, upon consummation of the Offering, 20,762,500
Ordinary Shares will be outstanding, and the number of Ordinary Shares
issuable upon exercise of options to be granted to management and non-
employee Directors of the Company upon consummation of the Offering will
increase to 1,069,500 Ordinary Shares. The number of Ordinary Shares
issuable upon exercise of the Class A Warrants and the Class B Warrants
will not change if the Underwriters' over-allotment option is exercised in
full. The Class A Warrants, Class B Warrants and options are not currently
exercisable. See "Description of Shares--Warrants" and "--Options" and
"Management--Stock Option Plan."
RISK FACTORS
Businesses such as the Company which are in their initial stages of
development present substantial business and financial risks and may suffer
significant losses for reasons not anticipated by management. In addition, the
Company's business plan has not been tested and may not succeed. Investors
should consider carefully the material risk factors involved in connection with
an investment in the Ordinary Shares and the impact to investors from various
circumstances which could adversely affect the Company's business, results of
operations or financial condition. See "Risk Factors."
8
<PAGE>
RISK FACTORS
An investment in the Ordinary Shares involves a high degree of risk.
Prospective investors should consider carefully the following risk factors, in
addition to the other information set forth in this Prospectus, in connection
with an investment in the Ordinary Shares.
When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "plan," "intend" and similar
expressions are intended to identify forward-looking statements regarding
among other things: (i) the Company's business and growth plans; (ii) the
Company's relationship with third-party service providers and clients; (iii)
the use of the net proceeds of the Offering; (iv) trends in the insurance and
reinsurance industries; (v) government regulations; (vi) trends that may
affect the Company's financial condition or results of operations; and (vii)
the declaration and payment of dividends. Prospective investors are cautioned
that any forward-looking statements are not guarantees of future performance
and are subject to risks and uncertainties and that actual results may differ
materially from those included within the forward-looking statements as a
result of various factors. Factors that could cause or contribute to such
differences include, but are not limited to, those described below and under
the heading "Management's Discussion and Analysis of Financial Condition and
Plan of Operations" and elsewhere in this Prospectus.
START UP OPERATIONS; RELIANCE ON THIRD PARTY SERVICE PROVIDERS. Holdings and
Scottish Life were formed on May 12, 1998 and June 3, 1998, respectively, and
neither has any operating history. Businesses which are starting up or in
their initial stages of development present substantial business and financial
risks and may suffer significant losses. They must successfully develop
business relationships, establish operating procedures, hire staff and
complete other tasks appropriate for the conduct of their intended business
activities. Furthermore, the Company initially intends to have only a limited
staff and to outsource many functions, including certain administrative,
regulatory, actuarial, reinsurance and underwriting functions. Scottish Life
currently has retained BT Re to perform a number of administrative,
underwriting and reinsurance functions relating to its variable life insurance
business. In addition, Scottish Life has retained IRM Cayman as its licensed
insurance manager in the Cayman Islands and to provide certain additional
administrative services. Also, Scottish Life has retained Maverick to manage
no more than 50% of its surplus capital which is not otherwise dedicated from
time to time to policy reserves or other corporate purposes and Cambridge to
assist in the selection of additional investment managers with investment
strategies consistent with the Company's Investment Guidelines. Scottish Life
will be dependent upon the quality of the services provided by such firms. The
inability of Scottish Life to retain qualified service providers or the
failure of such outside service providers to perform adequately their
functions could delay or prevent the Company from fully implementing its
business plan or could otherwise adversely affect the Company. Scottish Life
has retained Henryk Sulikowski as its Senior Vice President and Chief
Insurance Officer and intends to hire additional personnel to provide
administrative and underwriting support. Such individuals will be critical
components of the Company's operations. There can be no assurance that the
Company will be successful in attracting or employing the personnel that it is
seeking, and if it is unable to do so, such failure could delay or prevent the
Company from fully implementing its business plan. See "Business--
Administration" and "Management--Executive Officers and Directors."
ABILITY TO IMPLEMENT ITS BUSINESS PLAN.
General. The Company's business plan is focused on entering the variable
life insurance and fixed annuity reinsurance businesses. The Company's ability
to successfully implement this plan is dependent on, among other things, the
Company's ability to (i) in the case of its variable life insurance business,
attract clients principally through referrals by financial advisors,
investment managers, private bankers, attorneys and other intermediaries in
the United States who will not be compensated by the Company for any
activities undertaken in the U.S., (ii) in the case of its fixed annuity
reinsurance business, to generate business primarily through its Senior Vice
President and Chief Insurance Officer's relationships with international
insurance brokers, insurance consultants, members of the actuarial profession
and senior insurance company executives, (iii) develop and effectively
implement underwriting and investment policies appropriate for the risks
associated with its insurance and reinsurance products, (iv) maintain a
competitive claims-paying ability rating, (v) attract clients through
referrals from Scottish Annuity and (vi) effectively manage growth in the
Company's businesses.
9
<PAGE>
Variable Life Insurance Business. Because neither Holdings nor Scottish Life
will be licensed or registered to do business in any jurisdiction in the U.S.,
no intermediary, whether U.S. or foreign, who provides referrals or otherwise
directs business to the Company may receive commissions or other remuneration
from the Company for activities undertaken in the U.S. As a result of such
limitation, no assurance can be given that the Company will be able to
effectively implement its insurance and reinsurance plans. The Company,
however, may from time to time provide commissions or other remuneration to
non-U.S. referral sources for activities undertaken outside the U.S. The
Company has no current arrangements with respect to any such referral sources,
although the Company expects that such referral sources will likely be
compensated based on a percentage of the revenue derived from such referrals.
Although the Company currently has no contractual or other arrangement with
any referral source, the Company, subject to any applicable regulatory
limitations, may provide referrals to persons or entities that provide it with
referrals.
Fixed Annuity Reinsurance Business. The Company's business plan provides
that Scottish Life will initially focus its reinsurance activities on
reinsuring blocks of existing fixed annuities such as structured settlements,
deferred annuities and immediate annuities which are issued by insurers who
are no longer actively writing such annuities or similar contracts or who are
seeking relief from the reserve and capital requirements associated with such
contracts. The Company believes that this market is largely undeveloped and no
assurance can be given that such market will develop or if it develops,
whether such market will be substantial enough to support Scottish Life's
reinsurance business, particularly to the extent such contracts have been
issued by insurers no longer actively writing new fixed annuity contracts.
Also, Scottish Life expects that a portion of any block of fixed annuities
that it reinsures will be surrendered or otherwise terminated each year, a
risk that Scottish Life will take into account when negotiating prices for its
reinsurance products. No assurance can be given, however, that Scottish Life
will be successful in negotiating prices that actually take into account such
risk or that as such fixed annuities or similar contracts are surrendered,
terminate or expire, Scottish Life will have sufficient reinsurance business
to sustain its growth or that there will be sufficient reinsurance business in
the Company's target market to replace such fixed annuities or similar
contracts.
Underwriting and Investment Policies. Because of the risks associated with
variable life insurance and fixed annuity reinsurance businesses (e.g.,
mortality and investment risk), the Company's underwriting and investment
policies must be tailored to adequately protect the Company against such
risks. No assurance, however, can be given that the Company will be successful
in developing or implementing such policies or that such policies will be
effective.
Third Party Service Providers. No assurance can be given that third party
service providers retained by the Company will provide services in accordance
with the Company's underwriting and investment policies or that ceding
companies will maintain appropriate interest crediting rates with respect to
fixed annuities reinsured by Scottish Life.
Maintenance of Claims Paying Rating. No assurance can be given that the
Company will be able to conduct its operations such that the Company will be
able to maintain its " " claims-paying ability rating from or, if the
Company is unable to maintain such rating, to obtain a similar claims-paying
ability rating from another major rating agency.
Scottish Annuity Referrals. No assurance can be given that Scottish Annuity
will provide the Company with any meaningful number of referrals or if
Scottish Annuity provides such referrals, that such referrals will result in
actual sales of the Company's variable life insurance policies.
Ability to Manage Growth. Growth in the Company's variable insurance and
reinsurance businesses contemplated by its business plan may place significant
demands on the Company's management and its administrative and financial
resources. If the Company is unable to manage growth effectively, the
Company's business, results of operations and financial condition are likely
to be materially adversely affected.
EFFECT OF CHANGES IN U.S. TAX LAWS ON VARIABLE LIFE INSURANCE SALES. The
market for variable life insurance products in the United States is based in
large part on the favorable tax treatment these products receive
10
<PAGE>
relative to certain other investment alternatives. Any material change in such
tax treatment, including the imposition of a "flat tax" or a national sales
tax in lieu of the current federal income tax structure in the United States,
would have an adverse effect on the market for variable life insurance
products. The current budget proposal submitted to the United States Congress
by the Clinton Administration includes certain provisions which, if not
modified, could limit the ability of policyholders to change private
independent money managers from time to time without triggering adverse tax
consequences. If these proposed tax changes were enacted into law, they could
adversely affect the Company's variable life insurance business. In addition,
the Clinton budget proposal contains a provision that would prevent all
transfers to trusts from qualifying for the annual present interest exclusion
from the gift tax, even if a beneficiary held a so-called "Crummey power" (or
right of withdrawal). If this proposal were enacted into law, the primary and
most tax-efficient method of funding premium payments by insurance trusts
would be eliminated. Because the Company expects that its variable life
insurance will generally be purchased by insurance trusts (or for contribution
to insurance trusts) so as to provide liquidity for estate taxes and to effect
the tax-free transfer of the proceeds from one generation to another, adoption
of such proposal would likely adversely affect sales of such policies and, as
a consequence, would likely have a material adverse effect on the Company's
business, results of operations and financial condition.
REGULATION. Scottish Life, through which Holdings is expected to conduct all
of its business, is a Cayman Islands company licensed as an unrestricted Class
B insurer and is subject to regulation and supervision by the Cayman Islands
Monetary Authority (the "Cayman Monetary Authority"). Neither Scottish Life
nor Holdings will be registered or licensed to do business in any jurisdiction
in the United States. The insurance laws of each state in the United States
regulate the sale of insurance and reinsurance within their jurisdiction by
insurers, such as Scottish Life, that are not admitted to do business within
such jurisdiction. With some exceptions, the sale of insurance within a
jurisdiction where the insurer is not admitted to do business is prohibited.
Scottish Life is expected to conduct its business through its executive
offices in the Cayman Islands and will not maintain an office, and its
personnel will not solicit, advertise, settle claims or conduct other
insurance activities, in the United States. Substantially all of the Company's
variable life insurance clients are expected to be obtained through referrals
by financial advisors, investment managers, private bankers, attorneys and
other intermediaries in the United States, none of whom may receive any
commissions or other remuneration from Scottish Life for activities undertaken
in the U.S. Substantially all of the Company's reinsurance business is
expected to be generated primarily through its Chief Insurance Officer's
relationships with international insurance brokers, insurance consultants,
members of the actuarial profession and senior insurance company executives,
none of whom may receive any commissions or other remuneration from Scottish
Life for any activities undertaken in the U.S. In addition, all insurance
contracts of Scottish Life are expected to be negotiated, executed and
delivered, and all premiums are expected to be received, outside the United
States. Accordingly, the Company has received an opinion from its state
insurance counsel, The Bernstein Law Firm, that Scottish Life will not be
subject to the insurance laws of any state of the United States. See
"Business--Regulation." There can be no assurance, however, that inquiries or
challenges to the insurance activities of Scottish Life will not be raised in
the future. The Company has structured its business and expects to conduct its
operations in the manner described above in order to allow the Company to
provide its clients with variable life insurance products which have
customized features that would not typically be available from a company
subject to such laws. If the Company were to become subject to such laws, its
business, results of operations and financial condition would likely be
materially adversely affected.
From time to time, there have been congressional and other initiatives in
the United States regarding the supervision and regulation of the insurance
industry, including proposals to supervise and regulate alien insurers to a
greater extent than currently regulated. While none of these proposals has
been adopted to date on either the federal or state level, there can be no
assurance that federal or state legislation will not be enacted subjecting
Holdings or Scottish Life to supervision and regulation in the United States.
In addition, because many jurisdictions do not permit insurance companies to
take credit for reinsurance obtained from unlicensed or non-admitted insurers
on their statutory financial statements unless appropriate security measures
are in place, it is anticipated that the Company's reinsurance clients will
typically require it to post a letter of credit or provide other collateral
through a funds withheld or trust arrangement. If the Company
11
<PAGE>
is unable to obtain a letter of credit facility on commercially acceptable
terms or is unable to arrange for such other collateral, the Company's ability
to operate its reinsurance business will be severely limited.
RISKS ASSOCIATED WITH THE COMPANY'S PRODUCTS
Variable Life Insurance--Mortality Risk. The principal risk associated with
the Company's variable life insurance policies will be mortality risk.
Mortality risk tends to be more stable when spread across large numbers of
insureds. The Company's variable life insurance policies are expected to be
placed with a relatively small number of high net worth policyholders and to
provide substantial death benefits given expected initial premiums of at least
$1.0 million per policy. As a consequence, the Company's associated mortality
risk exposure is likely to be greater in the aggregate, and its probability of
loss less predictable, than that of an insurer with a broader risk pool. As a
result, no assurance can be given that the Company's policy reserves will be
adequate, that assets will be properly matched to meet anticipated
liabilities, that assets will not need to be liquidated at substantial losses
to meet such liabilities or that, to the extent the Company seeks to reinsure
such mortality risk, such reinsurance will be available on commercially
acceptable terms or that such reinsurers will perform under their reinsurance
agreements.
Fixed Annuity Reinsurance--Investment and Ceding Insurer Risk. The principal
risk associated with the Company's fixed annuity reinsurance activities is
investment risk. Specifically, the Company is subject to (i) asset value risk,
which is the risk that invested assets supporting the reinsured business will
decrease in value, (ii) reinvestment risk, which is the risk that interest
rates will decline and funds reinvested will earn less than expected, and
(iii) disintermediation risk, which is the risk that the Company may have to
sell assets at a loss to provide for policyholder withdrawals. Although the
Company is expected to reflect such investment risk in product pricing and in
establishing policy reserves, no assurance can be given that such reserves
will be adequate, that assets will be properly matched to meet anticipated
liabilities or that the Company's investments will provide sufficient returns
to enable the Company to satisfy its guaranteed fixed benefit obligations. An
additional risk associated with the Company's annuity reinsurance is the risk
that the ceding insurer will be unable to pay amounts due the Company because
of its own financial difficulties. No assurance can be given that such ceding
insurers will be able to pay amounts due to the Company or that such inability
will not have a material adverse effect on the Company's business, results of
operations or financial condition. The Company will also be subject to
surrender and lapse risks.
RISKS ASSOCIATED WITH INVESTMENT ACTIVITIES. A significant portion of the
Company's capital surplus not otherwise dedicated from time to time to policy
reserves and other corporate purposes will be invested with investment
managers who are expected to use alternative investment strategies, including
those focused on equity and equity-based securities. Although the Company's
investment managers are expected to use various hedging and other investment
techniques aimed at lowering the volatility of such investments and their
correlation with the traditional equity and fixed income markets, there can be
no assurance that such hedging and other investment techniques will be
successful or that the Company's results of operations will not be adversely
affected by a general economic downturn or a downturn in the equity and fixed
income capital markets. In addition, unexpected volatility or illiquidity in
the markets in which it directly or indirectly holds positions could also
adversely affect the Company. Also, the Cayman Monetary Authority has the
power to prescribe that certain classes of investments made by an insurance
company licensed in the Cayman Islands be approved and any existing
investments realized within a specified period. The Company is not aware of
any circumstances in which the Cayman Monetary Authority has ever exercised
such power, however no assurance can be given that the Cayman Monetary
Authority will not exercise such power with respect to the Company's
investments and if exercised, that the Company's investment portfolio would
not be adversely affected.
In addition, each of the Company's investment managers will have
discretionary authority over the portion of the Company's assets it manages,
subject to the Investment Guidelines adopted by the Company. The performance
of the Company's investment of its assets, therefore, will depend to a great
extent on the ability of the investment managers to select and manage such
investments. There can be no assurance that such investment managers will be
successful in achieving the Company's investment objectives. See "Business--
Investment Portfolio--Investment Guidelines" and "--Investment Managers."
12
<PAGE>
QUARTERLY FLUCTUATIONS; CERTAIN ECONOMIC AND MARKET RISKS. The Company's
results of operations may also fluctuate significantly on a quarterly basis
based on changes in the capital markets or in the performance results of its
investment managers. Furthermore, a downturn in the economy or the capital
markets could adversely affect the market for many life insurance and fixed
annuity products. If the market for life insurance or fixed annuity contracts
were adversely affected, it would likely depress the demand for the Company's
variable life insurance and fixed annuity reinsurance products, which could
have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, such a downturn could
adversely affect the value of policyholders' separate accounts related to the
Company's variable life insurance policies and the variable annuity contracts
issued by Scottish Annuity, which would reduce the amount of revenue the
Company generates from fees charged to policyholders or Scottish Annuity based
on the value of such accounts. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations--General" and "Business--Scottish
Annuity Agreement."
IMPORTANCE OF MANAGEMENT AND KEY EMPLOYEES. The Company is highly dependent
upon its executive officers and key employees. The unexpected loss of the
services of one of these individuals, particularly Michael C. French, Chairman
of the Board and Chief Executive Officer, Michelle L. Boucher, Senior Vice
President and Chief Financial Officer, or Henryk Sulikowski, Senior Vice
President and Chief Insurance Officer, could have a material adverse effect on
the Company. Although the Company has employment agreements with Mr. French,
Ms. Boucher and Mr. Sulikowski, no assurance can be given that the Company
will be able to retain the services of these individuals. The Company does not
carry any key person life insurance policies for any of its executive officers
or employees. The Company's success will also be dependent on its ability to
attract and maintain a staff of qualified administrative and management
personnel and, to the extent qualified Cayman Islands citizens are not
available, the willingness and ability of non-Cayman Islands citizens to be
located in the Cayman Islands. The Company, which currently has five
employees, intends to hire additional qualified administrative and
underwriting personnel as the Company's business grows, but no assurance can
be given that the Company will be successful in attracting and hiring such
personnel.
CAYMAN ISLANDS WORK PERMITS. Under Cayman Islands immigration law, those
persons who are not Caymanians, Cayman status holders or residents with
permission to work may not engage in any gainful occupation in the Cayman
Islands without the specific permission of the appropriate Cayman Islands
government authority. The Company has applied for a work permit for Mr. French
and Mr. Sulikowski. Ms. Boucher is currently working as an executive of
Scottish Annuity under a validly issued work permit, which expires July 24,
1999. Ms. Boucher is seeking an amendment to such work permit to cover her
employment by Holdings and Scottish Life. Although the Company believes that
Mr. French and Mr. Sulikowski will receive work permits and that Ms. Boucher's
work permit will be amended, no assurance can be given that such work permits
will be granted or amended. See "Business--Employees" and "Management--
Executive Officers and Directors."
DUAL MANAGEMENT DUTIES. Mr. French is currently a director, and Ms. Boucher
is currently an executive officer, of Scottish Annuity. It is contemplated
that Mr. French and Ms. Boucher will continue to serve in such dual capacities
following the Offering. In providing services under the Scottish Annuity
Agreement, Mr. French and Ms. Boucher will be performing their duties for the
Company. No assurance can be given that acting in such dual capacity will not
adversely affect the ability of such persons to perform their duties for the
Company. See "Business--Scottish Annuity Agreement."
COMPETITION. The life insurance and reinsurance industries are highly
competitive and most of the companies in such industries are significantly
larger and have operating histories and have access to significantly greater
financial and other resources than does the Company. The Company has no
experience competing with such companies and there can be no assurance that it
will be successful. In addition, to the extent that the Company's variable
life insurance policies provide for management of the underlying separate
accounts by private independent money managers, the Company's variable life
insurance policies compete with mutual funds and other investment and savings
vehicles. The Company competes for customers in its market niches primarily
based on price, expertise and service, factors which may be affected by events
or conditions (e.g., changes in
13
<PAGE>
applicable insurance regulations or tax laws) over which the Company has no
control. In addition, competition in the reinsurance business that the Company
intends to underwrite is based on many factors, including price, the general
reputation and perceived financial strength of the reinsurers, existing
relationships with other reinsurers, ratings assigned by independent rating
agencies, reputation and experience in structuring transactions which meet
client needs and regulatory requirements. In addition, because the Company
expects to rely at least initially on a small number of clients for both its
variable life insurance and fixed annuity reinsurance businesses, such
businesses may be more susceptible to the adverse effects of competition.
In addition, substantially all of the Company's variable life insurance
clients are expected to be obtained through referrals in the United States by
financial advisors, investment managers, private bankers, attorneys and other
intermediaries in the United States, while its reinsurance clients are
expected to be obtained through relationships with international insurance
brokers, insurance consultants, members of the actuarial profession and senior
insurance company executives with whom the Company's Senior Vice President and
Chief Insurance Officer has a relationship. None of these intermediaries or
other referral sources may receive any commission or other remuneration from
the Company for activities undertaken in the U.S. Accordingly, no assurance
can be given that the Company can successfully compete with the United States
and foreign insurance and reinsurance companies that directly market their
products in the United States and elsewhere.
The Company's domestic competitors are generally registered or otherwise
subject to state insurance laws in one or more jurisdictions in the U.S.
Because the Company does not intend to solicit, advertise or conduct insurance
activities in the U.S., the Company does not expect to be subject to such
laws. See "Business--Regulation." Potential clients and/or their advisors will
be able to compare the Company's products to the products of its competitors
based on publicly available information regarding such competitors' products.
INCOME TAX RISKS
Taxation of Holdings and Scottish Life. Holdings and Scottish Life are
Cayman Islands companies and neither are expected to file United States income
tax returns. Holdings and Scottish Life plan to operate in such a manner that
they are not subject to United States tax (other than withholding tax on
certain investment income from United States sources) because they do not
engage in business in the United States. However, because definitive
identification of activities which constitute being engaged in trade or
business in the United States is not provided by the Internal Revenue Code of
1986, as amended (the "Code"), or regulations or court decisions, there can be
no assurance that the Internal Revenue Service ("IRS") will not contend
subsequent to the Offering that Holdings and/or Scottish Life is engaged in a
trade or business in the United States. If Holdings were considered to be
engaged in a trade or business in the United States it would be subject to
United States tax at regular corporate rates on its taxable income that is
effectively connected with its United States business plus an additional 30%
"branch profits" tax on such income remaining after the regular tax, in which
case there could be an adverse affect on the Company. See "Certain Tax
Considerations."
The United States currently imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers with respect to risks located in
the United States. In addition, Holdings may be subject to withholding tax on
certain investment income from United States sources. There can be no
assurance that such taxes will not be increased or that other taxes will not
be imposed on Holdings' business.
Controlled Foreign Corporation Rules. United States persons who may,
directly or through certain attribution rules, acquire 10% or more of the
Ordinary Shares of Holdings, should consider the possible application of the
"controlled foreign corporation" ("CFC") rules. Each "United States
shareholder" of a CFC who owns shares in the CFC on the last day of the CFC's
taxable year generally must include in his gross income for United States
federal income tax purposes his pro-rata share of the CFC's "subpart F
income," even if the subpart F income has not been distributed. For these
purposes, any United States person who owns directly or indirectly 10% or more
of the voting stock of a foreign corporation will be considered to be a
"United States shareholder." In general, a foreign insurance company such as
Scottish Life is treated as a CFC only if such "United States shareholders"
collectively own more than 25% of the total combined voting power or total
value
14
<PAGE>
of Holdings' stock for an uninterrupted period of 30 days or more during any
year. Holdings believes that, because of the anticipated dispersion of its
share ownership among holders and because of the restrictions in its Articles
of Association on transfer, issuance or repurchase of the voting shares of
Holdings, shareholders who acquire Ordinary Shares in the Offering will not be
subject to treatment as "United States shareholders" of a CFC. In addition,
because under the Articles of Association no single shareholder will be
permitted to exercise 10% or more of the total combined voting power of
Holdings, shareholders of Holdings should not be viewed as "United States
shareholders" of a CFC for purposes of these rules. There can be no assurance,
however, that these rules will not apply to shareholders of Holdings. See
"Certain Tax Considerations."
Related Person Insurance Income Risks. If Scottish Life's related person
insurance income ("RPII") determined on a gross basis were to equal or exceed
20% of its gross insurance income in any taxable year and direct or indirect
insureds and persons related to such insureds were directly or indirectly to
own more than 20% of the voting power or value of Scottish Life's capital
stock, a United States person who owns Ordinary Shares in Holdings directly or
indirectly on the last day of the taxable year may be required to include in
income for United States federal income tax purposes the shareholder's pro-
rata share of Scottish Life's RPII for the taxable year, determined as if such
RPII were distributed proportionately to such United States person at that
date. RPII is generally underwriting premium and related investment income
attributable to insurance or reinsurance policies where the direct or indirect
insureds are United States shareholders or are related to United States
shareholders of the insurance company issuing such policies. Scottish Life
does not expect that it will knowingly enter into insurance agreements in
which, in the aggregate, the direct or indirect insureds are, or are related
to, owners of 20% or more of the Ordinary Shares. Furthermore, Scottish Life
does not currently believe that the 20% gross insurance income threshold will
be met in 1998 or any subsequent year. However, there can be no assurance that
this will be the case. Consequently, there can be no assurance that a United
States person will not be required to include amounts in its income in respect
of RPII in any taxable year. See "Certain Tax Considerations."
If a shareholder who is a United States person disposes of shares in a
foreign insurance corporation that has RPII (even if the amount of RPII is
less than 20% of the corporation's gross insurance income) and in which United
States persons own 25% or more of the voting power or value of the
corporation's shares, any gain from the disposition will generally be treated
as ordinary income to the extent of the shareholder's portion of the
corporation's undistributed earnings and profits that were accumulated during
the period that the shareholder owned the shares (potentially whether or not
such earnings and profits are attributable to RPII). In addition, such a
shareholder will be required to comply with certain reporting requirements,
regardless of the amount of shares owned by the shareholder. These rules
should not apply to dispositions of Ordinary Shares because Holdings is not
itself directly engaged in the insurance business and because proposed United
States Treasury regulations applicable to this situation appear to apply only
in the case of shares of corporations that are directly engaged in the
insurance business. There can be no assurance, however, that the IRS will
interpret the proposed regulations in this manner or that the proposed
regulations will not be promulgated in final form in a manner that would cause
these rules to apply to dispositions of Ordinary Shares. See "Certain Tax
Considerations."
Passive Foreign Investment Company Risks. To avoid significant potential
adverse United States federal income tax consequences for any United States
person who owns Ordinary Shares of the Company, it is important that Holdings
not constitute a "passive foreign investment company" (a "PFIC") in any year
in which such person is a shareholder. In general, a foreign corporation is a
PFIC for a taxable year if 75% or more of its income constitutes "passive
income" or 50% or more of its assets produces passive income. "Passive income"
generally includes interest, dividends and other investment income. However,
"passive income" does not include income "derived in the active conduct of an
insurance business by a corporation which is predominantly engaged in an
insurance business." This exception is intended to ensure that income derived
by a bona fide insurance company is not treated as passive income, except to
the extent such income is attributable to financial reserves in excess of the
reasonable needs of the insurance business. Because Holdings, through Scottish
Life, intends to be predominately engaged in an insurance business and does
not intend to have financial reserves
15
<PAGE>
in excess of the reasonable needs of its insurance business, Holdings does not
expect to meet the requirements for a PFIC. There can be no assurance,
however, that the IRS or a court will concur in this view. See "Certain Tax
Considerations."
Cayman Islands Taxes. There are no income, corporation, capital gains or
other taxes in effect in the Cayman Islands on the basis of present
legislation. In addition, Holdings and Scottish Life have each applied for and
expect to receive an undertaking from the Governor-in-Council of the Cayman
Islands pursuant to the provisions of the Tax Concessions Law, as amended
(1995 Revision), that until the year 2018 (i) no subsequently enacted law
imposing any tax on profits, income, gains or appreciation shall apply to
Holdings or Scottish Life and (ii) no such tax and no tax in the nature of an
estate duty or an inheritance tax shall be payable on any shares, debentures
or other obligations of Holdings or Scottish Life. There can be no assurance
that after such date Holdings or Scottish Life would not be subject to any
such tax.
HOLDING COMPANY STRUCTURE AND DIVIDENDS. Holdings is a holding company which
will be engaged in the variable life insurance and reinsurance business
through its ownership of Scottish Life. Holdings' principal source of income
will be dividends paid by Scottish Life. Holdings intends to begin paying
dividends on its Ordinary Shares on a quarterly basis. No dividend, however,
has been legally declared by Holdings' Board of Directors. The declaration and
payment of dividends by Holdings will be at the discretion of its Board of
Directors and will depend upon Holdings' results of operations and cash flows,
the financial position and capital requirements of Scottish Life, general
business conditions, legal, tax, regulatory and any contractual restrictions
on the payment of dividends and other factors the Board of Directors deems
relevant. Holdings' ability to pay dividends depends on the ability of
Scottish Life to pay dividends to Holdings. While Holdings is not itself
subject to any significant legal prohibitions on the payment of dividends,
Scottish Life is subject to Cayman Islands regulatory constraints which affect
its ability to pay dividends to Holdings. Specifically, payment of dividends
by Scottish Life is subject to its need to maintain a level of capital
adequate to support its level of variable life insurance and reinsurance
underwriting and comply with restrictions under applicable insurance
regulations and Cayman Islands corporate law. Scottish Life, as the holder of
an unrestricted Class B insurance license, will be required by Cayman Islands
law to maintain a minimum net worth of $240,000. Accordingly, there is no
assurance that dividends will be declared or paid in the future. See "Dividend
Policy."
LIMITATIONS ON OWNERSHIP, TRANSFERS AND VOTING RIGHTS. Holdings' Articles of
Association contain certain ownership, transfer and voting restrictions with
respect to the Ordinary Shares. The Company's Board of Directors has the
absolute discretion to decline to register a transfer or series of transfers
of Ordinary Shares (even if execution on the Nasdaq National Market has
occurred) when the transfer or series of transfers results in a person or
group of persons, directly or indirectly, beneficially owning 10% or more of
any class or series of the issued shares of the Company or under certain other
specified circumstances. Should the Company's Board of Directors decide not to
register such a transfer, the transferee of the Ordinary Shares will be
permitted to dispose of the Ordinary Shares. The transferor of the Ordinary
Shares will be deemed to own the Ordinary Shares for dividend, voting and
reporting purposes until a transfer of the Ordinary Shares has been registered
on the register of members of the Company. Maples and Calder, Cayman Islands
counsel to the Company, has advised the Company that while the precise form of
the restrictions on transfers contained in Holdings' Articles of Association
is untested, as a matter of general principle, restrictions on transfers are
enforceable under Cayman Islands law and are not uncommon. See "Description of
Shares--Ordinary Shares--Restrictions on Transfer."
Holdings' Articles of Association also provide that voting rights with
respect to Ordinary Shares directly or indirectly beneficially owned by any
person or group of persons directly or indirectly beneficially owning 10% or
more of the outstanding combined voting power of the issued voting shares of
the Company will be limited to a voting power of less than 10%. See
"Description of Shares--Ordinary Shares--Voting Rights."
ANTI-TAKEOVER EFFECTS OF ARTICLES OF ASSOCIATION AND CAYMAN ISLANDS
CONFIDENTIALITY LAWS. Holdings' Articles of Association contain certain
provisions that make more difficult the acquisition of control of Holdings by
means of a tender offer, open market purchase, a proxy fight or otherwise,
including by
16
<PAGE>
reason of the limitation on transfers of Ordinary Shares and voting rights
described above. While these provisions are designed to encourage persons
seeking to acquire control of Holdings to negotiate with Holdings' Board of
Directors, they could have the effect of discouraging a prospective purchaser
from making a tender offer or otherwise attempting to obtain control of
Holdings. See "Description of Shares--Antitakeover Effects of Articles of
Association." Cayman Islands law restricts disclosure of, among other things,
shareholder lists. Accordingly, such laws may make the acquisition of control
by means of a tender offer or proxy fight more difficult.
SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering, the
Company will have outstanding 18,250,000 Ordinary Shares, Class A Warrants to
purchase an aggregate of 1,550,000 Ordinary Shares, Class B Warrants to
purchase an aggregate of 200,000 Ordinary Shares and options to purchase an
aggregate of 930,000 Ordinary Shares. If the Underwriters' over-allotment
option is exercised in full, 20,762,500 Ordinary Shares will be outstanding
and the number of Ordinary Shares issuable upon exercise of outstanding
options will increase to 1,069,500 Ordinary Shares. The number of Ordinary
Shares issuable upon the exercise of Class A Warrants and Class B Warrants
will not change if the Underwriters' over-allotment option is exercised. The
Class A Warrants, Class B Warrants and the options are not currently
exercisable. See "Management--Stock Option Plan" and "Description of Shares--
Warrants" and "--Options." Except as disclosed in "Description of Shares--
Restrictions on Transfer" and as discussed below with respect to the lock-up
agreements, the Ordinary Shares sold in the Offering will be freely
transferable without restriction or further registration under the Securities
Act, except for any of those Ordinary Shares owned at any time by an
"affiliate" of the Company within the meaning of Rule 144 under the Securities
Act (which sales will be subject to the volume limitations and certain other
restrictions of such rule). The 1,500,000 Ordinary Shares issued upon
formation of the Company and the Ordinary Shares underlying the Class A
Warrants, Class B Warrants and the options are, or upon issuance will be,
"restricted securities" as defined in Rule 144 under the Securities Act and
may not be resold in the absence of registration under the Securities Act or
pursuant to an exemption from registration, including such rule. The Company,
its officers and directors, SHL, the shareholders of SHL to receive Ordinary
Shares of Holdings as a result of the SHL Distribution and the holders of
Class A and Class B Warrants have agreed that they will not, for a period of
one year from the date of this Prospectus, directly or indirectly, offer,
sell, offer to sell, contract to sell, pledge, transfer, assign, hypothecate,
grant any option to purchase or otherwise sell or dispose (or announce any
offer, sale, offer of sale, contract of sale, pledge, transfer, assignment,
hypothecation, grant of any option to purchase or other sale or disposition)
of any Ordinary Shares or other shares of the Company or any securities
convertible into, or exercisable or exchangeable for, any Ordinary Shares or
other shares of the Company without the prior written consent of Prudential
Securities Incorporated, on behalf of the Underwriters. Such agreements do not
prevent the Company from granting options under the Stock Option Plan so long
as such options do not become exercisable until one year from the date of this
Prospectus. The Company also has agreed not to file any registration statement
on Form S-8 with respect to, or otherwise register the resale with the
Commission, Ordinary Shares underlying stock options for a period of one year
from the date of this Prospectus. Prudential Securities Incorporated may, in
its sole discretion, at any time and without notice, release all or any
portion of the securities subject to such lock-up agreements. See "Shares
Eligible for Future Sale."
SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS. The Company is a Cayman
Islands company and certain of its officers and directors are residents of
various jurisdictions outside the United States. All or a substantial portion
of the assets of such officers and directors and the Company, at any one time,
are or may be located in jurisdictions outside the United States. Although the
Company has irrevocably agreed that it may be served with process in New York,
New York with respect to actions arising out of or in connection with
violations of United States federal securities laws relating to offers and
sales of Ordinary Shares made hereby, it could be difficult for investors to
effect service of process within the United States on directors and officers
of the Company who reside outside the United States or to recover against the
Company or such directors and officers on judgments of United States courts
predicated upon the civil liability provisions of the United States federal
securities laws.
NO PRIOR PUBLIC MARKET FOR ORDINARY SHARES. Prior to the Offering, there has
been no public market for the Ordinary Shares and there can be no assurance
that an active trading market will develop after the
17
<PAGE>
Offering or that the Ordinary Shares offered hereby will trade at or above the
initial public offering price. The initial public offering price may not be
indicative of the market price for the Ordinary Shares after the Offering.
Application has been made to include the Ordinary Shares being offered hereby
for quotation in the Nasdaq National Market.
DILUTION. Purchasers of Ordinary Shares in the Offering will experience
immediate and substantial dilution of approximately $ per share (based upon
the initial public offering price of $15 per Ordinary Share) in the net
tangible book value of their Ordinary Shares from the initial public offering
price. See "Dilution."
YEAR 2000 RISK. 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,
including the Company. The Company has acquired certain computer hardware and
software equipment from Scottish Annuity. Because most of the computer
hardware and software purchased from Scottish Annuity is less than two years
old, the Company believes that its exposure with respect to its own computer
systems to Year 2000-related problems is not significant. The Company has
contracted to upgrade the principal accounting software acquired from Scottish
Annuity from a DOS-based version which is not Year 2000 compliant to a Windows
NT version which is certified Year 2000 compliant by the software vendor. The
Company estimates that the total cost to upgrade this system will not exceed
$50,000 and will be completed and tested by October 31, 1998. In addition, the
Company relies significantly on a number of third party service providers,
such as BT Re, IRM Cayman, Cambridge and Maverick, each of whose respective
systems the Company has confirmed are Year 2000 compliant. The Company also
intends to require that any new investment managers or other third party
service providers are or will be Year 2000 compliant. There can be no
assurance, however, that the Company's operations will not experience
disruptions due to the failure of such third parties, such as reinsurance
counterparties, to become fully Year 2000 compliant in a timely manner or that
such failure will not otherwise have an adverse effect on the Company's
business, results of operations or financial condition. In the event the
Company's plans with respect to its Year 2000 readiness fail to protect its
operations from disruptions or its business, results of operations or
financial condition from adverse effect, the Company has no contingency plan
other than the replacement of existing third party service providers which are
not Year 2000 compliant with comparable third party service providers who are
Year 2000 compliant.
18
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Ordinary Shares to be sold in the
Offering are estimated to be approximately $ million ($ million if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions, certain advisory fees and other
estimated expenses related to the Offering. The purpose of the Offering is to
enable the Company to implement its business plan to enter into the variable
life insurance and fixed annuity reinsurance businesses. Substantially all of
the net proceeds of the Offering will be contributed to the capital of
Scottish Life to support its insurance and reinsurance activities and will be
invested in accordance with the Company's Investment Guidelines. See
"Business--Investment Portfolio--Investment Guidelines." Until so invested,
the net proceeds will be invested in short-term, investment grade, interest-
bearing securities.
DIVIDEND POLICY
The Board of Directors of Holdings intends to declare and pay out of
earnings a quarterly dividend of $0.05 per Ordinary Share beginning at the end
of the first full fiscal quarter following consummation of the Offering. The
Board, however, has not declared such dividend or any other future dividend.
The declaration and payment of dividends by Holdings will be at the discretion
of its Board of Directors and will depend upon Holdings' results of operations
and cash flows, the financial position and capital requirements of Scottish
Life, general business conditions, legal, tax, regulatory and any contractual
restrictions on the payment of dividends and other factors the Board of
Directors deems relevant. Holdings' ability to pay dividends depends on the
ability of Scottish Life to pay dividends to Holdings. While Holdings is not
itself subject to any significant legal prohibitions on the payment of
dividends, Scottish Life is subject to Cayman Islands regulatory constraints
which affect its ability to pay dividends to Holdings. Accordingly, there is
no assurance that dividends will be declared or paid in the future. See "Risk
Factors--Holding Company Structure and Dividends," "Management's Discussion
and Analysis of Financial Condition and Plan of Operations" and "Business--
Regulation--Cayman Islands."
19
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company
as of June 9, 1998 and as adjusted to give effect to the Offering and the
receipt of the estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
AS ADJUSTED
FOR THE
ACTUAL OFFERING
------ -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Preferred Shares, par value $0.01 per share (50,000,000
shares authorized; no shares outstanding actual and as
adjusted)............................................. -- --
Ordinary Shares, par value $0.01 per share (100,000,000
shares authorized; 1,500,000 shares outstanding
actual; 18,250,000 shares outstanding as adjusted)
(1)................................................... 15 182
Additional paid-in capital............................. 585
---- -------
Total shareholder's equity........................... 600
---- -------
Total capitalization................................. $600 $
==== =======
</TABLE>
- --------
(1) SHL owns 1,500,000 Ordinary Shares, which constitute all of the currently
outstanding Ordinary Shares of the Company. Prior to the consummation of
the Offering, SHL will effect the SHL Distribution. Ordinary Shares
outstanding after the Offering excludes 1,550,000 Ordinary Shares issuable
upon exercise of Class A Warrants, 200,000 Ordinary Shares issuable upon
exercise of Class B Warrants, 930,000 Ordinary Shares issuable upon
exercise of options to be granted to management and non-employee Directors
of the Company upon consummation of the Offering and 570,000 Ordinary
Shares reserved for future issuance pursuant to the Stock Option Plan. If
the Underwriters' over-allotment option is exercised in full, upon
consummation of the Offering, 20,762,500 Ordinary Shares will be
outstanding and the number of Ordinary Shares issuable upon exercise of
options to be granted to management and non-employee Directors of the
Company upon consummation of the Offering will increase to 1,069,500
Ordinary Shares. The number of Ordinary Shares issuable upon exercise of
the Class A Warrants and the Class B Warrants will not change if the
Underwriters' over-allotment option is exercised. The Class A Warrants,
Class B Warrants and options are not currently exercisable. See
"Description of Shares--Warrants" and "--Options" and "Management--Stock
Option Plan."
20
<PAGE>
DILUTION
Purchasers of the Ordinary Shares offered in the Offering will experience an
immediate and substantial dilution in net tangible book value of their
Ordinary Shares from the initial public offering price. After giving effect to
the Offering, the pro forma net tangible book value of the Ordinary Shares
(after deducting underwriting discounts and commissions, certain advisory fees
and other estimated expenses related to the Offering) will be approximately
$ million, or approximately $ per outstanding Ordinary Share. This
represents an immediate and substantial dilution in net tangible book value to
investors purchasing Ordinary Shares in the Offering of approximately $ per
Ordinary Share, without taking into account any Ordinary Shares issuable upon
exercise of Class A Warrants, the Class B Warrants and options. Pro forma "net
tangible book value" per outstanding Ordinary Share represents shareholders'
equity divided by the number of outstanding Ordinary Shares, including the
Ordinary Shares issued in the Offering. The Company's net tangible book value
per outstanding Ordinary Share prior to the Offering, as of June 9, 1998, was
$0.40.
The following table illustrates the per Ordinary Share dilution to investors
purchasing Ordinary Shares in the Offering:
<TABLE>
<S> <C>
Initial public offering price........................................ $15.00
Pro forma net tangible book value per outstanding Ordinary Share upon
completion of the Offering(1).......................................
------
Dilution to new investors in the Offering............................ $
======
</TABLE>
- --------
(1) Ordinary Shares outstanding after the Offering excludes 1,550,000 Ordinary
Shares issuable upon exercise of Class A Warrants, 200,000 Ordinary Shares
issuable upon exercise of the Class B Warrants, 930,000 Ordinary Shares
issuable upon exercise of options to be granted to management and non-
employee Directors of the Company upon consummation of the Offering
(1,069,500 Ordinary Shares if the Underwriters' over-allotment option is
exercised in full) and 570,000 Ordinary Shares reserved for future
issuance pursuant to the Stock Option Plan. The number of Ordinary Shares
issuable upon exercise of the Class A Warrants and the Class B Warrants
will not change if the Underwriters' over-allotment option is exercised.
The Class A Warrants, Class B Warrants and the options are not currently
exercisable. The exercise of Class A Warrants, Class B Warrants and the
options to be granted to management and certain non-employee Directors
upon consummation of the Offering are not expected to be dilutive to
purchasers of Ordinary Shares in the Offering because the exercise price
per share of such warrants and options is equal to the initial public
offering price. See "Description of Shares--Warrants" and "--Options" and
"Management--Stock Option Plan."
The following table summarizes the number of Ordinary Shares purchased from
the Company, the total consideration paid and the average price per share paid
in the Offering, assuming underwriting discounts and commissions:
<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PRICE
------------------ ----------------------- PER
AMOUNT PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Shares issued upon
formation................ 1,500,000 8.2% $ 500,000(1) % $ 0.33(1)
Offering.................. 16,750,000 91.8 $ $15.00
---------- ----- ------------ ----- ------
Total..................... 18,250,000 100.0% $ 100.0% $
========== ===== ============ ===== ======
</TABLE>
- --------
(1) Represents amount paid by SHL for Ordinary Shares of the Company issued
upon its formation. Excludes $100,000 paid in the aggregate by Michael C.
French, Michelle L. Boucher and certain companies wholly owned by certain
shareholders of SHL for the Class A Warrants.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
GENERAL
Holdings is an insurance holding company, the principal asset of which is
all of the shares in the capital of Scottish Life. Holdings and Scottish Life
were formed on May 12, 1998 and June 3, 1998, respectively, under the laws of
the Cayman Islands and neither has any operating history. The Company will
commence operations as soon as practicable after the Offering. The Company
intends to issue customized variable life insurance policies to high net worth
qualified purchasers and to reinsure fixed annuity and similar contracts
issued by other insurance companies. The Company's fiscal year will end on
December 31. The Company's financial statements will be prepared in accordance
with GAAP.
The cash value of each of the Company's variable life insurance policies
will be held in separate accounts managed by private independent money
managers for the respective policyholders. The Company will not provide any
investment management or advisory services. Policyholders may elect to remit
premiums to their separate account from time to time, subject to underwriting
limits and a minimum initial deposit of $1.0 million for single premium
policies or $500,000 for multiple premium policies. The cash values and the
death benefits with respect to each variable life insurance policy will
fluctuate according to the investment experience of the assets in their
respective separate account. In accordance with GAAP, variable life premiums
received by Scottish Life will be recorded as an increase in liabilities for
policyholders' separate accounts. The assets in the policyholders' separate
accounts are not part of the Company's general funds and are not available to
meet the general obligations of the Company. See "Business--Regulation--Cayman
Islands--Separate Accounts." The Company's reinsurance of fixed annuities and
similar contracts will typically be on a coinsurance basis, with the Company
assuming all of the liability for such contracts and the ceding company
transferring to the Company all of its reserve account for such contracts.
However, the Company may, in certain circumstances, require the ceding company
to retain a portion of the risk related to such contracts. Such retention by
the ceding company is not expected to exceed 10% of such risk.
Substantially all of the Company's operating revenue related to its variable
life insurance policies will be derived from separate account fees
attributable to its variable life insurance. These fees, typically called
"Mortality and Expense" ("M&E") fees, are charged quarterly in advance based
on a percentage of the cash values in the separate accounts. The Company may
also charge relatively nominal set-up and supervisory fees with respect to its
variable life insurance policies. In addition, a policyholder may be charged a
fee upon a partial or total surrender of the policy. With respect to the
Company's fixed annuity reinsurance business, the primary source of operating
revenues will be the net investment income from reserve accounts acquired from
ceding companies after deducting the interest credited to the policyholder
account values related to the underlying reinsured fixed annuity or similar
contracts.
In addition, the Company has entered into the Scottish Annuity Agreement
with Scottish Annuity under which the Company has agreed to provide certain
insurance administration, accounting and other services to Scottish Annuity in
return for a fee, payable quarterly, based on the value of the separate
account assets of Scottish Annuity and the referral of potential clients to
Scottish Life. Based on the separate account assets of Scottish Annuity at
March 31, 1998, the annual amount of such fee would have been $819,500. See
"Business--Scottish Annuity Agreement."
The Company's main operating costs will consist of professional fees, travel
and promotional expenditures and employee related expenses. Management will
seek to limit personnel expense by retaining third party service providers
such as BT Re, IRM Cayman, Cambridge and Maverick. The Company will not employ
commissioned sales or marketing personnel, but will rely primarily on
referrals from, in the case of its variable life insurance business, financial
advisors, investment managers, private bankers, attorneys and other
intermediaries in the United States and, in the case of its fixed annuity
reinsurance business, international insurance brokers, insurance consultants,
members of the actuarial profession and senior insurance company executives
with whom the
22
<PAGE>
Company's Senior Vice President and Chief Insurance Officer has a
relationship. None of these intermediaries or other referral sources may
receive any commission or other remuneration from the Company for activities
undertaken in the U.S.
LIQUIDITY AND CAPITAL RESOURCES
Holdings is an insurance holding company which conducts its principal
operations through its subsidiary, Scottish Life. As a holding company,
Holdings' assets consist primarily of the capital stock of Scottish Life.
Accordingly, Holdings will rely primarily on cash dividends and other
permissible payments from Scottish Life to pay its operating expenses and
dividends. The Board of Directors of Holdings intends to declare and pay out
of earnings a quarterly dividend of $0.05 per Ordinary Share beginning at the
end of the first fiscal quarter following the consummation of the Offering. It
will be Holdings' policy to retain all earnings in excess of such quarterly
dividend to support the growth of its business. If Holdings' retained earnings
do not support the payment of such quarterly dividend, the dividend may be
reduced or eliminated. If Holdings makes a payment to shareholders in excess
of its current and retained earnings, such payment would be treated as a
return of capital to holders of the Ordinary Shares. The declaration and
payment of dividends by Holdings will be at the discretion of its Board of
Directors and will depend upon Holdings' results of operations and cash flows,
the financial condition and capital requirements of Scottish Life, general
business conditions, legal, tax, regulatory and any contractual restrictions
on the payment of dividends and other factors the Board of Directors deems
relevant. Although Holdings is not itself subject to any significant legal
prohibitions on the payment of dividends, Scottish Life is subject to Cayman
Islands regulatory constraints which affect its ability to pay dividends to
Holdings, including a minimum net worth requirement. Accordingly, there is no
assurance that dividends will be declared or paid in the future. See "Dividend
Policy" and "Business--Regulation--Cayman Islands."
The principal sources of funds for Scottish Life's operations are expected
to be substantially all of the net proceeds of the Offering, M&E fees and
certain other fees, realized net investment income and other income, including
fees received from Scottish Annuity under the Scottish Annuity Agreement, as
well as liquidations of the Company's investment portfolio. These funds are
expected to be used primarily to pay policy benefits and operating expenses,
and, subject to Cayman Islands law, to make dividend payments to Holdings. The
Company believes that the net proceeds of the Offering will be sufficient to
fund its planned growth and operating activities for the next several years.
Policy reserves with respect to variable life insurance policies will be
calculated in an effort to meet the Company's estimated future life insurance
death benefit obligations. Policy reserves with respect to fixed annuity
reinsurance will be primarily based on historical experience and information
provided by ceding companies.
The principal risk associated with the Company's variable life insurance
policies will be mortality risk. Mortality risk tends to be more stable when
spread across large numbers of insureds. The Company's variable life insurance
policies are expected to be placed with a relatively small number of high net
worth policyholders and to provide substantial death benefits given expected
initial premiums of $1.0 million per policy. As a consequence, the Company's
associated mortality risk exposure is likely to be greater in the aggregate,
and its probability of loss less predictable, than that of an insurer with a
broader risk pool. As a result, the Company intends to allocate a significant
portion of its capital, in addition to any policy reserves required under GAAP
and any additional Cayman Islands regulatory requirements, to cover possible
volatility in mortality experience. Furthermore, the Company intends to
reinsure a significant portion of the mortality risk associated with its
variable life insurance business with the objective of limiting the net amount
at risk to $500,000 per insured. The principal risk associated with the
Company's fixed annuity reinsurance activities is investment risk.
Specifically, the Company is subject to (i) asset value risk, which is the
risk that invested assets supporting the reinsured business will decrease in
value, (ii) reinvestment risk, which is the risk that interest rates will
decline and funds reinvested will earn less than expected, and (iii)
disintermediation risk, which is the risk that the Company may have to sell
assets at a loss to provide for policyholder withdrawals. The Company is also
subject to mortality risk with respect to the fixed annuities it reinsures,
although the Company's exposure to such risk is expected to be more
actuarially determinable in light of the broader risk pool underlying the
blocks of business
23
<PAGE>
expected to be reinsured. The Company will determine whether to assume any
particular reinsurance business by considering many factors, including the
type of risks to be covered, actuarial evaluations, historical performance
data for the cedent and the industry as a whole, the cedent's retention, the
product to be reinsured, pricing assumptions, underwriting standards and
reputation and financial strength of the cedent. Pricing of the Company's
reinsurance products will be based on the Company's actuarial models which
will incorporate a number of factors, including assumptions for mortality,
surrender and lapse risks, expenses, demographics and investment returns. In
addition, the Company will conduct a financial due diligence review in an
effort to minimize the risk that the cedent will be unable to pay future
amounts due to the Company because of financial difficulties.
The development of policy reserves for the Company's variable life insurance
and fixed annuity reinsurance products will require management to make
estimates and assumptions regarding mortality, lapse, surrender, expense and
investment experience. Actual results could differ materially from those
estimates. Management will monitor actual experience and where circumstances
warrant, will revise its assumptions and the related reserve estimates. When
the liabilities for future policy benefits plus the present value of expected
future gross premiums for a product are insufficient to provide for expected
future benefits and expenses for that product, a premium deficiency reserve
will be established by a charge to income.
The Company does not currently have any material commitments for any capital
expenditures over the next twelve months.
The Company expects that the net proceeds of the Offering will permit it to
begin implementation of its business plan and, together with M&E fees, fees
from Scottish Annuity and realized investment income, will provide sufficient
sources of liquidity and capital to meet the Company's anticipated needs in
the short-term and for the next several years. The Company does not presently
anticipate that it will incur any material indebtedness in the ordinary course
of its business other than possibly obtaining letters of credit in connection
with its fixed annuity reinsurance business. However, no assurance can be
given that the Company will not be required to incur indebtedness in order to
implement its business strategy.
IMPACT OF INFLATION
The effects of inflation will be implicitly considered in pricing the
Company's products and in estimating the Company's underwriting reserves.
CURRENCY
The Company's functional currency is the United States Dollar.
TAXATION
Under current Cayman Islands law, neither Holdings nor Scottish Life is
expected to be obligated to pay any taxes in the Cayman Islands on their
income. Holdings and Scottish Life have applied for and expect to receive an
undertaking from the Governor-in-Council of the Cayman Islands pursuant to the
provisions of the Tax Concessions Law, as amended (1995 Revision), that until
the year 2018 (i) no subsequently enacted law imposing any tax on profits,
income, gains or appreciation shall apply to Holdings or Scottish Life, and
(ii) no such tax and no tax in the nature of an estate duty or an inheritance
tax shall be payable on any shares, debentures or other obligations of
Holdings or Scottish Life. Under current law no tax will be payable on the
transfer or other disposition of the shares of Holdings. The Cayman Islands
currently impose stamp duties on certain categories of documents. However, the
current operations of Holdings do not involve the payment of stamp duties in
any material amount. The Cayman Islands currently impose an annual corporate
fee upon all exempted companies. At current rates, Holdings expects to pay
fees of approximately $700 per annum and Scottish Life expects to pay fees
(including its insurance license fee) of approximately $6,500 per annum.
Because Holdings and Scottish Life are not expected to conduct business in the
United States or any other jurisdiction except the Cayman Islands, it is not
expected that Holdings or Scottish Life will be subject to United States
taxes. See "Risk Factors--Income Tax Risk."
24
<PAGE>
The United States imposes an excise tax on insurance and reinsurance
premiums paid to foreign insurers or reinsurers with respect to risks located
in the United States. The rate of tax applicable to Scottish Life is currently
1% of its insurance and reinsurance premiums. This excise tax is payable by
the contract owner, although the Company will often file the tax form. In
addition, Holdings may be subject to withholding tax on certain investment
income from United States sources, but Holdings does not expect to incur such
withholding taxes in any material amount. See "Certain Tax Considerations."
YEAR 2000 RISK
The Company has acquired certain computer hardware and software equipment
from Scottish Annuity. Because most of the Company's computer hardware and
software purchased from Scottish Annuity is less than two years old, the
Company believes that its exposure with respect to its own computer systems to
Year 2000-related problems is not significant. The Company has contracted to
upgrade its fund accounting software from a DOS-based version which is not
Year 2000 compliant to a Windows NT version which is certified Year 2000
compliant by the software vendor. The Company estimates that the total cost to
upgrade its system will not exceed $50,000 and will be completed and tested by
October 31, 1998. In addition, the Company relies significantly on a number of
third party service providers, such as BT Re, IRM Cayman, Cambridge and
Maverick, each of whose respective systems the Company has confirmed are Year
2000 compliant. The Company also intends to require that any new investment
managers or other third party service providers are or will be Year 2000
compliant. There can be no assurance, however, that the Company's operations
will not experience disruptions due to the failure of such third parties, such
as reinsurance counterparties, to become fully Year 2000 compliant in a timely
manner or that such failure will not otherwise have an adverse effect on the
Company's business, results of operations or financial condition. In the event
the Company's plans with respect to its Year 2000 readiness fail to protect
its operations from disruptions or its business, results of operations or
financial condition from adverse effect, the Company has no contingency plan
other than the replacement of existing third party service providers which are
not Year 2000 compliant with comparable third party service providers who are
Year 2000 compliant.
CHANGES IN ACCOUNTING STANDARDS
The Financial Accounting Standards Board's Statement No. 133, "Accounting
for Derivative Instruments and Hedging Activities," was issued in June 1998
and requires adoption no later than fiscal quarters or fiscal years beginning
after June 15, 1999. The new standard establishes accounting and reporting
standards for derivative instruments. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (c) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available-for-sale security, or a foreign-currency-denominated
forecasted transaction. The Company has not yet completed its evaluation of
the effect this standard will have on the Company.
25
<PAGE>
BUSINESS
Holdings and Scottish Life were recently formed to provide customized
variable life insurance products to high net worth individuals and families
who are or may become U.S. taxpayers and to provide reinsurance of fixed
annuities and similar contracts to insurers no longer actively offering such
products or otherwise seeking to more efficiently manage capital allocated to
existing businesses. The Company's business plan and product focus has been
developed to respond to certain insurance industry trends affecting both
policyholders and issuers of such policies. The Company's objective is to
become a leading provider of variable life insurance and fixed annuity
reinsurance products in its target markets.
Through its variable life insurance business, the Company seeks to respond
to what it believes are increasing demands of high net worth individuals and
families for customized life insurance products that can be utilized as part
of sophisticated estate planning strategies. For the Company, high net worth
means, at a minimum, individuals or family trusts who qualify as "qualified
purchasers" within the meaning of the Investment Company Act of 1940 (the
"1940 Act"). The Company's variable life insurance business will, however,
generally focus on individuals and families with a liquid net worth in excess
of $10.0 million. Variable life insurance offers both a specified death
benefit as well as a cash value component which is placed in a separate
account and invested on behalf of the policyholder by a money manager. As a
Cayman Islands insurance company offering variable life insurance policies to
high net worth qualified purchasers, the Company has the flexibility to offer
policies that permit the use of private independent money managers to manage
the policy's separate account utilizing investment strategies not typically
available in variable life insurance policies issued to the general public.
Through its fixed annuity reinsurance activities, the Company seeks to focus
on what it believes are meaningful opportunities to reinsure lines of business
that are subject to significant reserve or risk capital requirements under
rating agency requirements and applicable accounting standards. The Company
expects to focus its reinsurance activities on blocks of existing fixed
annuities such as structured settlements, deferred annuities, immediate
annuities or similar contracts that are not large enough to be attractive to
major international reinsurers. The Company will target insurance companies
that have discontinued writing new fixed annuities or similar contracts or
that seek relief from the reserve and capital requirements associated with
such contracts. The Company will not reinsure any variable annuity contracts
issued by Scottish Annuity, for which the Company provides certain insurance
and other administrative services. The Company believes that in response to
heightened regulatory and rating agency scrutiny, insurers are increasingly
seeking to reinsure as a means to improve earnings or risk-based capital or
other financial ratios. By shifting mortality and other risks to reinsurers,
direct writing insurers are able to eliminate the assets and liabilities
related to their non-core product lines from their financial statements and
release capital reserves supporting such non-core product lines in order to
pursue new business opportunities. The Company believes that reinsurance is
particularly attractive to publicly-traded insurers that are focusing on
stockholder value, stock performance and quarterly operating results. In
addition, the Company believes that reorganizations of insurers (including
through demutualizations) and consolidation within the insurance industry will
continue, with a concurrent potential increase in demand for reinsurance of
blocks of existing fixed annuity business, particularly in the case of mutual
insurance companies attempting to enhance their balance sheets in preparation
for an initial public offering. The Company believes that its planned low cost
operating strategy and its investment strategy for capital surplus not
otherwise dedicated from time to time to policy reserves or other corporate
purposes, as well as the absence of a corporate level tax in the Cayman
Islands, will enable it to offer competitive pricing for its reinsurance
products.
BUSINESS STRATEGY
In order to achieve its objective to become a leading provider of variable
life insurance and fixed annuity reinsurance products in its target markets,
the Company intends to utilize a business strategy with the following
components:
Leverage Management Expertise
The Company was organized by the management and shareholders of Scottish
Annuity, a privately held Cayman Islands insurance company that commenced
operations in 1994. Scottish Annuity offers outside the United States variable
annuity contracts to persons who are or may become U.S. taxpayers that have
the same
26
<PAGE>
cash value management features and target market as the Company's variable
life insurance policies. The Company intends to draw on management's
experience in developing Scottish Annuity's variable annuity products and
business to develop the Company's variable life insurance products and
business. Also, the Company intends to build on the relationships with
potential clients as well as intermediaries and other referral sources that
members of its management have developed with Scottish Annuity. In addition,
Henryk Sulikowski, the Company's Senior Vice President and Chief Insurance
Officer, has over 17 years experience in the insurance and reinsurance
industry. The Company intends to draw in particular on his experience and
relationships with international insurance brokers, insurance consultants,
members of the actuarial profession and senior insurance company executives to
implement its reinsurance business plan. See "Business--Management--Executive
Officers and Directors."
Utilize Third Party Service Providers
In order to minimize its initial investment in systems and personnel and to
create and maintain a low cost operating structure, the Company has entered
into agreements with a number of third party service providers to provide key
services to the Company. In June 1998, the Company entered into an agreement
with BT Re to provide the Company with certain administration, underwriting
and other services for its variable life insurance business. In addition, in
June 1998, the Company entered into the Scottish Annuity Agreement under which
Scottish Annuity will refer potential clients to the Company as part of the
consideration for the insurance administration and other services the Company
is to provide to Scottish Annuity under such agreement. Also, the Company has
retained IRM Cayman to act as the Company's licensed insurance manager in the
Cayman Islands and to provide to the Company certain additional administrative
services. The Company will also retain certain investment managers to manage
the Company's investment portfolio consistent with the Company's Investment
Guidelines. See "Business--Investment Portfolio--Investment Guidelines," and
"Investment Portfolio--Investment Managers", "--Marketing" and "--
Administration." The Company intends to administer its fixed annuity
reinsurance business primarily with its own personnel.
Build on Significant Capital Base
Upon consummation of the Offering, the Company will have an equity
capitalization of approximately $ million. The Company believes
that this level of capitalization will demonstrate a strong financial position
and a high level of commitment to potential clients and the variable life
insurance and fixed annuity reinsurance marketplace and is necessary in
establishing it as a competitive insurance company. The Company does not
anticipate that it will incur any material indebtedness in the ordinary course
of its business other than possibly obtaining letters of credit in connection
with its reinsurance agreements. The Company should also benefit from the fact
that, as a recently formed entity, its capital is presently unencumbered by
issues such as reserve adequacy, unrealized losses in its investment portfolio
and uncollectible reinsurance. In part because of the Company's expected
capitalization following the Offering, has assigned Scottish Life
a preliminary claims-paying ability rating of " ". The rating is
contingent on the Company raising gross proceeds of $ million in the
Offering.
Apply Prudent Risk Management Policy
The principal risk associated with the Company's variable life insurance
policies is mortality risk. The death benefit provided to a policyholder by a
variable life insurance policy issued by the Company will vary based on the
investment return achieved on the underlying separate account by the private
independent money manager managing the account. The difference between the
value of the assets underlying a variable life insurance policy and the
policy's stated death benefit, known as the "net amount at risk," represents a
general liability of the Company. In accordance with GAAP and any additional
Cayman Islands regulatory requirements, once the Company begins to issue
variable life insurance policies, the Company will be required to establish
and record policy reserves designed to meet the Company's estimated future
life insurance death benefit obligations. Mortality risk tends to be more
stable when spread across large numbers of insureds. The Company's variable
life insurance policies are expected to be placed with a relatively small
number of high net worth policyholders
27
<PAGE>
and provide for substantial death benefits given expected initial premiums of
at least $1.0 million per policy. As a consequence, the Company's associated
mortality risk exposure is likely to be greater in the aggregate, and its
probability of loss less predictable, than that of an insurer with a broader
risk pool. As a result, the Company intends to allocate a significant portion
of its capital, in addition to any policy reserves required under GAAP and any
additional Cayman Islands regulatory requirements, to cover possible
volatility in mortality experience. The Company has adopted Underwriting
Guidelines with the objective of controlling, among other things, the
Company's mortality risk under its variable life insurance policies. The
Company's current Underwriting Guidelines limit the maximum aggregate net
amount at risk the Company will initially assume on any one life to $500,000.
In order to comply with this guideline, the Company intends to reinsure a
substantial portion of the Company's mortality risk.
The principal risk associated with the Company's fixed annuity reinsurance
activities is investment risk. Specifically, the Company is subject to (i)
asset value risk, which is the risk that invested assets supporting the
reinsured business will decrease in value, (ii) reinvestment risk, which is
the risk that interest rates will decline and funds reinvested will earn less
than is necessary to match anticipated liabilities, and (iii)
disintermediation risk, which is the risk that the Company may have to sell
assets at a loss to provide for policyholder withdrawals or to satisfy
liabilities not otherwise properly matched. The Company will establish
reserves and risk capital in accordance with GAAP and any additional Cayman
Islands regulatory requirements in an effort to reflect the level of
investment and other risks associated with the fixed annuities it will
reinsure. An additional risk associated with the Company's fixed annuity
reinsurance business is the risk that the ceding insurer will be unable to pay
amounts due the Company because of its own financial difficulties. The Company
believes this risk can be mitigated by conducting an appropriate financial due
diligence review of each cedent. In addition, most reinsurance agreements
provide for the reinsurer to set off amounts it owes against amounts it is
due, thus lessening the credit risk.
Employ Professional Investment Strategy
The Company will seek to generate attractive levels of investment income
through a professionally managed investment portfolio. Following the Offering,
the Company will have approximately $ of capital available for
policy reserves and other corporate purposes as well as to allocate to cover
possible volatility in mortality experience with respect to its variable life
insurance policies. The Company's investment activities will be governed by
the Company's Investment Guidelines as approved by the Investment Committee of
the Board of Directors. The Company's investment portfolio for insurance
reserves will consist of investment grade, fixed income securities invested
with the objective of matching the Company's anticipated asset and liability
cash flows.
The Company's investment goal for its capital, not otherwise dedicated from
time to time to policy reserves and other corporate purposes, is to achieve a
higher rate of return than could be obtained from limiting its investments
solely to fixed income instruments so as to provide support for potential
future expansion of the Company's insurance activities without the need for
the Company to raise additional equity capital. In order to achieve this
investment objective, the Company initially expects to invest approximately
30% to 40% of its capital, not otherwise dedicated to policy reserves and
other corporate purposes, in investment grade, fixed income securities and to
invest the remainder in equity related investment strategies.
The Company intends to allocate such equity related investments to
investment managers who utilize hedging or arbitrage strategies that seek to
reduce the correlation of their investment returns to the traditional equity
and fixed income markets. The principal strategies to be utilized by such
managers are expected to be hedged equity strategies, which involve the
establishment of both long and short positions in equity securities,
convertible arbitrage, which involves the purchase of convertible bonds and
the short sale of the underlying equity securities, and event driven
arbitrage, which involves purchases in anticipation of a specific event, such
as announced mergers or reorganizations.
28
<PAGE>
The Company's investment guidelines do not contemplate the use of derivative
instruments as part of its investment strategy except to the extent that some
of the Company's investment managers may utilize such instruments to a limited
extent as part of their overall investment strategies.
The Company has retained Cambridge and Maverick to advise it in the
development and management of its alternative investment activities. Both
Cambridge and Maverick are registered investment advisers under the Advisers
Act. Cambridge provides, on a non-discretionary basis, investment consulting
services on alternative money management strategies to university endowments,
non-profit institutions, foundations, pension plans, corporations and high net
worth family groups. According to information supplied by Maverick, as of July
1, 1998, Maverick had aggregate assets under management of over $2.5 billion
in funds utilizing hedged equity investment strategies.
The Company intends to allocate no more than 50% of its capital surplus
dedicated to alternative investments to Maverick, and the balance to
investment managers that the Investment Committee will select with the advice
and assistance of Cambridge. In performing its advisory services, Cambridge
will take into account the Company's entire alternative investment portfolio,
with the objective of recommending to the Company investment managers that
would provide complimentary alternative investment strategies.
The Company believes that using alternative investment management strategies
for a substantial portion of its capital surplus will enhance the Company's
ability to preserve its capital and achieve superior investment returns. As
the Company's variable life insurance and fixed annuity reinsurance business
expands, the Company will dedicate an increasing portion of its capital
surplus to policy reserves, resulting in an increase in the proportion of its
capital invested in investment grade, fixed income securities.
INDUSTRY TRENDS
The Company's business plan and product focus has been developed to respond
to certain insurance and reinsurance industry trends affecting both
policyholders and issuers of such policies.
Variable Life Insurance Market
The Company will target high net worth individuals and families for whom
existing variable life insurance products do not meet their estate planning
and investment objectives. The Company believes that such individuals and
families prefer to have the cash values included in the separate accounts
underlying their variable life insurance policies managed by private
independent money managers in order to increase the returns on such cash
values as well as to increase the death benefit provided by such policies,
which is required under the Code to increase in proportion to any increase in
such cash values. To date, the Company has received expressions of interest
from potential customers with respect to its variable life insurance products,
although no formal discussions or negotiations have occurred. See "Risk
Factors--Ability to Implement its Business Plan."
As a Cayman Islands company offering variable life insurance policies to
high net worth qualified purchasers, the Company has the flexibility to offer
policies that permit the use of private independent money managers to manage
the policy's separate accounts utilizing investment strategies not typically
available in variable life policies issued to the general public. The Company
believes that the demand for such products by its target market will increase
as the "baby boomer" generation continues to age and places greater emphasis
on minimizing the impact of the current 55% federal estate tax and/or
utilizing sophisticated estate planning techniques designed to maximize wealth
transfer from generation to generation. Through the use of the Company's
variable life insurance policies and proper estate planning (e.g., use of
insurance trusts), significant policy benefits can be transferred from one
generation to the next on an estate tax-free basis. In addition, the death
benefit provided by the Company's policies can be used to pay estate taxes and
thereby avoid the necessity of liquidating other family assets.
29
<PAGE>
Under the Company's operating guidelines, its variable life insurance
policies will be offered only to "qualified purchasers" within the meaning of
the Investment Company Act of 1940 (the "1940 Act"), that is individuals or
family trusts that have over $5.0 million in investments (which is defined
under the 1940 Act to include securities, real estate held for investment
purposes, commodity interests and physical commodities held for investment
purposes, financial contracts entered into for investment purposes, cash and
cash equivalents). See "Glossary of Selected Life Insurance and Annuity Terms"
for a reference to the complete definition of "qualified purchaser" under the
1940 Act. Based on an industry source, the number of U.S. households with a
net worth of $5.0 million or more totaled approximately 277,000 in 1997. The
Company will focus primarily on the very high end of this market (i.e.,
individuals and families with liquid net worth in excess of $10.0 million).
The Internal Revenue Service Statistics of Income Bulletin, dated Winter 1997-
1998, estimates that as of 1995 (the latest year available) approximately
27,000 individuals in the U.S. had a net worth of between $10 million and $20
million, and in excess of 12,000 had a net worth of $20 million or more. The
combined net worth of these two groups was estimated at approximately $1.1
trillion.
Fixed Annuity Reinsurance Market
The Company's reinsurance business will initially focus on reinsuring lines
of business that are subject to significant reserve or risk capital
requirements under rating agency requirements and applicable accounting
standards. The Company expects to focus its reinsurance activities on blocks
of existing annuities, such as structured settlements, deferred annuities,
immediate annuities and similar contracts which have been issued by insurers
that are no longer actively writing such contracts or that are seeking relief
from the reserve and capital requirements associated with such contracts.
Fixed annuity contracts often require higher levels of capital than other
product lines, since the investment risk associated with such contracts is
borne by the insurer, not the contract holder. In developing its business plan
with respect to this niche market, the Company has analyzed publicly available
information relating to the existence and size of such blocks of fixed annuity
and other contracts. The Company has also reviewed transactions involving
blocks of fixed annuities and other contracts which have already been
consummated in order to evaluate the existing market for such transactions,
including their structure and terms. The Company has engaged in preliminary
discussions with reinsurance intermediaries regarding potential transactions
and opportunities that the Company's Senior Vice President and Chief Insurance
Officer is aware of based on his knowledge of the industry and relationships
with industry participants. Through these efforts the Company has identified a
number of potentially attractive opportunities, but no formal discussions or
negotiations regarding such opportunities have occurred to date. See "Risk
Factors--Ability to Implement its Business Plan."
The Company believes that, in the past, reinsurers have not focused on this
segment of the fixed annuity market. The Company believes, however, that there
are a number of trends affecting the insurance industry that are increasing
the demand for reinsurance by insurers in this market segment. The Company
believes the primary trend is heightened regulatory and rating agency scrutiny
on risk-based capital and other financial ratios and increased interest by
insurers seeking to, among other things, manage risk-based capital and other
financial ratios through reinsurance. By shifting mortality, investment and
other risks to reinsurers, direct writing insurers are able to eliminate the
assets and liabilities related to their non-core product lines from their
financial statements and release capital reserves supporting such non-core
product lines in order to pursue new business opportunities. The Company
believes that reinsurance is particularly attractive to publicly-traded
insurers that are focusing on stockholder value, stock performance and
quarterly operating results. The Company believes that one of the most
effective tools for achieving these objectives is reinsurance, particularly
where the reinsurer reinsures all of the risks associated with such non-core
products. The other significant trend affecting the insurance industry is the
demutualization of a significant number of insurance companies and
consolidation of the insurance industry. The Company believes that the primary
motivation to demutualize is to gain access to the capital markets. As a
result, the Company believes that newly demutualized insurance companies will
also focus on stock price and quarterly operating results and therefore will
be likely to seek to reinsure as a means to enhance their stock price and
quarterly operating results. Mutual insurance companies may also seek to
utilize reinsurance in advance of
30
<PAGE>
announcing a conversion to a stock company structure in order to enhance their
balance sheet in preparation for an initial public offering.
In addition, the Company believes that insurers seeking reinsurance focus
principally on price and, to a lesser extent, on quality of service in
deciding on a reinsurer. The Company believes its planned low cost operating
structure and its investment strategy for capital surplus not otherwise
dedicated from time to time to policy reserves or other corporate purposes, as
well as the absence of a corporate level tax in the Cayman Islands, will
enable the Company to offer competitive pricing for its reinsurance products.
1998 PLAN OF OPERATION
The Company's plan of operation for the remainder of fiscal 1998 is to begin
full-scale implementation of its business plan, including establishing its
variable life insurance business and pursuing transactions involving the
reinsurance of blocks of fixed annuities.
The Company believes that the net proceeds of the Offering will be
sufficient to satisfy its cash requirements for the next several years and
that, at a minimum, it will not be necessary during the six months immediately
following the Offering to raise additional funds to meet the expenditures
required to operate the Company's business. The Company's belief is based on,
among other things, its anticipated low-cost operating structure, in which
most costs are expected to be variable in nature based on the Company's
revenues, and its use principally of referrals rather than a compensated
distribution network to generate sales of its products.
The Company's main operating costs will consist of professional fees, travel
and promotional expenditures and employee related expenses. Over the next six
to nine months, the Company anticipates that it will hire a financial
controller or other financial staff person and an actuary as well as one or
two additional administrative staff persons.
PRODUCTS OFFERED BY SCOTTISH LIFE
Variable Life Insurance
Variable life insurance is a "separate account" product under which the net
premiums paid, after deduction of expenses, including the costs of insurance,
are placed for the policyholder in a separate account that is not subject to
claims of the insurance company's general creditors. See "Business--
Regulation--Cayman Islands--Separate Accounts." The cash values of this
separate account are then invested for such policyholder by, in the case of
the Company's policies, a private independent money manager. The Company will
not provide any investment management or advisory services to any
policyholder. Revenues from these policies will consist of amounts assessed
during the period against policyholders' separate account balances for M&E
fees and policy administration and surrender charges. In order to qualify as
life insurance under the Code, a number of complex tests must be met by the
variable life policy. The effect of these tests is to require the death
benefit under the policy to be substantially greater than the cash value. The
difference between the cash value and the death benefit is generally referred
to as the "net amount at risk".
Under the Code, there are two types of variable life insurance contracts,
referred to as modified endowment contracts and non-modified endowment
contracts. Modified endowment contracts typically involve the payment of a
single premium by the policy owner, while non-modified endowment contracts
typically involve the payment of multiple premiums, generally five or more.
While the death benefit for such contracts may be the same, the initial net
amount at risk for a non-modified endowment contract will be larger than the
initial net amount at risk for a modified endowment contract. For example,
under a variable life insurance policy similar to the policies expected to be
offered by the Company, a modified endowment contract with a single premium of
$10 million written for a 60 year old male non-smoker would have an initial
death benefit of approximately $25.3 million and a net amount at risk of
approximately $15.3 million. In contrast, a non-modified endowment contract
with the same initial death benefit would require five annual premiums, four
of approximately $2.1 million each and a final premium of approximately $1.4
million, and would result in an initial net amount at risk of $23.1 million.
31
<PAGE>
The death benefits under both modified endowment contracts and non-modified
endowment contracts are not subject to federal income tax upon receipt by the
beneficiary of such death benefits. While the variable life insurance policy
is in force, the policyholder may borrow against the cash values of a non-
modified endowment contract without triggering adverse tax consequences, but
cannot do so under a modified endowment contract without being deemed to have
received a taxable distribution under the contract. Such a taxable
distribution may also cause the contract to no longer qualify as life
insurance.
Variable life insurance contracts generally have no guaranteed rate of
return on the cash values. The cash value varies based on the investment
results of the separate account managed by the policy's private independent
money manager. Because the Code requires the death benefit under a life
insurance policy to bear a specified minimum ratio to the cash value, the
death benefit under a variable policy may increase if the underlying cash
value increases in order to comply with the Code and maintain the appropriate
net amount at risk. Generally, if the cash value declines, either the policy
owner must pay in additional premiums, or the death benefit must be reduced in
order to maintain the appropriate net amount at risk.
The net amount at risk under either type of policy to be issued by the
Company will represent a general liability of the Company, and the Company
will be required to establish and record policy reserves that will be designed
to meet the Company's estimated future life insurance death benefit
obligations. The Company intends to reinsure a significant portion of its
exposure to each individual policyholder. See "--Underwriting--Variable Life
Insurance."
The Company's variable life insurance policies will be offered and sold only
to qualified purchasers under the 1940 Act, that is individuals or family
trusts that have over $5.0 million in investments (which is defined under the
1940 Act to include securities, real estate held for investment purposes,
commodity interests and physical commodities held for investment purpose,
financial contracts entered into for investment purposes, cash and cash
equivalents). See "Glossary of Selected Life Insurance and Annuity Terms" for
a reference to the complete definition of "qualified purchaser" under the 1940
Act.
Reinsurance of Fixed Annuities and Similar Contracts
Reinsurance is an arrangement under which an insurance company (the
"reinsurer") agrees to indemnify another insurance company (the "ceding
company" or "cedent") for all or a portion of the insurance risks underwritten
by the ceding company. It is standard industry practice for primary insurers
to reinsure portions of their insurance risks with other insurance companies
under indemnity reinsurance agreements. Such practice permits primary insurers
to write policies in amounts larger than the risks they are willing to retain.
Reinsurance is generally designed to (i) reduce the net liability of the
ceding company on individual risks, thereby assisting the ceding company in
increasing the volume of business it can underwrite, as well as increasing the
maximum risk it can underwrite on a single life or risk; (ii) assist in
stabilizing operating results by leveling fluctuations in the ceding company's
loss experience; (iii) assist the ceding company in meeting applicable
regulatory capital requirements; (iv) assist in reducing the short-term
financial impact of sales and other acquisition costs; and (v) enhance the
ceding company's financial strength and statutory capital. Ceding companies
typically contract with more than one reinsurer to reinsure their business.
Reinsurance may be written on an indemnity or an assumption basis. However,
the Company presently expects to write only indemnity reinsurance. Indemnity
reinsurance does not discharge a ceding company from liability to the
policyholder; a ceding company is required to pay the full amount of its
insurance obligations regardless of whether it is entitled or able to receive
payments from its reinsurers. By contrast, reinsurance written on an
assumption basis effectively transfers the ceding company's obligations to the
reinsurer, and in some cases eliminates the cedent's further liability.
Reinsurers also may themselves purchase reinsurance, known as retrocession
reinsurance, to limit their own risk exposure. Reinsurance companies enter
into retrocession agreements with other reinsurers ("retrocessionaires") for
reasons similar to those that cause primary insurers to purchase reinsurance.
32
<PAGE>
The Company's business plan contemplates that its reinsurance activities
will focus on the reinsurance of the obligations of insurers under existing
fixed annuity contracts. Fixed annuities are a type of "general account"
product because the assets backing fixed annuities are recorded as part of the
insurer's general funds and are subject to the claims of its general
creditors. Annuities are long-term savings vehicles that generally are
marketed to customers over the age of 45 who are planning for retirement and
seeking secure, tax-deferred savings products. United States annuity products
generally enjoy an advantage over certain other retirement savings products
because the payment of United States federal income taxes on the interest
credited on annuity policies is deferred during the investment accumulation
period. The Company expects to enter into reinsurance agreements with respect
to cedents' obligations on one or more of their individual and group fixed
annuities, including deferred annuities, payout annuities and structured
settlements. The Company expects to write reinsurance both on a direct and
brokered basis.
General account annuities, whether in the accumulation or the payout phase,
generally have specified or minimum guaranteed performance levels and
consequently involve a greater commitment of statutory surplus than separate
account annuities. This is due to the fact that the investment risk associated
with such policies is borne by the insurer, not the policyholder and therefore
is more frequently reinsured.
Insurance companies that issue annuities generally incorporate a number of
features in their annuity products designed to reduce the early withdrawal or
surrender of the policies and to partially compensate the insurer for lost
investment opportunities and costs if policies are withdrawn early. Typically,
the policyholder is permitted to withdraw all or part of the premium paid plus
the amount credited to his or her account, less a penalty or surrender charge
for withdrawals. Often, an insurer's deferred annuity contract provides for
penalty-free partial withdrawals, typically up to 10% of the accumulation
value annually. Annuity policies typically impose some surrender charge during
the period ranging from the first five years to the term of the policy. The
initial surrender charge on annuity policies generally ranges from 5% to 10%
of the premium and decreases over the surrender charge period. Surrender
charges are set at levels intended to protect the insurance company from loss
on early terminations and to reduce the likelihood of policyholders
terminating their policies during periods of increasing interest rates,
thereby lengthening the effective duration of policy liabilities and improving
the ability to maintain profitability on such policies.
The Company intends to write its fixed annuity reinsurance principally as
coinsurance, with the Company assuming all of the liability for such contracts
and the ceding company transferring to the Company all of its reserve account
for such contracts. The Company may, in certain circumstances, require the
ceding company to retain a portion of the risks related to each such contract
(often called "quota share" or "proportional reinsurance"). Such retention by
the ceding company is not expected to exceed 10% of such risk. Under a
coinsurance arrangement, the ceding company transfers the right to ownership
of the assets supporting the reserves to the reinsurer and the reinsurer will
generally share in all material risks inherent in the underlying policies,
including the risk of loss due to mortality, surrender and lapse, as well as
investment performance. Current insurance regulations and accounting standards
require that all of the risks associated with the ceding company's contracts,
or the portion thereof ceded, must be transferred under the terms of a
reinsurance contract in order for the ceding company to take credit for
reinsurance in its financial statements. While annuity contracts underlying
coinsurance reinsurance are long-term policies, they may or may not involve
long-term investment risk. Management believes that a significant amount of
the fixed annuity contracts that the Company intends to reinsure will provide
for an annual (or more frequent) reset of credited interest rates to market
rates. Once a contract is reinsured, it typically cannot be unilaterally
removed from the reinsurance agreement, except pursuant to a ceding company's
recapture rights. Recapture rights permit the ceding company to reassume all
or a portion of the risk formerly ceded to the reinsurer after an agreed-upon
period of time (generally 10 years) and subject to certain other conditions,
including that the ceding company kept its full retention.
MARKETING
The Company's marketing plan with respect to its variable life insurance
policies is to rely primarily on referrals by financial advisors, investment
managers, private bankers, attorneys and other intermediaries in the
33
<PAGE>
United States to generate clients. In order not to be subject to U.S. state
insurance regulation, none of these intermediaries may receive any commissions
or other remuneration from the Company for activities undertaken in the U.S.
In addition, representatives of the Company will periodically attend
conferences of financial advisors, investment managers and private bankers
held outside the United States, and provide exhibits and receptions and engage
in other informational activities at the events to make potential
intermediaries aware of the Company's variable life products. Company
representatives are also expected to attend events of this type held in the
United States, but such representatives will not be permitted to engage in any
promotional activities on behalf of the Company.
In addition, the Company has entered into the Scottish Annuity Agreement
which provides, among other things, that Scottish Annuity will refer potential
clients to the Company as partial consideration for the Company providing
certain insurance administrative services to Scottish Annuity. The Company
believes that this referral arrangement will be advantageous to the Company
because Scottish Annuity sells customized variable annuities that have the
same cash value management features as the Company's variable life insurance
policies and Scottish Annuity targets the same high net worth market. Scottish
Annuity commenced operations in 1994. According to information supplied by
Scottish Annuity, as of March 31, 1998, Scottish Annuity had issued 66
variable annuity contracts which had aggregate separate account assets of
$163.9 million. See "Business--Scottish Annuity Agreement."
The Company's marketing plan with respect to its reinsurance business is to
seek to capitalize on the relationships developed by its Senior Vice President
and Chief Insurance Officer with international insurance brokers, insurance
consultants, members of the actuarial profession and senior insurance company
executives. To the extent that any such brokers, consultants or actuaries
conduct activities in the U.S. they may not receive any commissions or other
remuneration from the Company. Given the focus of the Company's proposed
reinsurance business (i.e., blocks of existing contracts), the Company expects
to target a limited number of potential ceding insurers that the Company
believes would benefit from its reinsurance products based on its analysis of
publicly available information and other industry data. Management believes
that in selecting a reinsurer such ceding insurers will focus principally on
price and, to a lesser extent, on quality of service (i.e., the ability of the
reinsurer to assess the insurer's products and financial situation and tailor
a reinsurance product to help the insurer achieve its objectives). The Company
believes that its low cost structure and its investment strategy for capital
surplus not otherwise dedicated from time to time to policy reserves or other
corporate purposes, as well as the absence of a corporate level tax in the
Cayman Islands, will enable it to price its products competitively. Moreover,
the Company believes that the experience of its Senior Vice President and
Chief Insurance Officer, including his familiarity with U.S. state insurance
regulations and accounting rules, will enable the Company to effectively and
efficiently tailor reinsurance products that satisfy the objectives of ceding
insurers.
UNDERWRITING
Variable Life Insurance
The principal risk associated with the Company's variable life insurance
policies is mortality risk. The death benefit provided by the Company's
variable life insurance policies will vary based on the investment return of
the underlying separate account of assets invested by the policy's private
independent money manager. The difference between the value of the assets in
the underlying separate account and the policy's stated death benefit, known
as the "net amount at risk," represents a general liability of the Company. In
accordance with GAAP and any additional Cayman Islands regulatory
requirements, once the Company begins to issue variable life insurance
policies, the Company will be required to establish and record policy reserves
designed to meet the Company's estimated future life insurance death benefit
obligations. Mortality risk tends to be more stable when spread across large
numbers of insureds. The Company's variable life insurance policies are
expected to be placed with a relatively small number of high net worth
policyholders and to provide substantial death benefits given expected initial
premiums of at least $1.0 million per policy. As a consequence, the Company's
associated mortality risk exposure is likely to be greater in the aggregate,
and its probability of loss less predictable, than
34
<PAGE>
an insurer with a broader risk pool. As a result the Company intends to
allocate a significant portion of its capital, in addition to any policy
reserves required by GAAP or any additional Cayman Islands regulatory
requirements, to cover possible volatility in mortality experience.
Furthermore, pursuant to its Underwriting Guidelines, the Company intends to
reinsure a significant portion of the mortality risk associated with its
variable life insurance business with the objective of limiting the net amount
of risk to $500,000 per insured. Also, pursuant to its Underwriting
Guidelines, the Company will not issue any variable life insurance policy
until the appropriate reinsurance for such policy has been obtained with a
reinsurer with a claims-paying ability rating of "A" or better.
Reinsurance of Fixed Annuities and Similar Contracts
The principal risk associated with the Company's fixed annuity reinsurance
activities is investment risk. Specifically, the Company is subject to (i)
asset value risk, which is the risk that invested assets supporting the
reinsured business will decrease in value, (ii) reinvestment risk, which is
the risk that interest rates will decline and funds reinvested will earn less
than is necessary to match anticipated liabilities, and (iii)
disintermediation risk, which is the risk that the Company may have to sell
assets at a loss to provide for policyholder withdrawals or to satisfy
liabilities not otherwise properly matched. The Company is also subject to
mortality risk with respect to the fixed annuities it reinsures, although the
Company's exposure to such risk is expected to be more actuarially
determinable in light of the broader risk pool underlying the blocks of
business expected to be reinsured. The Company will determine whether to
assume any particular reinsurance business by considering many factors,
including the type of risks to be covered, actuarial evaluations, historical
performance data for the cedent and the industry as a whole, the cedent's
retention, the product to be reinsured, pricing assumptions, underwriting
standards and reputation and financial strength of the cedent. Pricing of the
Company's reinsurance products will be based on the Company's actuarial models
which will incorporate a number of factors, including assumptions for
mortality, expenses, demographics, persistency and investment returns. In
addition, the Company will conduct a financial due diligence review in an
effort to minimize the risk that the cedent will be unable to pay future
amounts due to the Company because of its own financial difficulties.
The Company's Underwriting Guidelines with respect to its reinsurance
business include the following policies: (i) the ceding company must, among
other things, be domiciled in the United States, Canada, Western Europe,
Australia or Cayman Islands, and possess underwriting and claims practices
consistent with industry practice; (ii) the ceding company must be financially
sound in the view of the Board of Directors and must meet all of the financial
requirements to which it is subject by U.S. state regulatory authorities; and
(iii) the ceding company may not exercise recapture rights for a period of ten
years. The Company will generally assume all of the liabilities under the
contracts it will reinsure, although, in certain circumstances, the Company
may require the ceding company to retain a portion of such liabilities
(typically not to exceed 10%).
Any deviation from the Company's Underwriting Guidelines with respect to its
variable life insurance policies and fixed annuity reinsurance products, as
they may be amended from time to time, will require the approval of the Board
of Directors. The Company expects to review regularly its Underwriting
Guidelines in light of changing industry conditions, market developments and
changes in technology. The Company reserves the right at all times to amend,
modify or supplement its Underwriting Guidelines in response to such factors
or for other reasons, including changing the approved domiciles for
reinsurance clients. The Company also will endeavor to ensure that the
Underwriting Guidelines for its ceding clients are compatible with those of
the Company. Toward this end, the Company anticipates that it will
periodically retain unaffiliated service providers to conduct reviews of the
Company's ceding clients' underwriting and claims personnel and procedures.
RESERVES
The Company will establish and carry policy reserves which are designed to
meet the Company's future financial obligations. Future policy benefits and
policy claims are expected to comprise the majority of the Company's financial
obligations and reserves therefor will be maintained in accordance with GAAP
and any additional Cayman Islands regulatory requirements.
35
<PAGE>
Policy reserves with respect to variable life policies will be calculated to
meet the Company's estimated future life insurance death benefit obligations.
As variable life insurance policies are issued, the Company's associated
mortality risk may tend to fluctuate more than would be expected than if the
Company had a large pool of insureds. As a result, the Company will allocate a
significant portion of its capital, in addition to any policy reserves
required under GAAP or any additional Cayman Islands regulatory requirement,
to cover possible volatility in mortality experience. For the Company's fixed
annuity reinsurance business, policy reserves will be primarily based on
historical experience and information provided by ceding companies.
The development of policy reserves for the Company's variable life insurance
and fixed annuity reinsurance products will require management to make
estimates and assumptions regarding mortality, lapse, surrender, expense and
investment experience. Actual results could differ materially from those
estimates. Management will monitor actual experience and where circumstances
warrant, will revise its assumptions and the related reserve estimates. When
the liabilities for future policy benefits plus the present value of expected
future gross premiums for a product are insufficient to provide for expected
future benefits and expenses for that product, a premium deficiency reserve
will be established by a charge to income.
SCOTTISH ANNUITY AGREEMENT
Scottish Life has entered into the Scottish Annuity Agreement with Scottish
Annuity dated as of July 1, 1998 pursuant to which Scottish Life will provide
Scottish Annuity with a variety of insurance administration, accounting and
other services, including (i) investment fund accounting reporting for
variable annuity products, (ii) monitoring compliance with the
diversification, investor control and certain other requirements of the Code,
(iii) administrative services in the issuance by Scottish Annuity of variable
annuity products and documents related thereto, (iv) servicing of variable
annuity products after issuance by Scottish Annuity, (v) accounting for
investment, capital and income and expense activities and maintenance of
individual ledgers for investment funds in which each annuity product is
invested, (vi) preparing financial statements of Scottish Annuity and (vii)
controlling all disbursements from Scottish Annuity and authorizing such
disbursements upon instructions from Scottish Annuity. These services will be
provided by Scottish Life personnel. Scottish Annuity personnel will conduct
all other administrative and accounting services related to its variable
annuity products.
As compensation for the services rendered by Scottish Life during the term
of the Scottish Annuity Agreement, Scottish Annuity will pay to Scottish Life
quarterly, for each annuity contract issued by Scottish Annuity, an amount
equal to the lesser of (i) 0.50% per annum based on the policy account cash
value under the annuity contract (measured at the end of a contract year) and
(ii) 50% per annum of the M&E fees and other administrative charges earned by
Scottish Annuity on such annuity contract, except that such amount will not be
less than $25,000 per contract. Management believes that such compensation is
reasonable and adequately covers the costs to be incurred by the Company in
providing such services. The amount of compensation to be received by the
Company is not subject to adjustment for any referrals by or to Scottish
Annuity. In addition, Scottish Annuity will reimburse Scottish Life for all
out-of-pocket fees, costs and expenses incurred or advanced by Scottish Life
on behalf of Scottish Annuity in connection with the Scottish Annuity
Agreement.
In addition, pursuant to the Scottish Annuity Agreement (i) Scottish Annuity
will refrain from the direct or indirect offer or sale of any life insurance
products and will refer only to Scottish Life any opportunity or inquiry that
it may receive to issue and sell any life insurance products, and (ii)
Scottish Life will refrain from the direct or indirect offer or sale of any
variable annuity products and will refer only to Scottish Annuity any
opportunity or inquiry that it may receive to issue and sell any variable
annuity products.
The Scottish Annuity Agreement will continue in effect until December 31,
1999 and will thereafter be automatically renewed for successive one-year
periods, unless canceled by either party prior to the commencement of a
renewed term. In addition, the Scottish Annuity Agreement will terminate
earlier under specified circumstances (e.g., bankruptcy or uncured defaults
under the agreement). Scottish Annuity and Scottish Life have agreed to
indemnify each other and their respective employees for certain liabilities.
36
<PAGE>
In addition, pursuant to separate agreements and as partial consideration
for entering into the Scottish Annuity Agreement, Scottish Life will sublease
to Scottish Annuity a portion of its leased space at its executive offices in
the Cayman Islands and Scottish Annuity has sold certain of its computer
hardware and software to Scottish Life.
ADMINISTRATION AND CONSULTING SERVICES
Variable Life Insurance
As part of its strategy to enter into the variable life insurance business,
the Company entered into a Private Label and Administrative Services Agreement
with BT Re (the "BT Re Agreement") dated June 11, 1998, pursuant to which BT
Re will provide the Company with a variety of administrative services. BT Re's
private label services include providing the Company with the appropriate
insurance forms (which, subject to certain modifications, will serve as the
basis for the policies to be issued by the Company) and assisting the Company
in conforming such policies to applicable law. Such services include
(i) preparing policy illustrations for prospective purchasers, (ii) conducting
testing and monitoring to insure that the Company's private label policies
satisfy key Code requirements, (iii) arranging for the collection of medical
information and conducting medical examinations for prospective insureds, (iv)
using its best efforts to arrange for reinsurance of the Company's private
label policies, and (v) reviewing death claims under the Company's private
label policies and calculating the death benefit thereunder.
BT Re received $75,000 upon execution of the BT Re Agreement and will
receive quarterly fees for each private label policy issued by the Company
equal to the lesser of (i) 0.50% per year based on the separate account cash
value and (ii) 50% per year of the mortality and expense fees earned by the
Company on its policies, subject to a minimum of $15,000 per policy. Either
the Company or BT Re may terminate the BT Re Agreement on December 31 of any
year provided that at least 90 days' prior written notice is given. Either the
Company or BT Re may also terminate the agreement upon shorter notice under
specified circumstances (e.g., bankruptcy or uncured default under the
agreement). BT Re and the Company have agreed to indemnify each other for
certain liabilities.
The Company's administration staff will be responsible for other
administrative services related to the Company's variable life insurance
business, including (i) billing premiums, (ii) preparing of policy account
statements, (iii) processing policy loans, (iv) processing change of policy
holders and beneficiary requests and (v) processing changes in private
independent money managers and policy surrenders.
Reinsurance of Fixed Annuities and Similar Contracts
The Company anticipates that it will handle all aspects of its reinsurance
activities principally through its Senior Vice President and Chief Insurance
Officer and administrative staff. They will identify potential blocks of
business that appear to be attractive candidates for reinsurance, conduct all
related financial and product due diligence, negotiate the relevant
reinsurance agreements and monitor such reinsurance agreements and any related
investment portfolio and investment manager performance. Under the Company's
reinsurance agreements, it is expected that the cedent will retain
responsibility for handling all administrative matters relating to the
underlying fixed annuities or similar contracts. The Company may from time to
time utilize IRM Cayman to provide support for its reinsurance personnel.
IRM Cayman
The Company has retained IRM Cayman, a member company of International Risk
Management Group, Inc. ("IRMG"), an affiliate of Swiss Reinsurance, to act as
the Company's licensed insurance manager in the Cayman Islands and to
supplement from time to time the Company's administrative staff in the Cayman
Islands. According to IRM Cayman, IRMG is the largest independent captive
insurance manager in the world today operating out of 20 offices in North
America, Europe, Australia, Africa and Asia. As the Company's licensed
insurance manager in the Cayman Islands, IRM Cayman will prepare the Company's
annual report required to be filed with the Cayman Monetary Authority, submit
any changes or amendments to the Company's business plan required to be filed
with the Cayman Monetary Authority and annually certify as to the Company's
37
<PAGE>
compliance with all applicable requirements of the Cayman Monetary Authority.
IRM Cayman will also act as a co-signatory on all contracts and bank
transactions involving the Company and reconcile all of the Company's cash
accounts on a monthly basis. The Company's agreement with IRM Cayman may be
terminated by either party upon 90 days advance written notice. The Company
pays IRM Cayman an annual retainer of $25,000, and IRM Cayman bills for its
actual services on an hourly basis. IRM Cayman has provided similar services
to Scottish Annuity since it commenced operations in 1994.
DC Planning
The Company expects to enter into a definitive agreement with DC Planning,
an insurance consulting firm that develops life insurance products and acts as
a consultant on insurance matters for high net worth families, trust companies
and other fiduciaries. Under the expected terms of the agreement, DC Planning
will provide certain consulting services to the Company, including with
respect to the development and implementation of its business plan. DC
Planning will be paid $180,000 a year for a term of three years under the
agreement. Howard Shapiro, who will be a Director of Holdings, is the managing
partner of DC Planning. See "Certain Relationships and Related Party
Transactions."
INVESTMENT PORTFOLIO
General
The Company will seek to generate attractive levels of investment income
through a professionally managed investment portfolio. Following the Offering,
the Company will have approximately $ of capital available for policy
reserves and other corporate purposes.
Investment Guidelines
The Company's investment activities will be governed by the Investment
Guidelines as approved by the Investment Committee of the Board of Directors.
A significant portion of the Company's investment portfolio will consist of
investment grade, fixed income securities invested in an effort to match the
Company's anticipated asset and liability cash flows. Assets not otherwise
dedicated from time to time to policy reserves and other corporate purposes,
if any, will be invested with the objectives of maximizing investment income
as well as providing adequate diversification of risk and maintenance of
liquidity in order to provide for additional policy reserves as needed. As a
result, the Company intends to invest such capital surplus primarily in
alternative investments not traditionally utilized by insurance companies,
such as equities and equity-based securities. The Company's investment
objective with respect to such capital surplus is to seek superior returns
with relatively low volatility as well as to preserve capital in declining
markets through hedging techniques or other strategies that are intended to
reduce the correlation between the Company's investments and the performance
of traditional equity and fixed income markets. As the Company's insurance and
reinsurance business grows, however, an increasing percentage of the Company's
capital surplus will be allocated to cover policy reserves and, consequently,
invested as part of the Company's fixed income investment portfolio.
The Investment Guidelines require Scottish Life's overall fixed income
investment portfolio to maintain a minimum weighted average rating of "A." A
fixed income security rated "A" by Standard & Poor's is somewhat susceptible
to the adverse effects of changes in circumstances and economic conditions;
however, the issuer's capacity to meet its financial commitment on the
security is still strong. The Company will not invest in any fixed income
securities in emerging markets or which are not rated by a major rating
agency. The Investment Guidelines also provide that Scottish Life may
purchase, among other things, securities issued by the United States
government and its agencies and instrumentalities, securities issued by
foreign governments if rated "A" or better by at least one major rating
agency, certain asset backed securities, preferred stocks, mortgage backed
securities and corporate debt securities (including convertible debt
securities, but may not include payment-in-kind corporate securities).
The Company will be exposed to two primary sources of investment risk on its
fixed income investments: credit risk, relating to the uncertainty associated
with the continued ability of a given obligor to make timely payments of
principal and interest, and interest rate risk, relating to the market price
and/or cash flow variability associated with changes in market interest rates.
The Company will seek to manage credit risk through industry and issuer
diversification and asset allocation. The Company will seek to manage interest
rate risk by structuring its investments in an effort to match its anticipated
liabilities under its variable life insurance policies and
38
<PAGE>
reinsurance agreements, and through the use of hedging techniques. The
reinsurance of certain fixed annuity contracts may obligate the Company to
credit a return with respect to a reinsured policy which is derived from a
market or other benchmark rate. In order to manage the investment risks
associated with these fixed annuity contracts, the Company may enter into
interest rate hedges or other similar transactions. The Company may also enter
into hedges to reduce potential mismatches between durations of assets and
liabilities and offset the potential cash flow impact caused by interest rate
changes. The Investment Guidelines provide that the fixed income investment
portfolio may not be leveraged and that purchases of securities on margin and
short sales may not be made without approval from the Investment Committee of
the Board of Directors.
In connection with the investment of the Company's capital surplus not
otherwise dedicated from time to time to policy reserves and other corporate
purposes, if any, the Investment Guidelines (i) limit the maximum amount of
such assets which may be managed by any investment manager to no greater than
15%, except Maverick which may manage no more than 50% of such assets; (ii)
require that each investment manager permit monthly liquidity for the assets
managed by such investment manager; and (iii) mandate that each investment
manager possess five years of historical portfolio performance deemed
satisfactory by the Investment Committee and either be registered as an
investment adviser under the Advisers Act or have a valid exemption therefrom.
Furthermore, the Company's Investment Guidelines prohibit investments in (i)
direct real estate; (ii) oil and gas limited partnerships; (iii) direct
commodities, (iv) venture capital investments, including private equity or its
equivalent; and (v) United States investments consisting of (a) partnership
interests, (b) residual interests in Real Estate Mortgage Investment Conduits,
(c) any "pass through" certificate unless all underlying debt was issued on or
after July 18, 1984, (d) cash settlement options and forwards if no United
States exchange traded future on the same property exists, (e) options and
forwards on indices which are not traded on United States exchanges, (f)
collateralized mortgage obligations, unless issued with an opinion of counsel
stating that such obligations will be considered debt for tax purposes, (g)
real property interests, including equity in and convertible debt obligations
of real property holding corporations the sale of which would be subject to
tax, (h) any tangible property, (i) any debt obligation the interest on which
does not qualify as "portfolio interest" or is otherwise subject to United
States withholding tax and (j) any investment that does not qualify as a stock
or security for purposes of Section 864(b)(2) of the Code.
The Company's investment goal for its capital, not otherwise dedicated from
time to time to policy reserves and other corporate purposes, is to achieve a
higher rate of return than could be obtained from limiting its investments
solely to fixed income instruments so as to provide support for potential
future expansion of the Company's insurance activities without the need for
the Company to raise additional equity capital. In order to achieve this
investment objective, the Company initially expects to invest approximately
30% to 40% of its capital, not otherwise dedicated to policy reserves and
other corporate purposes, in investment grade, fixed income securities and to
invest the remainder in equity related investment strategies.
The Company intends to allocate such equity related investments to
investment managers who utilize hedging or arbitrage strategies that seek to
reduce the correlation of their investment returns to the traditional equity
and fixed income markets. The principal strategies to be utilized by such
managers are expected to be hedged equity strategies, which involve the
establishment of both long and short positions in equity securities,
convertible arbitrage, which involves the purchase of convertible bonds and
the short sale of the underlying equity securities, and event driven
arbitrage, which involves purchases in anticipation of a specific event, such
as announced mergers or reorganizations.
The Company's investment guidelines do not contemplate the use of derivative
instruments as part of its investment strategy, except to the extent that some
of the Company's investment managers may utilize such instruments to a limited
extent as part of their overall investment strategies.
Investment Managers
The Company has entered into an investment management agreement dated June
15, 1998 with Maverick (the "Maverick Agreement") to advise the Company in the
management of no more than 50% of its capital surplus not otherwise dedicated
from time to time to policy reserves or other corporate purposes. According to
39
<PAGE>
information supplied by Maverick, as of July 1, 1998, Maverick had aggregate
assets under management of over $2.5 billion in funds utilizing hedged equity
investment strategies. The Maverick Agreement provides that Maverick will be
entitled to receive an annual management fee equal to 1% of the net asset
value of the assets of the Company under management with Maverick and a
separate performance fee equal to 20% of the annual performance of such
assets. If, at the end of any year, the net asset value of the Company's
assets under management with Maverick decreases from the net asset value at
the end of the previous year, no performance fee will be payable with respect
to such assets until such net asset value returns to the previous year's
level. The Maverick Agreement is terminable by either party upon 45 days prior
written notice.
The Company has also retained Cambridge to advise the Company's Investment
Committee in selecting private investment managers with respect to the
Company's remaining capital~ surplus that is not otherwise dedicated from time
to time to policy reserves or other corporate purposes or invested with
Maverick. Cambridge provides, on a non-discretionary basis, investment
consulting services on alternative money management strategies to university
endowments, non-profit institutions, foundations, pension plans, corporations
and high net worth families and groups. Cambridge will take into account the
Company's entire alternative investment portfolio with the objective of
recommending to the Company investment managers that would provide
complimentary alternative investment strategies. Cambridge has received a
retainer fee of $50,000 from the Company, which was paid on June 15, 1998, the
date the Company executed an investment advisory agreement with Cambridge (the
"Cambridge Agreement"). In addition, the Company will pay Cambridge an annual
fee equal to the greater of $150,000 or an amount equal to the sum of (i)
0.45% of the first $100.0 million aggregate assets managed by investment
managers engaged by the Company based on the advice of Cambridge and (ii)
0.30% of any such aggregate assets in excess of $100.0 million. The annual fee
is payable in quarterly installments in advance, subject to adjustments for
fees calculated on the basis of aggregate assets managed. The $50,000 retainer
fee will be credited against the first quarterly payment. The Cambridge
Agreement has a one year term renewable automatically thereafter on an annual
basis unless terminated by either party. The Cambridge Agreement may be
terminated at any time by either party upon 30 days written notice.
In addition, the Company has entered into an investment advisory agreement
with to manage the Company's fixed income investment portfolio. is
one of the largest fixed income money managers in the United States. According
to information supplied by , as of March 31, 1998, had aggregate
assets under management of approximately $ billion of which approximately
% consisted of fixed income assets and approximately % consisted of equity
related assets. is entitled to receive a fee for its services at an
annual rate between and of the value of the assets it manages on
behalf of the Company.
Investment Committee Oversight
The Investment Committee of the Company's Board of Directors will
continuously review the Company's investment portfolio and the performance of
its investment managers. The Investment Committee can approve exceptions to
the Company's Investment Guidelines and will periodically review the Company's
Investment Guidelines in light of prevailing market conditions. The investment
managers and the Company's Investment Guidelines may change from time to time
as a result of such reviews.
COMPETITION AND RATINGS
The insurance and reinsurance industries are highly competitive and most of
the companies in such industries are significantly larger and have operating
histories and have access to significantly greater financial and other
resources than does the Company. The Company has no experience competing with
such companies and there can be no assurance that it will be successful.
40
<PAGE>
To the extent that the Company's variable life insurance policies provide
for management of the underlying separate accounts by private independent
money managers, the Company's variable life insurance policies compete with
mutual funds and other investment or savings vehicles. The Company believes
that the most important competitive factor affecting the marketability of its
variable life insurance products is the degree to which it meets customer
expectations, both in terms of returns (after fees and expenses) and service.
In addition, competition in the reinsurance business that the Company intends
to underwrite is based principally on price and to a lesser extent on service
and other factors, including the general reputation and perceived financial
strength of the reinsurers, other terms and conditions of products offered,
ratings assigned by independent rating agencies and reputation and experience
in the particular line of reinsurance to be written. Because the Company
expects to rely at least initially on a small number of clients in both its
variable life insurance and fixed annuity reinsurance businesses, such
businesses may be more susceptible to the adverse effects of competition.
Insurance ratings are used by prospective purchasers of insurance policies
as well as insurers and reinsurance intermediaries as an important means of
assessing the financial strength and quality of insurers and reinsurers. In
addition, a ceding company's own rating may be adversely affected by an
unfavorable rating or the lack of a rating of its reinsurer. has
assigned Scottish Life a preliminary rating of " ". The rating
is contingent on the Company raising gross proceeds of $ million in the
Offering. assigns an " " rating to companies that have, in its
opinion, on balance, . The rating represents the rating agency's
opinion of the Scottish Life's ability to meet its obligations to its
policyholders.
Scottish Life is not licensed or admitted as an insurer in any jurisdiction
other than the Cayman Islands. Because many jurisdictions do not permit
insurance companies to take credit for reinsurance obtained from unlicensed or
non-admitted insurers on their statutory financial statements unless
appropriate security measures are in place, it is anticipated that the
Company's reinsurance clients will typically require it to post a letter of
credit or provide other collateral through funds withheld or trust
arrangements. If the Company is unable to obtain a letter of credit facility
on commercially acceptable terms or is unable to arrange for such other
collateral, the Company's ability to operate its business will be severely
limited.
EMPLOYEES
Cayman Islands immigration law mandates that the Company employ only
Caymanians unless it can be determined that no Caymanian is qualified to
perform the job. Accordingly, subject to limited exceptions, the Company must
advertise in a Cayman Islands newspaper all open job positions and interview
all applicants. If the Company determines that no Caymanian is qualified to
perform the job and the Cayman Islands governmental authority agrees, the
Company may hire a non-Caymanian upon the Cayman Islands government's issuance
of a work permit to such individual. Work permits are generally issued for a
specified period of time and must be renewed upon expiration.
The Company will initially employ three executives and two administrative
staff persons. The two administrative staff persons are Caymanians, while Ms.
Boucher currently holds a valid work permit in connection with her employment
by Scottish Annuity, which expires July 24, 1999, and is currently seeking to
have such work permit amended to cover her employment by Holdings and Scottish
Life. Messrs. French and Sulikowski are each seeking work permits. Over the
next six to nine months, the Company anticipates that it will hire a financial
controller or other financial staff person and an actuary as well as one or
two additional administrative staff persons.
PROPERTY
The Company leases approximately 1,000 square feet of office space in George
Town, Grand Cayman, Cayman Islands, British West Indies, at which the
principal offices of Holdings and Scottish Life are located, pursuant to a
lease with Queensgate Bank and Trust Company Limited which has a one year
term, which will be automatically extended annually for an additional year
unless either party gives written notice to the other at
41
<PAGE>
least 90 days prior to the end of the then current term. The Company's annual
rent is $25,000, which is paid on a quarterly basis. The Company subleases a
portion of its office space to Scottish Annuity in connection with the
Scottish Annuity Agreement. See "Business--Scottish Annuity Agreement."
LEGAL PROCEEDINGS
The Company is not currently involved in any litigation or arbitration. Like
other insurance and reinsurance companies, the Company anticipates that it
will be subject to litigation and arbitration in the ordinary course of its
business.
REGULATION
Cayman Islands
The Company. The Company is a holding company owning all of the outstanding
Ordinary Shares of Scottish Life. The Company is not itself subject to
regulation by any authority in the Cayman Islands, either under insurance or
mutual funds legislation.
The Insurance Law, 1998 Revision. All persons carrying on or desiring to
carry on an insurance (including reinsurance) business in or from within the
Cayman Islands must be licensed under the Insurance Law (1998 Revision) (the
"Insurance Law"). Insurance agents, brokers and those providing insurance
management must also be licensed. Licences are granted by the Governor-in-
Council and applications are reviewed by the Cayman Monetary Authority, which
is generally responsible for the supervision and regulation of financial
services. Information filed with the Cayman Islands authorities pursuant to
the Insurance Law is not generally a matter of public record.
Application for an insurance license is made to the Cayman Monetary
Authority by filing certain prescribed application forms together with
supporting documentation regarding the suitability of the applicant to carry
on an insurance business. A complete business plan must be filed, and the
licensee is limited to conducting the business described in the plan. All
changes in the nature of the business to be conducted require prior approval
of the Cayman Monetary Authority. License applications must include lists of
all shareholders, directors and officers of the applicant and the Cayman
Monetary Authority must be notified of any subsequent changes therein.
Types of Licenses. There are two broad classes of insurer's license--the
Class A and the Class B license (the latter of which may be restricted or
unrestricted). The Class A license permits the holder to carry on a general
insurance business including the underwriting and reinsurance of Cayman
Islands domestic risks. Persons intending to engage in an insurance business
from within the Cayman Islands, but not to engage in the underwriting of
Cayman Islands insurance risks, may obtain a Class B license. Scottish Life
holds an unrestricted Class B insurance license and may therefore carry on an
insurance business from within the Cayman Islands, but may not engage in any
Cayman Islands domestic insurance business. Scottish Life's business plan
filed with the Cayman Monetary Authority specifically contemplates the writing
of variable life insurance policies and fixed annuity reinsurance.
Although information filed with the Cayman Monetary Authority pursuant to
the Insurance Law is generally not a matter of public record, the Cayman
Monetary Authority has the power to disclose information necessary to enable
foreign regulators to exercise similar functions to those exercised by the
Cayman Monetary Authority. Before doing so, the Cayman Monetary Authority is
required to satisfy itself that the regulator is subject to adequate legal
restrictions on further disclosure and may ask for a suitable undertaking in
this respect. Any such disclosure by the Cayman Monetary Authority must not
relate to customers or policyholders.
Minimum Net Worth. Scottish Life is currently required by the Cayman
Monetary Authority to maintain a minimum net worth of $240,000 , but a higher
net worth requirement may be imposed by the Cayman Monetary Authority under
certain circumstances. Net worth is defined as the "excess of assets
(including any contingent
42
<PAGE>
or reserve fund secured to the satisfaction of the Governor-in-Council) over
liabilities, other than liabilities to partners or shareholders." The initial
net worth must generally consist solely of cash, although a mix of cash, other
assets, guarantees or letters of credit may be acceptable. Scottish Life has
initially met this requirement with cash.
Insurance Manager. Unless specifically exempted, a Cayman Islands insurance
company must engage a licensed insurance manager operating in the Cayman
Islands to provide insurance expertise and oversight. The insurance manager
must employ a person who is either qualified by examination as a fellow or
associate of the Chartered Insurance Institute of London, or who is a member
of either the Society of Chartered Property and Casualty Underwriters or the
American Society of Chartered Life Underwriters or is a person of good
standing with such insurance expertise as has been approved by the Governor-
in-Council. Such person must be a member in good standing of the applicable
professional body or of some other professional insurance association
recognized by the Cayman Monetary Authority for the purposes of the Insurance
Law and in good standing with the Cayman Monetary Authority. The insurance
manager must use its best efforts to carry on an insurance and reinsurance
business only with insurers of sound reputation and must comply with certain
reporting requirements imposed by the Cayman Monetary Authority. The insurance
manager must report to the Cayman Monetary Authority with respect to any
concerns it has with respect to any insurance companies with whom it is doing
business. Sixty days written notice must be given to the Cayman Monetary
Authority of any intention to terminate a relationship between an insurer and
a licensed insurance manger. A licensed insurance manager must furnish to the
Cayman Monetary Authority, within six months of the end of its fiscal year, a
list of all insurers for whom the insurance manager performs services and a
written confirmation indicating that the information set out in its licence
application is correct. Scottish Life has engaged IRM Cayman as its licensed
insurance manager in the Cayman Islands. See "Business--Administration."
Separate Accounts. Under the Insurance Law, Cayman Islands insurance
companies carrying on long term business (which will include the writing of
life insurance policies) shall place all receipts by such company of funds in
respect of its long-term business in a separate long-term business fund and
payments from such long-term business fund shall not be made directly or
indirectly for any purpose other than those of the insurer's long-term
business; provided, however, that such payments can be made with any surplus
disclosed on an actuarial valuation and certified by an actuary to be
distributable otherwise than to policy holders. Every Cayman Island insurance
company carrying on long-term business may establish any number of separate
accounts in respect of respective premiums paid to it to provide (1) annuities
on human life and (2) contracts of insurance on human life, and such
respective premiums shall be kept segregated one from the other and
independent of all other funds of the Cayman Islands insurer, and,
notwithstanding the provisions of any other written law to the contrary, are
not chargeable with any liability arising from any other business of the
insurer. The scope and the validity of the Cayman Islands law regarding
separate accounts has not been tested in the courts of the Cayman Islands.
Auditors and Annual Compliance. Cayman Islands insurance companies are
required to have their financial statements audited on an annual basis.
Scottish Life has engaged Ernst & Young to perform its annual audit. The
auditors must file with the Cayman Monetary Authority a written statement
indicating that the insurer's financial statements have been prepared in
accordance with GAAP or a written statement indicating any deviations
therefrom. In addition, the auditors, the licensed insurance manager or
another approved person must sign and file an annual compliance certificate to
the effect that the insurer has carried on its business in accordance with the
information set out in its license application and that any changes in the
nature of the business have been approved by the Cayman Monetary Authority.
Powers of Supervision of Investments. The Cayman Monetary Authority has the
power to prescribe that specified classes of investments made by a Cayman
Islands insurance company be approved and that any investments in such class
already made be realized within a specified period. Although no assurance can
be given as to the future, to date as far as the Company is aware, this power
has never been exercised by the Cayman Monetary Authority. The Cayman Monetary
Authority also has the power to prescribe, establish and vary required capital
and liquidity margins and ratios.
43
<PAGE>
Powers of Inspection and Intervention. The Cayman Monetary Authority
conducts a general review of insurance practices in the Cayman Islands and,
among other things, may examine the affairs of any licensee for the purpose of
determining whether the provisions of the Insurance Law have been or are being
complied with, that the licensee is in a sound financial position and that it
is carrying on its business in a satisfactory manner. The Cayman Monetary
Authority may obtain access to such books, records, documents, policies,
contracts and securities, and call upon the insurance manager for such
information or explanation, as the Cayman Monetary Authority may reasonably
require for purposes of enabling the Cayman Monetary Authority to perform its
functions under the Insurance Law.
Where the Governor-in-Council is of the opinion that a licensee is carrying
on its business in a manner likely to be detrimental to the public interest or
to the interest of insurers, creditors or policyholders, or in contravention
of the Insurance Law, the Governor-in-Council may require the licensee to take
steps necessary to rectify the matter, suspend the license pending a full
inquiry into the licensee's affairs or, without compensation to the licensee,
revoke the license.
Confidentiality and the Proceeds of Criminal Conduct Law. Under the Cayman
Islands confidentiality laws, it is an offense for a person to divulge
confidential information maintained in the Cayman Islands. However, similar to
initiatives taken in major onshore financial centers, the Cayman Islands has
recently become the first offshore financial center to introduce specific
legislation designed to prevent money laundering. Under the new Proceeds of
Criminal Conduct Law, professionals in the Cayman Islands may report to the
authorities in the Cayman Islands transactions they suspect may involve the
proceeds of criminal conduct.
United States and Other
Neither Holdings nor Scottish Life will be licensed to do business in any
jurisdiction other than the Cayman Islands. The insurance laws of each state
of the United States and of many foreign countries regulate the sale of
insurance and reinsurance within their jurisdictions by alien insurers, such
as Scottish Life, that are not admitted to do business within such
jurisdictions. The sale of insurance within a jurisdiction where the insurer
is not admitted to do business is generally prohibited.
Scottish Life is expected to conduct its insurance and reinsurance business
through its executive offices in the Cayman Islands and will not maintain an
office, and its personnel will not solicit, advertise, settle claims or
conduct other insurance or reinsurance activities in the United States. All of
Scottish Life's insurance and reinsurance contracts are expected to be
negotiated, executed, and issued, and all premiums are expected to be
received, at the office of Scottish Life in George Town, Grand Cayman or in
such other offices outside the United States as Scottish Life may establish or
designate. Based on, among other things, the foregoing, Holdings does not
believe that Scottish Life will be subject to the insurance laws of any state
in the United States or any other jurisdiction.
Many states impose a premium tax (typically 2%-4% of gross premiums) on
insureds obtaining insurance from unlicensed foreign insurers, such as
Scottish Life. The premiums charged by Scottish Life do not include any state
premium tax. Each insured is responsible for determining whether it is subject
to pay such tax and for paying such taxes as may be due. In addition, the
United States imposes an excise tax on insurance and reinsurance premiums paid
to foreign insurers or reinsurers with respect to risks located in the United
States. The rate of tax applicable to Scottish Life is 1% of its insurance and
reinsurance premiums. This excise tax is payable by the contract owner,
although the Company will often file the tax form.
In addition, because many jurisdictions do not permit insurance companies to
take credit for reinsurance obtained from unlicensed or non-admitted insurers
on their statutory financial statements unless appropriate security measures
are in place, it is anticipated that the Company's reinsurance clients will
typically require it to post a letter of credit or provide other collateral
through a funds withheld or trust arrangement.
44
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth the names, ages and titles of the directors
(including those who will become directors) of Holdings and executive officers
of Holdings and Scottish Life.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Michael C. French....... 55 Chairman of the Board, Chief Executive Officer and Director
Michelle L. Boucher..... 31 Senior Vice President and Chief Financial Officer
Henryk Sulikowski....... 39 Senior Vice President and Chief Insurance Officer
Michael Austin.......... 62 Director
George Ellis............ 49 Director
Howard Shapiro.......... 52 Director
</TABLE>
MICHAEL C. FRENCH was elected a director and Holdings' Chairman of the Board
and Chief Executive Officer upon its formation. Mr. French was also elected
Chairman of the Board and Chief Executive Officer of Scottish Life upon its
formation. Mr. French is also a director of SHL, which currently owns all of
the outstanding stock of Holdings. Mr. French is a founder and a director of
Scottish Annuity and provides legal services to Scottish Annuity pursuant to a
legal services agreement, which will be terminated upon consummation of the
Offering. Mr. French serves as a consultant to the law firm of Jones, Day,
Reavis & Pogue. Mr. French was a Managing Director of Maverick Capital from
1993 to 1996. He practiced law from 1970 to 1992 with the law firm of Jackson
& Walker, L.L.P. where he served as Chairman of the Management Committee from
1988 to 1992. Mr. French also serves as a director of Sterling Software, Inc.,
a computer software provider, and Michaels Stores, Inc., a national specialty
retail chain. He received a B.B.A. and a J.D. (cum laude) from Baylor
University.
MICHELLE L. BOUCHER was elected Holdings' Senior Vice President and Chief
Financial Officer upon its formation. Ms. Boucher was also elected as Scottish
Life's Senior Vice President and Chief Financial Officer upon its formation.
Ms. Boucher is a director of Scottish Life. Ms. Boucher has served as Manager
of Finance and Administration of Scottish Annuity since July 1995. Ms.
Boucher, a Canadian national, has resided in the Cayman Islands since 1992.
From April 1992 until October 1993, Ms. Boucher was an auditor with Price
Waterhouse. From October 1993 through June 1995, she was a Senior Client
Accountant in the mutual fund department of MeesPierson (Cayman) Limited,
where she was responsible for administering mutual funds, trusts and other
foreign corporate entities, including calculation of net asset values and
provision of shareholder services. Ms. Boucher is a Chartered Accountant and
holds a BMath from the University of Waterloo.
HENRYK SULIKOWSKI became Senior Vice President and Chief Insurance Officer
of Holdings and Scottish Life on July 20, 1998. From February 1997 to July
1998, Mr. Sulikowski served as a Director of Swiss Re New Markets Corporation
("Swiss Re") as well as Senior Vice President of Atlantic International
Reinsurance Company (Barbados) and a Vice President of Swiss Re Atrium
Corporation, companies which are both affiliated with Swiss Re. During 1995
and 1996, Mr. Sulikowski was Vice President of Cologne Life Reinsurance
Company ("Cologne Re") and also served as a senior officer of Cologne Re's
Barbados subsidiary. From 1991 to 1995, Mr. Sulikowski was employed by
Guardian Life Insurance Company of America, where he served as Assistant Vice
President in the reinsurance division. Since 1991, Mr. Sulikowski has been
actively involved in regulatory affairs affecting the insurance and
reinsurance industries, both individually and through life insurance trade
associations such as the American Council of Life Insurance ("ACLI") and the
National Alliance of Life Companies ("NALC"). He has served as a member of the
State Activities Task Force of the ACLI's Reinsurance Committee and was
instrumental in establishing the NALC's Reinsurance Committee, having served
as its first chairman during 1994 and 1995. Mr. Sulikowski has been an
associate of the Society of Actuaries since 1986 and a member of the American
Academy of Actuaries since 1987. He received a Bachelor of Science Degree,
with honors, from the State University of New York at Stony Brook.
45
<PAGE>
MICHAEL AUSTIN will be elected a director of Holdings prior to consummation
of the Offering. Mr. Austin retired in 1992 as the Managing Partner of the
Cayman Islands office of KPMG Peat Marwick, an international accounting and
consulting firm. Mr. Austin was a partner resident in the Cayman Islands
office for over 20 years. Since 1992, Mr. Austin has been self-employed as a
chartered accountant.
GEORGE ELLIS will be elected a director of Holdings prior to consummation of
the Offering. Mr. Ellis has been a private investor since 1996. From 1986 to
1996, Mr. Ellis served as Chief Financial Officer, from 1993 to 1996, as
Executive Vice President, and from 1994 to 1996, as Treasurer of Sterling
Software, Inc.
HOWARD SHAPIRO will be elected a director of Holdings prior to consummation
of the Offering. Mr. Shapiro is the managing partner of DC Planning and has
been since 1975, when he founded DC Planning, an insurance consulting firm
that develops life insurance products and acts as a consultant on insurance
matters for high net worth families, trust companies and other fiduciaries.
PROVISIONS GOVERNING THE COMPANY'S BOARD OF DIRECTORS
Number and Terms of Directors
The Company currently has one director. Prior to consummating the Offering,
it is anticipated that the Company's shareholder will elect three additional
directors, currently contemplated to be Messrs. Austin, Ellis and Shapiro. At
the time such additional directors are elected, the Board of Directors will be
divided into three classes in accordance with the Company's Articles.
Following their initial terms, all classes of directors shall be elected to
three-year terms.
Committees of the Board
At the time additional directors are elected, the Board will establish
Investment and Audit Committees. Each committee will report to the Board.
Investment Committee. The Investment Committee will establish and monitor
the Company's investment policies and the performance of its investment
managers. See "Business--Investment Portfolio--Investment Guidelines."
Audit Committee. The Audit Committee will review the Company's internal
administrative and accounting controls and recommend to the Board the
appointment of independent auditors. The Audit Committee will also review the
performance of corporate officers and the Company's compensation policies and
procedures, make recommendations to the Board with respect to such policies
and procedures, and may administer stock option plans and incentive
compensation plans of the Company. The Audit Committee will be comprised of a
majority of independent directors.
Compensation of Directors
Directors who are employees of the Company will not be paid any fees or
additional compensation for services as members of the Company's Board of
Directors or any committee thereof. Non-employee Directors will receive cash
in the amount of $20,000 per annum and $1,000 per board or committee meeting
attended. Each non-employee Director will be granted an option to purchase
10,000 Ordinary Shares pursuant to the Stock Option Plan on the date the
Offering is consummated with an exercise price equal to the initial public
offering price. In addition, subject to certain conditions, each non-employee
Director will be granted an option to purchase 2,000 Ordinary Shares at each
successive annual general meeting after December 31, 1998 with an exercise
price equal to the fair market value of the Ordinary Shares at the date of
grant.
EMPLOYMENT AGREEMENTS
Michael C. French. Pursuant to an employment agreement with the Company, Mr.
French has agreed to serve as Chairman of the Board and Chief Executive
Officer of the Company for an initial term ending on the third anniversary of
the consummation of the Offering, which term will be automatically increased
annually for
46
<PAGE>
an additional year, subject to 90 days advance notice by either the Company or
Mr. French of an intention not to renew. After the Offering, Mr. French will
receive an annual salary of $450,000 and will be eligible to participate in
all employee benefit programs sponsored by the Company. Mr. French will also
be eligible to receive an annual performance-based bonus in an amount to be
determined by the Company's Board of Directors. Upon execution of the
employment agreement, Mr. French received stock options exerciseable for
400,000 Ordinary Shares (or, if the Underwriters' over-allotment option is
exercised in full, 460,000 Ordinary Shares). See "--Stock Option Plan."
Mr. French's Employment Agreement also provides that he will maintain in
confidence all confidential matters that relate to the Company or any
affiliate of the Company. In addition, pursuant to Mr. French's Employment
Agreement, if his employment with the Company is terminated without serious
cause or if he terminates his employment with the Company for good reason or
within one year following a change in control, Mr. French will be entitled to
receive a lump sum payment equal to three times the sum of his annual base
salary and incentive compensation at the highest respective rates in effect
for any year prior to the termination.
Michelle L. Boucher. Pursuant to an employment agreement with the Company,
Ms. Boucher has agreed to serve as Senior Vice President and Chief Financial
Officer of the Company for an initial term ending on the third anniversary of
the consummation of the Offering, which term will be automatically increased
annually for an additional year, subject to 90 days advance notice by either
the Company or Ms. Boucher of an intention not to renew. After the Offering,
Ms. Boucher will receive an annual salary of $175,000 and will be eligible to
participate in all employee benefit programs sponsored by the Company. Ms.
Boucher will also be eligible to receive an annual performance-based bonus to
be determined by the Company's Board of Directors and will receive a monthly
housing and travel allowance of $7,500. Upon execution of the employment
agreement, Ms. Boucher received stock options exercisable for 200,000 Ordinary
Shares (or, if the Underwriters' over-allotment option is exercised in full,
230,000 Ordinary Shares). See "--Stock Option Plan."
Ms. Boucher's Employment Agreement also provides that she will maintain in
confidence all confidential matters that relate to the Company or any
affiliate of the Company. In addition, pursuant to Ms. Boucher's Employment
Agreement, if her employment with the Company is terminated without serious
cause or if she terminates her employment with the Company for good reason or
within one year following a change in control, Ms. Boucher will be entitled to
receive a lump sum payment equal to three times the sum of her annual base
salary and incentive compensation at the highest respective rates in effect
for any year prior to the termination.
Henryk Sulikowski. Pursuant to an employment agreement with the Company, Mr.
Sulikowski has agreed to serve as Senior Vice President and Chief Insurance
Officer of the Company for an initial term ending on July 20, 2001, which term
will be automatically increased annually for an additional year, subject to 90
days advance notice by either the Company or Mr. Sulikowski of an intention
not to renew. Mr. Sulikowski will receive an annual salary of $200,000 and
will be eligible to participate in all employee benefit programs sponsored by
the Company. Mr. Sulikowski will also receive a one-time cash bonus of $75,000
at the earlier of the consummation of the Offering or December 31, 1998. Mr.
Sulikowski will also be eligible to receive an annual performance-based bonus
in an amount to be determined by the Company's Board of Directors and will
receive a monthly housing and travel allowance of $9,000. Upon execution of
the employment agreement, Mr. Sulikowski received stock options exercisable
for 300,000 Ordinary Shares (or, if the Underwriters' over-allotment option is
exercised in full, 345,000 Ordinary Shares). See "--Stock Option Plan."
Mr. Sulikowski's Employment Agreement also provides that he will maintain in
confidence all confidential matters that relate to the Company or any
affiliate of the Company. In addition, pursuant to Mr. Sulikowski's Employment
Agreement, if his employment with the Company is terminated without serious
cause or if he terminates his employment with the Company for good reason or
within one year following a change in control, Mr. Sulikowski will be entitled
to receive a lump sum payment equal to three times the sum of his annual base
salary and incentive compensation at the highest respective rates in effect
for any year prior to the termination.
47
<PAGE>
STOCK OPTION PLAN
The Stock Option Plan authorizes grants of nonqualified stock options to
directors, officers and other key employees of, and consultants and advisors
to, Holdings and its subsidiaries. The Stock Option Plan authorizes the
granting of stock options for up to 1,500,000 Ordinary Shares, subject to
adjustments upon the occurrence of certain events to prevent dilution. Stock
options may be exercisable for up to ten years at such exercise price and upon
such terms and conditions as the Board of Directors or a committee thereof may
determine at the time of the grant. As of the date of this Prospectus, stock
options have been granted under the Stock Option Plan to Mr. French, Ms.
Boucher and Mr. Sulikowski exercisable into 400,000 Ordinary Shares, 200,000
Ordinary Shares, and 300,000 Ordinary Shares, respectively, which, if the
Underwriters' over-allotment option is exercised in full, shall increase to
460,000, 230,000 and 345,000, respectively. The stock options were issued to
each upon the execution of their respective employment agreements with the
Company. The stock option agreements shall be terminated, and the stock
options shall not be exercisable, if the closing of the Offering does not
occur by December 31, 1998. Such stock options have an exercise price equal to
the initial public offering price, and, unless terminated, become exercisable
in three equal installments commencing with the first anniversary of the
closing of the Offering.
In addition, each person who becomes a non-employee Director, as defined in
the Stock Option Plan, at or prior to the consummation of the Offering will be
granted an option to purchase 10,000 Ordinary Shares on the date the Offering
is consummated with an exercise price equal to the initial public offering
price. Such stock options will be exercisable in three equal installments
commencing with the first anniversary of the grant date. In addition, subject
to certain conditions, each non-employee Director at or prior to the
consummation of the Offering shall be granted an option to purchase 2,000
Ordinary Shares at each successive annual general meeting after December 31,
1998. These options will have an exercise price equal to the fair market value
of the Ordinary Shares on the date of grant and shall be immediately
exercisable if granted after the first anniversary of the consummation of the
Offering. If such options are granted prior to the first anniversary of the
consummation of the Offering, such options shall become exercisable on such
anniversary.
The following table sets forth information concerning the stock options to
be granted upon consummation of the Offering by the Company to its executive
officers under the Stock Option Plan.
INITIAL OPTION GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATE OF
ORDINARY SHARE PRICE
INDIVIDUAL GRANTS APPRECIATION FOR OPTION TERM(4)
------------------------------------------------------- --------------------------------
NUMBER OF
ORDINARY SHARES PERCENT OF TOTAL EXERCISE
UNDERLYING OPTIONS GRANTED TO PRICE EXPIRATION
NAME OPTIONS GRANTED EMPLOYEES PER SHARE DATE 5% 10%
- ---- --------------- ------------------ --------- ---------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael C. French....... 400,000(1) 44.5% $15.00(2) (3) $ $
Henryk Sulikowski....... 300,000(1) 33.3 15.00(2) (3)
Michelle L. Boucher..... 200,000(1) 22.2 15.00(2) (3)
</TABLE>
- --------
(1) If the Underwriters' over-allotment option is exercised in full, the
number of Ordinary Shares underlying Mr. French's, Mr. Sulikowski's and
Ms. Boucher's options will increase to 460,000, 345,000 and 230,000
Ordinary Shares, respectively.
(2) The initial public offering price per Ordinary Share.
(3) The options expire on the tenth anniversary of the consummation of the
Offering.
(4) The potential realizable value columns of the table above illustrate the
value that might be realized upon exercise of the options immediately
prior to the expiration of their terms, assuming the specified compounded
rates of appreciation of the price of the Ordinary Shares over the terms
of the options. These amounts do not take into account provisions of
certain options providing for termination of the options following
termination of employment or vesting over periods of up to three years.
The use of the assumed 5% and 10% returns is established by the Commission
and is not intended by the Company to forecast possible future
appreciation of the price of the Ordinary Shares.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
All of the issued and outstanding Ordinary Shares of Holdings are currently
owned by SHL, which also owns all of the outstanding capital stock of Scottish
Annuity. Prior to the Offering, SHL intends to distribute the Ordinary Shares
of Holdings to its stockholders, none of whom will own 5% or more of the
Ordinary Shares of Holdings upon consummation of the Offering.
The following table sets forth the beneficial ownership of Ordinary Shares
of Holdings by all persons who are expected to beneficially own 5% or more of
the Ordinary Shares upon consummation of the Offering and by each director and
executive officer of Holdings and by all directors and executive officers as a
group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) NUMBER OF SHARES PERCENT OF CLASS
---------------------------------------- ---------------- ----------------
<S> <C> <C>
Michael C. French(2)(3)...................... -- --
Michelle L. Boucher(3)....................... 45,000 *
Henryk Sulikowski(4)......................... -- --
Michael Austin(4)............................ -- --
George Ellis(4).............................. -- --
Howard Shapiro(4)............................ -- --
All directors and executive officers as a
group (six persons)......................... 45,000 *
</TABLE>
- --------
*Less than 1%.
(1) The address for each beneficial owner is c/o Scottish Life Holdings, Ltd.,
Ugland House, 113 South Church Street, George Town, Grand Cayman, Cayman
Islands, British West Indies.
(2) Does not include 570,000 Ordinary Shares beneficially owned by an
irrevocable trust of which Mr. French and certain family members are
beneficiaries; Mr. French disclaims beneficial ownership of such Ordinary
Shares.
(3) Does not include Ordinary Shares issuable upon exercise of stock options
or the Class A Warrants not exercisable within 60 days.
(4) Does not include Ordinary Shares issuable upon exercise of stock options
not exercisable within 60 days.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company has entered into the Scottish Annuity Agreement with Scottish
Annuity. See "Business--Scottish Annuity Agreement" for a summary of the terms
of the Scottish Annuity Agreement. Michael C. French, Chairman, Chief
Executive Officer and a Director of Holdings is a director of Scottish
Annuity. Ms. Boucher, Senior Vice President and Chief Financial Officer of
Holdings, is the Manager of Finance and Administration of Scottish Annuity.
See "Management--Executive Officers and Directors."
The Company expects to enter into a definitive agreement with DC Planning,
an insurance consulting firm that develops life insurance products and acts as
a consultant on insurance matters for high net worth families, trust companies
and other fiduciaries. Under the expected terms of the agreement, DC Planning
will provide certain consulting services to the Company, including with
respect to the development and implementation of its business plan. DC
Planning will be paid $180,000 a year for a term of three years under the
agreement. Howard Shapiro, who will be a Director of Holdings, is the managing
partner of DC Planning.
49
<PAGE>
DESCRIPTION OF SHARES
The following summarizes certain provisions of the Memorandum of Association
(the "Memorandum") and the Articles of Association (the "Articles") of the
Company. Such summaries do not purport to be complete and are subject to, and
are qualified in their entirety by reference to, all of the provisions of the
Memorandum and the Articles, including the definitions therein of certain
terms. Copies of the Memorandum and Articles are filed as exhibits to the
Registration Statement of which this Prospectus is a part.
GENERAL
Effective immediately prior to the consummation of the Offering, the
authorized share capital of the Company will consist of 100,000,000 Ordinary
Shares, of which 1,500,000 Ordinary Shares were outstanding at June 9, 1998,
and 50,000,000 Preferred Shares, par value $0.01 per share, none of which were
outstanding at June 9, 1998.
ORDINARY SHARES
The Ordinary Shares offered hereby, upon receipt of payment therefor, will
be validly issued, fully paid and nonassessable. There are no provisions of
Cayman Islands law, the Memorandum or the Articles which impose any limitation
on the rights of shareholders to hold or vote Ordinary Shares by reason of
them not being residents of the Cayman Islands. The Ordinary Shares will be
subject to the express terms of the Preferred Shares and any series thereof.
Holders of the Ordinary Shares have no pre-emptive, redemption, conversion or
sinking fund rights.
Dividend Rights. Holders of Ordinary Shares are entitled to receive
dividends ratably when and as declared by the Board of Directors out of funds
legally available therefor subject to prior payment of Preferred Shares, if
any.
Liquidation. In the event of any dissolution, liquidation or winding-up of
the Company, whether voluntary or involuntary, after there are paid or set
aside for payment to creditors and the holders of any Preferred Shares, the
full amounts to which they are entitled, the holders of the then outstanding
Ordinary Shares shall be entitled to receive, pro rata according to the number
of Ordinary Shares registered in the names of such shareholders, any remaining
assets of the Company available for distribution to its shareholders.
Voting Rights. The Articles provide that the quorum required for a general
meeting or extraordinary general meeting of the shareholders is presence in
person or by proxy of persons holding at least 50% of the issued and
outstanding voting shares entitled to vote at such meeting (without giving
effect to the limitation on voting rights described below). A quorum for
considering a "special resolution" is 66 2/3% of the issued and outstanding
voting shares entitled to vote at such meeting. Subject to applicable law and
any provision of the Articles requiring a greater majority, the Company may
from time to time by special resolution alter or amend the Memorandum or
Articles; voluntarily liquidate, dissolve or wind-up the affairs of the
Company; increase its share capital; consolidate and divide all or any of its
share capital; subdivide the whole or any part of its share capital; reduce
its share capital, any capital redemption reserve fund, or any share premium
account; or change its name or alter its purposes.
Each holder of Ordinary Shares is entitled to one vote per share on all
matters submitted to a vote of shareholders at any such meeting (subject to
the limitation on voting rights described below). All matters, including the
election of Directors, voted upon at any duly held shareholders' meeting will
be carried by a majority of the votes cast at the meeting by shareholders
represented in person or by proxy, except (i) approval of a merger,
consolidation, amalgamation or court-sanctioned reorganization, or the sale,
lease or exchange of all or substantially all of the assets of the Company
(except in the case of a transaction between the Company and any entity which
the Company directly or indirectly controls), which requires (in addition to
any regulatory or court approvals) the approval of at least 66 2/3% of the
outstanding voting shares, voting together as a single class at a duly
convened meeting; (ii) approval of a special resolution which requires the
approval of at least 66 2/3% of the votes cast by such shareholders
represented in person or by proxy at a duly convened meeting; (iii)
50
<PAGE>
amendment of the Articles, which requires the approval of at least 66 2/3% of
the outstanding voting shares, voting together as a single class at a duly
convened meeting; and (iv) as otherwise provided in the Articles. Voting
rights with respect to the Ordinary Shares are noncumulative.
The Articles provide that, except as otherwise required by law and subject
to the rights of the holders of any Preferred Shares, extraordinary general
meetings of the shareholders of the Company may be called only by (i) a
majority of the Board of Directors; or (ii) at the request in writing of
shareholders owning at least 50% of the outstanding Ordinary Shares generally
entitled to vote.
Limitation on Voting Rights. Each Ordinary Share has one vote, except that
if and for so long as the number of issued Controlled Shares (as defined
below) of any person would constitute 10% or more of the combined voting power
of the issued voting shares of the Company (after giving effect to any prior
reduction in voting power as described below), each such issued Controlled
Share, regardless of the identity of the registered holder thereof, will
confer only a fraction of a vote as determined by the following formula (the
"Formula"):
(T - C) / (9.1 X C)
Where: "T" is the aggregate number of votes conferred by all the issued shares
immediately prior to the application of the Formula with respect to any
particular shareholder, adjusted to take into account any prior reduction
taken with respect to any other shareholder pursuant to the "sequencing
provision" described below; and
"C" is the number of issued Controlled Shares attributable to such
person. "Controlled Shares" of any person refers to all Ordinary Shares
or voting Preferred Shares owned by such person, whether (i) directly,
(ii) with respect to persons who are United States persons, by
application of the attribution and constructive ownership rules of
Sections 958(a) and 958(b) of the Code or (iii) beneficially, directly or
indirectly, within the meaning of Section 13(d)(3) of the Exchange Act,
and the rules and regulations thereunder.
The Formula will be applied successively as many times as may be necessary
to ensure that no person will be a 10% Shareholder (as defined below) at any
time (the "sequencing provision"). For the purposes of determining the votes
exercisable by shareholders as of any date, the Formula will be applied to the
shares of each shareholder in declining order based on the respective numbers
of total Controlled Shares attributable to each shareholder. Thus, the Formula
will be applied first to the votes of shares held by the shareholder to whom
the largest number of total Controlled Shares is attributable and thereafter
sequentially with respect to the shareholder with the next largest number of
total Controlled Shares. In each case, calculations are made on the basis of
the aggregate number of votes conferred by the issued voting shares as of such
date, as reduced by the application of the Formula to any issued voting shares
of any shareholder with a larger number of total Controlled Shares as of such
date. The defined term "10% Shareholder" means a person who owns, in
aggregate, (i) directly, (ii) with respect to persons who are United States
persons, by application of the attribution and constructive ownership rules of
Sections 958(a) and 958(b) of the Code or (iii) beneficially, directly or
indirectly, within the meaning of Section 13(d)(3) of the Exchange Act, issued
Ordinary Shares of the Company carrying 10% or more of the total combined
voting rights attaching to all issued shares.
The Directors are empowered to require any shareholder to provide
information as to that shareholder's beneficial share ownership, the names of
persons having beneficial ownership of the shareholder's shares, relationships
with other shareholders or any other facts the directors may deem relevant to
a determination of the number of Controlled Shares attributable to any person.
The Directors may disregard the votes attached to shares of any holder failing
to respond to such a request or submitting incomplete or untrue information.
The directors retain certain discretion to make such final adjustments to
the aggregate number of votes attaching to the voting shares of any
shareholder that they consider fair and reasonable in all the circumstances to
ensure that no person will be a 10% Shareholder at any time.
51
<PAGE>
Restrictions on Transfer. The Articles contain several provisions
restricting the transferability of Ordinary Shares. Except as described below
with respect to transfers of Ordinary Shares executed on the Nasdaq National
Market, the Directors (or their designee) are required to decline to register
a transfer of shares if they have reason to believe that the result of such
transfer would be to increase the number of total Controlled Shares of any
person to 10% or more of a class of the Company's shares. Similarly, the
Company is restricted from issuing or repurchasing Ordinary Shares if such
issuance or repurchase would increase the number of total Controlled Shares of
any person to 10% or more of a class of the Company's shares.
The Directors (or their designee) also may, in their absolute discretion,
decline to register the transfer of any Ordinary Shares, except for transfers
executed on the Nasdaq National Market, if they have reason to believe
(i) that such transfer may expose the Company, any subsidiary or shareholder
thereof or any variable life policy-holder or any person purchasing
reinsurance from the Company or any such subsidiary to adverse tax or
regulatory treatment in any jurisdiction or (ii) that registration of such
transfer under the Securities Act or under any United States state securities
laws or under the laws of any other jurisdiction is required and such
registration has not been duly effected.
The Company's Directors will not decline to register any transfer of
Ordinary Shares executed on the Nasdaq National Market for the reasons
described above. However, if any such transfer results in the transferee (or
any group of which such transferee is a member) beneficially owning, directly
or indirectly, 10% or more of any class of the Company's shares or causes the
Company's Directors (or their designee) to have reason to believe that such
transfer may expose the Company, any subsidiary or shareholder thereof or any
variable life policy-holder or any person purchasing reinsurance from the
Company to adverse tax or regulatory treatment in any jurisdiction, under the
Company's Articles, the Directors (or their designee) are empowered to deliver
a notice to the transferee demanding that such transferee surrender to an
agent designated by the Directors (the "Agent") certificates representing the
shares and any dividends or distributions that the transferee has received as
a result of owning the shares. A transferee who has resold the shares before
receiving such notice will be required to transfer to the Agent the proceeds
of the sale, to the extent such proceeds exceed the amount that the transferee
paid for the shares, together with any dividends or distributions that the
transferee received from the Company. As soon as practicable after receiving
the shares and any dividends or distributions that the transferee received,
the Agent will use its best efforts to sell such shares and any non-cash
dividends or distributions in an arm's-length transaction on the Nasdaq
National Market. After applying the proceeds from such sale toward reimbursing
the transferee for the price paid for the shares, the Agent will pay any
remaining proceeds and any cash dividends and distributions to organizations
described in Section 501(c)(3) of the Code that the Directors designate. The
proceeds of any such sale by the Agent or the surrender of dividends or
distributions will not inure to the benefit of the Company or the Agent, but
such amounts may be used to reimburse expenses incurred by the Agent in
performing its duties.
Maples and Calder, Cayman Islands counsel to the Company, has advised the
Company that while the precise form of the restrictions on transfers contained
in the Articles is untested, as a matter of general principle, restrictions on
transfers are enforceable under Cayman Islands law and are not uncommon. The
transferor of such Ordinary Shares will be deemed to own such Ordinary Shares
for dividend, voting and reporting purposes until a transfer of such Ordinary
Shares has been registered on the Register of Members of the Company.
The restrictions on voting and ownership of 10% or more of the issued
Ordinary Shares described above, as well as the provisions discussed below
under "Anti-Takeover Effects of Articles of Association," may have the effect
of discouraging an attempt to obtain control of the Company through certain
actions other than negotiating with the Board of Directors.
The Articles also provide that the Board may suspend the registration of
transfer of Ordinary Shares for such periods as the Board may determine, but
shall not suspend the registration of transfer for more than 45 days in any
year.
52
<PAGE>
PREFERRED SHARES
The Articles authorize the Directors to create and issue one or more series
of Preferred Shares and determine the rights and preferences of each such
series, to the extent permitted by the Articles and applicable law. Among
other rights, the Directors may determine: (i) the number of shares of that
series and the distinctive designation thereof; (ii) the voting powers, full
or limited, if any, of the shares of that series; (iii) the rights in respect
of dividends on the shares of that class or series, whether dividends shall be
cumulative and, if so, from which date or dates and the relative rights or
priority, if any, of payment of dividends on shares of that series and any
limitations, restrictions or conditions on the payment of dividends; (iv) the
relative amounts, and the relative rights or priority, if any, of payment in
respect of shares of that series, which the holders of the shares of that
series shall be entitled to receive upon any liquidation, dissolution or
winding up of the Company; (v) the terms and conditions (including the price
or prices, which may vary under different conditions and at different
redemption dates), if any, upon which all or any part of the shares of that
series may be redeemed, and any limitations, restrictions or conditions on
such redemption; (vi) the terms, if any, of any purchase, retirement or
sinking fund to be provided for the shares of that series; (vii) the terms, if
any, upon which the shares of that series shall be convertible into or
exchangeable for shares of any other series, or other securities, whether or
not issued by the Company; (viii) the restrictions, limitations and
conditions, if any, upon issuance of indebtedness of the Company so long as
any shares of that series are outstanding; (ix) restrictions on the issuance
of shares of the same series or any other series; and (x) any other
preferences and relative, participating, optional or other rights and
limitations as the Board of Directors determines which are not inconsistent
with applicable law or the Articles. The Company has no current intention to
issue any Preferred Shares.
WARRANTS
Class A Warrants. Class A Warrants to purchase an aggregate of 1,550,000
Ordinary Shares have been purchased by Michael C. French, Michelle L. Boucher
and certain companies wholly owned by certain shareholders of SHL , subject to
adjustment as provided in the Class A Warrants. The exercise price of the
Class A Warrants is equal to the initial public offering price per share,
subject to customary anti-dilution adjustments for certain events, including
stock splits. The Class A Warrants become exercisable in three equal annual
installments commencing on the first anniversary of the consummation of the
Offering. In the event of a change of control of the Company, the Class A
Warrants then outstanding will become immediately exercisable. The Class A
Warrants expire on the tenth anniversary of the consummation of the Offering.
The Class A Warrant holders have been granted certain registration rights
with respect to the sale of the Ordinary Shares underlying the Class A
Warrants, and have entered into lock-up agreements with the Underwriters for a
one-year period from the date of this Prospectus. See "Shares Eligible for
Future Sale" and "Underwriting."
Class B Warrants. Upon completion of the Offering, Class B Warrants to
purchase an aggregate of 200,000 Ordinary Shares will be outstanding. The
exercise price of the Class B Warrants is equal to the initial public offering
price, subject to adjustment as provided in the Class B Warrants. The Class B
Warrants become exercisable in three equal annual installments commencing on
the first anniversary of the consummation of the Offering. In the event of a
change of control of the Company, the Class B Warrants then outstanding will
become immediately exercisable. The Class B Warrants will expire on the tenth
anniversary of the consummation of the Offering.
The Class B Warrant holders have been granted certain registration rights
with respect to the sale of the Ordinary Shares underlying the Class B
Warrants, and have entered into lock-up agreements with the Underwriters for a
one-year period from the date of this Prospectus. See "Shares Eligible for
Future Sale" and "Underwriting."
OPTIONS
The Company has issued options to purchase an aggregate of 900,000 Ordinary
Shares pursuant to the Stock Option Plan. Additionally, upon consummation of
the Offering, the Company will grant options to purchase an aggregate of
30,000 Ordinary Shares pursuant to its Stock Option Plan. An additional
570,000 Ordinary Shares
53
<PAGE>
are reserved for future issuance under the Stock Option Plan. If the
Underwriters' over-allotment option is exercised in full, the number of Common
Shares issuable upon exercise of the future options to be issued upon
consummation of the Offering will increase to 1,069,500 Ordinary Shares. See
"Management--Stock Option Plan."
TRANSFER AGENT
The Company's registrar and transfer agent for all Ordinary Shares and
Preferred Shares is .
DIFFERENCES IN CORPORATE LAW
The Companies Law of the Cayman Islands is modeled after that of England,
and differs in certain respects from such laws generally applicable to United
States corporations and their shareholders. Set forth below is a summary of
certain significant provisions of the Companies Law (including any
modifications adopted pursuant to the Articles) applicable to the Company
which differ from provisions generally applicable to United States
corporations and their shareholders. These statements are a brief summary of
certain significant provisions of Cayman Islands Companies Law, and as such,
do not deal with all aspects of every law that may be relevant to corporations
and their shareholders.
Interested Directors. The Articles provide that any transaction entered into
by the Company in which a director has an interest is not voidable by the
Company nor can such director be liable to the Company for any profit realized
pursuant to such transaction. A director having an interest in a transaction
is entitled to vote in respect of such transaction provided that the nature of
the interest is disclosed at or prior to the vote on such transaction.
Mergers and Similar Arrangements. The Company may acquire the business of
another company and carry on such business when it is within the objects of
the Memorandum. Except as provided below, the approval of the holders of at
least 66 2/3% of the outstanding shares entitled to vote, voting together as a
single class, at a meeting called for such purpose is required for the Company
to (i) merge, consolidate or amalgamate with another company; (ii) reorganize
or reconstruct itself pursuant to a plan sanctioned by the Cayman Islands
courts; or (iii) sell, lease or exchange all or substantially all of its
assets. In order to merge or amalgamate with another company or to reorganize
and reconstruct itself, as a general rule, the relevant plan would need to be
approved in accordance with the provisions of the Companies Law by the holders
of not less than 75% of the votes cast at a general meeting called for that
purpose and thereafter sanctioned by the Cayman Islands court. In respect of
such a court-sanctioned reorganization, while a dissenting shareholder may
have the right to express to a Cayman Islands court his view that the
transaction sought to be approved would not provide the shareholders with the
fair value of their shares, (i) the court ordinarily would not disapprove the
transaction on that ground absent other evidence of fraud or bad faith; and
(ii) if the transaction were approved and consummated, the dissenting
shareholder would have no rights comparable to the appraisal rights (as here
defined, rights to receive payments in cash for the judicially determined
value of their shares) ordinarily available to dissenting shareholders of
United States corporations.
Takeovers. Cayman Islands law also provides that where an offer is made by a
company for shares of another company and, within four months of the offer,
the holders of not less than 90% of the shares which are the subject of the
offer accept, the offeror may by notice require the dissenting shareholders to
transfer their shares on the terms of the offer. A dissenting shareholder may
apply to the court within one month of the notice objecting to the transfer.
The burden is on the dissenting shareholders to show that the court should
exercise its discretion to prevent the requirement of such transfer, which the
court will be unlikely to do unless there is evidence of fraud or bad faith or
collusion as between the offeror and the holders of the shares who have
accepted the offer as a means of unfairly forcing out minority shareholders.
Shareholders' Suits. With respect to shareholders' suits, the Cayman Islands
courts ordinarily would be expected to follow English precedent, which would
permit a minority shareholder to commence an action against or a derivative
action in the name of the corporation only (i) where the act complained of is
alleged to be beyond
54
<PAGE>
the corporate power of the corporation or illegal; (ii) where the act
complained of is alleged to constitute a fraud against the minority
perpetrated by those in control of the corporation; (iii) where the act
requires approval by a greater percentage of the corporation's shareholders
than actually approved it; or (iv) where there is an absolute necessity to
waive the general rule that a shareholder may not bring such an action in
order that there not be a denial of justice or a violation of the
corporation's memorandum of association.
Indemnification; Exculpation. Cayman Islands law permits a company's
articles of association to provide for the indemnification of officers and
directors, except to the extent that such provision may be held by the Cayman
Islands courts to be contrary to public policy (for instance, for purporting
to provide indemnification against the consequences of committing a crime). In
addition, an officer or director may not be indemnified for his own dishonesty
or wilful neglect or default.
The Articles contain provisions providing for the indemnity by the Company
of an officer, director, employee or agent of the Company for threatened,
pending or contemplated actions, suits or proceedings, whether civil,
criminal, administrative or investigative (including, without limitation, an
action by or in the right of the Company), brought against such indemnified
person by reason of the fact that such person was an officer, director,
employee or agent of the Company. In addition, the Board of Directors may
authorize the Company to purchase and maintain insurance on behalf of any such
person against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Company would have the power to indemnify him against such liability under the
provisions of the Articles.
The Company plans to purchase directors and officers liability insurance
from third parties for its directors and executive officers. The Company also
plans to enter into indemnity agreements with each of its executive officers
and directors.
The Articles provide that directors of the Company shall have no personal
liability to the Company or its shareholders for monetary damages for breach
of fiduciary or other duties as a director, except (i) for any breach of a
director's duty of loyalty to the Company or its shareholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) a payment of a dividend on stock of the
Company or a purchase or redemption of stock of the Company in violation of
law; or (iv) for any transaction from which a director derived an improper
personal benefit.
Inspection of Books and Records. Shareholders of a Cayman Islands
corporation have no general rights to inspect or obtain copies of the list of
shareholders or corporate records of a corporation.
ANTI-TAKEOVER EFFECTS OF ARTICLES OF ASSOCIATION
The Articles contain certain provisions that make more difficult the
acquisition of control of the Company by means of a tender offer, open market
purchase, proxy fight or otherwise. These provisions are designed to encourage
persons seeking to acquire control of the Company to negotiate with the Board
of Directors. The Board of Directors believe that, as a general rule, the
interests of the Company's shareholders would be best served if any change in
control results from negotiations with the Board of Directors. The Board of
Directors would negotiate based upon careful consideration of the proposed
terms, such as the price to be paid to shareholders, the form of consideration
to be paid and the anticipated tax effects of the transaction. However, these
provisions could have the effect of discouraging a prospective acquiror from
making a tender offer or otherwise attempting to obtain control of the
Company. In addition, the Company's Articles of Association provide that
voting rights with respect to Ordinary Shares directly or indirectly
beneficially owned by any person or group of persons directly or indirectly
beneficially owning 10% or more of the outstanding combined voting power of
the issued voting shares of the Company will be limited to a voting power of
less than 10%, which significantly limits the ability of a prospective
acquiror to effect a takeover of the Company. To the extent these provisions
discourage takeover attempts, they could deprive shareholders of opportunities
to realize takeover premiums for their shares or could depress the market
price of the Ordinary Shares.
55
<PAGE>
In addition to those provisions of the Articles discussed above, set forth
below is a description of other relevant provisions of the Articles. The
descriptions are intended as a summary only and are qualified in their
entirety by reference to the Articles, which are filed as a exhibit to the
Registration Statement of which this Prospectus is a part.
No Shareholder Action by Written Consent. The Articles provide that any
action required or permitted to be taken by the shareholders of the Company
must be taken at a duly called annual general or extraordinary general meeting
of the shareholders of the Company and may not be taken by consent in writing
or otherwise. The affirmative vote of the holders of at least 66 2/3% of the
outstanding shares generally entitled to vote, voting together as a single
class, is required to amend or repeal, or adopt any provision inconsistent
with, the foregoing provisions of the Articles.
Availability of Shares for Future Issuance. The availability for issue of
shares by the Directors of the Company without further action by shareholders
(except as may be required by Nasdaq National Market requirements) could be
viewed as enabling the Board of Directors to make more difficult a change in
control of the Company, including by issuing Preferred Shares convertible into
Ordinary Shares, warrants or rights to acquire Ordinary Shares to discourage
or defeat unsolicited stock accumulation programs and acquisition proposals
and by issuing shares in a private placement or public offering to dilute or
deter stock ownership of persons seeking to obtain control of the Company. The
Company has no plans to issue any shares other than possibly pursuant to
employee benefit plans.
Shareholder Proposals. The Articles provide that if a shareholder desires to
submit a proposal for consideration at an annual general meeting or
extraordinary general meeting, or to nominate persons for election as
directors, written notice of such shareholder's intent to make such a proposal
or nomination must be given and received by the Secretary of the Company at
the principal executive offices of the Company not later than (i) with respect
to an annual general meeting, 60 days prior to the anniversary date of the
immediately preceding annual general meeting; and (ii) with respect to an
extraordinary general meeting, the close of business on the tenth day
following the date on which notice of such meeting is first sent or given to
shareholders. The notice must describe the proposal or nomination in
sufficient detail for a proposal or nomination to be summarized on the agenda
for the meeting and must set forth (i) the name and address of the
shareholder; (ii) a representation that the shareholder is a holder of record
of shares of the Company entitled to vote at such meeting and intends to
appear in person or by proxy at the meeting to present such proposal or
nomination; and (iii) the class and number of shares of the Company which are
beneficially owned by the shareholder. In addition, the notice must set forth
the reasons for conducting such proposed business at the meeting and any
material interest of the shareholder in such business. In the case of a
nomination of any person for election as a director, the notice shall set
forth: (i) the name and address of any person to be nominated; (ii) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons; (iii) such other information
regarding such nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to Regulation 14A under the
Exchange Act, whether or not the Company is then subject to such Regulation;
and (iv) the consent of each nominee to serve as a director of the Company, if
so elected. The presiding officer of the annual general meeting or
extraordinary general meeting shall, if the facts warrant, refuse to
acknowledge a proposal or nomination not made in compliance with the foregoing
procedure.
The affirmative vote of the holders of at least 66 2/3% of the outstanding
shares entitled to vote, voting together as a single class, shall be required
to amend or repeal, or adopt any provision inconsistent with, the foregoing
provision of the Articles.
The advance notice requirements regulating shareholder nominations and
proposals may have the effect of precluding a contest for the election of
directors or the introduction of a shareholder proposal if the procedures
summarized above are not followed and may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors
or to introduce a proposal.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
18,250,000 Ordinary Shares, Class A Warrants to purchase an aggregate of
1,550,000 Ordinary Shares, Class B Warrants to purchase an aggregate of
200,000 Ordinary Shares and options to purchase an aggregate of 930,000
Ordinary Shares. If the Underwriters' over-allotment option is exercised in
full, 20,762,500 Ordinary Shares will be outstanding and the number of
Ordinary Shares issuable upon exercise of outstanding options will increase to
1,069,500 Ordinary Shares. The number of Ordinary Shares issuable upon
exercise of the Class A Warrants and Class B Warrants will not change if the
Underwriters' over-allotment option is exercised. The Class A Warrants, Class
B Warrants and the options are not currently exercisable. See "Management --
Stock Option Plan," and "Description of Shares -- Warrants" and "--Options."
Except as disclosed in "Description of Shares -- Restrictions on Transfer" and
as discussed below with respect to the lock-up agreements, the Ordinary Shares
sold in the Offering will be freely transferable without restriction or
further registration under the Securities Act, except for any of those
Ordinary Shares owned at any time by an "affiliate" of the Company within the
meaning of Rule 144 under the Securities Act (which sales will be subject to
the volume limitations and certain other restrictions of such rule). The
1,500,000 Ordinary Shares issued upon formation of the Company and the
Ordinary Shares underlying the Class A Warrants, Class B Warrants and the
options are, or upon issuance will be, "restricted securities" as defined in
Rule 144 under the Securities Act and may not be resold in the absence of
registration under the Securities Act or pursuant to an exemption from
registration, including such rule.
The Company, its officers and directors, SHL, the shareholders of SHL to
receive Ordinary Shares of Holdings as a result of the SHL Distribution, and
holders of the Class A and Class B Warrants have executed agreements (the
"lock-up agreements") pursuant to which each has agreed that they will not,
for a period of one year from the date of this Prospectus, directly or
indirectly, offer, sell, offer to sell, contract to sell, pledge, transfer,
assign, hypothecate, grant any option to purchase or otherwise sell or dispose
(or announce any offer, sale, offer of sale, contract of sale, pledge,
transfer, assignment, hypothecation, grant of any option to purchase or other
sale or disposition) of any Ordinary Shares or other shares of the Company or
any securities convertible into, or exercisable or exchangeable for, any
Ordinary Shares or other shares of the Company without the prior written
consent of Prudential Securities Incorporated, on behalf of the Underwriters.
Such agreements do not prevent the Company from granting additional options
under the Stock Option Plan so long as such options do not become exercisable
until one year from the date of the Prospectus. The Company also has agreed
not to file any registration statement on Form S-8 with respect to, or
otherwise register for resale with the Commission, Ordinary Shares underlying
stock options for a period of one year from the date of this Prospectus.
Prudential Securities Incorporated may, in its sole discretion, at any time
and without notice, release all or any portion of the securities subject to
such lock-up agreements.
Prior to the Offering, there has not been any public market for the Ordinary
Shares. No prediction can be made as to the effect, if any, future sales of
Ordinary Shares, or the availability of Ordinary Shares for future sale, will
have on the market price of the Ordinary Shares prevailing from time to time.
Sales of substantial amounts of Ordinary Shares in the public market could
adversely affect the prevailing market prices and impair the Company's ability
to raise capital through the sale of equity securities.
The holders of the Class A Warrants and the Class B Warrants have been
granted certain registration rights with respect to the sale of the Ordinary
Shares underlying such warrants. See "Description of Shares--Warrants."
57
<PAGE>
MATERIAL TAX CONSEQUENCES
The following summary of the taxation of Holdings and Scottish Life and the
taxation of Holdings' shareholders is based upon current law. Legislative,
judicial or administrative changes may be forthcoming that could affect this
summary. In the opinion of Jones, Day, Reavis & Pogue, United States tax
counsel to the Company, the discussion of United States tax matters set forth
below states the material United States federal income tax considerations
relevant to an investment in the Ordinary Shares, subject to the
qualifications and assumptions set forth in such discussion. In the opinion of
Maples and Calder, Cayman Islands counsel to the Company, the discussion of
Cayman Islands tax matters set forth below states the material Cayman Islands
tax considerations relevant to an investment in the Ordinary Shares, subject
to the qualifications and assumptions set forth in such discussion. The
statements as to factual matters and the Company's beliefs and intentions as
to factual matters represent the views of the Company's management and do not
represent legal opinions of its counsel.
TAXATION OF HOLDINGS AND SCOTTISH LIFE
Cayman Islands
There are no income, corporation, capital gains or other taxes in effect in
the Cayman Islands on the basis of the present legislation. Application has
been made by Holdings and Scottish Life to the Governor pursuant to the Tax
Concessions Law (1995 Revision) of the Cayman Islands for an undertaking that
in the event of any change to the foregoing Holdings and Scottish Life, for a
period of twenty years from the date of the grant of the undertaking, will not
be chargeable to tax in the Cayman Islands on its income or its capital gains
arising in the Cayman Islands or elsewhere and that dividends of Holdings will
be payable without deduction of Cayman Islands tax. It is expected that such
undertaking will be forthcoming. No capital or stamp duties are levied in the
Cayman Islands on the issue, transfer or redemption of Ordinary Shares. The
only taxes or fees which will be chargeable on Holdings in the Cayman Islands
are (i) an annual charge calculated on the nominal amount of the authorized
share capital of Holdings, which is currently $700 per annum and (ii) an
annual licensing fee of $6,500 payable in respect of Scottish Life's
unrestricted Insurance B License.
The Board of Directors of Holdings intend to conduct the affairs and
business of Holdings so that, save for any tax which may be withheld in
certain countries in respect of income or gains, Holdings will not be liable
to tax in any jurisdiction on the income or gains (including gains arising in
the form of discounts or premiums) derived from its investments. The
investments of Holdings will be made with a view of minimizing any such
withholding tax. However, there can be no guarantee that the tax position of
Holdings will not be challenged by the revenue authorities of one or more
countries.
The foregoing is based on current law and practice in the Cayman Islands and
is subject to changes therein.
United States
Holdings' Board of Directors has adopted operating guidelines, developed in
consultation with its United States counsel, that prescribe how Holdings and
Scottish Life are to conduct their businesses in a manner consistent with
their intent not to be engaged in a trade or business within the United
States. Accordingly, Holdings and Scottish Life do not currently plan to file
United States income tax returns. However, because definitive identification
of activities that constitute being engaged in a trade or business in the
United States is not provided by the Code or regulations or court decisions,
there can be no assurance that the IRS will not contend that Holdings and/or
Scottish Life is engaged in a trade or business in the United States. A
foreign corporation deemed to be so engaged would be subject to United States
income tax, as well as branch profits tax, on its income that is treated as
effectively connected with the conduct of that trade or business. Section 842
of the Code requires that foreign insurance companies carrying on an insurance
business within the United States have a certain minimum amount of effectively
connected net investment income even if they have no United States source
investment income. Otherwise, the income tax, if imposed, would be based on
effectively connected income computed in a manner generally analogous to that
applied to the income of a domestic corporation, except that a foreign
corporation can anticipate an allowance of deductions and credits only if it
files a United States income tax return. Under regulations, the foreign
corporation would be entitled to deductions
58
<PAGE>
and credits for the taxable year only if the return for that year is timely
filed under rules set forth therein. Penalties may be assessed for failure to
file tax returns. The federal income tax rates currently are a maximum of 35%
for a corporation's effectively connected income and 30% for branch profits
tax. The branch profits tax is imposed on net income after subtracting the
regular corporate tax and making certain other adjustments.
Foreign corporations not engaged in a trade or business in the United States
are nonetheless subject to United States income tax at a rate of 30% of the
gross amount of certain "fixed or determinable annual or periodical gains,
profits, and income" derived from sources within the United States as
enumerated in Section 881(a) of the Code (such as dividends and interest on
certain investments). Scottish Life will be subject to such taxes on dividends
from United States companies in which it makes portfolio investments.
The United States also imposes an excise tax on insurance and reinsurance
premiums paid to foreign insurers or reinsurers with respect to risks located
in the United States. The rate of tax applicable to premiums paid to Scottish
Life is currently 1%.
Other Countries
Scottish Life may be subject to taxes imposed by other countries on
dividends or interest received from payors located in those countries.
TAXATION OF SHAREHOLDERS
Cayman Islands Taxation
There is no tax treaty between the Cayman Islands and the U.S. regarding
withholding. Currently, there is no Cayman Islands withholding tax on
dividends paid by Holdings or Scottish Life.
United States Taxation--United States Shareholders
General. The following discussion summarizes certain United States federal
income tax consequences relating to the acquisition, ownership and disposition
of Ordinary Shares by a beneficial owner who is (i) a citizen or resident of
the United States, (ii) a United States domestic corporation or (iii)
otherwise subject to United States federal income taxation on a net income
basis in respect of the Ordinary Shares. This summary deals only with Ordinary
Shares acquired by purchasers in the Offering and held as capital assets and
does not deal with the tax consequences applicable to all categories of
investors, some of which (such as broker-dealers who hold Ordinary Shares as
part of hedging or conversion transactions and investors whose functional
currency is not the United States dollar) may be subject to special rules.
Prospective purchasers of the Ordinary Shares are advised to consult their own
tax advisers with respect to their particular circumstances and with respect
to the effects of United States federal, state, local or other laws to which
they may be subject.
Dividends. Distributions with respect to the Ordinary Shares will be treated
as ordinary dividend income to the extent of Holdings' current or accumulated
earnings and profits as determined for United States federal income tax
purposes, subject to the discussion below relating to the potential
application of the "controlled foreign corporation" or "passive foreign
investment company" rules. Such dividends will not be eligible for the
dividends-received deduction allowed to United States corporations under
Section 243 of the Code. The amount of any distribution in excess of Holdings'
current and accumulated earnings and profits will first be applied to reduce
the holder's tax basis in the Ordinary Shares, and any amount in excess of tax
basis will be treated as gain from the sale or exchange of the Ordinary
Shares.
Classification of Holdings and Scottish Life as Controlled Foreign
Corporations. Under Section 951(a) of the Code, each "United States
shareholder" of a foreign corporation that is a "controlled foreign
corporation" (a "CFC") for an uninterrupted period of 30 days or more during a
taxable year who owns shares in the CFC directly or indirectly through foreign
entities on the last day during such taxable year on which the corporation
59
<PAGE>
is a CFC must include in its gross income for United States federal income tax
purposes his or her pro-rata share of the CFC's "subpart F income," even if
the subpart F income is not distributed. Subpart F income includes, among
other things, "insurance income," which is generally defined as income
(including premium and investment income) attributable to the issuing (or
reinsuring) of any insurance or annuity contract in connection with risks
located in, or liabilities arising out of, activities in or lives or health of
residents of a country other than the country under the laws of which the
insurance company is organized. Accordingly, it is anticipated that
substantially all of the income of Scottish Life will be subpart F income.
Under Section 951(b) of the Code, any United States corporation, citizen,
resident or other United States person who owns, directly or indirectly
through foreign entities, or is considered to own (by application of the rules
of constructive ownership set forth in Section 958(b) of the Code, generally
applying to family members, partnerships, estates, trusts, controlled
corporations or holders of certain options), 10% or more of the total combined
voting power of all classes of stock of the foreign corporation will be
considered to be a "United States shareholder." In general, a foreign
insurance company such as Scottish Life is treated as a CFC only if such
"United States shareholders" collectively own more than 25% of the total
combined voting power or total value of the corporation's stock. Because of
the expected dispersion of Holdings' share ownership following the Offering
and the restrictions on transfer, issuance or repurchase of Ordinary Shares,
and because Holdings' Articles of Association provide that no single
shareholder is permitted to hold 10% or more of the total combined voting
power of Holdings, shareholders of Holdings should not be viewed as United
States shareholders of a CFC for purposes of these rules. However, there can
be no assurance that the IRS will not successfully take a contrary position.
RPII Companies. Different definitions of "United States shareholder" and
"controlled foreign corporation" are applicable in the case of a foreign
corporation which earns "related person insurance income" ("RPII"). RPII is
defined in Section 953(c)(2) of the Code as any "insurance income" of a
foreign corporation attributable to policies of insurance or reinsurance with
respect to which the person (directly or indirectly) insured is a "United
States shareholder" of such corporation or a "related person" to such a
shareholder. In general, "insurance income" is income (including underwriting
premium and investment income) attributable to the issuing of any insurance or
reinsurance contract in connection with risks located in a country other than
the country under the laws of which the CFC is created or organized and which
would be taxed under the provisions of the Code relating to insurance
companies if the income were the income of a domestic insurance company.
Generally, the term "related person" for this purpose means someone who
controls or is controlled by the United States shareholder or someone who is
controlled by the same person or persons who control the United States
shareholder. "Control" is measured by either more than 50% in value or more
than 50% in voting power of stock, applying constructive ownership principles
similar to the rules of Section 958 of the Code. For purposes of inclusion of
Scottish Life's RPII in the income of United States shareholders, unless an
exception applies, the term "United States shareholder" includes all United
States persons who own, directly or indirectly, any amount (rather than 10% or
more) of Scottish Life's stock. Scottish Life will be subject to the CFC
provisions for RPII purposes if such persons collectively own directly,
indirectly or constructively 25% or more of the stock of Scottish Life by vote
or value for an uninterrupted period of at least 30 days during any taxable
year. Holdings anticipates that United States persons will own directly,
indirectly or constructively, 25% or more of the stock of Scottish Life by
vote or value for the requisite period; accordingly, the RPII rules of the
Code will apply to Scottish Life unless one of several exceptions (discussed
below) applies to Scottish Life.
RPII Exceptions. The special RPII rules do not apply if (i) direct or
indirect insureds and persons related to such insureds, whether or not United
States persons, are treated at all times during the taxable year as owning
less than 20% of the voting power and less than 20% of the value of the stock
of Scottish Life, (ii) RPII, determined on a gross basis, is less than 20% of
Scottish Life's gross insurance income for the taxable year, (iii) Scottish
Life elects to be taxed on its RPII as if the RPII were effectively connected
with the conduct of a United States trade or business and to waive all treaty
benefits with respect to RPII or (iv) Scottish Life elects to be treated as a
United States corporation. Scottish Life does not intend to make either of the
described elections. Thus, only exceptions (i) and (ii) may be available.
60
<PAGE>
Holdings does not expect that Scottish Life will knowingly enter into
variable life insurance or reinsurance arrangements in which, in the
aggregate, the direct or indirect insureds are, or are related to, owners of
20% or more of the Ordinary Shares. If this expectation is correct, exception
(i) will, and exception (ii) may, apply to Scottish Life. There can be no
assurance, however, that this will be the case. If neither of these exceptions
were to apply, each United States person owning, directly or indirectly, stock
in Holdings (and therefore, indirectly in Scottish Life) at the end of any
taxable year would generally be required to include in its gross income for
United States federal income tax purposes its share of the RPII for the entire
taxable year, determined as if such RPII were distributed proportionately only
to such United States shareholders at that date, but limited to Scottish
Life's current-year earnings and profits reduced by the shareholder's pro-rata
share, if any, of certain prior-year deficits in earnings and profits.
Computation of RPII. In order to determine how much RPII Scottish Life has
earned in each taxable year, Holdings intends to obtain and rely upon
information from its insureds to determine whether any of the insureds or
persons related to such insureds own shares of Holdings and are United States
persons. Scottish Life intends to include in its insurance application and
renewal forms, or related documents, a provision requesting information as to
whether the policyholders (or a related person) are or have been, and a notice
if they should become, a shareholder of Holdings. In addition, Scottish Life
will send a letter after each taxable year to each person who was a
policyholder requesting such policyholder to represent whether it was a
shareholder of Holdings or related to a shareholder during the year. For any
taxable year in which Scottish Life's gross RPII is 20% or more of its gross
insurance income for the year, Holdings may also seek information from its
shareholders as to whether direct or indirect owners of its shares at the end
of the year are United States persons so that the RPII may be determined and
apportioned among such persons. To the extent Holdings is unable to determine
whether a direct or indirect owner of shares is a United States person,
Holdings may assume that such owner is not a United States person, thereby
increasing the per share RPII amount for all United States shareholders.
Although Scottish Life intends to operate in a manner that would minimize
RPII, there can be no assurance that an investor will not be required to
include amounts in its income in respect of RPII in any taxable year.
Apportionment of RPII to United States Shareholders. If direct or indirect
insureds and persons related to such insureds were to own more than 20% of the
voting power or value of Scottish Life's Ordinary Shares and Scottish Life's
RPII determined on a gross basis for any future taxable year were to be 20% or
more of its gross insurance income, every United States person who owns
directly or indirectly Ordinary Shares on the last day of that year would be
required to include in its gross income its share of Scottish Life's RPII for
such year, whether or not distributed. A United States person who owns
Ordinary Shares during the Company's taxable year but not on the last day of
the taxable year on which Scottish Life is a CFC within the meaning of the
RPII provision of the Code, which would normally be December 31, would not be
required to include in its gross income any part of Scottish Life's RPII.
Correspondingly, a United States person who owns directly or indirectly,
Ordinary Shares on the last day of the taxable year on which Scottish Life is
a CFC for purposes of those provisions would be required to include in its
income its share of the RPII for the entire year even though such holder does
not own the Ordinary Shares for the entire year.
Uncertainty as to Application of RPII. Regulations interpreting the RPII
provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes might
ultimately be made thereto or whether any such changes, as well as any
interpretation or application of the RPII rules by the IRS, the courts or
otherwise, might have retroactive effect. The description of RPII herein is
therefore qualified. Accordingly, the meaning of the RPII provisions and the
application thereof to Holdings and Scottish Life is uncertain. These
provisions include the grant of authority to the United States Treasury
Department to prescribe "such regulations as may be necessary to carry out the
purpose of this subsection including . . . regulations preventing the
avoidance of this subsection through cross insurance arrangements or
otherwise." In addition, there can be no assurance that the IRS will not
challenge any determinations by Holdings or Scottish Life as to the amount, if
any, of RPII that should be includable in the income of a holder of Ordinary
Shares or that the amounts of the RPII inclusions will not be subject to
adjustment based upon subsequent IRS examination. Each United States person
who is considering an investment in Ordinary Shares should consult his tax
advisor as to the effects of these uncertainties.
61
<PAGE>
Information Reporting. Each United States person who is a direct or indirect
shareholder of the Company on the last day of Holdings' taxable year would be
required to attach to the income tax or information return such holder would
normally file for the period which includes that date a Form 5471 if Scottish
Life were a CFC for RPII purposes for any continuous thirty-day period during
its taxable year whether or not any net RPII income is required to be
reported. Scottish Life will not be considered to be a CFC for this purpose
and, therefore, Form 5471 will not be required, for any taxable year in which
(i) Scottish Life's gross RPII constitutes less than 20% of its gross
insurance income or (ii) less than 20% of the voting power or value of
Scottish Life's Ordinary Shares is owned by direct or indirect insureds and
persons related to such insureds. For any year in which Scottish Life's gross
RPII constitutes 20% or more of its gross insurance income and its direct or
indirect insureds and persons related to such insureds own more than 20% of
the voting power or value of Scottish Life's Ordinary Shares, Holdings intends
to provide Form 5471 to its direct or indirect United States shareholders for
attachment to the returns of shareholders. The amounts of the RPII inclusions
may be subject to adjustment based upon subsequent IRS examination. A tax-
exempt organization would be required to attach Form 5471 to its information
return in the circumstances described above. Failure to file Form 5471 may
result in penalties. In addition, United States persons who at any time own
10% or more of the shares of the Company may have an independent obligation to
file certain information returns.
Tax-Exempt Shareholders. United States tax-exempt organizations would
generally be required to treat subpart F insurance income, including RPII,
that is includable in income by the tax-exempt entity, as unrelated business
taxable income within the meaning of Section 512 of the Code.
Dividend; Basis; Exclusion of Dividends from Gross Income. A United States
shareholder's tax basis in his Ordinary Shares would be increased by the
amount of any RPII that the shareholder includes in his income. The
shareholder could exclude from income the amount of any distribution by
Holdings to the extent of the RPII included in such shareholder's income for
the year in which the distribution was paid or for any prior year. A
shareholder's tax basis in his Ordinary Shares would be reduced by the amount
of such distributions that are excluded from his income. Although, in certain
circumstances, a United States shareholder might be able to exclude from his
income distributions with respect to RPII that a prior shareholder included in
his income, that exclusion would not generally be available to holders who
purchase Ordinary Shares in the public trading markets and are therefore
unable to identify the previous shareholder and demonstrate that such
shareholder had previously included the RPII in his income.
Dispositions of Ordinary Shares. Subject to the discussion below relating to
the potential application of Section 1248 of the Code or the passive foreign
investment company rules, a United States shareholder will, upon the sale or
exchange of any Ordinary Shares, recognize a gain or loss for United States
income tax purposes equal to the difference between the amount realized upon
such sale or exchange and the shareholder's basis in the Ordinary Shares. If
the shareholder's holding period for such Ordinary Shares is more than
eighteen months, any gain will be subject to tax at a current maximum marginal
tax rate of 20% for individuals and 35% for corporations.
Section 1248 of the Code provides that if a United States person disposes of
stock in a foreign corporation and such person owned directly, indirectly or
constructively 10% or more of the voting shares of the corporation at any time
during the five-year period ending on the date of disposition when the
corporation was a CFC, any gain from the sale or exchange of the shares may be
treated as ordinary income to the extent of the CFC's previously untaxed
earnings and profits during the period that the shareholder held the shares
(with certain adjustments). A 10% United States shareholder may in certain
circumstances be required to report a disposition of shares of a CFC by
attaching IRS Form 5471 to the United States income tax or information return
that the shareholder would normally file for the taxable year in which the
disposition occurs.
Section 953(c)(7) of the Code generally provides that Section 1248 will also
apply to any sale or exchange of shares in a foreign corporation that earns
RPII if the foreign corporation would be taxed as an insurance company if it
were a domestic corporation, regardless of whether the selling shareholder is
or was a 10% shareholder or whether RPII constitutes 20% or more of the
corporation's gross insurance income. Existing
62
<PAGE>
Treasury regulations do not address whether Section 1248 of the Code and the
requirement to file Form 5471 would apply if the foreign corporation is not a
CFC but the foreign corporation has a subsidiary that is a CFC or that would
be taxed as an insurance company if it were a domestic corporation (although,
as discussed above, shareholders of 10% or more of the shares of Holdings may
have an independent obligation to file Form 5471).
Section 1248 of the Code and the requirement to file Form 5471 should not
apply to dispositions of Ordinary Shares because Holdings does not intend to
directly engage in the insurance business and, under proposed regulations,
these provisions appear to be applicable only in the case of shares of
corporations that are directly engaged in the insurance business. There can be
no assurance, however, that the IRS will interpret the proposed regulations in
this manner or that the proposed regulations will not be amended or
promulgated in final form so as to provide that Section 1248 of the Code and
the requirement to file Form 5471 will apply to dispositions of Ordinary
Shares. In that event, Holdings would notify shareholders that Section 1248 of
the Code and the requirement to file Form 5471 will apply to dispositions of
Ordinary Shares. Thereafter, Holdings would send a notice after the end of
each calendar year to all persons who were shareholders during the year
notifying them that Section 1248 of the Code and the requirement to file Form
5471 apply to dispositions of Ordinary Shares. Holdings would attach to this
notice a copy of Form 5471 completed with all Holdings information and
instructions for completing the shareholder information.
Foreign Tax Credit. Because it is anticipated that United States persons
will own a majority of Holdings' shares, only a portion of the current income
inclusions under the CFC, RPII and passive foreign investment company rules,
if any, and of dividends paid by Holdings (including any gain from the sale of
Ordinary Shares that is treated as a dividend under Section 1248 of the Code)
will be treated as foreign source income for purposes of computing a
shareholder's United States foreign tax credit limitations. Holdings will
consider providing shareholders with information regarding the portion of such
amounts constituting foreign source income to the extent such information is
reasonably available. It is also likely that substantially all of the RPII and
dividends that are foreign source income will constitute either "passive" or
"financial services" income for foreign tax credit limitation purposes. Thus,
it may not be possible for most United States shareholders to utilize excess
foreign tax credits to reduce United States tax on such income.
Passive Foreign Investment Companies. Sections 1291 through 1298 of the Code
contain special rules applicable to foreign corporations that are "passive
foreign investment companies" ("PFICs"). In general, a foreign corporation
will be a PFIC if 75% or more of its income constitutes "passive income" or
50% or more of its assets produce passive income. If Holdings were to be
characterized as a PFIC, its United States shareholders would be subject to a
penalty tax at the time of their sale of, or receipt of an "excess
distribution" with respect to, their Ordinary Shares, unless such shareholders
(i) elected from the outset to be taxed on their pro-rata share of the
Company's earnings whether or not such earnings were distributed or (ii)
elected to mark their Ordinary Shares to market as of the end of each taxable
year and to treat as ordinary income (or loss) the annual appreciation (or
depreciation) in the value of such shares. In general, a shareholder receives
an "excess distribution" if the amount of the distribution is more than 125%
of the average distribution with respect to the stock during the three
preceding taxable years (or shorter period during which the taxpayer held the
stock). In general, the penalty tax is computed by assuming that the excess
distribution or gain (in the case of a sale) with respect to the shares was
taxed in equal annual portions at the highest applicable ordinary income tax
rate throughout the holder's period of ownership, and that interest accrued on
each tax amount for each prior year from the due date of such prior year's
return. The interest charge is equal to the applicable rate imposed on
underpayments of United States federal income tax for such period.
For the above purposes, passive income is defined to include income of the
kind which would be foreign personal holding company income under Section
954(c) of the Code, and generally includes interest, dividends, annuities and
other investment income. However, the PFIC statutory provisions contain an
express exception for income "derived in the active conduct of an insurance
business by a corporation which is predominately engaged in an insurance
business." This exception is intended to ensure that income derived by a bona
fide insurance company is not treated as passive income, except to the extent
such income is attributable to financial reserves in
63
<PAGE>
excess of the reasonable needs of the insurance business. Scottish Life
expects to be primarily and predominantly engaged in an insurance business and
does not expect to have financial reserves in excess of the reasonable needs
of its insurance business. The PFIC statutory provisions (unlike the RPII
provisions of the Code) contain a look-through rule that states that, for
purposes of determining whether a foreign corporation is a PFIC, such foreign
corporation shall be treated as if it received "directly its proportionate
share of the income," and as if it "held its proportionate share of the
assets," of any other corporation in which it owns at least 25% by value of
the stock. While no explicit guidance is provided by the statutory language,
under the look-through rule Holdings should be deemed to own the assets and to
have received the income of Scottish Life directly for purposes of determining
whether Holdings qualifies for the aforementioned insurance exception. This
interpretation of the look-through rule is consistent with the legislative
intention generally to exclude bona fide insurance companies from the
application of PFIC provisions. There can be no assurance, however, as to what
positions the IRS or a court might take in the future on whether Holdings or
Scottish Life is predominantly engaged in an insurance business and does not
have financial reserves in excess of the reasonable needs of such business.
United States persons who are considering an investment in Ordinary Shares
should consult their tax advisors as to the effects of the PFIC rules.
Other. Information reporting to the IRS by paying agents and custodians
located in the United States will be required with respect to payments of
dividends on the Ordinary Shares to United States persons. Thus, a holder of
Ordinary Shares may be subject to backup withholding at the rate of 31% with
respect to dividends paid to such persons, unless such holder (a) is a
corporation or comes within certain other exempt categories and, when
required, demonstrates this fact, or (b) provides a taxpayer identification
number, certifies as to no loss of exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding
rules. Backup withholding is not an additional tax and may be credited against
a holder's regular federal income tax liability.
United States Taxation--Non-United States Shareholders
Subject to certain exceptions, non-United States persons will be subject to
United States federal income tax on dividend distributions with respect to,
and gain realized from the sale or exchange of, Ordinary Shares only if such
dividends or gains are effectively connected with the conduct of a trade or
business within the United States. Nonresident alien individuals will not be
subject to United States estate tax with respect to Ordinary Shares of
Holdings.
* * *
The foregoing discussion is based upon current law. The tax treatment of an
owner of Ordinary Shares, or a person treated as an owner of Ordinary Shares
for United States federal income, state, local or non-United States tax
purposes, may vary depending on the owner's particular tax situation.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could be retroactive and could affect the tax consequences to
owners of Ordinary Shares. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED
STATES TAX CONSEQUENCES OF OWNERSHIP AND DISPOSITION OF THE ORDINARY SHARES.
64
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated is acting as representative (the "Representative"),
have severally agreed, subject to the terms and conditions contained in the
underwriting agreement (the "Underwriting Agreement"), to purchase from the
Company the number of Ordinary Shares set forth below opposite their
respective names:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER ORDINARY SHARES
----------- ---------------
<S> <C>
Prudential Securities Incorporated.........................
----------
Total...................................................... 16,750,000
==========
</TABLE>
The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the Ordinary Shares set forth above if any are purchased.
The Underwriters, through the Representative, have advised the Company that
they propose to offer the Ordinary Shares set forth above initially at the
public offering price set forth on the cover page of this Prospectus; that the
Underwriters may allow to selected dealers a concession of $ per
Ordinary Share; and that such dealers may reallow a concession of $ per
Ordinary Share to certain other dealers. After the Offering, the initial
public offering price and the concessions may be changed by the
Representative.
The Company has granted to the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to an
additional 2,512,500 Ordinary Shares at the initial public offering price per
share, less underwriting discounts and commissions, as set forth on the cover
page of this Prospectus. The Underwriters may exercise such option solely for
the purpose of covering any over-allotments incurred in the sale of the
Ordinary Shares offered hereby. To the extent such option is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional Ordinary Shares as the
number set forth next to such Underwriter's name in the preceding table bears
to 16,750,000.
The Company, its directors and officers, SHL, the shareholders of SHL to
receive Ordinary Shares as a result of the SHL Distribution, and the holders
of Class A and Class B Warrants have executed lock-up agreements pursuant to
which each has agreed that they will not, for a period of one year after the
date of this Prospectus, directly or indirectly, offer, sell, offer to sell,
contract to sell, pledge, transfer, assign, hypothecate, grant any option to
purchase, or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, transfer, assignment, hypothecation, grant of
any option to purchase or other sale or disposition) of any Ordinary Shares or
other shares of the Company or any other securities convertible into, or
exercisable or exchangeable for, any Ordinary Shares or other shares of the
Company, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters. Such agreements do not prevent
the Company from granting options under the Stock Option Plan so long as such
options do not become exercisable for one year from the date of the
Prospectus. The Company also has agreed not to file any registration statement
on Form S-8 with respect to, or otherwise register for resale with the
Commission, Ordinary Shares underlying stock options for a period of one year
from the date of this Prospectus. Prudential Securities Incorporated may, in
its sole discretion, at any time and without notice, release all or any
portion of the securities subject to such lock-up agreements.
The Company has agreed to indemnify the several Underwriters and contribute
to any losses arising out of certain liabilities, including liabilities under
the Securities Act.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.
65
<PAGE>
Prior to the Offering, there has been no public market for the Ordinary
Shares. The initial public offering price was determined by the Company and
the Representative as an appropriate per share price in light of the Company's
desired capitalization.
Upon consummation of the Offering and out of the net proceeds received
thereby, the Company will pay Prudential Securities Incorporated an advisory
fee equal to $1.0 million (plus reimbursement of related out-of-pocket
expenses) for investment banking and financial advisory services in connection
with the Offering. The Roman Arch Fund L.P. and The Roman Arch Fund II L.P.,
each of which is a limited partnership and an affiliate of Prudential
Securities Incorporated and makes investments for the benefit of limited
partners who are employees of Prudential Securities Incorporated, purchased
respectively, 120,000 and 80,000 Class B Warrants for respective aggregate
purchase prices of $181,200 and $120,800. The exercise price of the Class B
Warrants is equal to the initial public offering price, subject to adjustment
as provided in the Class B Warrants. The Class B Warrants become exercisable
in three equal annual installments commencing on the first anniversary of the
consummation of the Offering. Each of The Roman Arch Fund L.P. and The Roman
Arch Fund II L.P., as a holder of the Class B Warrants, has executed a lock-up
agreement for a period of one year after the date of this Prospectus as
described above.
In connection with the Offering, certain Underwriters (and selling group
members, if any) and their respective affiliates may engage in transactions
that stabilize, maintain or otherwise affect the market price of the Ordinary
Shares. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may
bid for or purchase Ordinary Shares for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the account of
the Underwriters by selling more Ordinary Shares in connection with the
Offering than they are committed to purchase from the Company, and in such
case may purchase Ordinary Shares in the open market following completion of
the Offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
2,512,500 Ordinary Shares, by exercising the Underwriters' over-allotment
option referred to previously. In addition, the Representative, on behalf of
the Underwriters, may impose "penalty bids" under contractual arrangements
with the Underwriters whereby they may reclaim from an Underwriter (or any
dealer participating in the Offering) for the account of the other
Underwriters, the selling concession with respect to Ordinary Shares that are
distributed in the Offering but subsequently purchased by the Representative
for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may result in the maintenance of the
price of the Ordinary Shares at a level above that which might otherwise
prevail in the open market. None of the transactions described in this
paragraph is required and, if they are undertaken, they may be discontinued at
any time.
LEGAL MATTERS
The validity of the Ordinary Shares under Cayman Islands law will be passed
upon for the Company by Maples and Calder, Cayman Islands. Certain matters as
to United States law in connection with the Offering will be passed upon for
the Company by Jones, Day, Reavis & Pogue, Dallas, Texas. Michael C. French,
Chairman of the Board, Chief Executive Officer and Director of the Company,
serves as a consultant to Jones, Day, Reavis & Pogue. Certain matters as to
state insurance laws will be passed upon for the Company by The Bernstein Law
Firm, Washington, D.C. Certain matters as to United States law in connection
with the Offering will be passed upon for the Underwriters by Cleary,
Gottlieb, Steen & Hamilton, New York, New York.
EXPERTS
The consolidated balance sheet of the Company as of June 9, 1998, included
in this Prospectus and in the Registration Statement has been audited by Ernst
& Young, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and is included herein in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
66
<PAGE>
GLOSSARY OF SELECTED LIFE INSURANCE AND ANNUITY TERMS
<TABLE>
<C> <S>
A.M. Best rating........................... A.M. Best Company, Inc. financial condition
ratings are its opinion of an insurance
company's financial strength, operating
performance and ability to meet its
obligations to policyholders. A.M. Best's
ratings range from "A++ (superior)" to "F
(in liquidation)."
Account value.............................. The amount held in either the general account
or a separate account of an insurance
company to maintain policyholder assets and
support liabilities.
Acquisition costs.......................... Commission and brokerage fees paid for the
production of premiums written and certain
other acquisition and underwriting expenses.
Annuitant.................................. The person on whose life or life expectancy
the annuity payouts are based.
Annuity.................................... A periodic payment contract purchased from an
insurance company that typically offers tax-
deferred growth of the investment until
earnings are withdrawn.
Annuity payouts............................ An amount paid at regular intervals under one
of several plans available to the annuity
owner and/or any other payee. This amount
may be paid on a variable or fixed basis or
a combination of both.
Automatic reinsurance treaty............... Reinsurance of a specified type or category
of risk defined in a reinsurance agreement
(a "treaty") between a ceding company and a
reinsurer. Typically, in automatic
reinsurance the ceding company is obligated
to offer and the reinsurer is obligated to
accept a specified portion of all such type
or category of risks originally insured or
reinsured by the ceding company. Also known
as treaty reinsurance.
Beneficiary................................ The person designated to receive variable
life death benefits or annuity benefits in
case of the policyholder's or annuitant's
death.
Broker..................................... One who negotiates contracts of insurance or
reinsurance, receiving a commission for
placement and other services rendered,
between (1) a policy-holder and a primary
insurer, on behalf of the insured party, (2)
a primary insurer and reinsurer, on behalf
of the primary insurer, or (3) a reinsurer
and a retrocessionaire, on behalf of the
reinsurer.
Capital surplus............................ Capital of the Company from time to time not
otherwise dedicated to policy reserves or
other corporate purposes.
Ceding..................................... The reinsurance by a primary insurer or
reinsurer of all or a portion of its risk
with a reinsurer or retrocessionaire. In
doing so, the party "cedes" business and is
referred to as the "cedent" or "ceding"
company.
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
Credited rates............................. Interest rates applied to annuity and life
insurance policies, whether contractually
guaranteed or currently declared for a
specified period, as outlined in the policy
or contract.
Duration................................... A measure, expressed in years, of the price
sensitivity of a financial instrument to
changes in interest rates.
Facultative reinsurance.................... A type of reinsurance whereby the ceding
company is not obligated to offer, and the
reinsurer is not obligated to accept, all or
a portion of each risk originally insured by
the ceding company. Facultative risks are
typically underwritten on a case-by-case
basis.
Fixed annuities............................ General account annuities which guarantee a
contract holder that a specific sum of money
will be paid in the future, either as a lump
sum or as periodic income.
General account............................ The main account of an insurer through which
premiums are collected and the insurer's
liabilities are incurred where the insurer
bears the relevant risks.
Indemnity reinsurance...................... An arrangement in which an insurance company,
the reinsurer, in consideration of a
premium, agrees to indemnify another
insurance or reinsurance company, known as
the ceding company, against all or a portion
of the insurance or reinsurance risks
underwritten by the ceding company under one
or more policies. Indemnity reinsurance does
not legally discharge the primary insurer
from its liability with respect to its
obligations to the insured.
Mortality.................................. The relative incidence of death.
Net amount at risk......................... The difference between the cash value of a
variable life insurance policy and the death
benefit provided by such policy.
Persistency................................ The rate which insurance policies or annuity
contracts remain in force, expressed as a
percentage of the number of policies
remaining in force over the previous year.
Policy..................................... The printed document issued by an insurance
or reinsurance company that states the terms
of the insurance or reinsurance contract.
Premiums written........................... Premiums written for a given period.
Primary insurer............................ An insurance company that contracts with the
consumer to provide insurance coverage. Such
primary insurer may then cede a portion of
its business to reinsurers.
Qualified purchaser........................ As defined in Section 2(a)(51) of the 1940
Act.
Policy Reserves............................ Liabilities established by insurers that
generally represent the estimated discounted
present value of the net cost of claims,
repayments or contract liabilities and the
related expenses that the insurer will
ultimately be required to pay in respect of
reinsurance or insurance it has written.
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
Quota share reinsurance.................... A term describing all forms of reinsurance in
which the reinsurer shares a pro-rata part
of the original premiums and losses of the
ceding company under a quota share. (Also
known as proportional reinsurance, "pro-rata
contract" reinsurance or participating
reinsurance.)
Retention.................................. The amount or portion of insurance risk that
a ceding insurer retains for its own
account. Any insurance issued in excess of
the retention is reinsured. In proportional
treaties, the retention may be a percentage
of the original policy's limit.
Retrocessional reinsurance; A transaction whereby a reinsurer cedes to
Retrocessionaire.......................... another reinsurer, the retrocessionaire, all
or part of the reinsurance that the first
reinsurer has assumed. Retrocessional
reinsurance does not legally discharge the
ceding reinsurer from its liability with
respect to its obligations to the reinsured.
Reinsurance companies cede risks to
retrocessionaires for reasons similar to
those that cause primary insurers to
purchase reinsurance: to reduce net
liability on individual risks, to protect
against multiple losses, to stabilize
financial ratios and to obtain additional
underwriting capacity.
Standard & Poor's insurance claims-paying
ability ratings........................... Standard & Poor's insurance claims-paying
ability rating is the opinion of Standard &
Poor's of an operating insurance company's
financial capacity to meet the obligations
of its insurance policies in accordance with
their terms. Standard & Poor's ratings range
from "AAA (superior)" to "CCC (extremely
vulnerable)."
Separate account........................... A segregated account established by an
insurance company to hold policyholder or
contract holder assets and liabilities on
behalf of such policyholder or contract
holder. The funds in a separate account are
maintained separately from those in other
separate accounts and the general account
and are not subject to the claims of the
insurer's general creditors.
Structured settlement contracts............ Contracts providing for periodic payments for
a determinable number of years or for life,
typically in settlement of an injury claim
or a lottery award.
Surplus relief reinsurance................. A type of reinsurance which is primarily
designed to increase temporarily a ceding
company's statutory capital.
Surrender charge........................... A deferred sales charge to be applied if an
annuity or life insurance policy is
surrendered for its cash value prior to a
specified date. Such a charge is intended to
recover all or a portion of the policy
acquisition costs and act as a deterrent to
early surrender.
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
Underwriting............................... The insurer's or reinsurer's process of
reviewing contracts submitted for insurance
or reinsurance coverage, deciding whether to
accept all or part of the coverage requested
and determining the applicable premiums.
Underwriting capacity...................... The maximum amount that an insurance or
reinsurance company can underwrite.
Reinsurance serves to increase an insurer's
underwriting capacity by reducing its
exposure from particular risks.
Underwriting expenses...................... The aggregate of policy acquisition costs,
including commissions, and the portion of
administrative, general and other expenses
attributable to underwriting operations.
Unearned premiums.......................... Premiums written but not yet earned, as they
are attributable to the unexpired portion of
the related contract or policy term.
Variable annuity........................... An annuity which includes a provision for
benefit payments to vary according to the
investment experience of the separate
account in which the amounts paid to provide
for this annuity are allocated.
Variable life insurance.................... A form of life insurance that offers fixed or
flexible premiums and a minimum death
benefit as well as providing a return linked
to an underlying portfolio of securities
that are held in a separate account of the
insurer.
</TABLE>
70
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
INDEX TO CONSOLIDATED BALANCE SHEET
<TABLE>
<S> <C>
Report of Independent Auditors.............................................. F-2
Consolidated Balance Sheet as of June 9, 1998............................... F-3
Notes to Consolidated Balance Sheet......................................... F-4
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholder and Board of Directors
Scottish Life Holdings, Ltd.
We have audited the accompanying consolidated balance sheet of Scottish Life
Holdings, Ltd. (the "Company") as of June 9, 1998. This balance sheet is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this balance sheet based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the balance
sheet is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the balance sheet.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
balance sheet presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the consolidated financial position of
Scottish Life Holdings, Ltd. at June 9, 1998 in conformity with accounting
principles generally accepted in the United States of America.
Ernst & Young
George Town, Grand Cayman
British West Indies
June 19, 1998
except for Note 7, as to which the date is July 1, 1998
F-2
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEET
(STATED IN UNITED STATES DOLLARS)
JUNE 9, 1998
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents....................................... $600,000
--------
Total assets.................................................... $600,000
========
SHAREHOLDER'S EQUITY:
Share capital, par value $.01 per share:
Issued and fully paid: 1,500,000 Ordinary Shares.............. $ 15,000
Additional paid in capital.................................... 585,000
--------
Total shareholder's equity...................................... $600,000
========
</TABLE>
See accompanying notes.
F-3
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET
JUNE 9, 1998
1. ORGANIZATION
Scottish Life Holdings, Ltd. ("Holdings") was incorporated as an exempted
company with limited liability on May 12, 1998 under the laws of the Cayman
Islands. Holdings has been organized to provide customized variable life
insurance policies and reinsurance of fixed annuities and similar contracts
through its wholly-owned subsidiary, Scottish Life Assurance (Cayman) Ltd.
("Scottish Life", and together with Holdings, the "Company"). Scottish Life
has applied for an unrestricted Class "B' insurer's license under the
insurance laws of the Cayman Islands. The Company's fiscal year end is
December 31. Holdings is planning an initial public offering of its Ordinary
Shares (the "Offering"). All Ordinary Shares of Holdings are owned by Scottish
Holdings, Ltd., a Cayman Islands company (the "Parent").
During the period from its inception to the date of the balance sheet, the
Company did not incur any income or expenses that are required to be reported
in a statement of income or a statement of cash flows under United States
generally accepted accounting principles. Therefore, the consolidated
statements of income and cash flows have not been presented.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying balance sheet is prepared in accordance with accounting
principles generally accepted in the United States of America which require
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statement. Actual results could differ from those
estimates. The following are the significant accounting and reporting policies
adopted by the Company.
PREMIUM INCOME AND RELATED EXPENSES
Premiums from variable life insurance policies will be reported as deposits
to policyholders' account balances which will be maintained in separate
accounts. Revenues from these policies will consist of amounts assessed
quarterly during the period against policyholders' account balances for
mortality charges, policy administration charges and surrender charges. Policy
benefits and claims that are charged to expense will include benefit claims
incurred in the period in excess of related policyholders' account balances
and interest credited to policyholders' account balances.
Premiums from reinsured fixed annuity policies will be recognized generally
as revenue when due from policyholders on a pro rata basis. Benefits and
expenses are matched with such income so as to result in the recognition of
profits over the life of the contracts. This is achieved by means of the
provision for liabilities for future policy benefits and deferral and
subsequent amortization of policy acquisition costs. Premiums from reinsurance
of investment type fixed annuity contracts will be reported as deposits.
Revenues from these contracts will consist of amounts assessed quarterly
during the period against policyholders' account balances for mortality
charges, policy administration charges and surrender charges. Policy benefits
and claims that are charged to expense will include benefit claims incurred in
the period in excess of related policyholders' account balances.
ADMINISTRATIVE SERVICES FEES
The Company charges administrative services fees to The Scottish Annuity
Company (Cayman) Ltd. ("Scottish Annuity") quarterly in advance (see Note 7).
Such fees are recognized into income ratably.
F-4
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET--CONTINUED
JUNE 9, 1998
DEFERRED POLICY ACQUISITION COSTS
For variable life insurance and reinsurance of investment type fixed annuity
contracts, deferred policy acquisition costs, consisting of commissions,
underwriting and policy issue expenses, will be amortized over the expected
average life of the contracts as a constant percentage of the present value of
estimated gross profits arising principally from investment results, mortality
and expense margins and surrender charges based on historical and anticipated
future experience, which will be updated at the end of each accounting period.
In computing amortization, interest shall accrue to the unamortized balance of
capitalized acquisition costs at the rate used to discount expected gross
profit. The effect on the amortization of deferred policy acquisition costs of
revisions to estimated gross profits will be reflected in earnings in the
period such estimated gross profits are revised.
For fixed annuity reinsurance policies, deferred policy acquisition costs,
consisting of ceding commissions, will be charged to expense using assumptions
consistent with those used in computing policy reserves. Assumptions as to
anticipated premiums will be estimated at the date of the policy issuance and
will be consistently applied during the life of the policies. Deviations from
estimated experience will be reflected in earnings in the period such
deviations occur. For these policies, the amortization periods generally will
be for the estimated life of the policy.
POLICYHOLDERS' ACCOUNT BALANCES AND FUTURE POLICY BENEFITS
The development of policy reserves for the Company's policies will require
management to make estimates and assumptions regarding mortality, lapse,
expense and investment experience. Actual results could differ materially from
those estimates. Management will monitor actual experience and where
circumstances warrant, will revise its assumptions and the related reserve
estimates.
Future benefit liabilities of variable life insurance policies will be
estimated using actuarial assumptions as to mortality, persistency and
interest established at policy issue. Assumptions established at policy issue
as to mortality and persistency are based on anticipated experience. Policy
reserves will be established to meet the Company's estimated future benefit
liabilities. As variable life insurance policies are issued, the Company's
associated mortality risk may tend to fluctuate more than would be expected
than if the Company had a larger pool of insureds. The Company will allocate a
portion of its capital to further provide for potential fluctuations in
volatility of mortality experience. For the Company's reinsured fixed annuity
business, such estimates will be primarily based on historical experience and
information provided by ceding companies.
When the liabilities for future policy benefits plus the present value of
expected future gross premiums for a policy are insufficient to provide for
expected future benefits and expenses for that policy, a premium deficiency
reserve will be established by a charge to income. Benefit liabilities for
fixed annuities during the accumulation period are equal to the accumulated
present value of expected future payments.
Premiums for variable life insurance policies will be reported as deposits
to policyholders' account balances which will be maintained in separate
accounts. The funds in these separate accounts will be managed by private
independent money managers for the benefit of such policyholders. The Company
will not provide any investment management or advisory services to any
policyholder. Revenues from these contracts will consist of amounts assessed
during the period against policyholders' separate account balances for
mortality charges, policy administration and surrender charges. Policy
benefits and claims that are charged to expense will include benefit claims
incurred in the period in excess of related policyholders' separate account
balances and interest credited to policyholders' separate account balances.
F-5
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET--CONTINUED
JUNE 9, 1998
INVESTMENTS
The Company categorizes all investments as trading and, accordingly, such
securities will be carried at fair value. Realized gains and losses are
determined on a specific identification method. The cost of fixed income
securities will be adjusted for amortization of premiums and discounts.
Realized and unrealized gains and loses will be recorded in the statement of
operations and included in investment income.
SEPARATE ACCOUNT ASSETS AND LIABILITIES
Separate accounts will be recorded at the fair value of the underlying
investments less mortality charges, policy administration charges and
surrender charges. The funds in the separate accounts will not be part of the
Company's general funds and will not be available to meet the general
obligations of the Company.
Separate account liabilities will represent the policyholders' separate
account values. They will consist of the initial premiums paid after
consideration of net investment gains/losses attributable to each separate
account, less fees and withdrawals.
TRANSLATION OF FOREIGN CURRENCIES
The Company's functional currency is the United States dollar. Premiums
written and receivable in foreign currencies, if any, will be recorded at
exchange rates prevailing on the effective date of the contract and
liabilities for future benefits payable in foreign currencies at the time such
liabilities are first recorded. Exchange gains or losses resulting from the
periodic revaluation and settlement of such assets and liabilities will be
recorded in the Company's statement of operations.
OFFERING COSTS
Offering costs incurred in connection with the Offering, including certain
amounts payable for investment banking and financial advisory services, will
be deducted from the gross proceeds of the Offering.
EARNINGS PER ORDINARY SHARE
The Company will calculate earnings per Ordinary Share based upon the
guidance provided in Financial Accounting Standards Board Statement No. 128
"Earnings per Share". This statement requires the presentation of two amounts
of earnings per share when the company has a complex capital structure. These
amounts are earnings per Ordinary Share and earnings per Ordinary Share
assuming dilution.
Basic earnings per Ordinary Share will be calculated by dividing net income
attributable to holders of Ordinary Shares by the weighted average number of
Ordinary Shares outstanding during the period.
Diluted earnings per Ordinary Share will be calculated by dividing the net
income attributable to holders of Ordinary Shares by the weighted average
number of Ordinary Shares outstanding during the period, plus dilutive
potential Ordinary Shares. Options and warrants issued by the Company will be
considered dilutive potential Ordinary Shares and will be included in the
calculation using the treasury stock method.
F-6
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET--CONTINUED
JUNE 9, 1998
CONSOLIDATION
The Company's balance sheet includes the accounts of Holdings and Scottish
Life after the elimination of intercompany balances.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include fixed deposits with an original maturity,
when purchased, of three months or less. Cash and cash equivalents are
recorded at face value, which approximates fair value. All cash and cash
equivalents are held with a single financial institution in the Cayman
Islands. Management does not anticipate any material losses as a result of
this credit concentration.
ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued the following
accounting standard that will affect the Company.
FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and requires adoption no later than
fiscal quarters or fiscal years beginning after June 15, 1999. The new
standard establishes accounting and reporting standards for derivative
instruments. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to variable cash flows of a forecasted
transaction, or (c) a hedge of the foreign currency exposure of a net
investment in a foreign operation, an unrecognized firm commitment, an
available-for-sale security, or a foreign-currency-denominated forecasted
transaction.
The Company has not yet completed its evaluation of the effect this standard
will have on the Company.
3. SHAREHOLDER'S EQUITY
PREFERRED SHARES
The Company is authorized to issue 50,000,000 Preferred Shares of par value
$0.01 each. At the balance sheet date there were no Preferred Shares issued or
outstanding.
ORDINARY SHARES
The Company is authorized to issue 100,000,000 Ordinary Shares of par value
$0.01 each. At the balance sheet date 1,500,000 Ordinary Shares were
outstanding.
WARRANTS
In connection with its initial capitalization, the Company issued Class A
Warrants to purchase an aggregate of 1,550,000 Ordinary Shares to Michael C.
French, Michelle L. Boucher and certain companies wholly owned by certain
shareholders of the Parent. The aggregate consideration paid for these
warrants of $100,000 is reflected as additional paid-in-capital. The Class A
Warrants were issued on June 9, 1998 at the initial stage of the development
of the Company's business plan when the feasibility of proceeding with the
offering was uncertain. The consideration paid for the Class A Warrants was
determined to be fair value in the best judgment of the Company in light of
such uncertainty. The Class B Warrants, discussed in Note 8 below, were issued
on
F-7
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET--CONTINUED
JUNE 9, 1998
June 19, 1998 after the Company's business plan had undergone further
development and the Company was in a position to proceed with the offering. As
a result, the Class B Warrants were issued for greater consideration. The
exercise price of the Class A Warrants will be equal to the initial public
offering price per share of the Company's Ordinary Shares. The Class A
Warrants become exercisable in equal amounts over a three year period
commencing on the first anniversary of the consummation of the Offering. The
Class A Warrants will expire on the tenth anniversary of the consummation of
the Offering.
4. STOCK OPTION PLAN
On June 18, 1998, the Board of Directors adopted a Stock Option Plan (the
"Plan") under which it may grant, subject to certain restrictions,
nonstatutory stock options ("Options"). The aggregate number of Ordinary
Shares for which Options may be granted under the plan is limited to 1,500,000
shares. Options may be granted to eligible employees, non-employee Directors,
advisors and consultants. Each grant will specify the required time of
continuing service by the Participant (as defined in the Plan) with the
Company or any other conditions to be satisfied before the Option, or
installments thereof will become exercisable.
The Plan will be administered by the Board of Directors. The Board of
Directors has the authority to select the parties to be granted Options and to
set the date of grant and other terms of the Options granted under the Plan.
The minimum exercise price of the Options will be equal to the fair market
value, as defined in the Plan, of the Company's Ordinary Shares at the date of
grant. The term of the Options shall not be more than ten years from the date
of grant. Unless otherwise provided in the option agreement, the Options shall
become exercisable in three equal annual installments, commencing on the first
anniversary of the grant date.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options.
Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
5. TAXATION
There is presently no taxation imposed on income or capital gains by the
Government of the Cayman Islands. If any taxation were to be enacted, Holdings
and Scottish Life have applied for and expect to receive an exemption from the
Governor-in-Council of the Cayman Islands until 2018. The Company intends to
operate in a manner such that it will owe no United States tax other than
premium excise taxes and withholding taxes on certain investments.
6. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS
Under the Insurance Law of the Cayman Islands (1998 Revision), Scottish Life
must maintain a net capital worth of US$240,000.
Holdings' ability to pay dividends depends on the ability of Scottish Life
to pay dividends to Holdings. While Holdings itself is not subject to any
significant legal prohibitions on the payment of the dividends, Scottish Life
will be subject to Cayman Islands regulatory constraints which affect its
ability to pay dividends to Holdings. Scottish Life is prohibited from
declaring or paying a dividend if such payment would reduce its net capital
worth below US$240,000.
F-8
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET--CONTINUED
JUNE 9, 1998
7. MATERIAL AGREEMENTS
SCOTTISH ANNUITY AGREEMENT
Scottish Life has entered into an Insurance Administration, Services and
Referral Agreement (the "Scottish Annuity Agreement") with Scottish Annuity
dated as of July 1, 1998 pursuant to which Scottish Life will provide Scottish
Annuity with a variety of insurance administration, accounting and other
services, including (i) investment fund accounting reporting for variable
annuity products, (ii) monitoring compliance with the diversification,
investor control and certain other requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), (iii) administrative services in the
issuance by Scottish Annuity of variable annuity products and documents
related thereto, (iv) servicing of variable annuity products after issuance by
Scottish Annuity, (v) accounting for investment, capital and income and
expense activities and maintenance of individual ledgers for investment funds
in which each annuity product is invested, (vi) preparing financial statements
of Scottish Annuity and (vii) controlling all disbursements from Scottish
Annuity and authorizing such disbursements upon instructions from Scottish
Annuity. These services will be provided by Scottish Life personnel. Scottish
Annuity personnel will conduct all other administrative and accounting
services related to its variable annuity products.
As compensation for the services rendered by Scottish Life during the term
of the Scottish Annuity Agreement, Scottish Annuity will pay to Scottish Life
quarterly, for each annuity contract issued by Scottish Annuity, an amount
equal to the lesser of (i) 0.50% per annum based on the policy account cash
value under the annuity contract (measured at the end of a contract year) and
(ii) 50% per annum of the mortality and expense fees and other administrative
charges earned by Scottish Annuity on such annuity contract, except that such
amount will not be less than $25,000 per contract. In addition, Scottish
Annuity will reimburse Scottish Life for all out-of-pocket fees, costs and
expenses incurred or advanced by Scottish Life on behalf of Scottish Annuity
in connection with the Scottish Annuity Agreement.
In addition, pursuant to the Scottish Annuity Agreement (i) Scottish Annuity
will refrain from the direct or indirect offer or sale of any life insurance
products and will refer only to Scottish Life any opportunity or inquiry that
it may receive to issue and sell any life insurance products, and (ii)
Scottish Life will refrain from the direct or indirect offer or sale of any
variable annuity products and will refer only to Scottish Annuity any
opportunity or inquiry that it may receive to issue and sell any variable
annuity products.
The Scottish Annuity Agreement will continue in effect until December 31,
1999 and will thereafter be automatically renewed for successive one-year
periods, unless canceled by either party prior to the commencement of a
renewed term. In addition, the Scottish Annuity Agreement will terminate
earlier under specified circumstances (e.g., bankruptcy or uncured defaults
under the agreement). Scottish Annuity and Scottish Life have agreed to
indemnify each other and their respective employees for certain liabilities.
In addition, pursuant to separate agreements and as partial consideration
for entering into the Scottish Annuity Agreement, Scottish Life will sublease
to Scottish Annuity a portion of its leased space at its executive offices in
the Cayman Islands and Scottish Annuity has sold certain of its computer
hardware and software to Scottish Life.
BT RE AGREEMENT
As part of its strategy to enter into the variable life insurance business,
Scottish Life has entered into a Private Label and Administrative Services
Agreement (the "BT Re Agreement") with BT Reinsurance Limited,
F-9
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET--CONTINUED
JUNE 9, 1998
a Jersey, Channel Islands company ("BT Re") dated June 11, 1998 pursuant to
which BT Re will provide the Company with a variety of administrative
services. BT Re's private label services include providing the Company with
the appropriate insurance forms (which, subject to certain modifications, will
serve as the basis for the policies to be issued by the Company) and assisting
the Company in conforming such policies to applicable law. Such services
include (i) preparing policy illustrations for prospective purchasers, (ii)
conducting testing and monitoring to insure that the Company's private label
policies satisfy key Code requirements, (iii) arranging for the collection of
medical information and conducting medical examinations for prospective
insureds, (iv) using its best efforts to arrange for reinsurance of the
Company's private label policies, and (v) reviewing death claims under the
Company's private label policies and calculating the death benefit thereunder.
BT Re received $75,000 upon execution of the BT Re Agreement and will
receive quarterly fees for each private label policy issued by the Company
equal to the lesser of (i) 0.50% per year based on the separate account cash
value and (ii) 50% per year of the mortality and expense fees earned by the
Company on its policies, subject to a minimum of $15,000 per policy. Either
the Company or BT Re may terminate the BT Re Agreement on December 31 of any
year provided that at least 90 days' prior written notice is given. Either the
Company or BT Re may also terminate the agreement upon shorter notice under
specified circumstances (e.g., bankruptcy or uncured default under the
agreement). BT Re and the Company have agreed to indemnify each other and
their respective employees for certain liabilities.
AGREEMENT WITH IRM CAYMAN
Scottish Life retained IRM Cayman, a member company of International Risk
Management Group, Inc. ("IRMG"), an affiliate of Swiss Reinsurance, as of June
30, 1998, to act as the Company's licensed insurance manager in the Cayman
Islands and to supplement from time to time the Company's administrative staff
in the Cayman Islands. As the Company's licensed insurance manager in the
Cayman Islands, IRM Cayman will prepare the Company's annual report required
to be filed with the Cayman Monetary Authority, submit any changes or
amendments to the Company's business plan required to be filed with the Cayman
Monetary Authority and annually certify as to the Company's compliance with
all applicable requirements of the Cayman Monetary Authority. IRM Cayman will
also act as a co-signatory on all contracts and bank transactions involving
the Company and reconcile all of the Company's cash accounts on a monthly
basis. The Company's agreement with IRM Cayman may be terminated by either
party upon 90 days advance written notice. The Company pays IRM Cayman an
annual retainer of $25,000, and IRM Cayman bills for its actual services on an
hourly basis.
MAVERICK AGREEMENT
Scottish Life has entered into an Investment Management Agreement (the
"Maverick Agreement") dated June 15, 1998 pursuant to which Maverick Capital,
Ltd., a Texas limited partnership ("Maverick"), will advise the Company in the
management of no more than 50% of its capital not otherwise dedicated from
time to time to policy reserves or other corporate purposes. According to
information supplied by Maverick, as of July 1, 1998, Maverick had aggregate
assets under management of over $2.5 billion in funds utilizing hedged equity
investment strategies. The Maverick Agreement provides that Maverick will be
entitled to receive an annual management fee equal to 1% of the net asset
value of the assets of the Company under management with Maverick and a
separate performance fee equal to 20% of the annual performance of such
assets. If, at the end of any year, the net asset value of the Company's
assets under management with Maverick decreases from the net asset value at
the end of the previous year, no performance fee will be payable with respect
to such assets until such net asset value returns to the previous year's
level. The Maverick Agreement is terminable by either party upon 45 days prior
written notice.
F-10
<PAGE>
SCOTTISH LIFE HOLDINGS, LTD.
NOTES TO CONSOLIDATED BALANCE SHEET--CONTINUED
JUNE 9, 1998
CAMBRIDGE AGREEMENT
Scottish Life has entered into an Investment Advisory Agreement (the
"Cambridge Agreement") with Cambridge Capital Advisors, Inc., a Massachusetts
corporation ("Cambridge") dated June 11, 1998. The Company has retained
Cambridge to advise the Investment Committee of the Company's Board of
Directors in selecting private investment managers with respect to the
Company's remaining capital surplus that is not otherwise dedicated from time
to time to policy reserves or other corporate purposes or invested with
Maverick. Cambridge has received a retainer fee of $50,000 from the Company,
which was paid upon execution of the investment advisory agreement with
Cambridge. In addition, the Company will pay Cambridge an annual fee equal to
the greater of $150,000 or an amount equal to the sum of (i) 0.45% of the
first $100.0 million aggregate assets managed by investment managers engaged
by the Company based on the advice of Cambridge and (ii) 0.30% of any such
aggregate assets in excess of $100.0 million. The annual fee is payable in
quarterly installments in advance, subject to adjustments for fees calculated
on the basis of aggregate assets. The $50,000 retainer fee will be credited
against the first quarterly payment. The Cambridge Agreement has a one year
term renewable automatically thereafter on an annual basis unless terminated
by either party. The Cambridge Agreement may be terminated at any time by
either party upon 30 days written notice.
8. SUBSEQUENT EVENT
The Company entered into a Warrant Purchase Agreement whereby The Roman Arch
Fund L.P. and The Roman Arch Fund II L.P. purchased an aggregate of 200,000
Class B Warrants for an aggregate purchase price of $302,000. The exercise
price of the Class B Warrants will be equal to the initial public offering
price per Ordinary Share, and such Class B Warrants become exercisable in
equal amounts over a three year period commencing one year after the Offering
and expire ten years after the consummation of the Offering. Management is of
the view that the agreed sale price of the Class B Warrants represented fair
value at the time of purchase.
The Roman Arch Fund L.P. and The Roman Arch Fund II L.P. are each limited
partnerships and affiliates of Prudential Securities Incorporated, one of the
underwriters of the Offering, and make investments for the benefit of limited
partners who are employees of Prudential Securities Incorporated. The Company
has agreed to pay a fee of $1.0 million (plus reimbursement of related out-of-
pocket expenses) to Prudential Securities Incorporated for investment banking
and financial advisory services in connection with the Offering.
F-11
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY
ANY SECURITY OTHER THAN THE ORDINARY SHARES OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
ORDINARY SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 9
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 19
Capitalization............................................................ 20
Dilution.................................................................. 21
Management's Discussion and Analysis of Financial Condition and Plan of
Operations............................................................... 22
Business.................................................................. 26
Management................................................................ 45
Principal Stockholders.................................................... 49
Certain Relationships and Related Party Transactions...................... 49
Description of Shares..................................................... 50
Shares Eligible for Future Sale........................................... 57
Material Tax Consequences................................................. 58
Underwriting.............................................................. 65
Legal Matters............................................................. 66
Experts................................................................... 66
Glossary of Selected Life Insurance and Annuity Terms..................... 67
Index to Consolidated Balance Sheet....................................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
16,750,000 Shares
SCOTTISH LIFE HOLDINGS, LTD.
Ordinary Shares
-------------
PROSPECTUS
-------------
PRUDENTIAL SECURITIES INCORPORATED
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Company in
connection with the issuance and distribution of the Ordinary Shares being
registered hereby. All of such expenses are estimates, other than the filing
fees payable to the Securities and Exchange Commission, the National
Association of Securities Dealers, Inc. and the Nasdaq National Market.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................. $ 85,237
National Association of Securities Dealers, Inc. filing fee......... 29,394
Nasdaq National Market quotation fee................................ 95,000
Advisory fee........................................................ 1,000,000
Printing costs...................................................... 250,000
Accounting fees and expenses........................................ 175,000
Legal fees and expenses (not including Blue Sky).................... 750,000
Blue Sky fees and expenses.......................................... 2,000
Miscellaneous expenses.............................................. 113,369
----------
Total............................................................. $2,500,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Cayman Islands law permits a company's articles of association to provide
for the indemnification of officers and directors, except to the extent that
such provision may be held by the Cayman Islands courts to be contrary to
public policy (for instance, for purporting to provide indemnification against
the consequences of committing a crime). In addition, an officer or director
may not be indemnified for his own dishonesty, wilful neglect or default.
The Articles contain provisions providing for the indemnification by the
Company of an officer, director, employee or agent of the Company for
threatened, pending or contemplated actions, suits or proceedings, whether
civil, criminal, administrative or investigative (including, without
limitation, an action by or in the right of the Company), brought against such
indemnified person by reason of the fact that such person was an officer,
director, employee or agent of the Company. In addition, the Board of
Directors may authorize the Company to purchase and maintain insurance on
behalf of any such person against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under the provisions of the Articles. The Company plans to purchase
directors and officers liability insurance from third parties for its
directors and executive officers. The Company also plans to enter into
indemnity agreements with each of its executive officers and directors.
The Articles provide that directors of the Company shall have no personal
liability to the Company or its shareholders for monetary damages for breach
of fiduciary or other duties as a director, except (i) for any breach of a
director's duty of loyalty to the Company or its shareholders; (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) a payment of a dividend on stock of the
Company or a purchase or redemption of stock of the Company in violation of
law; or (iv) for any transaction from which a director derived an improper
personal benefit.
Reference is made to the form of Underwriting Agreement to be filed as
Exhibit 1.1 hereto for provisions providing that the Underwriters are
obligated, under certain circumstances, to indemnify the directors, certain
officers and controlling persons of the Company against liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since its formation, the Company issued the following securities that were
not registered under the Securities Act:
(a) On May 12, 1998, the Company sold 1,500,000 Ordinary Shares to
Scottish Holdings, Ltd., for an aggregate purchase price of $500,000.
(b) On June 9, 1998, the Company sold Class A Warrants to purchase an
aggregate of 1,550,000 Ordinary Shares to Michael C. French, Michelle L.
Boucher, Audubon Assets Limited and Soulieana Limited for an aggregate
purchase price of $100,000.
(c) On June 18, 1998, the Company sold Class B Warrants to purchase an
aggregate of 200,000 Ordinary Shares to The Roman Arch Fund L.P. and The
Roman Arch Fund II L.P. for an aggregate purchase price of $302,000.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon an exemption from the registration provisions
of the Securities Act set forth in Section 4(2) thereof relative to sales by
an issuer not involving a public offering. All of the foregoing securities are
deemed restricted securities for purposes of the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits. Except as otherwise indicated, the following Exhibits are filed
herewith and made a part hereof:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
1.1+ Form of Underwriting Agreement between the Company and the
Underwriters.
3.1+ Articles of Association of the Company.
3.2+ Memorandum of Association of the Company.
4.1+ Specimen Ordinary Share Certificate.
4.2+ Form of Class A Warrant.
4.3+ Form of Class B Warrant.
4.4+ Form of Securities Purchase Agreement for the Class A Warrants.
4.5+ Form of Warrant Purchase Agreement for the Class B Warrants.
4.6+ Form of Registration Rights Agreement for the Class A Warrants.
4.7+ Form of Registration Rights Agreement for the Class B Warrants.
5.1+ Opinion of Maples and Calder as to the validity of the securities
being offered.
8.1+ Opinion of Maples and Calder (contained in Exhibit 5.1).
8.2+ Opinion of Jones, Day, Reavis & Pogue.
10.1* Employment Agreement dated June 18, 1998 between the Company and
Michael C. French.
10.2* Employment Agreement dated June 18, 1998 between the Company and
Michelle L. Boucher.
10.3** 1998 Stock Option Plan dated June 18, 1998.
10.4+ Form of Stock Option Agreement in connection with 1998 Stock Option
Plan.
10.5** Private Label and Administrative Services Agreement dated June 11,
1998 between the Company and BT Reinsurance Limited.
10.6** Investment Management Agreement dated June 15, 1998 between the
Company and Maverick Capital, Ltd.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10.7** Investment Advisory Agreement dated June 11, 1998 between the Company
and Cambridge Capital Advisors, Inc.
10.8* Agreement dated June 30, 1998 between the Company and International
Risk Management (Cayman) Ltd.
10.9* Insurance Administration, Services and Referral Agreement dated as of
July 1, 1998 between the Company and The Scottish Annuity Company
(Cayman) Ltd.
10.10* Employment Agreement dated July 20, 1998 between the Company and
Henryk Sulikowski.
21.1** Subsidiaries of Registrant.
23.1+ Consent of Maples and Calder (contained in Exhibit 5.1).
23.2+ Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 8.2).
23.3* Consent of Ernst & Young.
23.4* Consent of The Bernstein Law Firm.
99.1** Consent of Michael Austin.
99.2** Consent of George Ellis.
99.3** Consent of Howard Shapiro.
99.4** Form F-N.
</TABLE>
- --------
* Filed herewith.
** Previously filed.
+ To be filed by amendment.
(b) Financial Statement Schedules
All financial statement schedules are omitted because they are either not
applicable or the required information is included in the balance sheet or
notes thereto appearing elsewhere in this Registration Statement.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained in
the form of prospectus filed by the registrant pursuant to Rule 424(b) (1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Amendment No. 1 to Registration Statement No. 333-57227 to be
signed on its behalf by the undersigned, thereunto duly authorized, in Dallas,
Texas, on August 13, 1998.
SCOTTISH LIFE HOLDINGS, LTD.
/s/ Michael C. French
By: ___________________________________
Michael C. French
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement No. 333-57227 has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael C. French Chairman of the Board, Chief August 13, 1998
____________________________________ Executive Officer and
Michael C. French Director (Principal
Executive Officer)
/s/ Michelle L. Boucher Senior Vice President and August 13, 1998
____________________________________ Chief Financial Officer
Michelle L. Boucher (Principal Financial
Officer and Principal
Accounting Officer)
/s/ Donald J. Puglisi Authorized Representative in August 13, 1998
____________________________________ the United States
Donald J. Puglisi
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
SEQUENTIAL
NUMBER
PAGE NO. DESCRIPTION OF DOCUMENT
---------- -----------------------
<C> <S>
1.1+ Form of Underwriting Agreement between the Company and the
Underwriters.
3.1+ Articles of Association of the Company.
3.2+ Memorandum of Association of the Company.
4.1+ Specimen Ordinary Share Certificate.
4.2+ Form of Class A Warrant.
4.3+ Form of Class B Warrant.
4.4+ Form of Securities Purchase Agreement for the Class A Warrants.
4.5+ Form of Warrant Purchase Agreement for the Class B Warrants.
4.6+ Form of Registration Rights Agreement for the Class A Warrants.
4.7+ Form of Registration Rights Agreement for the Class B Warrants.
5.1+ Opinion of Maples and Calder as to the validity of the securities
being offered.
8.1+ Opinion of Maples and Calder (contained in Exhibit 5.1).
8.2+ Opinion of Jones, Day, Reavis & Pogue.
10.1* Employment Agreement dated June 18, 1998 between the Company and
Michael C. French.
10.2* Employment Agreement dated June 18, 1998 between the Company and
Michelle L. Boucher.
10.3** 1998 Stock Option Plan dated June 18, 1998.
10.4+ Form of Stock Option Agreement in connection with 1998 Stock Option
Plan.
10.5** Private Label and Administrative Services Agreement dated June 11,
1998 between the Company and BT Reinsurance Limited.
10.6** Investment Management Agreement dated June 15, 1998 between the
Company and Maverick Capital, Ltd.
10.7** Investment Advisory Agreement dated June 11, 1998 between the
Company and Cambridge Capital Advisors, Inc.
10.8* Agreement dated June 30, 1998 between the Company and International
Risk Management (Cayman) Ltd.
10.9* Insurance Administration, Services and Referral Agreement dated as
of July 1, 1998 between the Company and The Scottish Annuity
Company (Cayman) Ltd.
10.10* Employment Agreement dated July 20, 1998 between the Company and
Henryk Sulikowski.
21.1** Subsidiaries of Registrant.
23.1+ Consent of Maples and Calder (contained in Exhibit 5.1).
23.2+ Consent of Jones, Day, Reavis & Pogue (contained in Exhibit 8.2).
23.3* Consent of Ernst & Young.
23.4* Consent of The Bernstein Law Firm.
99.1** Consent of Michael Austin.
99.2** Consent of George Ellis.
99.3** Consent of Howard Shapiro.
99.4** Form F-N.
</TABLE>
- --------
*Filed herewith.
**Previously filed.
+To be filed by amendment.
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"),
dated as of June 18, 1998, is made and entered by and between Scottish Life
Holdings, Ltd., a Cayman Islands corporation (the "Company"), and Michael C.
French (the "Executive").
WITNESSETH:
----------
WHEREAS, the Executive has agreed to serve as Chairman of the Board
and Chief Executive Officer of the Company and has made and is expected to
continue to make major contributions to the short- and long-term profitability,
growth and financial strength of the Company;
WHEREAS, the Company is currently contemplating the offer and sale of
ordinary shares of the Company to the public (the "Offering");
WHEREAS, the Company wishes to assure itself of both present and
future continuation of management in light of the Offering and subsequent to the
Offering; and
WHEREAS, the Company wishes to employ the Executive and the Executive
is willing to be employed by the Company, both on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere herein,
---------------------
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual base salary rate as in
effect from time to time, as set forth in Section 5(a).
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that the Executive shall have committed any of the
following:
(i) an intentional act of fraud, embezzlement or theft in
connection with his duties or in the course of his employment with the Company
or any Subsidiary;
(ii) intentional wrongful damage to any material property of the
Company or any Subsidiary;
<PAGE>
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) conviction of a felony or other crime involving moral
turpitude;
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an error
in judgment or negligence, but shall be deemed "intentional" only if done
or omitted to be done by the Executive not in good faith and without
reasonable belief that his action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for "Cause" hereunder unless and until there
shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the Board
then in office at a meeting of the Board called and held for such purpose,
after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel (if the Executive chooses to have
counsel present at such meeting), to be heard before the Board, finding
that, in the good faith opinion of the Board, the Executive had committed
an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or propriety of any
such determination.
(d) "Change in Control" means the occurrence of any of the following
events:
(i) the Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in the
aggregate by the holders of Ordinary Shares immediately prior to such
transaction;
(ii) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal
person, and less than a majority of the combined voting power of the then-
outstanding securities of such corporation or person immediately after such
sale or transfer is held in the aggregate by the holders of Ordinary Shares
immediately prior to such sale or transfer;
(iii) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has or may
have occurred or will or may occur in the future pursuant to any then-
existing contract or transaction; or
(iv) if during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors cease for
any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's shareholders, of each
Director first elected during such period was
2
<PAGE>
approved by a vote of at least two-thirds of the Directors then still in
office who were Directors at the beginning of any such period.
Notwithstanding the foregoing provisions of Paragraph (iii) above, a
"Change in Control" shall not be deemed to have occurred for purposes of
this Agreement (i) by reason of any action taken by the Company, including
changes in beneficial ownership of equity securities of the Company, in
connection with the Offering; (ii) solely because (A) the Company; (B) a
Subsidiary; or (C) any Company-sponsored employee stock ownership plan or
other employee benefit plan of the Company either files or becomes
obligated to file a report or proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Act, disclosing
beneficial ownership by it of shares, or because the Company reports that a
change of control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership; or (iii) solely
because of a change in control of any Subsidiary other than Scottish Life
Assurance (Cayman) Ltd.
(e) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the management of
any business enterprise if such enterprise engages in substantial and direct
competition with the Company. "Competitive Activity" will not include (i) the
mere ownership of securities in any such enterprise and the exercise of rights
appurtenant thereto or (ii) participation in the management of any such
enterprise other than in connection with the competitive operations of such
enterprise.
(f) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee retirement income and
welfare benefit policies, plans, programs or arrangements in which senior
officers of the Company are entitled to participate, including without
limitation any stock option, performance share, performance unit, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement, or other retirement income or welfare benefit, deferred
compensation, incentive compensation, group or other life, health,
medical/hospital or other insurance (whether funded by actual insurance or self-
insured by the Company or a Subsidiary), disability, salary continuation,
expense reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or may be adopted hereafter by the Company or a
Subsidiary.
(g) "Incentive Pay" means an annual bonus, incentive or other payment
of compensation, in addition to Base Pay, made or to be made in regard to
services rendered in any year or other period pursuant to any bonus, incentive,
profit-sharing, performance, discretionary pay or similar agreement, policy,
plan, program or arrangement (whether or not funded) of the Company or a
Subsidiary, or any successor thereto.
(h) "Retirement Plans" means the retirement income, supplemental
executive retirement, excess benefits and retiree medical, life and similar
benefit plans providing retirement perquisites, benefits and service credit for
benefits for senior officers of the Company now existing or hereafter adopted.
3
<PAGE>
(i) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(j) "Term" means the period commencing as of the date of this
Agreement and expiring on the third anniversary of this Agreement; provided,
--------
however, that commencing on the first anniversary of the date of this Agreement
- -------
and each anniversary thereafter, the term of this Agreement will automatically
be extended for an additional one year unless, not later than 90 days before any
such anniversary date, the Company or the Executive shall have given written
notice that it or the Executive, as the case may be, does not wish to have the
Term extended.
(k) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date of
termination, or such other date that may be specified by the Executive if the
termination is pursuant to Section 5(b)).
(l) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed with the Company for the Term, upon
the terms and conditions herein set forth.
3. Positions and Duties.
--------------------
(a) During the Term, the Executive will serve in the positions of
Chairman of the Board and Chief Executive Officer of the Company, or such other
position as may be agreed upon by the Company and the Executive, and will have
such duties, functions, responsibilities and authority as are (i) consistent
with the Executive's position as the Company's Chairman of the Board and Chief
Executive Officer; or (ii) assigned to his office in the Company's bylaws; or
(iii) reasonably assigned to him by the Board. The Executive will report
directly to The Board of Directors.
(b) During the Term, the Executive will be the Company's employee and
will devote such portion of his business time and attention to the performance
of his duties to the Company as are reasonably required.
4. Compensation and Related Matters.
--------------------------------
(a) Annual Base Salary. During the Term, the Company will pay to the
------------------
Executive an annual base salary of not less than $450,000, which annual base
salary may be increased (but not decreased) from time to time by the Board (or a
duly authorized committee thereof) in its sole discretion, payable at the times
and in the manner consistent with the Company's general policies regarding
compensation of executive employees. The Board may from time to time authorize
such additional compensation to the Executive, in cash or in property, as the
Board may determine in its sole discretion to be appropriate.
4
<PAGE>
(b) Annual Incentive Compensation. If the Board (or the Compensation
-----------------------------
Committee thereof) authorizes any cash incentive compensation or approves any
other management incentive program or arrangement, the Executive will be
eligible to participate in such plan, program or arrangement under the general
terms and conditions applicable to executive and management employees. Nothing
in this Section 4(b) will guarantee to the Executive any specific amount of
incentive compensation, or prevent the Board (or a duly authorized committee
thereof) from establishing performance goals and compensation targets applicable
only to the Executive.
(c) Executive Benefits. In addition to the compensation described in
------------------
Section (a) and (b), the Company will make available to the Executive and his
eligible dependents, subject to the terms and conditions of the applicable
plans, including without limitation the eligibility rules, participation in all
Company-sponsored employee benefit plans including all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
senior executives of the Company participate, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation, group
and/or executive life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company), expense
reimbursement or other employee benefit policies, plans, programs or
arrangements, including, without limitation, financial counseling services or
any equivalent successor policies, plans, programs or arrangements that may now
exist or be adopted hereafter by the Company.
(d) Other Expenses. The Company will promptly reimburse the Executive
--------------
for all business expenses the Executive incurs in order to perform his duties to
the Company under this Agreement in a manner commensurate with the Executive's
position and level of responsibility with the Company, and in accordance with
the Company's policy regarding substantiation of expenses.
(e) Options. The Company shall grant Executive, upon the execution of
--------
this Agreement, an option ("Option") to purchase up to 400,000 Ordinary Shares
of the Company, such Option to be exercisable at the per share price equal to
the Offering price per share and to be governed by the option agreement attached
hereto as Exhibit A; provided, however, that the Option shall be increased, as
-------- -------
provided in Exhibit A hereto, by a number of Ordinary Shares in an amount equal
to 400,000 multiplied by a fraction where the numerator is the number of
Ordinary Shares issued to the underwriters in the Offering to cover the
underwriter's overallotment and the denominator is the number of Ordinary Shares
issued in the Offering excluding the overallotment.
5. Termination Following the Date of this Agreement.
------------------------------------------------
(a) The Executive's employment may be terminated by the Company during
the Term, and the Executive shall be entitled to the severance compensation
provided by Section 6 unless such termination is the result of the occurrence of
one or more of the following events:
(i) The Executive's death;
5
<PAGE>
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits pursuant to,
the long-term disability plan in effect for, or applicable to, the
Executive; or
(iii) Cause.
If, during the Term, the Executive's employment is terminated by the Company or
any Subsidiary other than pursuant to Section 5(a)(i), 5(a)(ii) or 5(a)(iii),
the Executive will be entitled to the benefits provided by Section 6 hereof.
(b) The Executive may terminate employment with the Company during the
Term with the right to severance compensation as provided in Section 6 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as hereinabove provided, for such termination
exists or has occurred):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company (or any successor thereto by
operation of law of or otherwise), which the Executive held pursuant to,
and upon the date of, this Agreement.
(ii) (A) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties attached to
the position with the Company which the Executive held pursuant to, and
upon the date of, this Agreement, (B) a reduction in the aggregate of the
Executive's Base Pay received from the Company and any Subsidiary, or (C)
the termination or denial of the Executive's rights to Employee Benefits or
a reduction in the scope or value thereof, unless such reduction is
applicable to all employees of the Company on a pro rata basis, any of
which is not remedied by the Company within 30 calendar days after receipt
by the Company of written notice from the Executive of such change,
reduction or termination, as the case may be;
(iii) A determination by the Executive (which determination will
be conclusive and binding upon the parties hereto provided it has been made
in good faith and in all events will be presumed to have been made in good
faith unless otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred following this
Agreement, including, without limitation, a change in the scope of the
business or other activities for which the Executive was responsible
immediately prior to the date of this Agreement, which has rendered the
Executive substantially unable to carry out, has substantially hindered the
Executive's performance of, or has caused the Executive to suffer a
substantial reduction in, any of the authorities, powers, functions,
responsibilities or duties attached to the position held by the Executive
pursuant to, and upon the date of, this Agreement, which situation is not
remedied within 30 calendar days after written notice to the Company from
the Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation,
6
<PAGE>
reorganization, transfer or otherwise) to which all or substantially all of
its business and/or assets have been transferred (by operation of law or
otherwise) assumed all duties and obligations of the Company under this
Agreement pursuant to Section 13(a);
(v) The Company relocates its principal executive offices (if
such offices are the principal location of Executive's work), or requires
the Executive to have his principal location of work changed, to any
location that, in either case, is in excess of 25 miles from the location
thereof pursuant to, and upon the date of, this Agreement without his prior
written consent; or
(vi) A Change in Control has occurred and Executive, within one
year thereafter, gives notice of termination of his employment with the
Company; or
(vii) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any successor
thereto which is not remedied by the Company within 30 calendar days after
receipt by the Company of written notice from the Executive of such breach.
(c) A termination by the Company pursuant to Section 5(a) or by the
Executive pursuant to Section 5(b) will not affect any rights that the Executive
may have pursuant to any agreement, policy, plan, program or arrangement of the
Company or any Subsidiary providing Employee Benefits, which rights shall be
governed by the terms thereof.
6. Severance Compensation.
----------------------
(a) If the Company shall terminate the Executive's employment during
the Term other than pursuant to Section 5(a)(i), 5(a)(ii) or 5(a)(iii), or if
the Executive shall terminate his employment pursuant to Section 5(b), in lieu
of any further payments to the Executive for periods subsequent to the
Termination Date, the Company shall pay to the Executive a lump sum payment (the
"Severance Payment"), in an amount equal to 300% of the sum of (i) the aggregate
Base Pay (at the highest rate in effect for any year prior to the Termination
Date), and (ii) the aggregate Incentive Pay (at the highest rate in effect for
any year prior to the Termination Date), plus the aggregate sum of the
reasonable transportation expenses for relocating Executive and his immediate
family to the United States. The Severance Payment shall be made upon the later
of (i) five business days after the Termination Date and (ii) the effective date
of a release executed by the Executive and the Company in the form attached
hereto as Exhibit B.
(b) There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation against any payment to or benefit for the
Executive provided for in this Agreement.
(c) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment required to be made hereunder on a
timely basis, the Company shall pay interest on the amount thereof at an
annualized rate of interest equal to the then-applicable interest rate
prescribed by the Pension Benefit Guarantee Corporation for benefit
7
<PAGE>
valuations in connection with non-multiemployer pension plan terminations
assuming the immediate commencement of benefit payments.
7. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding, in the
event that this Agreement shall become operative and it shall be determined (as
hereafter provided) that any payment (other than the Gross-Up payments provided
for in this Section 7) or distribution by the Company or any of its affiliates
to or for the benefit of the Executive, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise pursuant
to or by reason of any other agreement, policy, plan, program or arrangement,
including without limitation any stock option, performance share, performance
unit, stock appreciation right or similar right, or the lapse or termination of
any restriction on or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code") (or any successor
provision thereto) by reason of being considered "contingent on a change in
ownership or control" of the Company, within the meaning of Section 280G of the
Code (or any successor provision thereto) or to any similar tax imposed by state
or local law, or any interest or penalties with respect to such tax (such tax or
taxes, together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment or payments (collectively, a "Gross-Up
Payment"); provided, however, that no Gross-up Payment shall be made with
-------- -------
respect to the Excise Tax, if any, attributable to (i) any incentive stock
option, as defined by Section 422 of the Code ("ISO") granted prior to the
execution of this Agreement, or (ii) any stock appreciation or similar right,
whether or not limited, granted in tandem with any ISO described in clause (i).
The Gross-Up Payment shall be in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payment.
(b) Subject to the provisions of Section 7(f), all determinations
required to be made under this Section 7, including whether an Excise Tax is
payable by the Executive and the amount of such Excise Tax and whether a Gross-
Up Payment is required to be paid by the Company to the Executive and the amount
of such Gross-Up Payment, if any, shall be made by a nationally recognized
accounting firm (the "Accounting Firm") selected by the Executive in his sole
discretion. The Executive shall direct the Accounting Firm to submit its
determination and detailed supporting calculations to both the Company and the
Executive within 30 calendar days after the Termination Date, if applicable, and
any such other time or times as may be requested by the Company or the
Executive. If the Accounting Firm determines that any Excise Tax is payable by
the Executive, the Company shall pay the required Gross-Up Payment to the
Executive within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it shall, at the
same time as it makes such determination, furnish the Company and the Executive
an opinion that the Executive has substantial authority not to report any Excise
Tax on his federal, state or local income or other tax return. As a result of
the uncertainty in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of
8
<PAGE>
similar uncertainty regarding applicable state or local tax law at the time of
any determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made (an
"Underpayment"), consistent with the calculations required to be made hereunder.
In the event that the Company exhausts or fails to pursue its remedies pursuant
to Section 7(f) and the Executive thereafter is required to make a payment of
any Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by Section 7(b). Any determination by the Accounting Firm as to
the amount of the Gross-Up Payment shall be binding upon the Company and the
Executive.
(d) The federal, state and local income or other tax returns filed by
the Executive shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 7(b)
shall be borne by the Company. If such fees and expenses are initially paid by
the Executive, the Company shall reimburse the Executive the full amount of such
fees and expenses within five business days after receipt from the Executive of
a statement therefor and reasonable evidence of his payment thereof.
(f) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than 30
business days after the Executive actually receives notice of such claim and the
Executive shall further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive shall not pay such claim prior to the
earlier of (i) the expiration of the 30-calendar-day period following the date
on which he gives such notice to the Company and
9
<PAGE>
(ii) the date that any payment of amount with respect to such claim is due. If
the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including without limitation accepting legal representation with respect to
such claim by an attorney competent in respect of the subject matter and
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
- -------- -------
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of
this Section 7(f), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 7(f) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at his own cost
- --------- -------
and expense) and may, at its option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and
the Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
-------- -------
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax, including interest
or penalties with respect thereto, imposed with respect to such advance; and
provided further, however, that any extension of the statute of limitations
- ---------------- -------
relating to payment of taxes for the taxable year of the Executive with respect
to which the contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such contested
claim shall be limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive shall be entitled to settle or contest,
as the case may be, any other issue raised by the Internal Revenue Service or
any other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 7(f), the Executive receives any refund with
respect to such claim, the Executive shall (subject to the Company's complying
with the requirements of Section 7(f))
10
<PAGE>
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after any taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 7(f), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial or refund prior to the
expiration of 30 calendar days after such determination, then such advance shall
be forgiven and shall not be required to be repaid and the amount of any such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 7.
8. No Mitigation Obligation. The Company hereby acknowledges that it
------------------------
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date and that the non-
competition covenant in Section 9 will further limit the employment
opportunities for the Executive. In addition, the Company acknowledges that its
severance pay plans applicable in general to its salaried employees do not
provide for mitigation, offset or reduction of any severance payment received
thereunder. Accordingly, the payment of the severance compensation by the
Company to the Executive in accordance with the terms of this Agreement is
hereby acknowledged by the Company to be reasonable, and the Executive will not
be required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor will any profits, income, earnings
or other benefits from any source whatsoever create any mitigation, offset,
reduction or any other obligation on the part of the Executive hereunder or
otherwise.
9. Competitive Activity; Confidentiality; Nonsolicitation.
------------------------------------------------------
(a) The Executive acknowledges that during the course of his
employment with the Company the Executive will learn business information
valuable to the Company and form substantial business relationships with the
Company's clients. To protect the Company's legitimate business interests in
preserving its valuable confidential business information and client
relationships, the Executive shall not without the prior written consent of the
Company, which consent shall not be unreasonably withheld, (i) engage in any
Competitive Activity during the Term and (ii) if the Executive shall have
received or shall be receiving benefits under Section 6, engage in any
Competitive Activity for a period ending on the first anniversary of the
Termination Date.
(b) During the Term, the Company agrees that it will disclose to
Executive its confidential or proprietary information (as defined in this
Section 9(b)) to the extent necessary for Executive to carry out his obligations
to the Company. The Executive hereby acknowledges the Company has a legitimate
business interest in protecting its confidential and proprietary information and
hereby covenants and agrees that he will not, without the prior written consent
of the Company, during the Term or thereafter (i) disclose to any person not
employed by the Company, or use in connection with engaging in competition with
the Company, any confidential or proprietary information of the Company or (ii)
remove, copy or retain in his possession any Company files or records. For
purposes of this Agreement, the term "confidential or proprietary information"
will include all information of any nature and in any form that is owned by the
Company and that is not publicly available (other than by Executive's breach of
this Section 9(b))
11
<PAGE>
or generally known to persons engaged in businesses similar or related to those
of the Company. Confidential or proprietary information will include, without
limitation, the Company's financial matters, customers, employees, industry
contracts, strategic business plans, product development (or other proprietary
product data), marketing plans, and all other secrets and all other information
of a confidential or proprietary nature. For purposes of the preceding two
sentences, the term "Company" will also include any Subsidiary (collectively,
the "Restricted Group"). The foregoing obligations imposed by this Section 9(b)
will not apply (i) during the Term, in the course of the business of and for the
benefit of the Company, (ii) if such confidential or proprietary information
will have become, through no fault of the Executive, generally known to the
public or (iii) if the Executive is required by law to make disclosure (after
giving the Company notice and an opportunity to contest such requirement).
(c) The Executive hereby covenants and agrees that during the Term and
for one year thereafter Executive will not, without the prior written consent of
the Company, which consent shall not unreasonably be withheld, on behalf of
Executive or on behalf of any person, firm or company, directly or indirectly,
attempt to influence, persuade or induce, or assist any other person in so
persuading or inducing, any employee of the Restricted Group to give up
employment or a business relationship with the Restricted Group.
(d) The Executive agrees that on or before the Termination Date the
Executive shall return all Company property, including without limitation all
credit, identification and similar cards, keys and documents, books, records and
office equipment.
10. Legal Fees and Expenses. It is the intent of the Company that the
-----------------------
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing.
12
<PAGE>
11. Withholding of Taxes. The Company may withhold from any amounts
--------------------
payable under this Agreement all United States federal, state, city or other
taxes as the Company is required to withhold pursuant to any applicable law,
regulation or ruling.
12. Successors and Binding Agreement.
--------------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance reasonably satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent the Company would be required to perform if no such succession had taken
place. This Agreement will be binding upon and inure to the benefit of the
Company and any successor to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all of the
business or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed the
"Company" for the purposes of this Agreement), but will not otherwise be
assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 12(a) and 12(b). Without limiting the generality or effect
of the foregoing, the Executive's right to receive payments hereunder will not
be assignable, transferable or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by Executive's will or
by the laws of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section 12(c), the Company shall have no
liability to pay any amount so attempted to be assigned, transferred or
delegated.
13. Notices. For all purposes of this Agreement, all communications,
-------
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by, or three business days after having been sent by,
an internationally recognized overnight courier service such as FedEx or UPS,
addressed to the Company (to the attention of the Chief Executive Officer of the
Company) at its principal executive office and to the Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
14. Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the Cayman Islands, without giving effect to the
principles of conflict of laws of such State.
13
<PAGE>
15. Validity. If any provision of this Agreement or the application of
--------
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
17. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
18. Entire Agreement. This Agreement sets forth the entire understanding
----------------
between the Company and the Executive, and all oral or written agreements or
representations, express or implied, with respect to the subject matter of this
Agreement are set forth in this Agreement. All prior employment agreements,
understandings and obligations (whether written, oral, express or implied)
between the Company and the Executive, without further action, terminated as of
the date of this Agreement and are superseded by this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
/s/ MICHAEL C. FRENCH
-------------------------------
Michael C. French
SCOTTISH LIFE HOLDINGS, LTD.
By: /s/ Michelle L. Boucher
---------------------------
Name: Michelle L. Boucher
Title: Senior Vice President and
Chief Financial Officer
15
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this "Agreement"),
dated as of June 18, 1998, is made and entered by and between Scottish Life
Holdings, Ltd., a Cayman Islands corporation (the "Company"), and Michelle L.
Boucher (the "Executive").
WITNESSETH:
----------
WHEREAS, the Executive has agreed to serve as Senior Vice President
and Chief Financial Officer of the Company and has made and is expected to
continue to make major contributions to the short- and long-term profitability,
growth and financial strength of the Company;
WHEREAS, the Company is currently contemplating the offer and sale of
ordinary shares of the Company to the public (the "Offering");
WHEREAS, the Company wishes to assure itself of both present and
future continuation of management in light of the Offering and subsequent to the
Offering; and
WHEREAS, the Company wishes to employ the Executive and the Executive
is willing to be employed by the Company, both on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere herein,
---------------------
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual base salary rate as in
effect from time to time, as set forth in Section 5(a).
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that the Executive shall have committed any of the
following:
(i) an intentional act of fraud, embezzlement or theft in
connection with her duties or in the course of her employment with the
Company or any Subsidiary;
(ii) intentional wrongful damage to any material property of the
Company or any Subsidiary;
<PAGE>
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
(iv) conviction of a felony or other crime involving moral
turpitude;
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an error
in judgment or negligence, but shall be deemed "intentional" only if done
or omitted to be done by the Executive not in good faith and without
reasonable belief that her action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for "Cause" hereunder unless and until there
shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the Board
then in office at a meeting of the Board called and held for such purpose,
after reasonable notice to the Executive and an opportunity for the
Executive, together with her counsel (if the Executive chooses to have
counsel present at such meeting), to be heard before the Board, finding
that, in the good faith opinion of the Board, the Executive had committed
an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or her beneficiaries to contest the validity or propriety of any
such determination.
(d) "Change in Control" means the occurrence of any of the following
events:
(i) the Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in the
aggregate by the holders of Ordinary Shares immediately prior to such
transaction;
(ii) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal
person, and less than a majority of the combined voting power of the then-
outstanding securities of such corporation or person immediately after such
sale or transfer is held in the aggregate by the holders of Ordinary Shares
immediately prior to such sale or transfer;
(iii) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has or may
have occurred or will or may occur in the future pursuant to any then-
existing contract or transaction; or
(iv) if during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors cease for
any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's shareholders, of each
Director first elected during such period was
2
<PAGE>
approved by a vote of at least two-thirds of the Directors then still in
office who were Directors at the beginning of any such period.
Notwithstanding the foregoing provisions of Paragraph (iii) above, a
"Change in Control" shall not be deemed to have occurred for purposes of
this Agreement (i) by reason of any action taken by the Company, including
changes in beneficial ownership of equity securities of the Company, in
connection with the Offering; (ii) solely because (A) the Company; (B) a
Subsidiary; or (C) any Company-sponsored employee stock ownership plan or
other employee benefit plan of the Company either files or becomes
obligated to file a report or proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Act, disclosing
beneficial ownership by it of shares, or because the Company reports that a
change of control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership; or (iii) solely
because of a change in control of any Subsidiary other than Scottish Life
Assurance (Cayman) Ltd.
(e) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the management of
any business enterprise if such enterprise engages in substantial and direct
competition with the Company. "Competitive Activity" will not include (i) the
mere ownership of securities in any such enterprise and the exercise of rights
appurtenant thereto or (ii) participation in the management of any such
enterprise other than in connection with the competitive operations of such
enterprise.
(f) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee retirement income and
welfare benefit policies, plans, programs or arrangements in which senior
officers of the Company are entitled to participate, including without
limitation any stock option, performance share, performance unit, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement, or other retirement income or welfare benefit, deferred
compensation, incentive compensation, group or other life, health,
medical/hospital or other insurance (whether funded by actual insurance or self-
insured by the Company or a Subsidiary), disability, salary continuation,
expense reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or may be adopted hereafter by the Company or a
Subsidiary.
(g) "Incentive Pay" means an annual bonus, incentive or other payment
of compensation, in addition to Base Pay, made or to be made in regard to
services rendered in any year or other period pursuant to any bonus, incentive,
profit-sharing, performance, discretionary pay or similar agreement, policy,
plan, program or arrangement (whether or not funded) of the Company or a
Subsidiary, or any successor thereto.
(h) "Retirement Plans" means the retirement income, supplemental
executive retirement, excess benefits and retiree medical, life and similar
benefit plans providing retirement perquisites, benefits and service credit for
benefits for senior officers of the Company now existing or hereafter adopted.
3
<PAGE>
(i) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
(j) "Term" means the period commencing as of the date of this
Agreement and expiring on the third anniversary of this Agreement; provided,
--------
however, that commencing on the first anniversary of the date of this Agreement
- -------
and each anniversary thereafter, the term of this Agreement will automatically
be extended for an additional one year unless, not later than 90 days before any
such anniversary date, the Company or the Executive shall have given written
notice that it or the Executive, as the case may be, does not wish to have the
Term extended.
(k) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date of
termination, or such other date that may be specified by the Executive if the
termination is pursuant to Section 5(b)).
(l) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed with the Company for the Term, upon
the terms and conditions herein set forth.
3. Positions and Duties.
--------------------
(a) During the Term, the Executive will serve in the positions of
Senior Vice President and Chief Financial Officer of the Company, or such other
position as may be agreed upon by the Company and the Executive, and will have
such duties, functions, responsibilities and authority as are (i) consistent
with the Executive's position as the Company's Senior Vice President and Chief
Financial Officer; or (ii) assigned to her office in the Company's bylaws; or
(iii) reasonably assigned to her by the Board. The Executive will report
directly to The Board of Directors.
(b) During the Term, the Executive will be the Company's employee and
will devote such portion of her business time and attention to the performance
of her duties to the Company as are reasonably required.
4. Compensation and Related Matters.
--------------------------------
(a) Annual Base Salary. During the Term, the Company will pay to the
------------------
Executive an annual base salary of not less than $175,000, which annual base
salary may be increased (but not decreased) from time to time by the Board (or a
duly authorized committee thereof) in its sole discretion, payable at the times
and in the manner consistent with the Company's general policies regarding
compensation of executive employees. The Board may from time to time authorize
such additional compensation to the Executive, in cash or in property, as the
Board may determine in its sole discretion to be appropriate.
4
<PAGE>
(b) Annual Incentive Compensation. If the Board (or the Compensation
-----------------------------
Committee thereof) authorizes any cash incentive compensation or approves any
other management incentive program or arrangement, the Executive will be
eligible to participate in such plan, program or arrangement under the general
terms and conditions applicable to executive and management employees. Nothing
in this Section 4(b) will guarantee to the Executive any specific amount of
incentive compensation, or prevent the Board (or a duly authorized committee
thereof) from establishing performance goals and compensation targets applicable
only to the Executive.
(c) Travel and Housing Allowance. During the Term, the Company will
----------------------------
pay an amount not less than $7,500 per month to reimburse the Executive for
housing and personal travel expenses.
(d) Retirement Account. During the Term, the Company shall fund a
------------------
retirement account for the Executive in an amount not less than 10% of
Executive's Base Pay for each year during the Term.
(e) Executive Benefits. In addition to the compensation described in
------------------
Section (a) and (b), the Company will make available to the Executive and her
eligible dependents, subject to the terms and conditions of the applicable
plans, including without limitation the eligibility rules, participation in all
Company-sponsored employee benefit plans including all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
senior executives of the Company participate, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation, group
and/or executive life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company), expense
reimbursement or other employee benefit policies, plans, programs or
arrangements, including, without limitation, financial counseling services or
any equivalent successor policies, plans, programs or arrangements that may now
exist or be adopted hereafter by the Company.
(f) Other Expenses. In addition to the allowance provided for in
--------------
Section 4(c), the Company will promptly reimburse the Executive for all business
expenses the Executive incurs in order to perform her duties to the Company
under this Agreement in a manner commensurate with the Executive's position and
level of responsibility with the Company, and in accordance with the Company's
policy regarding substantiation of expenses.
(g) Options. The Company shall grant Executive, upon the execution of
--------
this Agreement, an option ("Option") to purchase up to 200,000 Ordinary Shares
of the Company, such Option to be exercisable at the per share price equal to
the Offering price per share and to be governed by the option agreement attached
hereto as Exhibit A; provided, however, that the Option shall be increased, as
provided in Exhibit A hereto, by a number of Ordinary Shares in an amount equal
to 200,000 multiplied by a fraction where the numerator is the number of
Ordinary Shares issued to the underwriters in the Offering to cover the
underwriter's overallotment and the denominator is the number of Ordinary Shares
issued in the Offering excluding the overallotment.
5
<PAGE>
5. Termination Following the Date of this Agreement.
------------------------------------------------
(a) The Executive's employment may be terminated by the Company during
the Term, and the Executive shall be entitled to the severance compensation
provided by Section 6 unless such termination is the result of the occurrence of
one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits pursuant to,
the long-term disability plan in effect for, or applicable to, the
Executive; or
(iii) Cause.
If, during the Term, the Executive's employment is terminated by the Company or
any Subsidiary other than pursuant to Section 5(a)(i), 5(a)(ii) or 5(a)(iii),
the Executive will be entitled to the benefits provided by Section 6 hereof.
(b) The Executive may terminate employment with the Company during the
Term with the right to severance compensation as provided in Section 6 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as hereinabove provided, for such termination
exists or has occurred):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company (or any successor thereto by
operation of law of or otherwise), which the Executive held pursuant to,
and upon the date of, this Agreement.
(ii) (A) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties attached to
the position with the Company which the Executive held pursuant to, and
upon the date of, this Agreement, (B) a reduction in the aggregate of the
Executive's Base Pay received from the Company and any Subsidiary, or (C)
the termination or denial of the Executive's rights to Employee Benefits or
a reduction in the scope or value thereof, unless such reduction is
applicable to all employees of the Company on a pro rata basis, any of
which is not remedied by the Company within 30 calendar days after receipt
by the Company of written notice from the Executive of such change,
reduction or termination, as the case may be;
(iii) A determination by the Executive (which determination will
be conclusive and binding upon the parties hereto provided it has been made
in good faith and in all events will be presumed to have been made in good
faith unless otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred following this
Agreement, including, without limitation, a change in the scope of the
business or other activities for which the Executive was responsible
immediately prior to the date of this Agreement, which has rendered the
Executive substantially unable to carry out, has substantially hindered the
Executive's performance of, or has caused the
6
<PAGE>
Executive to suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the position held
by the Executive pursuant to, and upon the date of, this Agreement, which
situation is not remedied within 30 calendar days after written notice to
the Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or otherwise)
to which all or substantially all of its business and/or assets have been
transferred (by operation of law or otherwise) assumed all duties and
obligations of the Company under this Agreement pursuant to Section 13(a);
(v) The Company relocates its principal executive offices (if
such offices are the principal location of Executive's work), or requires
the Executive to have her principal location of work changed, to any
location that, in either case, is in excess of 25 miles from the location
thereof pursuant to, and upon the date of, this Agreement without her prior
written consent; or
(vi) A Change in Control has occurred and Executive, within one
year thereafter, gives notice of termination of her employment with the
Company; or
(vii) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto which is not remedied by the Company within 30 calendar
days after receipt by the Company of written notice from the Executive of
such breach.
(c) A termination by the Company pursuant to Section 5(a) or by the
Executive pursuant to Section 5(b) will not affect any rights that the Executive
may have pursuant to any agreement, policy, plan, program or arrangement of the
Company or any Subsidiary providing Employee Benefits, which rights shall be
governed by the terms thereof.
6. Severance Compensation.
----------------------
(a) If the Company shall terminate the Executive's employment during
the Term other than pursuant to Section 5(a)(i), 5(a)(ii) or 5(a)(iii), or if
the Executive shall terminate her employment pursuant to Section 5(b), in lieu
of any further payments to the Executive for periods subsequent to the
Termination Date, the Company shall pay to the Executive a lump sum payment (the
"Severance Payment"), in an amount equal to 300% of the sum of (i) the aggregate
Base Pay (at the highest rate in effect for any year prior to the Termination
Date) and (ii) the aggregate Incentive Pay (at the highest rate in effect for
any year prior to the Termination Date). The Severance Payment shall be made
upon the later of (i) five business days after the Termination Date and (ii) the
effective date of a release executed by the Executive and the Company in the
form attached hereto as Exhibit B.
7
<PAGE>
(b) There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation against any payment to or benefit for the
Executive provided for in this Agreement.
(c) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment required to be made hereunder on a
timely basis, the Company shall pay interest on the amount thereof at an
annualized rate of interest equal to the then-applicable interest rate
prescribed by the Pension Benefit Guarantee Corporation for benefit valuations
in connection with non-multiemployer pension plan terminations assuming the
immediate commencement of benefit payments.
7. No Mitigation Obligation. The Company hereby acknowledges that it
------------------------
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date and that the non-
competition covenant in Section 8 will further limit the employment
opportunities for the Executive. In addition, the Company acknowledges that its
severance pay plans applicable in general to its salaried employees do not
provide for mitigation, offset or reduction of any severance payment received
thereunder. Accordingly, the payment of the severance compensation by the
Company to the Executive in accordance with the terms of this Agreement is
hereby acknowledged by the Company to be reasonable, and the Executive will not
be required to mitigate the amount of any payment provided for in this Agreement
by seeking other employment or otherwise, nor will any profits, income, earnings
or other benefits from any source whatsoever create any mitigation, offset,
reduction or any other obligation on the part of the Executive hereunder or
otherwise.
8. Competitive Activity; Confidentiality; Nonsolicitation.
------------------------------------------------------
(a) The Executive acknowledges that during the course of her
employment with the Company the Executive will learn business information
valuable to the Company and form substantial business relationships with the
Company's clients. To protect the Company's legitimate business interests in
preserving its valuable confidential business information and client
relationships, the Executive shall not without the prior written consent of the
Company, which consent shall not be unreasonably withheld, (i) engage in any
Competitive Activity during the Term and (ii) if the Executive shall have
received or shall be receiving benefits under Section 6, engage in any
Competitive Activity for a period ending on the first anniversary of the
Termination Date.
(b) During the Term, the Company agrees that it will disclose to
Executive its confidential or proprietary information (as defined in this
Section 8(b)) to the extent necessary for Executive to carry out her obligations
to the Company. The Executive hereby acknowledges the Company has a legitimate
business interest in protecting its confidential and proprietary information and
hereby covenants and agrees that she will not, without the prior written consent
of the Company, during the Term or thereafter (i) disclose to any person not
employed by the Company, or use in connection with engaging in competition with
the Company, any confidential or proprietary information of the Company or (ii)
remove, copy or retain in her possession any Company files or records. For
purposes of this Agreement, the term "confidential or proprietary information"
will include all information of any nature and in any form that is owned by the
8
<PAGE>
Company and that is not publicly available (other than by Executive's breach of
this Section 8(b)) or generally known to persons engaged in businesses similar
or related to those of the Company. Confidential or proprietary information will
include, without limitation, the Company's financial matters, customers,
employees, industry contracts, strategic business plans, product development (or
other proprietary product data), marketing plans, and all other secrets and all
other information of a confidential or proprietary nature. For purposes of the
preceding two sentences, the term "Company" will also include any Subsidiary
(collectively, the "Restricted Group"). The foregoing obligations imposed by
this Section 8(b) will not apply (i) during the Term, in the course of the
business of and for the benefit of the Company, (ii) if such confidential or
proprietary information will have become, through no fault of the Executive,
generally known to the public or (iii) if the Executive is required by law to
make disclosure (after giving the Company notice and an opportunity to contest
such requirement).
(c) The Executive hereby covenants and agrees that during the Term and
for one year thereafter Executive will not, without the prior written consent of
the Company, which consent shall not unreasonably be withheld, on behalf of
Executive or on behalf of any person, firm or company, directly or indirectly,
attempt to influence, persuade or induce, or assist any other person in so
persuading or inducing, any employee of the Restricted Group to give up
employment or a business relationship with the Restricted Group.
(d) The Executive agrees that on or before the Termination Date the
Executive shall return all Company property, including without limitation all
credit, identification and similar cards, keys and documents, books, records and
office equipment.
9. Legal Fees and Expenses. It is the intent of the Company that the
-----------------------
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction. Without
respect to whether the Executive prevails, in whole or in part, in connection
with any of the foregoing, the Company will pay and be solely financially
responsible for any and all attorneys' and related fees and expenses incurred by
the Executive in connection with any of the foregoing.
10. Withholding of Taxes. The Company may withhold from any amounts
--------------------
payable under this Agreement all United States federal, state, city or other
taxes as the Company is required to withhold pursuant to any applicable law,
regulation or ruling.
9
<PAGE>
11. Successors and Binding Agreement.
--------------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance reasonably satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent the Company would be required to perform if no such succession had taken
place. This Agreement will be binding upon and inure to the benefit of the
Company and any successor to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all of the
business or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed the
"Company" for the purposes of this Agreement), but will not otherwise be
assignable, transferable or delegable by the Company.
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 11(a) and 11(b). Without limiting the generality or effect
of the foregoing, the Executive's right to receive payments hereunder will not
be assignable, transferable or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by Executive's will or
by the laws of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section 11(c), the Company shall have no
liability to pay any amount so attempted to be assigned, transferred or
delegated.
12. Notices. For all purposes of this Agreement, all communications,
-------
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by, or three business days after having been sent by,
an internationally recognized overnight courier service such as FedEx or UPS,
addressed to the Company (to the attention of the Chief Executive Officer of the
Company) at its principal executive office and to the Executive at her principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
13. Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the Cayman Islands, without giving effect to the
principles of conflict of laws of such State.
14. Validity. If any provision of this Agreement or the application of
--------
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or
10
<PAGE>
circumstances will not be affected, and the provision so held to be invalid,
unenforceable or otherwise illegal will be reformed to the extent (and only to
the extent) necessary to make it enforceable, valid or legal.
15. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
16. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Entire Agreement. This Agreement sets forth the entire understanding
----------------
between the Company and the Executive, and all oral or written agreements or
representations, express or implied, with respect to the subject matter of this
Agreement are set forth in this Agreement. All prior employment agreements,
understandings and obligations (whether written, oral, express or implied)
between the Company and the Executive, without further action, terminated as of
the date of this Agreement and are superseded by this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
/s/ MICHELLE L. BOUCHER
---------------------------
Michelle L. Boucher
SCOTTISH LIFE HOLDINGS, LTD.
By: /s/ MICHAEL C. FRENCH
-------------------------
Name: Michael C. French
Title: Chairman of the Board of
Directors and Chief
Executive Officer
12
<PAGE>
EXHIBIT 10.8
[IRMG LOGO] #IRMCMA9701
Page 1
INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT
THIS INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT, MADE THIS 30th day of
June, 1998 by and between INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD., a Cayman
Islands company having its principal office in Grand Cayman, (hereinafter
called IRMG) and SCOTTISH LIFE INSURANCE (CAYMAN) LTD., a Cayman Islands company
having its principal office in Grand Cayman (hereinafter called Scottish Life):
WITNESSETH:
WHEREAS, Scottish Life is based in Grand Cayman and from such country engages in
the underwriting of various classes of insurance, reinsurance and related
activities and desires certain management, administrative and advisory services
to assist it in the accomplishment of its intended purposes; and
WHEREAS, IRMG maintains a staff of professional insurance executives and
administrative and clerical personnel in Grand Cayman experienced in providing
the services desired by Scottish Life; and
WHEREAS, Scottish Life and IRMG desire to enter into an agreement pursuant to
which IRMG will render management, administrative and advisory services as
required by Scottish Life;
NOW, THEREFORE, in consideration of their respective promises and covenants
hereinafter contained, IRMG and Scottish Life make and enter into the following
agreement:
1. Subject at all times to the directions, approval and general supervision of
the Board of Directors of Scottish Life and/or designated officials of
Scottish Life (the Board of Directors and/or such designated officials are
hereinafter collectively called Scottish Life's Supervisors), IRMG agrees
to render, with due diligence and care in accordance with the guidelines
established by Scottish Life's Supervisors, management, administrative and
advisory services as hereinafter set forth:
(a) to maintain a properly staffed office in Grand Cayman to enable the
due performance of all duties required to be performed by IRMG under
this Agreement.
<PAGE>
[IRMG LOGO] #IRMCMA9701
Page 2
INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT
(b) with respect to insurance and reinsurance assumed:
(i) to prepare, issue and audit all applicable policies, binders
and endorsements;
(c) with respect to reinsurance ceded:
(i) to coordinate and consult with Scottish Life's reinsurance
intermediaries in regard to information required by them to
effect reinsurance for Scottish Life in accordance with the
guidelines established by Scottish Life's Supervisors;
(ii) to receive, review and verify reinsurance binders, agreements
and documentation in order to confirm it is in accordance with
the instructions received from Scottish Life's Supervisors;
(d) with respect to claims and claims control:
(i) to coordinate with Scottish Life's service providers, and
consult as requested, as to the acceptance or rejection and
settlement of claims;
(ii) to make valid claim payments or other disbursements in
accordance with the policies and procedures established by
Scottish Life and/or in accordance with instructions issued by
Scottish Life's Supervisors;
(iii) to prepare such reports and memoranda as may be necessary to
effect efficient claim control practices in accordance with
guidelines established by Scottish Life's Supervisors;
(iv) to supervise and coordinate loss adjustment services as
specifically requested by Scottish Life's Supervisors,
including arrangement for on-site loss adjustments, by
recognized and experienced loss adjusters approved by Scottish
Life's Supervisors;
(e) with respect to general accounting and administration:
(i) to maintain and operate bank accounts in the name of Scottish
Life in accordance and within the limitations as may be
specified by Scottish Life's Supervisors;
(ii) to establish and maintain an accounting service, including the
review of monthly financial statements consisting of a balance
sheet, income statement and other supporting information as
specified by the shareholders of Scottish Life and/or Scottish
Life's supervisors;
<PAGE>
[IRMG LOGO] #IRMCMA9701
Page 3
INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT
(iii) to review Scottish Life's annual unaudited financial
statements, instruct auditors to audit annually Scottish Life's
financial statements in accordance with generally accepted
accounting principles;
(iv) to ensure that at all times Scottish Life complies with all
reporting requirements of the Cayman Islands Monetary Authority
for the lawful conduct of its business, and to make such
filings and to pay such fees on behalf of Scottish Life as
required;
(v) to prepare such statistical reports which may be appropriate or
reasonably requested by Scottish Life's Supervisors, such as
reports of insurance and reinsurance assumed and ceded, binders
and policies issued, premiums billed and received, losses and
expenses incurred, paid and reserved;
(f) to advise promptly of all the appropriate actions that Scottish Life
should take, and in the performance of IRMG's duties hereunder to
take itself all appropriate actions necessary from time to time to
comply with the laws of the Cayman Islands and The Companies Law
(Cap. 22) (1995 Revision);
2. Scottish Life agrees as follows:
(a) to pay IRMG as compensation in full for all services to be performed
hereunder an annual minimum and deposit sum of US$25,000.00 PAYABLE
QUARTERLY IN ADVANCE, AND ADJUSTABLE AT THE HOURLY RATE OF US$150.00
PER HOUR pro rated for part years in respect of all services
performed by IRMG up to and including December 31, 1998, plus all
reasonable out-of-pocket expenses such as travel, telex, telephone,
telecopier, postage, courier, stationery and expenses of a similar
nature as it may incur in the execution of its duties hereunder, and
thereafter such fees as shall be negotiated for each succeeding
calendar year during the existence of this Agreement;
(b) that the compensation stated in paragraph 2(a) or subsequently
negotiated is based on the time and effort required to perform the
services reasonably expected of IRMG at the time the compensation is
established and that IRMG may renegotiate such compensation in the
event that during the calendar year, Scottish Life requests a change
in the type or level of the services to be provided which results in
a material
<PAGE>
[IRMG LOGO] #IRMCMA9701
Page 4
INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT
increase in the time and effort required to perform such services;
(c) to act promptly upon all requests, instructions and proposals,
whether for reinsurance or otherwise, submitted by IRMG, and to
comply promptly with any requests for instructions, information or
approval which IRMG may reasonably request in order to efficiently
perform its duties under this Agreement;
(d) to pay and bear the expense or fees of any documents; books; records;
taxes; commissions to selling agents or brokers; investment, audit,
legal and actuarial consulting; printing and stationary; and material
or costs of a similar nature as may arise in connection with the
services provided by IRMG under this Agreement;
(e) to have and to exercise sole responsibility for the investment of any
funds of Scottish Life; In the absence of directions from Scottish
Life's Supervisors, IRMG may in its sole discretion and without
liability place funds at prevailing rates of interest and to the
extent necessary upon current account without interest;
(f) to have Scottish Life's Supervisors review, approve and/or ratify and
confirm as and when appropriate, the performance of actions taken by
IRMG on behalf of Scottish Life, and the forms of any documents,
policies and contracts arising therefrom, pursuant to the terms of
this Agreement;
(g) that the obligations of IRMG hereunder to disburse funds on behalf of
Scottish Life are strictly conditioned upon the availability of
sufficient funds in Scottish Life's accounts and upon IRMG receiving
the necessary information and instructions regarding disbursements;
(h) that the directions given by Scottish Life's Supervisors may be
relied upon by IRMG whether given in writing, orally, by telephone,
telecopier, e-mail or other means, but IRMG shall not in any event be
responsible for determining the authenticity of directions or the
authority of the person giving the same and shall be absolutely
protected in all cases where it has acted in accordance with
directions honestly believed to be authentic and authorized,
notwithstanding that IRMG may decline to act upon any directions
pending proof of authenticity or authority;
<PAGE>
[IRMG LOGO] #IRMCMA9701
Page 5
INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT
(i) to indemnify and keep indemnified and hold harmless IRMG, its
officers and directors, agents and employees against all demands,
claims, assessments and liabilities arising out of or in connection
with this Agreement, the performance and exercise by IRMG, its
officers and directors, agents and employees of its responsibilities
and powers hereunder and against all costs and expenses including
reasonable legal expenses incurred in connection therewith; to waive
against IRMG, its officers and directors, agents and employees any
claim arising out of the aforesaid to the effect that IRMG, its
officers and directors, agents and employees shall not be held liable
for any loss to Scottish Life; the aforesaid indemnity and waiver
shall enure for the benefit of IRMG, its officers and directors,
agents and employees, and shall be avoided only in the case of
willful negligence, willful default, fraud or dishonesty on the part
of IRMG, its officers and directors, agents or employees;
(j) that IRMG shall have all the power and authority to carry out its
specific duties and obligations under this Agreement; provided,
however, that in no event shall Scottish Life be deemed to have
surrendered any of its power and authority to perform such actions on
its own behalf, it being understood that and agreed that any
performance by Scottish Life of the duties and obligations of IRMG
shall not reduce any sums otherwise payable IRMG under this
Agreement;
3. IRMG and Scottish Life mutually agree as follows:
(a) that nothing in this Agreement shall obligate IRMG to solicit risks
to be insured by Scottish Life at any time or to act as sales agent
for Scottish Life, and IRMG shall have no authority to and shall not
do either of those things;
(b) that, subject to Clauses 3(d) and (e), this Agreement shall become
effective as of JUNE 30, 1998, and shall remain in full force and
effect thereafter until the party desiring to terminate shall give
written notice of termination to the other party at least ninety days
in advance of the date upon which termination is to take place;
(c) that termination of this Agreement shall not relieve either party of
liability for the performance of obligations imposed upon said party
during the effective period of this Agreement, but which have not
been performed
<PAGE>
[IRMG LOGO] #IRMCMA9701
Page 6
INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT
at the time of its termination;
(d) anything to the contrary in this Agreement notwithstanding, either
party may terminate this Agreement effective immediately upon notice
to the opposite party in the case of the insolvency, bankruptcy,
receivership or liquidation of either party, or in the case of a
material breach of any of the terms or conditions of this Agreement
which has not been rectified within thirty days of such breach being
brought to the attention of the opposite party;
(e) upon cancellation or termination of this Agreement for any reason,
all forms, policies, sales aids, risk management directives and
policies developed for Scottish Life, lists of insureds and
prospective insureds, written books of account, investment records,
premium payment records and written records of every kind and nature
relating to the business of Scottish Life shall become and remain the
property of Scottish Life, and at the expense of Scottish Life,
including personnel time, IRMG shall prepare all such documents and
records in its possession with reasonable promptness for shipment to
the location directed by Scottish Life's Supervisors;
(f) this Agreement shall be governed by and construed under the laws of
the Cayman Islands; IRMG and Scottish Life shall comply in all
respects with the laws of the Cayman Islands; in particular, Scottish
Life recognizes the obligations of IRMG as the holder of an Insurance
Manager's License under the The Insurance Law (24 of 1979) (1998
Revision) and subsequent amendments and hereby grants to IRMG a
general waiver of its confidentiality obligations and authorizes IRMG
to make such disclosures, in the opinion of IRMG, as may be
necessary, desirable or required for the purposes of compliance with
any law or in and about the performance of its functions under this
Agreement; provided, however, that any disclosure not required under
the laws of the Cayman Islands as aforesaid, shall be made only with
the consent of Scottish Life; it is expressly understood that the
waiver granted in paragraph 3(e) herein is limited to enquiries by
Cayman Island Government authorities and no other disclosures shall
be made without the prior consent of Scottish Life;
(g) any dispute arising out of this Agreement, whether arising before or
after
<PAGE>
[IRMG LOGO] #IRMCMA9701
Page 7
INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT
termination, shall be submitted to the decision of a board of
arbitration composed of two arbitrators and an umpire, meeting in
George Town, Grand Cayman, B.W.I. and subject to the Arbitration Law
of the Cayman Islands, unless otherwise agreed;
(h) except for contracts or commitments directly related to obtaining
reinsurance of risks insured by Scottish Life, IRMG shall have no
authority to make any contract or commitment on behalf of Scottish
Life or to cause Scottish Life to make any contract or commitment
unless expressly authorized to do so by Scottish Life's Supervisors.
4. All notices, requests and communications in respect of this Agreement shall
be comfirmed in writing (including telecopier or similar wording) and
shall be given:
If to Scottish Life, to:
Scottish Life Assurance (Cayman) Ltd.
P.O. Box 30868 SMB
Grand Cayman, B.W.I.
Telecopier: 345-949-2519
If to IRMG, to:
International Risk Management (Cayman) Ltd.
P.O. Box 69GT
Grand Cayman, B.W.I.
Attention: President
Telecopier: 345-949-0002
or such other address or telecopier number as such party may hereafter
specify by notice to the other party. Each such notice, request or other
communication in respect of this Agreement shall be deemed given or made
(i) if sent by registered or certified mail, with postage prepaid, one
hundred and forty-four hours after being deposited in the pertinent
national postal system, (ii) if given or made by telecopier, when such
telecopy is transmitted to the telecopier number specified above and the
appropriate answer back is received, or (iii) if delivered by hand or in
any other manner, when such notice is actually received at the address to
which it was directed. Any other notice, request or other communication,
which is not in specific respect of this Agreement, between the parties
shall be deemed given or made when such notice, request or
<PAGE>
[IRMG LOGO] #IRMCMA9701
Page 8
INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
INSURANCE MANAGEMENT AND ADVISORY SERVICES AGREEMENT
communication is actually received by the party to whom it is directed.
5. IRMG warrants and represents that it is a corporation duly organized,
validly existing and in good standing under the laws of the Cayman Islands,
and that the execution and performance of this Agreement are within IRMG's
corporate power, have been duly authorized by all necessary corporate
action, and do not require any governmental permits, licenses or the like
other than those which IRMG now has.
6. IRMG shall not assign any rights nor delegate any obligations hereunder,
other than to its associated or subsidiary companies without prior notice
to Scottish Life's Supervisors.
7. This Agreement represents the entire understanding between IRMG and
Scottish Life as to the matters herein provided for and supersedes all
other written or oral agreements heretofore made and may be changed only by
a mutual agreement in writing established as an amendment hereto signed on
behalf of both parties; if at any time one or more of the provisions of
this Agreement, or any part thereof, is or becomes invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be affected or
impaired thereby.
IN WITNESS WHEREOF, the parties have hereunto set their hands to duplicate
originals hereof.
Date: 7 Aug 1998 INTERNATIONAL RISK MANAGEMENT (CAYMAN) LTD.
--------------------
Attest: /s/ K NORMAN By: /s/ ILLEGIBLE
------------------ -----------------------------
Title: President
-----------------------------
Date: August 12, 1998 SCOTTISH LIFE ASSURANCE (CAYMAN) LTD.
--------------------
Attest: By: /s/ MICHAEL C. FRENCH
------------------ -----------------------------
Title: Chairman of the Board and Chief Executive
-----------------------------
Officer
<PAGE>
EXHIBIT 10.9
INSURANCE ADMINISTRATION, SERVICES AND REFERRAL AGREEMENT
THIS INSURANCE ADMINISTRATION, SERVICES AND REFERRAL AGREEMENT (the
"Agreement") is made as of the day of , 1998 by and between THE
SCOTTISH ANNUITY COMPANY (CAYMAN) LTD., a Cayman Islands insurance company
("Scottish Annuity"), and SCOTTISH LIFE ASSURANCE (CAYMAN) LTD., a Cayman
Islands insurance company ("Scottish Life").
W I T N E S S E T H:
WHEREAS, Scottish Annuity, an affiliate of Scottish Life, is engaged
in the issuance of variable annuity products (the "Products").
WHEREAS, Scottish Annuity wishes to retain Scottish Life to provide
certain administrative and accounting services, and Scottish Life is willing to
furnish such services.
WHEREAS, Scottish Annuity wishes to use office space and the services
of Scottish Life for certain administrative, clerical and accounting tasks and
to transfer certain office equipment to Scottish Life;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. APPOINTMENT.
Scottish Annuity hereby appoints Scottish Life to provide certain
insurance, administrative, clerical and accounting services to Scottish Annuity
for the period and on the terms set forth in this Agreement. Scottish Life
accepts such appointment and agrees to furnish the services herein set forth in
return for the compensation as provided in Section 4 of this Agreement and in
consideration of the covenants set forth in Section 9 hereof.
Scottish Life hereby agrees to sublease certain space to provide
Scottish Annuity with office space and to perform services referred to herein,
on the terms and subject to the conditions set forth in this Agreement, and
Scottish Annuity agrees to transfer certain office equipment to Scottish Life.
2. ADMINISTRATIVE SERVICES.
(a) Scottish Life agrees to provide to Scottish Annuity the following
insurance, administrative, clerical and accounting services during the term of
this Agreement:
(i) investment fund accounting reporting for Products;
<PAGE>
(ii) monitoring compliance with the diversification, investor
control and other requirements of Section 817 of the Internal Revenue Code
of 1986, as amended;
(iii) administrative and clerical services in the issuance by
Scottish Annuity of Products and documents related thereto;
(iv) administrative preparation and delivery (after issuance by
Scottish Annuity) of Products;
(v) servicing of Products after issuance by Scottish Annuity,
including, but not limited to, preparation and delivery of monthly account
statements, administrative processing of loans, administrative processing
of change of owner and beneficiary requests, and administrative processing
of transfers among investment funds in which assets of holders of Products
are invested and contract surrenders (total and partial); and
(vi) administrative and clerical services relating to calculation
of annuity benefits.
(b) Scottish Annuity will be responsible for all other business and
administrative services related to Products, including (i) determinations as to
whether purchasers of annuity products are qualified purchasers; (ii)
investigating investment managers selected by purchasers; and (iii) negotiation
and issuance of Products.
3. ACCOUNTING SERVICES.
Scottish Life will perform general accounting functions (including,
without limitation, the following services) for Scottish Annuity during the term
of this Agreement:
(a) accounting for investment, capital and income and expense
activities and maintenance of individual ledgers for
investment funds in which each Product is invested;
(b) preparing of financial statements of Scottish Annuity;
(c) controlling of all disbursements from Scottish Annuity and
authorizing such disbursements upon instructions from
Scottish Annuity;
(d) preparing of tax returns and similar filings for Scottish
Annuity;
(e) preparing of forms and reports required to be filed by
Scottish Annuity under statutes, rules and other applicable
laws and regulations
2
<PAGE>
(including insurance laws and regulations) of the Cayman
Islands or the British West Indies; and
(f) keeping of the books and records of accounts of Scottish
Annuity and of premiums paid with respect to the Products.
The books and records pertaining to Scottish Annuity which are in the
possession of Scottish Life shall be the property of Scottish Annuity.
4. COMPENSATION; EXPENSE REIMBURSEMENT.
(a) As compensation for the services rendered by Scottish Life
during the term of this Agreement, Scottish Annuity will pay
to Scottish Life, for each annuity contract issued by
Scottish Annuity after the date of this Agreement, an amount
payable in U.S. dollars, equal to the lesser of (a) 50% of
the policy account value under the annuity contract (measured
at the end of a contract year) and (b) 50% of the mortality
and expense of other administrative charge ("M&E Expense")
payable to Scottish Annuity under all annuity contracts,
provided that such amount shall not be less than U.S.$25,000
(the "Minimum Amount"). Payment shall be made by Scottish
Annuity to Scottish Life within 10 days of the date Scottish
Annuity deducts each M&E Expense under the annuity contract,
provided that any amount to be paid by Scottish Annuity other
than from M&E Expenses under the annuity contract shall be
paid by Scottish Annuity within 10 days of the date Scottish
Annuity deducts the last M&E Expense under the annuity
contract during the contract year in which the Minimum Amount
is in effect.
(b) In addition, Scottish Annuity shall reimburse Scottish Life,
quarterly in arrears, for all out-of-pocket fees, costs and
expenses incurred or advanced by Scottish Life on behalf of
Scottish Annuity in connection with this Agreement. Scottish
Life shall present Scottish Annuity with a written request
detailing such fees, costs and expenses, from time to time as
Scottish Annuity deems necessary. Payment of such fees, costs
and expenses shall not be deemed satisfaction of Scottish
Annuity's obligation to pay to Scottish Life the
administrative and clerical fees due pursuant to Section
4(a).
5. CONFIDENTIALITY.
Each party agrees that it will keep confidential and not disclose any
information provided to the other in connection with the services being rendered
hereunder to any other person without the consent of the party from whom the
information was obtained, unless the information is known or becomes known to
the public other than through the breach of any provision of this Agreement or
such disclosure is required by law. Upon termination of this Agreement, each
party agrees to return all information to the other person, including all copies
thereof, unless the returning
3
<PAGE>
person is otherwise required to retain such information by law. Scottish Annuity
agrees that this agreement may be described in Scottish Life Holdings Ltd.'s
registration statement on Form S-1 filed with the Securities and Exchange
Commission of the United States relating to the initial public offering of
ordinary shares of Scottish Life Holdings, Ltd, and this agreement may be filed
as an exhibit to such registration statement and otherwise as required by law.
6. DEFAULT.
In the event that Scottish Annuity fails to pay any part of the
amounts set forth in Sections 4(a) and 4(b) above when and as due, and Scottish
Annuity does not cure such failure within 10 days after the date on which notice
of default is given by Scottish Life, then Scottish Annuity shall be in default
under this Agreement. Scottish Annuity agrees to reimburse Scottish Life for any
and all costs and expenses incurred by Scottish Life, including reasonable
counsel fees and expenses, in connection with such default and any litigation or
other proceedings instituted for the collection of payments due hereunder.
7. INDEMNIFICATION.
Scottish Annuity shall indemnify and hold harmless Scottish Life and
its directors, officers, employees, agents and controlling persons (each being
an "Indemnified Party") from and against any and all losses, claims, damages and
liabilities, joint or several, to which such Indemnified Party may become
subject under any applicable Cayman Islands or U.S. federal or state law, or
otherwise, relating to or arising out of the provision of services contemplated
by this Agreement. Scottish Annuity shall reimburse any Indemnified Party for
all costs and expenses, including reasonable counsel fees and expenses, incurred
in connection with the investigation of, preparation for or defense of any
pending or threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party. Scottish Annuity shall not be
liable under the foregoing indemnification provision to the extent that any
loss, claim, damage, liability or expense is found in a final judgment by a
court of competent jurisdiction to have resulted primarily from the bad faith or
gross negligence of Scottish Life.
8. DURATION AND TERMINATION.
This Agreement shall continue in effect until December 31, 1999, and
shall thereafter be automatically renewed for successive one-year periods, each
commencing January 1 of the renewed term year, unless canceled by either party
in writing not less than 60 days prior to the commencement of a renewed term.
Notwithstanding the foregoing, this Agreement shall terminate earlier upon the
earlier of:
(a) a material breach or default of any of the material
obligations under this Agreement by either party which breach
or default is not cured within 10 days after written notice
to such party by the other party; or
(b) either party is declared insolvent or bankrupt by a court of
competent jurisdiction or liquidation proceedings are
commenced by or against
4
<PAGE>
either party and such proceedings are not dismissed within 30
days after the commencement of such proceedings.
9. PERMISSIBLE AND IMPERMISSIBLE ACTIVITIES; REFERRALS.
(a) Except as set forth in subsection (b) below, nothing herein
shall in any way preclude Scottish Life from engaging in any
activities, including activities competitive with the
business of Scottish Annuity, or from performing services for
its own account or for the account of others.
(b) During the term of this Agreement:
(i) Scottish Annuity shall not, directly or indirectly, offer
or sell (or enter into any contract to sell) any life
insurance product, whether the benefit thereunder is
fixed or variable; and
(ii) Scottish Life shall not, directly or indirectly, offer or
sell (or enter into any contract to sell) any variable
annuity product which does not contain a life insurance
component.
(c) During the term of this Agreement:
(i) Scottish Annuity agrees to refer only to Scottish Life
any opportunity or inquiry Scottish Annuity may receive
to issue and sell any life insurance product, whether the
requested benefit thereunder may be fixed or variable;
and
(ii) Scottish Life agrees to refer only to Scottish Annuity
any opportunity or inquiry Scottish Life may receive to
issue and sell any annuity product which would not
contain a life insurance component.
10. FURTHER ACTIONS.
Each party agrees to perform such further acts and execute such
further documents as are necessary to effectuate the purposes hereof.
11. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS OF THE STATE OF THE CAYMAN ISLANDS, BRITISH WEST INDIES
WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES OF SUCH LAWS.
5
<PAGE>
12. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement between the parties
hereto with respect to the matters covered hereby and supersedes all prior
agreements and understandings between the parties.
13. ASSIGNMENT.
This Agreement shall not be assignable by operation of law or
otherwise without the prior written consent of each party hereto, provided that
Scottish Life may assign its rights under this Agreement to any wholly-owned,
direct or indirect subsidiary of Scottish Life or any person that controls or is
under common control with Scottish Life.
14. AMENDMENT; SUCCESSORS; COUNTERPARTS.
(a) The terms of this Agreement shall not be waived, altered,
modified, amended or supplemented in any manner whatsoever
except by written instrument signed by both parties hereto.
(b) This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors.
(c) This Agreement may be executed in several counterparts, each
of which shall be deemed an original hereof.
15. CAPTIONS.
The captions in this Agreement are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof.
[Signatures on following page]
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their officers designated below on the day and year first above
written.
THE SCOTTISH ANNUITY COMPANY
(CAYMAN) LTD.
By /s/ MICHELLE L. BOUCHER
-------------------------------------------
Name: Michelle L. Boucher
--------------------------------------
Title: Manager of Finance and Administration
--------------------------------------
SCOTTISH LIFE ASSURANCE (CAYMAN) LTD.
By /s/ MICHAEL C. FRENCH
-------------------------------------------
Name: Michael C. French
--------------------------------------
Title: Chairman of the Board and Chief
Executive Officer
--------------------------------------
7
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of July 20,
1998, is made and entered by and between Scottish Life Holdings, Ltd., a Cayman
Islands company (the "Company"), and Henryk Sulikowski (the "Executive").
WITNESSETH:
----------
WHEREAS, the Executive has agreed to serve as Senior Vice President
and Chief Insurance Officer of the Company and is expected to make major
contributions to the short- and long-term profitability, growth and financial
strength of the Company;
WHEREAS, the Company is currently contemplating the offer and sale of
ordinary shares of the Company to the public (the "Offering");
WHEREAS, the Company wishes to assure itself of both present and
future continuation of management in light of the Offering and subsequent to the
Offering; and
WHEREAS, the Company wishes to employ the Executive and the Executive
is willing to be employed by the Company, both on the terms and subject to the
conditions set forth in this Agreement.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. Certain Defined Terms. In addition to terms defined elsewhere herein,
---------------------
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual base salary rate as in
effect from time to time, as set forth in Section 5(a).
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that the Executive shall have committed any of the
following:
(i) an intentional act of fraud, embezzlement or theft in
connection with his duties or in the course of his employment with the
Company or any Subsidiary;
(ii) intentional wrongful damage to any material property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary; or
<PAGE>
(iv) conviction of a felony or other crime involving moral
turpitude;
and any such act shall have been materially harmful to the Company. For
purposes of this Agreement, no act or failure to act on the part of the
Executive shall be deemed "intentional" if it was due primarily to an error
in judgment or negligence, but shall be deemed "intentional" only if done
or omitted to be done by the Executive not in good faith and without
reasonable belief that his action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for "Cause" hereunder unless and until there
shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than two-thirds of the Board
then in office at a meeting of the Board called and held for such purpose,
after reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel (if the Executive chooses to have
counsel present at such meeting), to be heard before the Board, finding
that, in the good faith opinion of the Board, the Executive had committed
an act constituting "Cause" as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or propriety of any
such determination.
(d) "Change in Control" means the occurrence of any of the following
events:
(i) the Company is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such
merger, consolidation or reorganization less than a majority of the
combined voting power of the then-outstanding securities of such
corporation or person immediately after such transaction are held in the
aggregate by the holders of Ordinary Shares immediately prior to such
transaction;
(ii) the Company sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal
person, and less than a majority of the combined voting power of the then-
outstanding securities of such corporation or person immediately after such
sale or transfer is held in the aggregate by the holders of Ordinary Shares
immediately prior to such sale or transfer;
(iii) the Company files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Act disclosing in
response to Form 8-K or Schedule 14A (or any successor schedule, form or
report or item therein) that a change in control of the Company has or may
have occurred or will or may occur in the future pursuant to any then-
existing contract or transaction; or
(iv) if during any period of two consecutive years, individuals
who at the beginning of any such period constitute the Directors cease for
any reason to constitute at least a majority thereof, unless the election,
or the nomination for election by the Company's shareholders, of each
Director first elected during such period was approved by a vote of at
least two-thirds of the Directors then still in office who were Directors
at the beginning of any such period.
2
<PAGE>
Notwithstanding the foregoing provisions of Paragraph (iii) above, a
"Change in Control" shall not be deemed to have occurred for purposes of
this Agreement (i) by reason of any action taken by the Company, including
changes in beneficial ownership of equity securities of the Company, in
connection with the Offering; (ii) solely because (A) the Company; (B) a
Subsidiary; or (C) any Company-sponsored employee stock ownership plan or
other employee benefit plan of the Company either files or becomes
obligated to file a report or proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Act, disclosing
beneficial ownership by it of shares, or because the Company reports that a
change of control of the Company has or may have occurred or will or may
occur in the future by reason of such beneficial ownership; or (iii) solely
because of a change in control of any Subsidiary other than Scottish Life
Assurance (Cayman) Ltd.
(e) "Competitive Activity" means the Executive's participation,
without the written consent of an officer of the Company, in the management of
any business enterprise if such enterprise engages in substantial and direct
competition with the Company. "Competitive Activity" will not include the mere
ownership of securities in any such enterprise and the exercise of rights
appurtenant thereto.
(f) "Employee Benefits" means the perquisites, benefits and service
credit for benefits as provided under any and all employee retirement income and
welfare benefit policies, plans, programs or arrangements in which senior
officers of the Company are entitled to participate, including without
limitation any stock option, performance share, performance unit, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement, or other retirement income or welfare benefit, deferred
compensation, incentive compensation, group or other life, health,
medical/hospital or other insurance (whether funded by actual insurance or self-
insured by the Company or a Subsidiary), disability, salary continuation,
expense reimbursement and other employee benefit policies, plans, programs or
arrangements that may now exist or may be adopted hereafter by the Company or a
Subsidiary.
(g) "Incentive Pay" means an annual bonus, incentive or other payment
of compensation, in addition to Base Pay, made or to be made in regard to
services rendered in any year or other period pursuant to any bonus, incentive,
profit-sharing, performance, discretionary pay or similar agreement, policy,
plan, program or arrangement (whether or not funded) of the Company or a
Subsidiary, or any successor thereto.
(h) "Ordinary Shares" means the ordinary shares, par value $.01 per
share, of the Company.
(i) "Retirement Plans" means the retirement income, supplemental
executive retirement, excess benefits and retiree medical, life and similar
benefit plans providing retirement perquisites, benefits and service credit for
benefits for senior officers of the Company now existing or hereafter adopted.
(j) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting Stock.
3
<PAGE>
(k) "Term" means the period commencing as of the date of this
Agreement and expiring on the third anniversary of this Agreement; provided,
--------
however, that commencing on the third anniversary of the date of this Agreement
- -------
and each anniversary thereafter, the term of this Agreement will automatically
be extended for an additional one year unless, not later than 90 days before any
such anniversary date, the Company or the Executive shall have given written
notice that it or the Executive, as the case may be, does not wish to have the
Term extended.
(l) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date of
termination, or such other date that may be specified by the Executive if the
termination is pursuant to Section 6(b)).
(m) "Voting Stock" means securities entitled to vote generally in the
election of directors.
2. Employment. The Company hereby agrees to employ the Executive, and
----------
the Executive hereby agrees to be employed with the Company for the Term, upon
the terms and conditions herein set forth.
3. Positions and Duties.
--------------------
(a) During the Term, the Executive will serve in the position of
Senior Vice President and Chief Insurance Officer of the Company, or such other
position as may be agreed upon by the Company and the Executive, and will have
such duties, functions, responsibilities and authority as are (i) consistent
with the Executive's position as the Company's Senior Vice President and Chief
Insurance Officer; or (ii) assigned to his office in the Company's bylaws; or
(iii) reasonably assigned to him by the Board. The Executive will report
directly to the Chief Executive Officer of the Company.
(b) During the Term, the Executive will be the Company's full-time
employee and, except as may otherwise be approved in advance in writing by the
Board, and except during vacation periods and reasonable periods of absence due
to sickness, personal injury or other disability, the Executive will devote
substantially all of his business time and attention to the performance of his
duties to the Company. Notwithstanding the foregoing, the Executive may (i)
subject to the approval of the Board, serve as a director of a company, provided
such service does not constitute a Competitive Act, (ii) serve as an officer,
director or otherwise participate in purely educational, welfare, social,
religious and civic organizations, (iii) serve as an officer, director or
trustee of, or otherwise participate in, any organizations and activities with
respect to which the Executive's participation was disclosed to the Company in
writing prior to the date hereof, and (iv) manage personal and family
investments.
4. Place of Performance. In connection with his employment during the
--------------------
Term, unless otherwise agreed by the Executive, the Executive will be based at
the Company's principal executive offices in the Cayman Islands. The Executive
will undertake normal business travel on behalf of the Company.
4
<PAGE>
5. Compensation and Related Matters.
--------------------------------
(a) Annual Base Salary. During the Term, the Company will pay to the
------------------
Executive an annual base salary of not less than US $200,000, which annual base
salary may be increased (but not decreased) from time to time by the Board (or a
duly authorized committee thereof) in its sole discretion, payable at the times
and in the manner consistent with the Company's general policies regarding
compensation of executive employees. The Board may from time to time authorize
such additional compensation to the Executive, in cash or in property, as the
Board may determine in its sole discretion to be appropriate.
(b) Annual Incentive Compensation. If the Board (or a duly authorized
-----------------------------
committee thereof) authorizes any cash incentive compensation or approves any
other management incentive program or arrangement, the Executive will be
eligible to participate in such plan, program or arrangement under the general
terms and conditions applicable to executive and management employees. The
annual cash incentive compensation paid to the Executive will be paid in
accordance with the Company's annual incentive compensation plan. Nothing in
this Section 5(b) will guarantee to the Executive any specific amount of
incentive compensation, or prevent the Board (or a duly authorized committee
thereof) from establishing performance goals and compensation targets applicable
only to the Executive.
(c) Travel and Housing Allowance. During the Term, the Company will
----------------------------
pay an amount not less than $9,000 per month to reimburse the Executive for
housing and personal travel expenses. In addition, the Company shall pay the
airfare for two trips of the Executive and Executive's immediate family from the
Cayman Islands to the United States and return during each year of the Term.
(d) Retirement Account. During the Term, the Company shall fund a
------------------
retirement account for the Executive in an amount not less than 10% of
Executive's Base Pay for each year during the Term. The Company shall provide
for the Executive and his dependents medical and health care benefits as set
forth hereto on Exhibit A.
(e) Executive Benefits. In addition to the compensation described in
------------------
Section (a) and (b), the Company will make available to the Executive and his
eligible dependents, subject to the terms and conditions of the applicable
plans, including without limitation the eligibility rules, participation in all
Company-sponsored employee benefit plans including all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
senior executives of the Company participate, including any stock option, stock
purchase, stock appreciation, savings, pension, supplemental executive
retirement or other retirement income or welfare benefit, disability, salary
continuation, and any other deferred compensation, incentive compensation, group
and/or executive life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company), expense
reimbursement or other employee benefit policies, plans, programs or
arrangements, including, without limitation, financial counseling services or
any equivalent successor policies, plans, programs or arrangements that may now
exist or be adopted hereafter by the Company.
5
<PAGE>
(f) Expenses. In addition to the allowance provided for in Section
--------
4(c), the Company will promptly reimburse the Executive for all business
expenses the Executive incurs in order to perform his duties to the Company
under this Agreement in a manner commensurate with the Executive's position and
level of responsibility with the Company, and in accordance with the Company's
policy regarding substantiation of expenses.
(g) Offering Bonus. The Company shall pay the Executive US $75,000 at
--------------
the earlier to occur of (i) the date of the successful consummation of the
Offering or (ii) December 31, 1998.
(h) Relocation Expenses. The Company shall pay all costs and expenses
-------------------
relating to the relocation of Executive and his immediate family to the
Company's principal place of business located in the Cayman Islands, British
West Indies.
(i) Options. The Company shall grant Executive, upon the execution of
-------
this Agreement, an option ("Option") to purchase up to 300,000 Ordinary Shares
of the Company, such Option to be exercisable at the per share price equal to
the Offering price per share and to be governed by the option agreement attached
hereto as Exhibit B; provided, however, that the Option shall be increased, as
provided in Exhibit B hereto, by a number of Ordinary Shares in an amount equal
to 300,000 multiplied by a fraction where the numerator is the number of
Ordinary Shares issued to the underwriters in the Offering to cover the
underwriter's overallotment and the denominator is the number of Ordinary Shares
issued in the Offering excluding the overallotment.
6. Termination Following the Date of this Agreement.
------------------------------------------------
(a) The Executive's employment may be terminated by the Company during
the Term, and the Executive shall be entitled to the severance compensation
provided by Section 7 unless such termination is the result of the occurrence of
one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits pursuant to,
the long-term disability plan in effect for, or applicable to, the
Executive; or
(iii) Cause.
If, during the Term, the Executive's employment is terminated by the Company or
any Subsidiary other than pursuant to Section 6(a)(i), 6(a)(ii) or 6(a)(iii),
the Executive will be entitled to the benefits provided by Section 7 hereof.
(b) The Executive may terminate employment with the Company during the
Term with the right to severance compensation as provided in Section 7 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as hereinabove provided, for such termination
exists or has occurred, including without limitation other employment):
6
<PAGE>
(i) Failure to elect or reelect or otherwise to maintain the Executive
in the office or the position, or a substantially equivalent office or position,
of or with the Company (or any successor thereto by operation of law of or
otherwise), which the Executive held pursuant to, and upon the date of, this
Agreement.
(ii) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to the
position with the Company which the Executive held pursuant to, and upon the
date of, this Agreement, (B) a reduction in the aggregate of the Executive's
Base Pay received from the Company and any Subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits or a reduction in the
scope or value thereof, unless such reduction is applicable to all employees of
the Company on a pro rata basis, any of which is not remedied by the Company
within 30 calendar days after receipt by the Company of written notice from the
Executive of such change, reduction or termination, as the case may be;
(iii) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has been made
in good faith and in all events will be presumed to have been made in good faith
unless otherwise shown by the Company by clear and convincing evidence) that a
change in circumstances has occurred following this Agreement, including,
without limitation, a change in the scope of the business or other activities
for which the Executive was responsible pursuant to, and upon the date of, this
Agreement, which has rendered the Executive substantially unable to carry out,
has substantially hindered the Executive's performance of, or has caused the
Executive to suffer a substantial reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the position held by the
Executive pursuant to, and upon the date of, this Agreement, which situation is
not remedied within 30 calendar days after written notice to the Company from
the Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of its
business and/or assets, unless the successor or successors (by liquidation,
merger, consolidation, reorganization, transfer or otherwise) to which all or
substantially all of its business and/or assets have been transferred (by
operation of law or otherwise) assumed all duties and obligations of the Company
under this Agreement pursuant to Section 12(a);
(v) The Company relocates its principal executive offices (if such
offices are the principal location of Executive's work), or requires the
Executive to have his principal location of work changed, to any location that,
in either case, is other than the Cayman Islands, without his prior written
consent;
(vi) A Change in Control has occurred and Executive, within one year
thereafter, gives the notice of termination of his employment with the Company
contemplated in this Schedule 6(b); or
7
<PAGE>
(vii) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any successor thereto
which is not remedied by the Company within 30 calendar days after receipt by
the Company of written notice from the Executive of such breach.
(c) A termination by the Company pursuant to Section 6(a) or by the
Executive pursuant to Section 6(b) will not affect any rights that the Executive
may have pursuant to any agreement, policy, plan, program or arrangement of the
Company or any Subsidiary providing Employee Benefits, which rights shall be
governed by the terms thereof.
7. Severance Compensation.
----------------------
(a) If the Company shall terminate the Executive's employment during
the Term other than pursuant to Section 6(a)(i), 6(a)(ii) or 6(a)(iii), if the
Executive shall terminate his employment pursuant to Section 6(b), or if the
Company shall give Executive written notice not later than 90 days prior to the
third anniversary or any subsequent anniversary of this Agreement of non-renewal
of this Agreement, the Company shall pay to the Executive the amount specified
herein upon the later of (i) five business days after the Termination Date or
date of expiration of this Agreement, as the case may be, and (ii) the effective
date of a release executed by the Executive and the Company in the form attached
hereto as Exhibit C. In lieu of any further payments to the Executive for
periods subsequent to the Termination Date or such expiration date, the Company
shall make a lump sum payment (the "Severance Payment"), in an amount equal to
100% of the sum of (1) the greater of (A) any amounts of Base Pay relating to
the first three years of the Term not paid prior to the Termination Date, and
(B) an amount equal to the aggregate annual Base Pay (at the highest rate in
effect for any year prior to the Termination Date), (2) the aggregate Incentive
Pay (based upon the greatest amount of Incentive Pay paid or payable to the
Executive for any year prior to the Termination Date), and (3) the aggregate
sum of the reasonable transportation expenses for relocating Executive and his
immediate family to the United States.
(b) There shall be no right of set-off or counterclaim in respect of
any claim, debt or obligation against any payment to or benefit for the
Executive provided for in this Agreement.
(c) Without limiting the rights of the Executive at law or in equity,
if the Company fails to make any payment required to be made hereunder on a
timely basis, the Company shall pay interest on the amount thereof at an
annualized rate of interest equal to the then-applicable interest rate
prescribed by the Pension Benefit Guarantee Corporation for benefit valuations
in connection with non-multiemployer pension plan terminations assuming the
immediate commencement of benefit payments.
8. No Mitigation Obligation. The Company hereby acknowledges that it
------------------------
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date and that the non-
competition covenant in Section 9 will further limit the employment
opportunities for the Executive. In addition, the Company acknowledges that its
severance pay plans applicable in general to its salaried employees do not
provide for
8
<PAGE>
mitigation, offset or reduction of any severance payment received thereunder.
Accordingly, the payment of the severance compensation by the Company to the
Executive in accordance with the terms of this Agreement is hereby acknowledged
by the Company to be reasonable, and the Executive will not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise, nor will any profits, income, earnings or other
benefits from any source whatsoever create any mitigation, offset, reduction or
any other obligation on the part of the Executive hereunder or otherwise.
9. Competitive Activity; Confidentiality; Nonsolicitation.
------------------------------------------------------
(a) The Executive acknowledges that during the course of his
employment with the Company the Executive will learn business information
valuable to the Company and will form substantial business relationships with
the Company's clients. To protect the Company's legitimate business interests
in preserving its valuable confidential business information and client
relationships, the Executive shall not without the prior written consent of the
Company, which consent shall not be unreasonably withheld, (i) engage in any
Competitive Activity during the Term and (ii) if the Executive shall have
received or shall be receiving benefits under Section 7, engage in any
Competitive Activity for a period ending on the first anniversary of the
Termination Date or date of expiration of this Agreement, as the case may be.
(b) During the Term, the Company agrees that it will disclose to
Executive its confidential or proprietary information (as defined in this
Section 9(b)) to the extent necessary for Executive to carry out his obligations
to the Company. The Executive hereby acknowledges the Company has a legitimate
business interest in protecting its confidential and proprietary information and
hereby covenants and agrees that he will not, without the prior written consent
of the Company, during the Term or thereafter (i) disclose to any person not
employed by the Company, or use in connection with engaging in competition with
the Company, any confidential or proprietary information of the Company or (ii)
remove, copy or retain in his possession any Company files or records. For
purposes of this Agreement, the term "confidential or proprietary information"
will include all information of any nature and in any form that is owned by the
Company and that is not publicly available (other than by Executive's breach of
this Section 9(b)) or generally known to persons engaged in businesses similar
or related to those of the Company. Confidential or proprietary information will
include, without limitation, the Company's financial matters, customers,
employees, industry contracts, strategic business plans, product development (or
other proprietary product data), marketing plans, and all other secrets and all
other information of a confidential or proprietary nature. For purposes of the
preceding two sentences, the term "Company" will also include any Subsidiary
(collectively, the "Restricted Group"). The foregoing obligations imposed by
this Section 9(b) will not apply (i) during the Term, in the course of the
business of and for the benefit of the Company, (ii) if such confidential or
proprietary information will have become, through no fault of the Executive,
generally known to the public or (iii) if the Executive is required by law to
make disclosure (after giving the Company notice and an opportunity to contest
such requirement).
(c) The Executive hereby covenants and agrees that during the Term and
for one year thereafter Executive will not, without the prior written consent of
the Company, which consent shall not unreasonably be withheld, on behalf of
Executive or on behalf of any person,
9
<PAGE>
firm or company, directly or indirectly, attempt to influence, persuade or
induce, or assist any other person in so persuading or inducing, any employee of
the Restricted Group to give up employment or a business relationship with the
Restricted Group.
(d) The Executive agrees that on or before the Termination Date the
Executive shall return all Company property, including without limitation all
credit, identification and similar cards, keys and documents, books, records and
office equipment. The Executive agrees that he shall abide by, through the
Termination Date, the Company's policies and procedures for worldwide business
conduct.
10. Legal Fees and Expenses. It is the intent of the Company that the
-----------------------
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction. Without
respect to whether the Executive prevails, in whole or in part, in connection
with any of the foregoing, the Company will pay and be solely financially
responsible for any and all attorneys' and related fees and expenses incurred by
the Executive in connection with any of the foregoing.
11. Withholding of Taxes. The Company may withhold from any amounts
--------------------
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any applicable law, regulation or
ruling.
12. Successors and Binding Agreement.
--------------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance reasonably satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent the Company would be required to perform if no such succession had taken
place. This Agreement will be binding upon and inure to the benefit of the
Company and any successor to the Company, including without limitation any
persons acquiring directly or indirectly all or substantially all of the
business or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be deemed the
"Company" for the purposes of this Agreement), but will not otherwise be
assignable, transferable or delegable by the Company.
10
<PAGE>
(b) This Agreement will inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign, transfer or delegate
this Agreement or any rights or obligations hereunder except as expressly
provided in Sections 12(a) and 12(b). Without limiting the generality or effect
of the foregoing, the Executive's right to receive payments hereunder will not
be assignable, transferable or delegable, whether by pledge, creation of a
security interest, or otherwise, other than by a transfer by Executive's will or
by the laws of descent and distribution and, in the event of any attempted
assignment or transfer contrary to this Section 12(c), the Company shall have no
liability to pay any amount so attempted to be assigned, transferred or
delegated.
13. Notices. For all purposes of this Agreement, all communications,
-------
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by, or three business days after having been sent by an
internationally recognized overnight courier service such as FedEx or UPS,
addressed to the Company (to the attention of the Chief Executive Officer of the
Company) at its principal executive office and to the Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
14. Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the Cayman Islands, British West Indies, without
giving effect to the principles of conflict of laws.
15. Validity. If any provision of this Agreement or the application of
--------
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
16. Miscellaneous. No provision of this Agreement may be modified, waived
-------------
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
Agreement. References to Sections are to references to Sections of this
Agreement.
11
<PAGE>
17. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
18. Entire Agreement. This Agreement sets forth the entire understanding
----------------
between the Company and the Executive, and all oral or written agreements or
representations, express or implied, with respect to the subject matter of this
Agreement are set forth in this Agreement. All prior employment agreements,
understandings and obligations (whether written, oral, express or implied)
between the Company and the Executive are, without further action, terminated as
of the date of this Agreement and are superseded by this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
/s/ HENRYK SULIKOWSKI
-------------------------
Henryk Sulikowski
SCOTTISH LIFE HOLDINGS, LTD.
By: /s/ Michael C. French
-------------------------
Name: Michael C. French
Title: Chairman of the Board of
Directors and Chief Executive
Officer
13
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent the reference to our firm under the caption "Experts" and to the
use of our report dated June 19, 1998, and July 1, 1998 in the Registration
Statement (Form S-1), dated June 19, 1998, and any amendments or supplements
thereto, and the related Prospectus of Scottish Life Holdings, Ltd.
/s/ Ernst & Young
George Town, Grand Cayman
British West Indies
August 12, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF THE BERSTEIN LAW FIRM
We hereby consent to the references to our firm in the Registration
Statement on Form S-1 (Commission No. 333-57227), any amendments and
supplements thereto and the related Prospectus of Scottish Annuity & Life
Holdings, Ltd.
/s/ The Bernstein Law Firm, PLLC
---------------------------------
The Bernstein Law Firm, PLLC
August 13, 1998
