-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NKYYmeh+fekvn03hAst19Y2LJQMmlaOvxPYxAZKCN24ZEAAVFlGj2hiuzE4lyIoz H5AtvtAoKYoRzl9+DzIV7g== 0000893220-99-000561.txt : 19990511 0000893220-99-000561.hdr.sgml : 19990511 ACCESSION NUMBER: 0000893220-99-000561 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ANNUITY & LIFE RE HOLDINGS LTD CENTRAL INDEX KEY: 0001051628 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23625 FILM NUMBER: 99615876 BUSINESS ADDRESS: STREET 1: VICTORIA HALL STREET 2: VICTORIA STREET, PO BOX HM 1262 CITY: HAMILTON, HM BERMUDA BUSINESS PHONE: 4412951422 MAIL ADDRESS: STREET 1: VICTORIA HALL, VICTORIA STREET STREET 2: PO BOX HM 1262, HAMILTON, HM FX CITY: BERMUDA 10-Q 1 ANNUITY AND LIFE RE (HOLDINGS), LTD. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-23625 ANNUITY AND LIFE RE (HOLDINGS), LTD. (Exact name of registrant as specified in its charter) Bermuda Not applicable (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) Cumberland House, Victoria Street, Hamilton, Bermuda (Address of principal executive offices) 441-296-7667 (Registrant's Telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No The number of the Registrant's Common Shares (par value $1.00 per share) outstanding as of May 7, 1999 was 25,499,999. 2 INDEX TO FORM 10-Q PART I - FINANCIAL INFORMATION
PAGE ITEM 1. Unaudited Consolidated Financial Statements Consolidated Balance Sheets March 31, 1999 and December 31, 1998 ....................................... 3 Consolidated Statements of Operations Three Months ended March 31, 1999 and March 31, 1998 ....................... 4 Consolidated Statements of Comprehensive Income Three Months ended March 31, 1999 and March 31, 1998 ....................... 5 Consolidated Statements of Cash Flows Three Months ended March 31, 1999 and March 31, 1998 ....................... 6 Consolidated Statements of Changes in Stockholders' Equity Three Months ended March 31, 1999 and March 31, 1998 ....................... 7 Notes to Unaudited Consolidated Financial Statements ....................... 8-9 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .............................. 10-13 PART II - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K 14 Signatures Exhibits
3 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED BALANCE SHEETS UNAUDITED (Expressed in United States Dollars)
March 31, 1999 December 31, 1998 -------------- ----------------- ASSETS Cash and cash equivalents $ 25,764,739 $ 66,586,267 Fixed maturity investments, available for sale, at fair value (amortized cost of $295,993,175 at March 31, 1999: December 31, 1998: $272,305,333) 296,261,447 276,027,927 Funds withheld at interest 1,411,829,191 1,200,101,268 Accrued investment income 3,945,407 3,812,062 Deferred policy acquisition costs 189,514,383 159,582,286 Other assets 726,770 400,370 --------------- --------------- Total Assets $ 1,928,041,937 $ 1,706,510,180 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Reserves for future policy benefits $ 27,443,909 $ 22,026,409 Interest-sensitive contracts liabilities 1,510,638,757 1,283,675,809 Other reinsurance liabilities 5,393,099 22,455,437 Payable for investments purchased 1,493,775 Accounts payable and accrued expenses 3,560,318 3,012,279 --------------- --------------- Total Liabilities $ 1,548,529,858 $ 1,331,169,934 --------------- --------------- STOCKHOLDERS' EQUITY Preferred Shares (par value $1.00; 50,000,000 shares authorized; no shares outstanding) -- -- Common Shares (par value $1.00; 100,000,000 shares authorized; 25,499,999 shares outstanding) $ 25,499,999 $ 25,499,999 Additional paid-in capital 329,517,104 329,517,104 Notes receivable from stock sales (1,227,192) (1,391,068) Accumulated other comprehensive income 268,272 3,722,594 Retained earnings 25,453,896 17,991,617 --------------- --------------- Total Stockholders' Equity $ 379,512,079 $ 375,340,246 --------------- --------------- Total Liabilities and Stockholders' Equity $ 1,928,041,937 $ 1,706,510,180 =============== ===============
See accompanying notes to consolidated financial statements. 3 4 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (Expressed in United States Dollars)
Three Months Ended Three Months Ended March 31, 1999 March 31, 1998 -------------- -------------- REVENUES Net premiums $18,247,012 $ Investment income, net of related expenses 18,159,060 -- Net realized investment gains 263,458 Other 239,701 -- ----------- ----------- Total Revenues 36,909,231 $ -- ----------- ----------- BENEFITS AND EXPENSES Claims and policy benefits $15,765,869 $ -- Net cost on interest sensitive Contract liabilities 3,876,829 Policy acquisition costs and other insurance expenses 7,405,339 -- Operating expenses 1,378,915 407,372 Organizational expenses -- 41,614 ----------- ----------- Total Benefits and Expenses $28,426,952 $ 448,986 ----------- ----------- Net Income (loss) $ 8,482,279 $ (448,986) =========== =========== NET INCOME PER COMMON SHARE (NOTE 3): Basic $ 0.33 $ -- Diluted $ 0.31 $ --
See accompanying notes to consolidated financial statements 4 5 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) UNAUDITED (Expressed in United States Dollars)
Three Months Ended Three Months Ended March 31, 1999 March 31, 1998 -------------- -------------- Net Income (loss) for period $ 8,482,279 $ (448,986) ----------- ----------- Other comprehensive income; Unrealized holding gains (losses) on securities arising during period (3,717,780) -- Plus reclassification adjustment for gains Realized in net income 263,458 -- ----------- ----------- Total other comprehensive income (3,454,322) -- ----------- ----------- Total Comprehensive income (loss) $ 5,027,957 $ (448,986) =========== ===========
See accompanying notes to consolidated financial statements 5 6 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (Expressed in United States Dollars)
Three Months Ended Three Months Ended March 31, 1999 March 31, 1998 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 8,482,279 $ (448,986) Adjustments to reconcile net income to cash flow from operating activities Net realized investment gains (263,458) -- Changes in: Accrued investment income (133,345) -- Deferred policy acquisition costs (29,932,097) Other assets (326,400) (110,920) Reserves for future policy benefits and interest Sensitive contracts, net of funds withheld 20,652,525 Other reinsurance liabilities (17,062,338) Accounts payable 548,039 559,900 ------------ ------------ Net cash provided (used) by operating activities (18,034,795) (6) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of fixed maturity securities 69,565,470 -- Purchase of fixed maturity securities 91,496,079 -- ------------ ------------ Net cash provided (used) by investing activities (21,930,609) -- ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Repayment of Note Receivable, less Interest accrued 163,876 Dividends paid to stockholders (1,020,000) ------------ Net cash provided (used) by financing activities (856,124) -- ------------ ------------ Increase (decrease) in cash and cash equivalents (40,821,528) (6) Cash and cash equivalents, beginning of period 66,586,267 250,000 ------------ ------------ Cash and cash equivalents, end of period $ 25,764,739 $ 249,994 ============ ============
See accompanying notes to consolidated financial statements. 6 7 ANNUITY AND LIFE RE (HOLDINGS), LTD. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY UNAUDITED (Expressed in United States Dollars)
Three months Ended Three months Ended March 31, 1999 March 31, 1998 -------------- -------------- PREFERRED SHARES PAR VALUE $1.00 Balance at beginning and end of period $ -- $ -- ------------- ------------- COMMON SHARES PAR VALUE $1.00 Balance of beginning of period $ 25,499,999 $ 12,000 Issuance of shares -- Retirement of shares -- ------------- ------------- Balance at end of period $ 25,499,999 $ 12,000 ------------- ------------- ADDITIONAL PAID-IN CAPITAL Balance at beginning of period $ 329,517,104 $ 238,000 Issuance of shares -- Direct equity offering expenses -- ------------- ------------- Balance at end of period $ 329,517,104 $ 238,000 ------------- ------------- NOTES RECEIVABLE FROM STOCK SALES Balance at beginning of period $ (1,391,068) $ -- Notes issued -- Repayments 174,950 Accrued interest during period 11,074 -- ------------- ------------- Balance at end of period $ (1,227,192) $ -- ------------- ------------- ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period $ 3,722,594 $ -- Net unrealized holding gains on securities (3,454,322) -- ------------- ------------- Balance at end of period $ 268,272 $ -- ------------- ------------- RETAINED EARNINGS Balance at beginning of period $ 17,991,617 $ -- Net income 8,482,279 (448,986) Stockholder Dividends (1,020,000) -- ------------- ------------- Balance at end of period $ 25,453,896 $ (448,986) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY $ 379,512,079 $ (198,986) ============= =============
See accompanying notes to consolidated financial statements. 7 8 ANNUITY AND LIFE RE (HOLDINGS), LTD. NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on December 2, 1997 under the laws of Bermuda to provide annuity and life reinsurance to insurers and reinsurers through its wholly-owned subsidiary, Annuity and Life Reassurance, Ltd. ("Annuity Reassurance" and, together with Holdings, the "Company"). Annuity Reassurance is licensed under the insurance laws of Bermuda as a long term insurer. 2. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Form 10K for the fiscal year ended December 31,1998. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in these financial statements. It should be noted that, in view of the Company's limited operating history, the financial data included herein is not necessarily indicative of the results of operations or financial condition of the Company in the future. 3. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share. The Company was nominally capitalized with 12,000 common shares of par value $1.00 each during the period from its incorporation to the date of its initial public offering and did not commence operations until April 17, 1998. For this reason earnings per share for the three months ended March 31, 1998 is not presented as, in the opinion of management, it is not meaningful.
Three Months Ended March 31, 1999 -------------- Net Income $ 8,482,279 Weighted average number of common 25,499,999 shares outstanding Weighted average number of common shares outstanding including shares issuable from exercise of options and warrants 27,181,315 Earnings per share $ 0.33 Earnings per share assuming dilution $ 0.31
8 9 4. ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging Activities". This Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. The Company is currently reviewing the impact of this standard on its financial reporting. 9 10 ANNUITY AND LIFE RE (HOLDINGS), LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1. GENERAL Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on December 2, 1997 under the laws of Bermuda to provide annuity and life reinsurance to insurers and reinsurers through its wholly-owned subsidiary, Annuity and Life Reassurance, Ltd. ("Annuity Reassurance" and together with Holdings, the "Company"). Annuity Reassurance is licensed under the insurance laws of Bermuda as a long term insurer. 2. OPERATING RESULTS Net Income. For the three-month period ending March 31,1999, the Company had consolidated net Income of approximately $8,482,000 or $0.33 per common share , $0.31 per common share on a fully diluted basis. A loss of approximately $449,000 was incurred during the three month period ended March 31, 1998 relating to expenses and costs incurred in the formation and organization of the Company; the Company began its insurance operations on April 17,1998 following the completion of its initial public offering and direct sales of its Common Shares. Net Operating Income. In addition to net income, the Company reports net operating income which excludes realized investment gains and losses. Net Operating Income is commonly used in the insurance industry as a measure of on-going earnings performance. Net Operating Income for the three month period ending March 31, 1999 was approximately $8,219,000 or $0.32 per common share, $0.30 per common share on a fully diluted basis. Net Premiums. Net premium revenue was approximately $18.2 million for the three-month period ending March 31,1999. All premium revenue was derived from traditional ordinary life reinsurance. At March 31, 1999 the total face amount of life insurance in force was approximately$30.0 billion compared with approximately $22.5 billion at December 31,1998 , an increase of 33.3%. This increase reflects the level of new business written by the Company which became effective during the period. The Company expects premium revenue to follow the level and growth of the face amount of insurance in-force. Net Investment Income. Total Net investment income for the three month period ending March 31,1999 was approximately $18.2 million. This includes approximately $12.7 million in income earned on funds withheld under modified coinsurance agreements related to the Company's interest sensitive contract liabilities. Total assets increased approximately 13% from December 31,1998. The average yield rate earned on an annualized basis on the invested assets, excluding the funds withheld, for this period was approximately 6.27%. Realized Investment Gains. Realized investment gains were approximately$263,000 resulting from activity within the Company's investment portfolios. At March 31, 1999 the Company's portfolio of fixed maturity securities had unrealized gains of approximately $268,000. Due to the increase in interest rates during the period the Company had unrealized losses of approximately $3.4 million which were included in Other Comprehensive Income. 10 11 Realized gains and losses are not considered by the Company to be recurring components of earnings. The Company makes decisions concerning the sales of invested assets based on a variety of market, business and other factors. Claims and Policy Benefits. Claims and policy benefits were approximately $15.8 million for the period ending March 31,1999. This represents 86% of the net premium revenue. The Company expects mortality to be fairly constant over long periods of time, but to fluctuate from period to period. Reserve levels will in part be determined by the Company's experience and overall mortality trends. Policy Acquisition and Other Insurance Expenses. Policy acquisition and other insurance expenses, consisting primarily of allowances and amortization of deferred policy acquisition costs , were approximately $7.4 million for the period ending March 31, 1999. Of this amount approximately $6.3 million is related to the Company's annuity reinsurance product line and approximately $1.1 million to the life reinsurance product line. Generally, policy acquisition costs and other insurance expenses fluctuate with product mix and business volumes. Other Operating Expenses. Operating expenses for the three month period ending March 31, 1999 were approximately $1.4 million or 3.7% of total revenue. The operating expense level is considered by Company Management to be very low by industry standards and is in line with the Company's plan to be a low cost provider. 3. FINANCIAL CONDITION Investments Invested assets, including cash and cash equivalents, amounted to approximately $322.0 million at March 31,1999. Net unrealized gains on invested assets total $268,000 at March 31,1999 and generally reflect the increase in interest rates during the period. The Company's investment policy is designed to achieve above average risk adjusted returns, maintain a high quality portfolio, maximize current income, maintain an adequate level of liquidity and match the cash flows of the portfolio to the required cash flows for the related liabilities. Funds Withheld at Interest - Interest Sensitive Contracts Liabilities Assets with a carrying value of approximately $1,411.8 million relate to an annuity reinsurance agreement with the Company are held by and managed by the ceding company in segmented portfolios. The liability for the annuity reinsurance is included on the Company's Balance Sheet as Interest Sensitive Contracts Liabilities. During the period these assets and liabilities each grew approximately 17% primarily due to the level of new deposits accepted by the Company under the reinsurance agreement. Liquidity and Capital Resources The Company's liquidity and capital resources are a measure of the overall financial strength of the Company and its ability to generate cash flows from its operations to meet operating and growth needs. The Company's principal sources of funds are premiums received, net investment income, proceeds from investments called, redeemed or sold, cash and short term investments. The principal obligations and uses of the funds are the payment of policy benefits, acquisition and operating costs and the purchase of investments. 11 12 For the three month period ended March 31,1999 the Company used approximately $18.0 million in its operating activities. This is primarily related to initial costs associated with writing new life reinsurance and annuity reinsurance business. The funds to meet these obligations were provided by the cash and cash equivalent balances held at December 31,1998. The Company's capital structure currently consists entirely of equity. At March 31,1999 total capitalization of the Company after deducting certain loans to management and including retained earnings and accumulated other comprehensive income amounted to approximately $379.5 million. Management believes this level of capital is sufficient to support the Company's insurance writings and growth for the near future. At March 31,1999 the Company had no outstanding debt. At March 31, 1999 letters of credit totaling approximately $46.4 million issued in the ordinary course of the Company's business have been issued by the Company's bankers in favor of certain ceding insurance companies; these letters of credit are fully collateralized by investments of the Company. The Company may incur indebtedness in the future in connection with possible acquisitions of, investments in, joint ventures with or strategic alliances with companies whose businesses compliment the Company's business. On April 17, 1998 the Company completed an initial public offering of 19,640,579 common shares; total proceeds received net of underwriting discounts and commissions were approximately$276.9 million. Simultaneous with the initial closing of the public offering, direct sales of 5,859,420 common shares and 397,500 Class B warrants were made to strategic investors, certain members of the Board of Directors and Company management; total net proceeds were approximately $82.6 million. Substantially all of the net proceeds from these offerings were used to provide working capital and to capitalize the operating subsidiary, Annuity and Life Reassurance, Ltd. On February 11, 1999 the Board of Directors declared a quarterly stockholder dividend of $.04 per share payable to shareholders of record on March 10, 1999. The continued payment of dividends is dependent on the ability of Annuity and Life Reassurance, Ltd., to achieve satisfactory underwriting and investment results and other factors determined to be relevant by the Company's Board of Directors. The Company currently has no material commitments for capital expenditures. 4. YEAR 2000 Many existing computer programs use only two digits to identify a year in the date field. These programs, if not corrected, could fail or create erroneous results by or at the year 2000. This "Year 2000" issue is believed to affect virtually all companies and organizations. All of the Company's data processing and related systems were purchased after April 17, 1998. Therefore, the Company believes that its exposure with respect to its own computer systems to Year 2000-related problems will not be significant. The Company does not expect to incur any material costs in connection with Year 2000-related issues. However, the Company will be exposed to the risk that its third-party service providers and client companies may be exposed to Year 2000-related problems. The Company has no direct control over the Year 2000 compliance efforts of its third party service providers and client companies. The Company is monitoring whether such parties will be Year 2000 compliant on a timely basis and has received assurances that they will be. There can be no assurance, however, that the Company's operations will not experience material disruptions due to the failure of the Company's third-party service providers or 12 13 client companies to become fully Year 2000 compliant in a timely manner or that such failure will not otherwise have an adverse effect on the Company. Furthermore, the Company's interaction with third-party service providers and client companies outside the United States may subject the Company to additional Year 2000 risk as foreign entities have in general not addressed Year 2000 compliance issues as comprehensively as their United States counterparts. The Company will continue to monitor developments relating to the issue, including the development of additional contingency plans to supplement its current contingency plan, which provides for the replacement of existing third-party service providers which are not Year 2000 compliant with comparable third-party service providers which are Year 2000 compliant, and including the development of contingency plans for providing back-up services in the event of a systems failure. 5. FORWARD-LOOKING AND CAUTIONARY STATEMENTS The Company and its representatives may from time to time make written or oral forward-looking statements, including those contained in the foregoing Management's Discussion and Analysis. In order to take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, the Company is hereby identifying certain important factors which could cause the Company's actual results, performance or achievement to differ materially from those that may be contained in or implied by any forward-looking statement made by or on behalf of the Company. The factors that could cause such forward-looking statements not to be realized include, without limitation, acceptance in the market of the Company's reinsurance products; pricing competition; the amount of underwriting capacity from time to time in the market; general economic conditions and conditions specific to the reinsurance and investment markets in which the Company operates; material fluctuations in interest rate levels; regulatory changes and conditions; rating agency policies and practices; claims development; and loss of key executives. The Company cautions that the foregoing list of important factors is not intended to be, and is not, exhaustive, The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. 13 14 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - The following exhibits are filed as part of this report on Form 10-Q: 4 Annuity and Life Re (Holdings), Ltd. Initial Stock Option Plan (as amended, effective April 29,1999. 11 Computation of Earnings per share 27 Financial Data Schedule (b) Reports on Form 8-K - There were no reports on Form 8-K filed during the period ended March 31, 1999. 14 15 ANNUITY AND LIFE RE (HOLDINGS), LTD. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Annuity and Life Re (Holdings), Ltd. Date: ------------------- ---------------------------------------- Name: Lawrence S. Doyle Title: President and Chief Executive Officer (Principal Executive Officer) Date: ------------------- ---------------------------------------- Name: William W. Atkin Title: Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer) 15 EX-4 2 INITIAL STOCK OPTION PLAN 1 Exhibit 4 ANNUITY AND LIFE RE (HOLDINGS), LTD. INITIAL STOCK OPTION PLAN (as amended and restated effective April 29, 1999) 2 TABLE OF CONTENTS
PAGE ---- SECTION 1 Definitions..............................................................1 SECTION 2 Administration...........................................................4 SECTION 3 Eligibility..............................................................4 SECTION 4 Common Shares............................................................4 SECTION 5 Annual Limit.............................................................5 SECTION 6 Granting of Options to Key Employees and Consultants.....................5 SECTION 7 Terms and Conditions of Options to Key Employees and Consultants ........6 SECTION 8 Options for Non-Employee Directors......................................11 SECTION 9 Option Agreements - Other Provisions....................................14 SECTION 10 Capital Adjustments.....................................................14 SECTION 11 Amendment or Discontinuance of the Plan.................................15 SECTION 12 Termination of Plan.....................................................16 SECTION 13 Shareholder Approval....................................................16 SECTION 14 Miscellaneous...........................................................17 SECTION 15 Change in Control.......................................................18
3 ANNUITY AND LIFE RE (HOLDINGS), LTD. INITIAL STOCK OPTION PLAN PURPOSE This ANNUITY AND LIFE RE (HOLDINGS), LTD. INITIAL STOCK OPTION PLAN is intended to provide a means whereby Annuity and Life Re (Holdings), Ltd. may, through the grant of Options to purchase Common Shares of the Company to Key Employees, Non-Employee Directors, and Consultants attract and retain such individuals and motivate them to exercise their best efforts on behalf of the Company and of any Related Corporation. SECTION 1 DEFINITIONS As used in the Plan the following words and terms shall have the meaning hereinafter set forth unless the context clearly indicates otherwise: (a) BOARD. The term "Board" shall mean the Board of Directors of the Company. (b) CODE. The term "Code" shall mean the Internal Revenue Code of 1986, as amended. (c) COMMITTEE. The term "Committee" shall mean the Company's Compensation Committee which shall consist of not less than two (2) directors of the Company and who shall be appointed by, and shall serve at the pleasure of, the Board. Each member of such Committee, while serving as such, shall be deemed to be acting in his or her capacity as a director of the Company. On and after the date the Company first registers equity securities under Section 12 of the Exchange Act, it is intended that each member of the Committee shall be a Rule 16b-3 Non-Employee Director. Notwithstanding the foregoing, if the Committee does not consist solely of two (2) or more Rule 16b-3 Non-Employee Directors, the full Board shall serve as the Committee if it is intended that Options satisfy the advance approval requirements of 17 CFR Section 240.16b-3. (d) COMMON SHARES. The term "Common Shares" shall mean the common shares of the Company, par value $1.00 per share. (e) COMPANY. The term "Company" shall mean Annuity and Life Re (Holdings), Ltd., a Bermuda corporation. (f) CONSULTANT. The term "Consultant" shall mean a consultant or advisor who is not an employee of the Company or a Related Corporation and is not a Non- -1- 4 Employee Director, but may include directors, officers, employees and partners of Inter-Atlantic Capital Partners, Inc. or its affiliates. (g) ELIGIBLE NON-EMPLOYEE DIRECTORS. The term "Eligible Non-Employee Director" shall mean a Non-Employee Director who is not a director, officer or employee of Inter-Atlantic Capital Partners, Inc. or its affiliates. (h) EXCHANGE ACT. The term "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (i) FAIR MARKET VALUE. The term "Fair Market Value" shall mean the fair market value of the optioned Common Shares arrived at by a good faith determination of the Committee and shall be: (1) The quoted closing price, if there is a market for the Common Shares on a registered securities exchange or in an over the counter market, on the date of grant; (2) The weighted average of the quoted closing prices on the nearest date before and the nearest date after the date of grant, if there are no sales on the date of grant but there are sales on dates within a reasonable period both before and after the date of grant; (3) The mean between the bid and asked prices, as reported by the National Quotation Bureau on the date of grant, if actual sales are not available during a reasonable period beginning before and ending after the date of grant; or (4) Such other method of determining fair market value as shall be authorized by the Code, or the rules or regulations thereunder, and adopted by the Committee. Where the fair market value of the optioned Common Shares is determined under (2) above, the average of the quoted closing prices on the nearest date before and the nearest date after the date of grant is to be weighted inversely by the respective numbers of trading days between the selling dates and the date of grant (i.e., the valuation date), in accordance with Treas. Reg. Section 20.2031-2(b)(1). (j) ISO. The term "ISO" shall mean an Option which, at the time such Option is granted, qualifies as an incentive stock option within the meaning of Section 422 of the Code. (k) KEY EMPLOYEE. The term "Key Employee" shall mean an officer or any other key employee of the Company or of a Related Corporation. -2- 5 (l) NON-EMPLOYEE DIRECTOR. The term "Non-Employee Director" shall mean a director of the Company who is not an employee of the Company or a Related Corporation. (m) NQSO. The term "NQSO" shall mean an Option which is not an ISO, and/or is designated as an NQSO in the Option Agreement. (n) OPTION. The term "Option" shall mean any stock option granted to a Key Employee, Non-Employee Director, or Consultant under Sections 7 and 8 hereof. (o) OPTION AGREEMENT. The term "Option Agreement" shall mean a written document evidencing the grant of an Option, as described in Section 9. (p) OPTIONEE. The term "Optionee" shall mean a Key Employee, Non-Employee Director, or Consultant to whom an Option has been granted. (q) PLAN. The term "Plan" shall mean the Annuity and Life Re (Holdings), Ltd. Initial Stock Option Plan, as set forth herein and as amended from time to time. (r) RELATED CORPORATION. The term "Related Corporation" shall mean either a corporate subsidiary of the Company, as defined in section 424(f) of the Code, or the corporate parent of the Company, as defined in section 424(e) of the Code. (s) RULE 16B-3 NON-EMPLOYEE DIRECTOR. The term "Rule 16b-3 Non-Employee Director" shall mean a director who: (1) Is not currently an officer (as defined in 17 CFR Section 240.16a-1(f)) of, or otherwise currently employed by, the Company or a parent or subsidiary of the Company within the meaning of 17 CFR Section 240.16b-3(b)(3); (2) Does not receive compensation, either directly or indirectly, from the Company or a parent or subsidiary of the Company within the meaning of 17 CFR Section 240.16b-3(b)(3) for services rendered as a consultant or in any other capacity other than as a director, except for an amount that does not exceed the dollar amount for which disclosure would be required under 17 CFR Section 229.404(a); (3) Does not possess an interest in any other transaction for which disclosure would be required pursuant to 17 CFR Section 229.404(a); and (4) Is not engaged in a business relationship for which disclosure would be required pursuant to 17 CFR Section 229.404(b). -3- 6 SECTION 2 ADMINISTRATION The Plan shall be administered by the Committee. The Committee shall have full authority, subject to the terms of the Plan, to select the Key Employees and Consultants to be granted ISOs and/or NQSOs under the Plan, to grant Options on behalf of the Company and to set the date of grant and the other terms of such Options. Options granted to Non-Employee Directors shall be granted pursuant to the formula set forth in Section 8(a) hereof. The Committee may correct any defect, supply any omission and reconcile any inconsistency in this Plan and in any Option granted hereunder in the manner and to the extent it shall deem desirable. The Committee also shall have the authority to establish such rules and regulations, not inconsistent with the provisions of the Plan, for the proper administration of the Plan, and to amend, modify or rescind any such rules and regulations, and to make such determinations and interpretations under, or in connection with, the Plan, as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon the Company, its shareholders and all employees, directors, and consultants, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. No member of the Board or the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted under it. SECTION 3 ELIGIBILITY Key Employees, Non-Employee Directors, and Consultants shall be eligible to receive Options under the Plan. Key Employees shall be eligible to receive ISOs and/or NQSOs. Non-Employee Directors and Consultants shall be eligible to receive only NQSOs. More than one Option may be granted to a Key Employee, Non-Employee Director, or Consultant under the Plan. SECTION 4 COMMON SHARES Options may be granted under the Plan to purchase up to a maximum of 1,552,500 Common Shares. In addition, effective as of April 29, 1999, Options may be granted each calendar year to purchase up to a number of Common Shares equal to two percent (2.0%) of the adjusted average of the outstanding Common Shares of the Company for the preceding fiscal year, as that number is determined by the Company to calculate fully diluted earnings per share for the Company's Form 10-K. (For 1999, the additional number of shares available pursuant to the preceding sentence is 510,416.) However, in no event may more than 2,062,916 Common Shares be issued under ISOs. The maximum number of Common Shares available under the Plan shall be subject to further adjustment as provided in Section 10 hereof. Shares issuable under the Plan may be authorized but unissued shares or reacquired shares, and the Company may purchase shares required for this purpose, from time to time, if it deems such purchase to be advisable. -4- 7 If any Option granted under the Plan expires or otherwise terminates for any reason whatever (including, without limitation, the Optionee's surrender thereof) without having been exercised, the shares subject to the unexercised portion of such Option shall continue to be available for the granting of Options under the Plan as fully as if such shares had never been subject to an Option. SECTION 5 ANNUAL LIMIT (a) ISOs. The aggregate Fair Market Value (determined as of the date the ISO is granted) of the Common Shares with respect to which ISOs are exercisable for the first time by a Key Employee during any calendar year (under this Plan and any other ISO plan of the Company or a Related Corporation) shall not exceed one hundred thousand dollars ($100,000). (b) OPTIONS OVER ANNUAL LIMIT. If an Option intended as an ISO is granted to a Key Employee and such Option may not be treated in whole or in part as an ISO pursuant to the limitation in subsection (a) above, such Option shall be treated as an ISO to the extent it may be so treated under such limitation and as an NQSO as to the remainder, but shall continue to be subject to the provisions of the Plan that apply to ISOs. For purposes of determining whether an ISO would cause such limitation to be exceeded, the Key Employee's incentive stock options shall be taken into account in the order granted. (c) NQSOs. The annual limit set forth above for ISOs shall not apply to NQSOs. SECTION 6 GRANTING OF OPTIONS TO KEY EMPLOYEES AND CONSULTANTS From time to time until the expiration or earlier suspension or discontinuance of the Plan, the Committee may, on behalf of the Company, grant to Key Employees and Consultants under the Plan such Options as it determines are warranted; provided, however, that grants of ISOs and NQSOs shall be separate and not in tandem. The granting of an Option under the Plan shall not be deemed either to entitle the Key Employee or Consultant to, or to disqualify the Key Employee or Consultant from, any participation in any other grant of Options under the Plan. In making any determination as to whether a Key Employee or Consultant shall be granted an Option and as to the number of shares to be covered by such Option, the Committee shall take into account the duties of the Key Employee or Consultant, his or her present and potential contributions to the success of the Company or a Related Corporation, and such other factors as the Committee shall deem relevant in accomplishing the purposes of the Plan. Moreover, the Committee may provide in the Option that said Option may be exercised only if certain conditions, as determined by the Committee, are fulfilled. -5- 8 SECTION 7 TERMS AND CONDITIONS OF OPTIONS TO KEY EMPLOYEES AND CONSULTANTS The Options granted pursuant to the Plan to Key Employees and Consultants shall include expressly or by reference the following terms and conditions, as well as such other provisions not inconsistent with the provisions of this Plan and, for ISOs, the provisions of section 422(b) of the Code, as the Committee shall deem desirable: (a) NUMBER OF SHARES. A statement of the number of Common Shares to which the Option pertains. (b) PRICE. A statement of the Option exercise price, which shall be determined and fixed by the Committee in its discretion but, in the case of an ISO, shall not be less than the higher of one hundred percent (100%) (one hundred ten percent (110%) in the case of more than ten percent (10%) shareholders as discussed in Subsection (j) below) of the Fair Market Value of the optioned Common Shares, or the par value thereof, on the date the ISO is granted. (c) TERM. (1) ISOs. Subject to earlier termination as provided in Subsections (e), (f) and (g) below and in Section 10 hereof, the term of each ISO shall be not more than ten (10) years (five (5) years in the case of more than ten percent (10%) shareholders as discussed in (j) below) from the date of grant. (2) NQSOs. Subject to earlier termination as provided in Subsections (e), (f) and (g) below and in Section 9 hereof, the term of each NQSO shall be not more than ten (10) years from the date of grant. (d) EXERCISE. (1) GENERAL. Unless otherwise provided in the Option Agreement, Options shall become exercisable in three (3) equal annual installments, commencing with the first anniversary of the grant date; provided that the Committee may accelerate the exercise date of any outstanding Options, in its discretion, if it deems such acceleration to be desirable. Any Common Shares, the right to the purchase of which has accrued under an Option, may be purchased at any time up to the expiration or termination of the Option. Exercisable Options may be exercised, in whole or in part, from time to time by giving written notice of exercise to the Company at its principal office, specifying the number of Common Shares to be purchased and accompanied by payment in full of the aggregate Option exercise price for such shares. Only full shares shall be issued under the Plan, and any fractional share which might otherwise be issuable upon exercise of an Option granted hereunder shall be forfeited. -6- 9 (2) MANNER OF PAYMENT. The Option exercise price shall be payable: (A) In cash or its equivalent; (B) If the Committee, in its discretion, so provides in the Option Agreement (as hereinafter defined) or, in the case of Options which are not ISOs, if the Committee, in its discretion, so determines at or prior to the time of exercise, in whole or in part, in Common Shares previously acquired by the Optionee, provided that the Committee, in its discretion, may require (i) if such Common Shares were acquired through the exercise of an ISO and are used to pay the Option exercise price of an ISO, such shares have been held by the Optionee for a period of not less than the holding period described in section 422(a)(1) of the Code on the date of exercise, or (ii) if such Common Shares were acquired through exercise of an NQSO or of an option under a similar plan or through exercise of an ISO and are used to pay the Option exercise price of an NQSO, such shares have been held by the Optionee for a period of more than six (6) months on the date of exercise; (C) If the Committee, in its discretion, so provides in the Option Agreement or, in the case of Options which are not ISOs, if the Committee, in its discretion, so determines at or prior to the time of exercise, in whole or in part, in Common Shares newly acquired by the Optionee upon exercise of such Option (which shall constitute a disqualifying disposition in the case of an Option which is an ISO); (D) If the Committee, in its discretion, so provides in the Option Agreement or, in the case of Options which are not ISOs, if the Committee, in its discretion, so determines at or prior to the time of exercise, in any combination of (A), (B) and/or (C) above; or (E) If the Committee, in its discretion, so provides in the Option Agreement or, in the case of Options which are not ISOs, if the Committee, in its discretion, so determines at or prior to the time of exercise, by permitting the Optionee to deliver a properly executed notice of exercise of the Option to the Company and a broker, with irrevocable instructions to the broker promptly to deliver to the Company the amount of sale or loan proceeds necessary to pay the exercise price of the Option. In the event such Option exercise price is paid, in whole or in part, with Common Shares, the portion of the Option exercise price so paid shall be equal to the Fair Market Value on the date of exercise of the Option of the Common Shares surrendered in payment of such Option exercise price. (e) TERMINATION OF EMPLOYMENT OR SERVICE. -7- 10 (1) GENERAL. If an Optionee's employment or service with the Company (and Related Corporations) is terminated by either party prior to the expiration date fixed for his or her Option for any reason other than death, disability, or Cause (as described in paragraph (2) below), such Option may be exercised, to the extent of the number of Common Shares with respect to which the Optionee could have exercised it on the date of such termination, or to any greater extent permitted by the Committee, by the Optionee at any time prior to the earlier of: (A) The expiration date fixed for such Option; or (B) An accelerated termination date determined by the Committee, in its discretion, except that, subject to Section 9 hereof, such accelerated termination date shall not be earlier than the date of the Optionee's termination of employment or service and, unless otherwise determined by the Committee, in its discretion, shall not be later than three (3) months after the date of such termination of employment. If an Optionee's employment or service with the Company or a Related Corporation terminates by reason of Cause prior to the expiration date fixed for his or her Option, such Option shall terminate immediately. (2) CAUSE. For purposes of this Plan, unless otherwise defined in an Optionee's employment or service contract with the Company or a Related Corporation, "Cause" shall include insubordination, gross incompetence or misconduct in the performance of, or gross neglect of, Optionee's duties, willful violation of any express direction or of any rule or regulation applicable to such Optionee, any act of fraud or intentional misrepresentation, or embezzlement, misappropriation, or conversion of assets or opportunities of the Company or a Related Corporation. (f) EXERCISE UPON DISABILITY OF OPTIONEE. If an Optionee shall become disabled (within the meaning of section 22(e)(3) of the Code) during his or her employment or service and, prior to the expiration date fixed for his or her Option, his or her employment or service is terminated as a consequence of such disability, such Option may be exercised, to the extent of the number of Common Shares with respect to which the Optionee could have exercised it on the date of such termination, or to any greater extent permitted by the Committee, by the Optionee at any time prior to the earlier of: (1) The expiration date fixed for the Option; or (2) An accelerated termination date determined by the Committee, in its discretion, except that, subject to Section 9 hereof, such accelerated termination date shall not be earlier than the date of termination of employment or service by reason of disability and, unless otherwise determined by the Committee, in its -8- 11 discretion, shall not be later than one (1) year after the date of such termination of employment. In the event of the Optionee's legal disability, such Option may be so exercised by the Optionee's legal representative. (g) EXERCISE UPON DEATH OF OPTIONEE. If an Optionee shall die during his or her employment or service and prior to the expiration date fixed for his or her Option, or if an Optionee whose employment or service is terminated for any reason shall die following his or her termination of employment or service, but prior to the earlier of: (1) The expiration date fixed for such Option; or (2) The expiration of the period determined under Subsections (e) and (f) above, if applicable; such Option may be exercised, to the extent of the number of Common Shares with respect to which the Optionee could have exercised it on the date of his or her death, or to any greater extent permitted by the Committee, by the Optionee's estate, personal representative or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Optionee, at any time prior to the earlier of: (A) The expiration date specified in such Option (which may be the expiration date determined under Subsections (e) and (f) above, if applicable); or (B) An accelerated termination date determined by the Committee, in its discretion except that, subject to Section 9 hereof, such accelerated termination date shall not be later than one (1) year after the date of death. (h) NON-TRANSFERABILITY. (1) ISOs. No ISO shall be assignable or transferable by a Key Employee otherwise than by will or by the laws of descent and distribution, and during the lifetime of the Key Employee, the ISO shall be exercisable only by him or by his or her guardian or legal representative. If the Key Employee is married at the time of exercise and if the Key Employee so requests at the time of exercise, the certificate or certificates shall be registered in the name of the Key Employee and the Key Employee's spouse, jointly, with right of survivorship. (2) NQSOs. Except as otherwise provided in any Option Agreement, no NQSO shall be assignable or transferable by the Optionee otherwise than by will or by the laws of descent and distribution, and during the lifetime of the Optionee, the NQSO shall be exercisable only by him or by his or her guardian or legal representative. If the Optionee is married at the time of exercise and if the Optionee -9- 12 so requests at the time of exercise, the certificate or certificates shall be registered in the name of the Optionee and his or her spouse, jointly, with right of survivorship. (i) RIGHTS AS A SHAREHOLDER. An Optionee shall have no rights as a shareholder with respect to any shares covered by his or her Option until the issuance of a share certificate to him or her for such shares. (j) TEN PERCENT SHAREHOLDER. If a Key Employee owns more than ten percent (10%) of the total combined voting power of all shares of stock of the Company or of a Related Corporation at the time an ISO is granted to such Key Employee, the Option exercise price for the ISO shall be not less than one hundred ten percent (110%) of the Fair Market Value of the optioned Common Shares on the date the ISO is granted, and such ISO, by its terms, shall not be exercisable after the expiration of five (5) years from the date the ISO is granted. The conditions set forth in this Subsection (j) shall not apply to NQSOs. (k) LISTING AND REGISTRATION OF SHARES. Each Option shall be subject to the requirement that, if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the purchase of shares thereunder, or that action by the Company or by the Optionee should be taken in order to obtain an exemption from any such requirement, no such Option may be exercised, in whole or in part, unless and until such listing, registration, qualification, consent, approval, or action shall have been effected, obtained, or taken under conditions acceptable to the Committee. Without limiting the generality of the foregoing, each Optionee or his or her legal representative or beneficiary may also be required to give satisfactory assurance that shares purchased upon exercise of an Option are being purchased for investment and not with a view to distribution, and certificates representing such shares may be legended accordingly. (l) WITHHOLDING AND USE OF SHARES TO SATISFY TAX OBLIGATIONS. The obligation of the Company to deliver Common Shares upon the exercise of any Option shall be subject to applicable tax withholding requirements. If the exercise of any Option is subject to the withholding requirements of applicable tax laws, the Committee, in its discretion (and subject to such withholding rules ("Withholding Rules") as shall be adopted by the Committee), may permit the Optionee to satisfy the minimum required withholding tax, in whole or in part, by electing to have the Company withhold (or by returning to the Company) Common Shares, which shares shall be valued, for this purpose, at their Fair Market Value on the date of exercise of the Option (or if later, the date on which the Optionee recognizes ordinary income with respect to such exercise). An election to use Common Shares to satisfy tax withholding requirements must be made in compliance with and subject to the Withholding Rules. The Committee may not -10- 13 withhold shares in excess of the number necessary to satisfy the minimum tax withholding requirements. SECTION 8 OPTIONS FOR NON-EMPLOYEE DIRECTORS (a) Granting of Options to Outside Directors. (1) Each person who becomes an Eligible Non-Employee Director shall be granted an NQSO to purchase 15,000 Common Shares on the later of (A) the date he or she becomes an Eligible Non-Employee Director and (B) the date of the Company's initial public offering of its Common Shares. (2) In addition, with respect to the Company's first annual shareholder's meeting after December 31, 1998 and each subsequent annual shareholder's meeting of the Company, each Non-Employee Director whose term as a director has not ended as of the date of such annual shareholder's meeting shall be granted an NQSO to purchase 2,000 Common Shares as of the day of such annual shareholder's meeting. (b) TERMS AND CONDITIONS OF OPTIONS. Options granted to Non-Employee Directors shall expressly specify that they are NQSOs. In addition, such Options shall include expressly or by reference the following terms and conditions, as well as such other provisions not inconsistent with the provisions of this Plan: (1) NUMBER OF SHARES. A statement of the number of Common Shares to which the Option pertains. (2) PRICE. A statement of the Option exercise price, which shall be one hundred percent (100%) of the Fair Market Value of the optioned Common Shares on the date the Option is granted. (3) TERM. Subject to earlier termination as provided in Subsections (5), (6) and (7) below, the term of each Option granted under this Section 8 shall be 10 years from the date of grant. (4) EXERCISE. (A) GENERAL. Options granted under Section 8(a)(1) shall become exercisable in three (3) equal annual installments, commencing with the first anniversary of the grant date. Options granted under Section 8(a)(2) shall be immediately exercisable as of the grant date, provided that if such date is not at least one year after the date upon which the Company's initial public offering of its Common Shares was consummated, such Options shall become exercisable on the first anniversary of the consummation of such initial public offering. Any Common Shares, the right to the purchase of which has accrued under an Option, -11- 14 may be purchased at any time up to the expiration or termination of the Option. Exercisable Options may be exercised, in whole or in part, from time to time by giving written notice of exercise to the Company at its principal office, specifying the number of Common Shares to be purchased and accompanied by payment in full of the aggregate Option exercise price for such shares. Only full shares shall be issued under the Plan, and any fractional share which might otherwise be issuable upon the exercise of an Option granted hereunder shall be forfeited. (B) MANNER OF PAYMENT. The Option exercise price shall be payable: (i) In cash or its equivalent; (ii) Unless in the opinion of counsel to the Company to do so may result in a possible violation of law, in whole or in part through the transfer of Common Shares previously acquired by the Non-Employee Director, provided that if such Common Shares were acquired through exercise of an NQSO or of an option under a similar plan, such Common Shares so transferred shall have been held by the Non-Employee Director for more than six (6) months on the date of exercise; (iii) Unless in the opinion of counsel to the Company to do so may result in a possible violation of law, in whole or in part, in Common Shares newly acquired by the Non-Employee Director upon the exercise of such Option; or (iv) In any combination of (i), (ii), and/or (iii) above. In the event such Option exercise price is paid, in whole or in part, with Common Shares, the portion of the Option exercise price so paid shall equal the Fair Market Value on the date of exercise of the Option of the Common Shares surrendered in payment of such Option exercise price. (5) EXPIRATION OF TERM OR REMOVAL AS DIRECTOR. If a Non-Employee Director's service as a director of the Company terminates prior to the expiration date fixed for his or her Option for any reason (such as, without limitation, failure to be re-elected by the Company's shareholders) other than by disability, death, or Cause (as described in Section 7(e)(2) above), such Option may be exercised, to the extent of the number of Common Shares with respect to which the Non-Employee Director could have exercised it on the date of such termination, by the Non-Employee Director at any time prior to the earlier of: (A) The expiration date fixed for such Option; or (B) Three (3) months after the date of such termination of service as a director. -12- 15 If a Non-Employee Director's service as a director of the Company terminates by reason of Cause prior to the expiration date fixed for his or her Option, such Option shall terminate immediately. (6) EXERCISE UPON DISABILITY OF NON-EMPLOYEE DIRECTOR. If a Non-Employee Director shall become disabled (within the meaning of section 22(e)(3) of the Code) during his or her term as a director of the Company and, prior to the expiration date fixed for his or her Option, his or her term as a director is terminated as a consequence of such disability, such Option may be exercised, to the extent of the number of Common Shares with respect to which the Non-Employee Director could have exercised it on the date of such termination, by the Non-Employee Director at any time prior to the earlier of: (A) The expiration date fixed for such Option; or (B) One year after the date of such termination of service as a director. In the event of the Non-Employee Director's legal disability, such Option may be so exercised by his or her legal representative. (7) EXERCISE UPON DEATH OF NON-EMPLOYEE DIRECTOR. If a Non-Employee Director shall die during his or her term as a director of the Company and prior to the expiration date fixed for his or her Option, or if a Non-Employee Director whose term as a director has been terminated for any reason shall die following his or her termination as a director, but prior to the earlier of: (A) The expiration date fixed for such Option; or (B) The expiration of the period determined under Subsections (5) and (6) above, if applicable; such Option may be exercised, to the extent of the number of Common Shares with respect to which the Non-Employee Director could have exercised it on the date of his or her death, by the Non-Employee Director's estate, personal representative or beneficiary who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of the Non-Employee Director, at any time prior to the earlier of: (i) The expiration date specified in such Option (which may be the expiration date determined under Subsections (5) and (6) above, if applicable); or (ii) One year after the date of death. -13- 16 (8) RIGHTS AS A SHAREHOLDER. A Non-Employee Director shall have no rights as a shareholder with respect to any shares covered by his or her Option until the issuance of a share certificate to him or her for such shares. (9) LISTING AND REGISTRATION OF SHARES. Each Option shall be subject to the requirement that, if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares covered thereby upon any securities exchange or under any applicable law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the purchase of shares thereunder, or that action by the Company or by the Optionee should be taken in order to obtain an exemption from any such requirement, no such Option may be exercised, in whole or in part, unless and until such listing, registration, qualification, consent, approval, or action shall have been effected, obtained, or taken under conditions acceptable to the Committee. Without limiting the generality of the foregoing, each Optionee or his or her legal representative or beneficiary may also be required to give satisfactory assurance that shares purchased upon exercise of an Option are being purchased for investment and not with a view to distribution, and certificates representing such shares may be legended accordingly. SECTION 9 OPTION AGREEMENTS - OTHER PROVISIONS Options granted under the Plan shall be evidenced by Option Agreements in such form as the Committee shall, from time to time, approve, which Option Agreements shall contain such provisions, not inconsistent with the provisions of the Plan for NQSOs granted pursuant to the Plan, and such conditions, not inconsistent with section 422(b) of the Code or the provisions of the Plan for ISOs granted pursuant to the Plan, as the Committee shall deem advisable, and which Option Agreements shall specify whether the Option is an ISO or NQSO; provided, however, if the Option is not designated in the Option Agreement as an ISO or NQSO, the Option shall constitute an ISO if it complies with the terms of section 422 of the Code, and otherwise, it shall constitute an NQSO. Each Optionee shall enter into, and be bound by, such Option Agreement. SECTION 10 CAPITAL ADJUSTMENTS The number of shares which may be issued under the Plan, and the maximum number of shares with respect to which options may be granted during a specified period to any Key Employee, Non-Employee Director, or Consultant under the Plan, as stated in Section 4 hereof, and the number of shares issuable upon exercise of outstanding Options under the Plan (as well as the Option exercise price per share under such outstanding Options), shall, subject to the provisions of section 424(a) of the Code, be adjusted to reflect any stock dividend, stock split, share combination, or similar change in the capitalization of the Company. -14- 17 In the event of a corporate transaction (as that term is described in section 424(a) of the Code and the Treasury Regulations issued thereunder as, for example, a merger, consolidation, acquisition of property or stock, separation, reorganization, or liquidation), each outstanding Option shall be assumed by the surviving or successor corporation or by a parent or subsidiary of such corporation if such corporation is the employer corporation (as provided in section 424(a) of the Code and the regulations thereunder); provided, however, that, in the event of a proposed corporate transaction, the Committee may terminate all or a portion of the outstanding Options to Key Employees and Consultants if it determines that such termination is in the best interests of the Company. If the Committee decides to terminate outstanding Options, the Committee shall give each Key Employee and Consultant holding an Option to be terminated not less than seven (7) days' notice prior to any such termination by reason of such a corporate transaction, and any such Option which is to be so terminated may be exercised (if and only to the extent that it is then exercisable) up to, and including the date immediately preceding such termination. Further, as provided in Section 7 hereof the Committee, in its discretion, may accelerate, in whole or in part, the date on which any or all Options granted to Key Employees and Consultants become exercisable. The Committee also may, in its discretion, change the terms of any outstanding Option to reflect any such corporate transaction, provided that, in the case of ISOs, such change is excluded from the definition of a "modification" under section 424(h) of the Code. SECTION 11 AMENDMENT OR DISCONTINUANCE OF THE PLAN (a) GENERAL. The Board from time to time may suspend or discontinue the Plan or amend it in any respect whatsoever, except that the following amendments shall require shareholder approval (given in the manner set forth in Section 11(b) below): (1) With respect to ISOs, any amendment which would: (A) Change the class of employees eligible to participate in the Plan; (B) Except as permitted under Sections 4 and 10 hereof, increase the maximum number of Common Shares with respect to which ISOs may be granted under the Plan; or (C) Extend the duration of the Plan under Section 12 hereof with respect to any ISOs granted hereunder; and (2) Any amendment which would require shareholder approval under 17 CFR Section 240.16b-3 in order for the Plan to continue to constitute a "formula plan" with respect to Options granted to Non-Employee Directors, unless (i) the Plan is amended in a manner that takes advantage of another method of complying with 17 CFR Section 240.16b-3 with respect to Options granted to Non-Employee Directors, or (ii) compliance with 17 CFR Section 240.16b-3 is not intended. -15- 18 Notwithstanding the foregoing, no such suspension, discontinuance or amendment shall materially impair the rights of any holder of an outstanding Option without the consent of such holder. (b) SHAREHOLDER APPROVAL REQUIREMENTS. Shareholder approval must meet the following requirements: (1) The approval of shareholders must be by a majority of the votes cast at a meeting duly held in accordance with the applicable laws of Bermuda; and (2) The approval of shareholders must comply with all applicable provisions of the corporate charter, bye-laws, and applicable law prescribing the method and degree of shareholder approval required for the issuance of corporate stock or options. If the applicable law does not prescribe a method and degree of shareholder approval in such case, the approval of shareholders must be effected: (A) By a method and in a degree that would be treated as adequate under applicable law of Bermuda in the case of an action requiring shareholder approval (i.e., an action on which shareholders would be entitled to vote if the action were taken at a duly held shareholders' meeting); or (B) By a majority of the votes cast at a duly held shareholders' meeting at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the Plan. SECTION 12 TERMINATION OF PLAN Unless earlier terminated as provided in the Plan, the Plan and all authority granted hereunder shall terminate absolutely at 12:00 midnight on December 2, 2007, which date is within ten (10) years after the date the Plan was adopted by the Board (or the date the Plan was approved by the shareholders of the Company, whichever is earlier), and no Options hereunder shall be granted thereafter. Nothing contained in this Section 12, however, shall terminate or affect the continued existence of rights created under Options issued hereunder and outstanding on December 2, 2007, which by their terms extend beyond such date. SECTION 13 SHAREHOLDER APPROVAL This Plan shall become effective on December 3, 1997 (the date the Plan was adopted by the Board); provided, however, that if the Plan is not approved by the shareholders in the manner described in Section 11(b), within twelve (12) months before or after said date, ISOs granted hereunder shall be null and void and no additional ISOs shall be granted hereunder. -16- 19 SECTION 14 MISCELLANEOUS (a) GOVERNING LAW. With respect to any ISOs granted pursuant to the Plan and the Option Agreements thereunder, the Plan, such Option Agreements and any ISOs granted pursuant thereto shall be governed by the applicable Code provisions to the maximum extent possible. Otherwise, the operation of, and the rights of Optionees under, the Plan, the Option Agreements and any Options granted thereunder shall be governed by applicable United States law and otherwise by the laws of Bermuda. (b) RIGHTS. Neither the adoption of the Plan nor any action of the Board or the Committee shall be deemed to give any individual any right to be granted an Option, or any other right hereunder, unless and until the Committee shall have granted such individual an Option, and then his or her rights shall be only such as are provided by the Option Agreement. Any Option under the Plan shall not entitle the holder thereof to any rights as a shareholder of the Company prior to the exercise of such Option and the issuance of the shares pursuant thereto. Further, notwithstanding any provisions of the Plan or the Option Agreement with an Optionee, the Company shall have the right, in its discretion, to retire a Key Employee at any time pursuant to its retirement rules or otherwise to terminate an Optionee's employment or service at any time for any reason whatsoever. (c) INDEMNIFICATION OF BOARD AND COMMITTEE. Without limiting any other rights of indemnification which they may have from the Company and any Related Corporation, the members of the Board and the members of the Committee shall be indemnified by the Company against all costs and expenses reasonably incurred by them in connection with any claim, action, suit, or proceeding to which they or any of them may be a party by reason of any action taken or failure to act under, or in connection with, the Plan, or any Option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding, except a judgment based upon a finding of willful misconduct or recklessness on their part. Upon the making or institution of any such claim, action, suit, or proceeding, the Board or Committee member shall notify the Company in writing, giving the Company an opportunity, at its own expense, to handle and defend the same before such Board or Committee member undertakes to handle it on his or her own behalf. (d) APPLICATION OF FUNDS. Any cash received in payment for Common Shares upon exercise of an Option shall be added to the general funds of the Company and shall be used for its corporate purposes. Any Common Shares received in payment for Common Shares upon exercise of an Option shall be cancelled. (e) NO OBLIGATION TO EXERCISE OPTION. The granting of an Option shall impose no obligation upon an Optionee to exercise such Option. -17- 20 SECTION 15 CHANGE IN CONTROL (a) GENERAL. All outstanding Options shall become fully vested and exercisable upon a Change in Control of the Company. In the event of a Change in Control in which outstanding Options are not assumed by the surviving entity, the Committee shall terminate all outstanding Options on at least seven days' notice. Any such Option which is to be so terminated may be exercised up to, and including the date immediately preceding such termination. In any transaction to which both Section 10 and this Section 15 are applicable, only the provisions of this Section 15 shall apply. (b) DEFINITION OF CHANGE IN CONTROL. For purposes of this Section 15, a "Change in Control" of the Company shall be deemed to have occurred if: (1) Any person, including a group of persons acting in concert, becomes the beneficial owner of shares of the Company having 50 percent or more of the total number of votes that may be cast for the election of directors of the Company; (2) There occurs any cash tender or exchange offer for shares of the Company, merger or other business combination, or any combination of the foregoing transactions, and as a result of or in connection with any such event persons who were directors of the Company before the event shall cease to constitute a majority of the board of directors of the Company or any successor to the Company; or (3) The sale, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to have occurred by reason of a change in beneficial ownership occurring in connection with the initial public offering of the Common Shares. (c) In the event of a Change in Control of the Company in which holders of Common Shares are entitled only to receive money or other property exclusive of securities, then in lieu of outstanding Options being terminated or assumed by the Surviving Entity, each Optionee shall have the right, at its sole option, to require the Company or such surviving entity to purchase such Optionee's Options (without prior exercise by Optionee) at its fair value as of the day before such transaction became publicly known, as determined by an unaffiliated internationally recognized accounting firm or investment bank selected by the Company or such surviving entity and reasonably acceptable to all electing Optionees. -18- 21 IN WITNESS WHEREOF, Annuity and Life Re (Holdings), Ltd. has caused these presents to be duly executed, under seal, as of this 29th day of April, 1999. ANNUITY AND LIFE RE (HOLDINGS), LTD. By: /s/ Lawrence S. Doyle ----------------------------------------- President and Chief Executive Officer -19- EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 Exhibit 11 ANNUITY AND LIFE RE (HOLDINGS), LTD. STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE UNAUDITED (EXPRESSED IN UNITED STATES DOLLARS EXCEPT FOR SHARE AMOUNTS)
Three months ended March 31, 1999 -------------- Basic Diluted Net Income: $ 8,482,279 $ 8,482,279 ----------- ----------- Net Income available to common shareholders $ 8,482,279 $ 8,482,279 ----------- ----------- Number of shares: Weighted average shares outstanding 25,499,999 27,181,315 ----------- ----------- Earnings per share: $ 0.33 $ 0.31
16 EX-27 4 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1999 AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 296,261,447 0 0 0 0 0 296,261,447 25,764,739 0 189,514,383 1,928,041,937 27,443,909 0 0 1,510,638,757 0 0 0 25,499,999 354,012,080 1,928,041,937 18,247,012 18,159,060 263,458 239,701 19,642,698 7,405,339 1,378,915 8,482,279 0 0 0 0 0 8,482,279 0.33 0.31 0 0 0 0 0 0 0
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