Capital infusion of $600m revives Scottish Re.

After weeks of intensive effort to find a solution for its deteriorating financial position, Scottish Re Group Ltd. appears to have found a way out of the thicket.

The Bermuda-based life reinsurer announced an agreement that would give two investment firms a potential majority stake in exchange for much-needed capital support. The move will allow the group to pursue business in international markets, a strategy that had been gaining momentum until an unexpectedly large second-quarter loss threw the group's future into doubt.

Scottish Re's board unanimously approved the agreement, and the life insurer's shareholders are to vote on it through proxy ballots over a 45-day period. Holders of at least two-thirds of Scottish Re shares must approve the deal.

The life reinsurer entered an agreement with MassMutual Capital Partners LLC and affiliates of Cerberus L.P., a private investment firm, through which each would invest $300 million in Scottish Re. MassMutual Capital is an affiliate of MassMutual Financial Group, which is headed by Massachusetts Mutual Life Insurance Co.

The new investors also are providing a $100 million bridge facility to ensure adequate liquidity for Scottish Re until the transaction closes, which could happen as early as the second quarter of 2007. The investors also arranged for commitments on long-term financing totaling $500 million to fund new business production.

Under the agreement, MassMutual Capital and Cerberus will buy a total of 1 million newly issued convertible preferred shares of Scottish Re. Those shares can be converted into 150 million ordinary shares at any time and would represent a 68.8% stake in Scottish Re.

MassMutual Capital and Cerberus would be able to appoint two-thirds of the members of Scottish Re's board. The board would have 11 members initially, three each appointed by MassMutual and Cerberus. Scottish Re's chief executive officer also would be on the board, along with three independent directors nominated by MassMutual and Cerberus. One board nominee would be designated by the Cypress Group, a private-equity firm that is also a major shareholder of Scottish Re.

A Shot of Life

Scottish Re is back in business after receiving a $600
million capital infusion from MassMutual Capital Partners
and Cerberus.

Issuer                 Scottish Re Group Ltd. (SCT)

Investors              MassMutual and Cerberus (together, the "New
                       Investors")

Securities Offered     1 million convertible cumulative participating
                       preferred shares of SCT, par value of $0.01, and
                       liquidation preference of $600 per share (the
                       "Convertible Preferred Shares")

Ranking                Rank senior only to SCT ordinary shares and
                       subordinate to SCT's current senior securities
                       (including other preferred securities)

Dividends Accretion    Dividends accrete on the convertible preferred
                       shares at a rate of 7.25% per annum.

Conversion Rights      Convertible preferred shares are convertible, at
                       the option of the holder, in whole or in part,
                       into 150 million ordinary shares. This amount
                       will not increase due to the accretion of
                       dividends.

Mandatory Conversion   Automatically converts on the ninth anniversary.

Voting Rights          Same voting rights as SCT ordinary shares on an
                       "as converted" basis

Board Control          New investors will appoint six of the 11
                       directors (with three each to be appointed by
                       MassMutual and Cerberus) and will nominate
                       three independent directors, the CEO and a
                       designee of the Cypress Group to the board.

Source: Scottish Re