Exhibit 10.68
EXECUTION COPY
FORBEARANCE AGREEMENT
This
FORBEARANCE AGREEMENT, dated as of June 30, 2008 (this “
Agreement ”), is entered into among Clearwater Re
Limited (“ Clearwater ”), Scottish Annuity &
Life Insurance Company (Cayman) Ltd. (“ SALIC
”), Scottish Re Group Limited (“ SRGL ”,
together with Clearwater and SALIC, the “ SRGL Parties
” and each, individually, a “ SRGL Party
”; SRGL and all direct and indirect subsidiaries of SRGL, the
“ SRGL Entities ” and each, individually, a
“ SRGL Entity ”), Citibank N.A. (“
Citibank ”) and Calyon New York Branch (“
Calyon ”; together with Citibank, the “
Noteholders ”), in connection with those certain
Clearwater Re Limited Floating Rate Variable Funding Notes due
August 11, 2037 (the “ Notes ”) issued by
Clearwater to the Noteholders.
RECITALS
WHEREAS,
pursuant to that certain Note Purchase Agreement dated
September 6, 2007 (the “ Closing Date ”)
among Clearwater, as Issuer, Wilmington Trust Company, as
Administrative Agent, Citibank and Calyon, each as Initial
Purchaser and Committed Purchaser (the “ Note Purchase
Agreement ”), Clearwater issued Notes in the aggregate
principal amount of $197,793,705 to Citibank and Notes in the
aggregate principal amount of $168,124,650 to Calyon;
WHEREAS,
SRGL and SALIC (collectively, “ Guarantors ”)
have jointly and severally, unconditionally and irrevocably
guaranteed the obligations under the Notes pursuant to that certain
Notes Guaranty Agreement dated as of the Closing Date (the “
Notes Guaranty Agreement ”);
WHEREAS,
the Guarantors also entered into a Maintenance Guaranty Agreement
(the “ Maintenance Guaranty Agreement ,” and
together with the Notes Guaranty Agreement, the “ Guaranty
Agreements ”) as of the Closing Date in favor of
Clearwater;
WHEREAS,
to secure the Secured Obligation (as defined in the Indenture)
under the Note Purchase Agreement and the Indenture, Clearwater has
granted to The Bank of New York, as Indenture Trustee, for its own
benefit and for the benefit of the Noteholders, a valid, duly
perfected, first priority and fully enforceable security interest
in and lien against each item of “Collateral” as
defined in, and pursuant to, that certain Indenture, dated as of
the Closing Date (the “ Indenture ”);
WHEREAS,
pursuant to that certain Letter Agreement dated as of the Closing
Date (the “ SRUS Letter Agreement ”), Scottish
Re (U.S.), Inc. (“ SRUS ”) provided certain
representations, warranties and covenants to the Noteholders and
the Administrative Agent;
WHEREAS,
pursuant to that certain Letter Agreement dated as of the Closing
Date (the “ Guarantors Letter Agreement ”;
together with the SRUS Letter Agreement, the “ Letter
Agreements ”), the Guarantors jointly and severally
provided certain representations, warranties and covenants to the
Noteholders and the Administrative Agent;
WHEREAS,
Clearwater, as Reinsurer and SRUS, as Ceding Insurer, are parties
to that certain Coinsurance Retrocession Agreement, effective
July 1, 2007 (the “ Retrocession Agreement
”);
WHEREAS,
certain Events of Default described on Exhibit A
attached hereto (the “ Specified Events of Default
”) have occurred and are continuing under the Indenture and
certain other Transaction Documents (as defined in the Indenture)
and as a result of the occurrence of the Specified Events of
Default, the Noteholders (i) are entitled as the “
Directing Party ” under the Indenture to direct the
Indenture Trustee to, inter alia , enforce rights and
remedies against Clearwater and the Collateral, including, without
limitation, the right to accrue default interest, accelerate and
immediately demand payment in full of the Outstanding Principal
Amount of and accrued but unpaid interest on the Notes and
foreclose on the Collateral, (ii) have no further obligations
under the Note Purchase Agreement to fund any Advances (as defined
in the Note Purchase Agreement), and (iii) are entitled to
take enforcement actions against the Guarantors under the Guaranty
Agreements and the Guarantors Letter Agreement;
WHEREAS,
on May 31, 2008, the Noteholders delivered (i) a Notice
of Default under the Indenture and (ii) a Notice of Default
under the Note Purchase Agreement to the SRGL Parties; and
WHEREAS,
the SRGL Parties have requested, and the Noteholders, have agreed,
subject to the terms and conditions of this Agreement, to forbear
from exercising certain of their rights and remedies under the
Transaction Documents, each as expressly specified herein, during
the period commencing on the date hereof and ending at
11:59 p.m., Eastern Standard Time, on December 15, 2008
(the “ Forbearance Period ”), unless terminated
earlier pursuant to Section 5 .
NOW
THEREFORE, in consideration of the promises and for other good and
valuable consideration, the receipt, adequacy and sufficiency of
which are hereby acknowledged by the parties hereto, the SRGL
Parties and the Noteholders agree as follows:
1. INCORPORATION OF RECITALS . The
recitals set forth above are hereby incorporated into this
Agreement as accurate and complete statements of fact and are
hereby adopted and made a part hereof.
2. DEFINED TERMS . Capitalized terms
used but not otherwise defined herein shall have the respective
meanings assigned to such terms in the Indenture and the Note
Purchase Agreement, as applicable.
3. LIMITED FORBEARANCE . (a) Scope
of Forbearance . Subject to the terms and conditions of this
Agreement, the Noteholders hereby agree during the Forbearance
Period to forbear from exercising any remedies under the Indenture
and the Guaranty Agreements solely with respect to the Specified
Events of Default.
(b)
Other Events of Default . For the avoidance of doubt, this
forbearance shall apply only to the Specified Events of Default and
not to any other Events of Default, including without limitation,
any other existing Events of Default known or not known to the
Noteholders or Indenture Trustee as of the date of this Agreement
and any other Events of Default occurring on or after the date
hereof, and the Noteholders reserve all of their rights to
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exercise
any and all rights and remedies under the Indenture, the other
Transaction Documents and this Agreement upon the occurrence or
during the continuance of any such other Event of Default at any
time, including, without limitation, prior to the date hereof, or
before the expiry or after the termination of the Forbearance
Period.
(c)
Delivery of Financial Statements . Notwithstanding the
limited forbearance set forth in this Agreement or anything
contained in any Transaction Document to the contrary, SRGL, SALIC
and SRUS shall deliver copies of all periodic financial statements
required to be delivered to the Noteholders under the Transaction
Documents, as follows: (a) the unaudited financial statements
for the quarterly periods ended March 31, 2008, June 30,
2008 and September 30, 2008, the restated financial statements
for the quarterly period ended September 30, 2007 and the
audited financial statements for the fiscal year ended
December 31, 2007 (b) the statutory filings required to
be delivered to the Noteholders under the Indenture, the Note
Purchase Agreement and the other Transaction Documents and
(c) any other financial statements of SRGL, SALIC and SRUS
which would otherwise have been due and deliverable by the SRGL
Parties to the Noteholders under the Transaction Documents prior to
December 15, 2008, in each case, immediately upon their
finalization, and in no event later than 11:59 p.m., Eastern
Standard Time, on December 15, 2008. Failure to deliver any of
such financial statements and statutory filings by 11:59 p.m.,
Eastern Standard Time, on December 15, 2008 or the failure to
satisfy the Net Worth Maintenance Covenant, as amended in
accordance with Section 6(c)(2) and (3) hereof,
with respect to any measurement period during the Forbearance
Period shall constitute an Event of Default under the Indenture and
shall automatically give the Noteholders the right, without further
notice or action, to accelerate the Notes on December 15, 2008
and to pursue all remedies available to the Noteholders under the
Indenture and the other Transaction Documents. For the avoidance of
doubt, the SRGL Entities, including Clearwater, shall continue to
deliver all other reports and financial statements as required by
the Transaction Documents, in each case by the respective due dates
specified therein, including, without limitation, each report,
notice and other information otherwise required to be delivered to
the Noteholders as set forth on Exhibit B of the Note Purchase
Agreement
(d)
Continuance of Reporting Obligations . Notwithstanding the
limited forbearance set forth in this Agreement, and subject to
Section 3(c) above, the SRGL Entities shall continue to
deliver all other reports and financial statements as required by
the Transaction Documents, in each case by the respective due dates
specified therein, including, without limitation, each report,
notice and other information otherwise required to be delivered to
the Noteholders as set forth on Exhibit B of the Note Purchase
Agreement.
(e)
Notices Related to the Note Purchase Agreement .
Notwithstanding the foregoing, the Noteholders hereby do not and
will not waive the default by the SRGL Entities, including
Clearwater, under the Note Purchase Agreement of their respective
obligations to deliver financial statements and filings by their
respective due dates under the Note Purchase Agreement. The
Noteholders have delivered to the SRGL Parties, and the SRGL
Parties hereby acknowledge receipt of, the Notice of Default (Note
Purchase Agreement) dated May 31, 2008 and the corresponding
Notice of No Further Advances dated June 10, 2008 and
Clearwater and the other SRGL Parties hereby confirm and agree that
the Noteholders, the Committed Purchasers and the Initial
Purchasers shall have no further obligation to fund any Advances
under the Note Purchase Agreement and the Committed Purchaser
Commitment with respect to
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the
Citibank Committed Purchaser and the Calyon Committed Purchaser is
hereby reduced to zero dollars ($0). For the avoidance of doubt,
this Section 3(e) shall survive any termination of the
Forbearance Period pursuant to Section 5 hereof or
otherwise and any Unused Fee accrued through and including
June 10, 2008 shall be due and payable by Clearwater on the
next succeeding Notes Payment Date following the date hereof and
such Unused Fee ceased accruing after June 10, 2008.
(f)
Most Favored Nation . If at any time on or after
June 1, 2008, the SRGL Parties provided or provide to any
party more favorable terms and conditions in any restructuring,
refinancing, forbearance or any other agreement, waiver or
amendment (as determined in the sole discretion of the
Noteholders), including, but not limited to, any such
restructuring, refinancing, forbearance or any other agreement,
waiver or amendment with respect to the Orkney Re I, Orkney Re II,
PATS or Stingray collateral financing facilities, or the HSBC II
Facility (as hereinafter defined), the SRGL Parties shall be
unconditionally obligated and required to make such terms and
conditions available to the Noteholders. For the avoidance of
doubt, the SRGL Parties are unconditionally obligated to promptly
notify the Noteholders of any such restructuring, refinancing,
forbearance or any other agreement, waiver or amendment, and the
Noteholders may elect to accept any such terms or conditions that
the Noteholders, at their sole discretion, deem more favorable. The
Noteholders hereby acknowledge the existence at the time of this
Agreement of ongoing negotiations for the restructuring of the
Ballantyne Re Facility (as defined below), pursuant to (A) a
partial recapture and reinsurance transaction, effective as of
June 30, 2008 and to be entered into during the third (3
rd )
quarter of 2008 (the “ Ballantyne Recapture ”),
of the business ceded by SRUS to Ballantyne Re plc pursuant to that
certain Indemnity Reinsurance Agreement, effective as of
April 1, 2006 (the “ Ballantyne Re Facility
”) on terms substantially similar to the terms and conditions
of that certain partial recapture reinsurance transaction,
effective as of March 31, 2008 (as further described in
Amendment No. 2 to the Form D filing, dated
April 25, 2008 and previously filed by SRUS with the Delaware
Department of Insurance on April 25, 2008, a copy of which is
attached hereto as Exhibit B-1 , such terms and
conditions, the “ Original Recapture Terms ”)
and (B) an Assignment and Novation, to be effective not later
than September 30, 2008 (the “ Ballantyne
Assignment ”) of the then remaining assets, liabilities,
rights and obligations of SRUS with respect to the Ballantyne Re
Facility to Security Life of Denver Insurance Company, on terms
(including economic terms) and conditions substantially similar to
the proposed terms and conditions set forth on
Exhibit B-2 hereto (such proposed terms and conditions,
the “ Ballantyne Assignment Terms ”);
provided , that (i) in connection with clauses (A) and
(B), the aggregate fees, expenses and liabilities incurred by all
SRGL Entities, collectively, including, without limitation any
associated letter of credit fees (equal to 85 basis points on the
letter of credit notional amount), reimbursement obligations and
other fees, expenses and liabilities incurred shall not, after
establishment of appropriate reserves in connection with the
Ballantyne Recapture, exceed $1.25 million for each of the
third and fourth quarters of 2008, respectively and shall in no
event have a negative impact on the liquidity of SRGL and SALIC as
set forth on the June 2008 Liquidity Update (as defined below)
and (ii) the final terms of any such Ballantyne Recapture and
Ballantyne Assignment would not adversely affect the rights or
interests of the Noteholders under this Agreement or any of the
Transaction Documents.
4. ACKNOWLEDGMENT OF OBLIGATIONS .
Without limiting the provisions in Section 3 above,
each of the SRGL Parties acknowledges and agrees that
(i) the
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Specified Events of Default have occurred and are continuing, and
none of the SRGL Parties has any disputes, defenses or
counterclaims of any kind with respect thereto; (ii) absent
the effectiveness of this Agreement, the Noteholders have the right
to immediately enforce (a) payment of all Secured Obligations
owing under the Note Purchase Agreement, the Notes and the
Indenture and, in connection therewith, to immediately enforce
their security interests in, and liens on, the Collateral and
(b) their rights and remedies under the Guaranty Agreements
and the other Transaction Documents; and (iii) the aggregate
Outstanding Principal Amount of the Notes and all other Secured
Obligations are payable without defense, dispute, offset,
withholding, recoupment, counterclaim or deduction of any kind.
Each of the SRGL Parties further acknowledges and agrees that all
terms, covenants, conditions and provisions of the Transaction
Documents continue in full force and effect and remain unaffected
and unchanged, except to the extent expressly set forth in this
Agreement.
5. TERMINATION OF LIMITED FORBEARANCE .
(a) Termination . The Forbearance Period shall
automatically, without further notice or action on the part of the
Noteholders, terminate upon the earliest to occur of:
(i) the failure by any of the SRGL
Entities to achieve any of the Milestones specified on
Exhibit C hereto (the “ Milestones
”) in accordance with the terms and on or before the
respective dates specified thereon;
(ii) other than the Specified Events
of Default, any breach of any covenant by any of the SRGL Entities
or the occurrence and continuance of an Event of Default under any
of the Transaction Documents, irrespective of any requirement
thereunder for the giving of any notice thereof and any applicable
cure or grace periods with respect thereto; provided , that
notwithstanding the foregoing language of this
Section 5(a)(ii) , for any breach by any SRGL Entity of
any non-material covenant (such materiality to be determined in the
sole discretion of the Noteholders, exercising good faith)
contained in any of the Transaction Documents, any such breach of
such non-material covenant shall be subject to a cure period (to
the extent capable of being cured) equal to one (1) Business
Day, so long as the applicable SRGL Entity or SRGL or SALIC on such
entity’s behalf, shall have immediately notified the
Noteholders in writing upon the occurrence of any such breach of
such non-material covenant;
(iii) the failure by the SRGL Parties
to deliver any report, notice and other information otherwise
required to be delivered to the Noteholders as set forth on
Exhibit B of the Note Purchase Agreement, in each case by the
respective due dates specified therein or, subject to
Section 3(c) hereof, the failure by the SRGL Entities
to deliver to the Noteholders any financial statements required
under Exhibit E of the Note Purchase Agreement by the deadline
specified in Exhibit E thereto, which failure shall also
constitute an Event of Default under the Indenture and the Note
Purchase Agreement;
(iv)
any breach by the SRGL Parties of any representation, warranty,
agreement or covenant contained in this Agreement; or
(v)
11:59 p.m. Eastern Standard Time on December 15,
2008.
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(b)
Consequences of Termination . Upon the termination of the
Forbearance Period, the Noteholders may take any and all actions
and pursue all remedies under the Indenture and the other
Transaction Documents related to any Specified Event of Default,
including declaring all of the Secured Obligations immediately due
and payable. No notice, grace period, cure period or similar
provision set forth in the Transaction Documents shall be
applicable to a delivery or performance of an obligation required
under this Agreement and the SRGL Parties hereby acknowledge and
agree that no further notice shall be required to be delivered by
the Noteholders and any otherwise applicable cure or grace period
under any of the Transaction Document shall not apply to any
Specified Event of Default or any other Event of Default which
occurs during, upon the expiry of or following the Forbearance
Period; provided , that solely with respect to any other
Event of Default (not including the Specified Events of Default),
notwithstanding the foregoing language of this sentence, for any
breach by any SRGL Entity of any non-material covenant (such
materiality to be determined in the sole discretion of the
Noteholders, exercising good faith) contained in any of the
Transaction Documents, any such breach of such non-material
covenant shall be subject to a cure period (to the extent capable
of being cured) equal to one (1) Business Day, so long as the
applicable SRGL Entity or SRGL or SALIC on such entity’s
behalf, shall have immediately notified the Noteholders in writing
upon the occurrence of any such breach of such non-material
covenant. The breach by any SRGL Party of any representation,
warranty, covenant or agreement in this Agreement shall constitute
an immediate Event of Default under the Indenture and the other
Transaction Documents. The obligations of the SRGL Entities under
this Agreement, including, without limitation, the payment
obligations contained in Section 9 and the
indemnification obligations under Section 10 hereof are
absolute and unconditional and shall survive any termination or
expiration of the Forbearance Period, and each of SRGL and SALIC
shall be jointly and severally liable for the obligations
hereunder.
6. MODIFICATION TO THE TRANSACTION DOCUMENTS
. On the date hereof, the Transaction Documents shall be
amended and the parties shall (and, where applicable, SRGL and
SALIC shall cause SRUS to) execute amendments to such documents as
follows (as well as such other conforming amendments and revisions
ancillary to the following amendments); provided , that the
amendments to the Investment Management Agreement specified in
Section 6(e) hereof shall be executed by the respective
parties thereto within fifteen (15) days of the date hereof;
provided , further , that the amendments to the
Coinsurance Retrocession Agreement specified in
Section 6(d) hereof shall be executed by the respective
parties thereto on or before August 13, 2008:
(a)
Amendments to the Indenture .
(1)
Section 3.01(3)(B) of the Indenture shall be amended
by:
(i)
deleting Section 3.01(3)(B)(d) in its entirety and
replacing it with the following:
“if
SALIC’s insurance financial strength rating by S&P is
“BBB-” or that rating by Moody’s is
“Baa3” or SRGL’s senior unsecured credit rating
by S&P is “BB” or that rating by Moody’s is
“Ba2,” Three-Month LIBOR plus 1.75%; and”
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(ii)
adding a new Section 3.01(3)(B)(e) as follows:
“if
SALIC’s insurance financial strength rating by S&P is
below “BBB-” or that rating by Moody’s is below
“Baa3” or SRGL’s senior unsecured credit rating
by S&P is below “BB” or that rating by
Moody’s is below “Ba2,” or both SALIC’s
insurance financial strength rating and SRGL’s senior
unsecured credit rating have been withdrawn or are no longer rated
by both Moody’s and S&P, Three-Month LIBOR plus 2.75%.
For the avoidance of doubt, the Interest Rate with respect to the
Interest Period beginning on May 11, 2008 shall be Three-Month
LIBOR plus 2.75%.”
(2)
Section 6.01 of the Indenture shall be amended by
adding a new Section 6.01(M) at the end thereof as
follows:
“(M) any
termination of the Forbearance Period pursuant to
Section 5(a) of the Forbearance Agreement or
otherwise.”
(3)
Section 4.04(1) of the Indenture shall be amended by
deleting Section 4.04(1)(A) in its entirety and replacing it
with the following:
“(A)(i)
For the payment of principal of the Notes, pro rata based
upon the Outstanding Principal Amount among all Notes Outstanding,
in an amount equal to the aggregate of all Released Amounts
previously (including for the current period) deposited into the
Surplus Account less the amount of Released Amounts previously used
to pay principal on the Notes pursuant to
Section 4.04(1)(A) and (ii) for the payment of
principal of and any interest on any Notes with respect to which
such date is a Redemption Date or the Stated Maturity Date, in full
and all other amounts due to the Noteholders pursuant to this
Indenture, the other Transaction Documents and the Forbearance
Agreement pro rata based upon the Outstanding Principal
Amount among all Notes Outstanding;”
(4)
Section 4.04(2) of the Indenture shall be amended by
deleting Section 4.04(2) in its entirety and replacing it
with the following:
“(2)
Notwithstanding the foregoing, (i) so long as the Forbearance
Agreement remains in full force and effect, during the Forbearance
Period, no payments shall be made pursuant to
Sections 4.04(1)(B) – (E) in excess of the amount
which would, after giving effect to all payments required under
Section 4.04(1), reduce the aggregate Fair Market Value of the
balance of the Surplus Account, less all projected disbursements
from the Surplus Account for the current calendar quarter that will
be due and payable in accordance with any Notice of Due Payments,
Notice of Due Tax Payments or Notice of Economic Account Funding
Requirements, as applicable, delivered pursuant to
Section 4.03 hereof, below $111
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million at any
time (a) unless the Guarantors shall have contributed capital
prior to any such distribution in an amount equal to such
deficiency or (b) with the express written consent of the
Directing Party and (ii) no payment shall be made pursuant to
Section 4.04(1)(I) without the express written consent of
the Directing Party.”
(5)
Section 11.09(3) of the Indenture shall be amended by
deleting the provision in its entirety and replacing it with the
following:
“The
Company shall not issue any equity interest of the Company to any
Person other than the Ordinary Shares outstanding as of the date
hereof and except as expressly consented to in writing by the
Directing Party.”
(b)
Amendments to the Note Purchase Agreement .
(1) The
definition of “ Committed Purchaser Commitment ”
shall be amended by deleting it in its entirety and replacing it
with the following:
“
Committed Purchaser Commitment ” means zero dollar
($0) with respect to each of the Citibank Committed Purchaser and
the Calyon Committed Purchaser.
(2)
Section 6(i) of the Note Purchase Agreement shall be
amended by deleting Section 6(i) in its entirety and
replacing it with the following:
“The
Company will, at all times during the term hereof, upon the
reasonable request of the Directing Party or the Administrative
Agent at the direction of the Directing Party and upon reasonable
advance written notice, permit any Purchaser or an accounting,
actuarial or consulting firm, acting as the authorized agent of
such Purchaser (the “ Auditor ”), at all
reasonable times without imposing undue burden or unreasonable cost
on and without interfering with the normal business operations of
the Company and any other SRGL Entity during normal business hours,
at the expense (subject to reasonableness) of the Guarantors and at
no charge to the Noteholders, to inspect, copy and audit the
Company and, as to matters arising under the Retrocession Agreement
or other agreements between the Ceding Insurer and the Company and
any other documents and records relating to the management of the
Company, the Notes, the Retrocession Agreement and the Reinsurance
Trust or investments of the Company, including computer records
relating thereto and will make available its personnel, to assist
in any examination of such records. The Company and records
relating thereto will be maintained at the addresses and locations
as the Company shall have notified the Administrative Agent and the
Purchasers in writing prior to the
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Closing Date
and as the Company shall from time to time advise the
Administrative Agent and the Purchasers in writing.”
(c)
Amendments to the Guarantors Letter Agreement .
(1)
Section 2 of the Guarantors Letter Agreement shall be
amended by adding a new Section 2(o) thereto as
follows:
“(o) The
Guarantors hereby acknowledge and agree that, with respect to each
SRGL Party and each of their respective subsidiaries and
affiliates:
(i) any
disposition of assets, whether in connection with a restructuring,
recapture, repurchase, payment (other than the payment of claims in
the ordinary course of business under any insurance or reinsurance
contract when due and payable), posting of collateral, incurrence
of indebtedness or guarantee of obligations or similar actual or
contingent liabilities or otherwise, that is (A) outside the
ordinary course of business or (B) in an amount in the
aggregate greater than one million dollars ($1,000,000) to any
person or group of affiliated persons over any six (6) month
period, except as set forth on Exhibit D to the
Forbearance Agreement dated as of June 30, 2008 by and among
the Company, SRGL, SALIC and the Noteholders (as such
Exhibit D may be supplemented or amended on or before
July 31, 2008 with the Noteholders’ express written
consent in accordance with the terms of the Forbearance Agreement);
provided , that notwithstanding clause (i), (I) the
SRGL Parties shall be permitted to permanently terminate the
liabilities associated with the HSBC II collateral financing
facility (the “ HSBC II Facility ”), in full,
but not in part, including the related underlying insurance
policies (the “ HSBC Block ”) in exchange for
not more than all of the assets currently funded in the HSBC II
Facility without the consent of the Directing Party so long as
(1) the aggregate amounts paid to HSBC and any third parties
in connection with the termination of the liabilities currently
associated with the HSBC II Facility do not exceed the assets
currently funded in the HSBC II Facility, (2) the Directing
Party is notified within one (1) Business Day of the SRGL
Parties agreeing to transfer the HSBC Block, including the terms
and conditions thereof and (3) on the date any termination of
the HSBC II Facility is consummated, SALIC shall make a capital
contribution to the Surplus Account in an amount (such amount, the
“ HSBC II Collateral Payment Amount ”) equal to
fifty percent (50%) of any and all amounts posted as credit support
under the HSBC II Facility in connection with that certain
forbearance agreement entered into between HSBC and SALIC and
certain of the SRGL Entities with respect to the HSBC Facility (the
“ HSBC II Forbearance Agreement ”) and
(II) the SRGL Entities shall be
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permitted to
effect (A) the Ballantyne Recapture so long as such
transaction is effectuated substantially in accordance with the
Original Recapture Terms and (B) the Ballantyne Assignment so
long as such transaction is effectuated substantially in accordance
with the Ballantyne Assignment Terms; provided , that in
connection with clauses (A) and (B), the aggregate fees,
expenses and liabilities incurred by all SRGL Entities related to
or arising out of the Ballantyne Recapture or the Ballantyne
Assignment (whether incurred upon the Ballantyne Recapture or the
Ballantyne Assignment or thereafter), collectively, including,
without limitation any associated letter of credit fees (equal to
85 basis points on the letter of credit notional amount),
reimbursement obligations and other fees, expenses and liabilities
incurred shall not, after establishment of appropriate reserves in
connection with the Ballantyne Recapture, exceed $1.25 million
for each of the third and fourth quarters of 2008, respectively and
shall in no event have a negative impact on the liquidity of SRGL
and SALIC as set forth on the June 2008 Liquidity Update (as
defined below) and (ii) the final terms of any such Ballantyne
Recapture and Ballantyne Assignment would not adversely affect the
rights or interests of the Noteholders under this Agreement or any
of the Transaction Documents and (III) SRGL shall be permitted to
pay or distribute amounts not owing in connection with any contract
or binding obligation of SRGL in full satisfaction and settlement
of the 2006 securities class action lawsuit in which SRGL and
certain of its former officers and directors are named defendants
to the extent such amounts, inclusive of (i) all legal fees,
costs and expenses of the underwriters incurred on or after the
date hereof and (ii) the settlement amount, individually or in
the aggregate, do not exceed $3 million (it being understood
that such $3 million limitation is deemed to be counted
towards the $12.4 million cap on payments set forth on
Exhibit D to the Forbearance Agreement);
(ii) no
amendment to the HSBC II Facility shall be permitted, the effect of
which would either increase the capacity of or the liabilities
associated with such facility; and
(iii) no
distribution or payment (including, without limitation, dividends
and interest) may be made by either SRGL or SALIC to any person
(including, but not limited to, any holders of any common or
preferred stock, surplus notes and subordinated debt of SRGL or
SALIC) that, upon an insolvency of either SRGL or SALIC, would have
a claim which would be subordinate to the claims of the Noteholders
and senior unsecured creditors of SALIC or SRGL; provided ,
that the Directing Party, in its sole discretion, may consent to an
exception to this subclause (c) with respect to
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allowing newly
contributed capital to be used to retire existing
liabilities.”
(2) The
Guarantors Letter Agreement shall be amended by deleting
Section 2(e) in its entirety and replacing it with the
following:
“(e)
SALIC will maintain a net worth (which includes shareholder’s
equity and mezzanine equity as reported under U.S. GAAP principles,
consistently applied; provided , however , for
purposes of calculating net worth, Accumulated Other Comprehensive
Income shall be deemed excluded) as of any calendar quarter end of
no less than the sum of (i) the Minimum SALIC Net Worth (as
defined below) plus (ii) an amount equal to 50% of the sum of
the consolidated positive net income (as determined under U.S. GAAP
principles, consistently applied) of SALIC since June 30, 2007
(and including the current calendar quarter). The Minimum SALIC Net
Worth shall be $700,000,000. The term “Accumulated Other
Comprehensive Income” shall have the meaning ascribed thereto
under U.S. GAAP principles, consistently applied.”
(3) The
Guarantors Letter Agreement shall be amended by deleting
Section 2(f) in its entirety and replacing it with the
following:
“(f) SRGL
will maintain a net worth (which includes shareholder’s
equity and mezzanine equity as reported under U.S. GAAP principles,
consistently applied; provided , however , for
purposes of calculating net worth, Accumulated Other Comprehensive
Income shall be deemed excluded) as of any calendar quarter end of
no less than the sum of (i) the Minimum SRGL Net Worth (as
defined below) plus (ii) an amount equal to 50% of the sum of
the consolidated positive net income (as determined under U.S. GAAP
principles, consistently applied) of SRGL since June 30, 2007
(and including the current calendar quarter) plus (iii) an
amount equal to 50% of the aggregate increases in
Shareholders’ Equity of SRGL by reason of the issuance and
sale of Equity Interests of SRGL since June 30, 2007 (and
including the current calendar quarter). The Minimum SRGL Net Worth
shall be $1,259,386,800.”
(4)
Section 2(c)(2) of the Guarantors Letter Agreement
shall be amended by inserting a period after the word
“permitted” in the 5 th line thereof
and deleting the remainder of the sentence and subparagraphs (i),
(ii) and (iii) thereof and retaining the last paragraph
thereof.
(d)
Amendments to the Coinsurance Retrocession Agreement .
(1)
Section 5.1.1 of the Coinsurance Retrocession Agreement
shall be amended by inserting the following at the end of the
penultimate sentence thereof:
11
“;
provided , that notwithstanding the foregoing, the
“Economic Reserve Discount Rate” shall not be less than
4.25% at all times, including upon any recapture pursuant to the
terms of this Agreement.”
(2)
Section 10.2 of the Coinsurance Retrocession Agreement
shall be amended by deleting subclause (a) in its entirety and
replacing it with the following:
“a. other
than in the case of a recapture effected pursuant to clause
(b) below, the Ceding Insurer will give the Reinsurer with a
copy to the Directing Party, the Recapture Notice, no less than
five (5) days in advance of the effective time of the
recapture, of its intention to recapture business reinsured under
this Agreement. The Ceding Insurer may effect such a recapture in
full or in part; provided , that any recapture in part shall
only be effected on a pro rata basis among all Underlying
Reinsurance Agreements and shall be subject to the express written
consent of the Directing Party.”
(3)
Section 10.4.1 of the Coinsurance Retrocession
Agreement shall be amended by deleting it in its entirety and
replacing it with the following:
“In the
event of a recapture pursuant to this Article 10 (and not
effected pursuant to or in accordance with Section 7.2
hereof), the Reinsurer shall pay the Ceding Insurer, and the Ceding
Insurer shall only be entitled to receive, an amount equal to
(a)(i) upon a recapture in full, an amount equal to the lesser of
(1) the fair market value of the assets in the Economic
Account and (2) the Economic Reserves, in either case, less
the amount, if any, which would be necessary to be added to the
cash proceeds obtained from the liquidation of all assets available
for distribution by the Reinsurer after such recapture to enable
the Reinsurer to redeem the Notes in full and pay all other
obligations to the Noteholders, including under the Forbearance
Agreement, in full, after application of the priority of payments
in Section 4.04 or Section 6.02 of the Indenture, as
applicable; or (ii) upon a recapture in part, an amount to be
determined, subject to the express written consent of the Directing
Party in its sole discretion; and (iii) in the case of either
clause (i) or (ii) above, as applicable, the portion of
the reinsurance premiums attributable to the recaptured Defined
Block Business that have been paid to the Reinsurer and which are
unearned, calculated as of the effective date of such recapture,
minus (b) any amounts due to the Reinsurer hereunder
but unpaid; provided , however , that, if the amount
calculated pursuant to clause (b) of this sentence exceeds the
amounts calculated pursuant to clause (a), then the Ceding Insurer
shall pay to the Reinsurer the amount of such excess.”
12
(e)
Amendments to the Investment Management Agreement .
(1) The
Investment Guidelines attached as Exhibits B-1, B-2 and B-3 with
respect to the Excess Account Portfolio, the Economic Account
Portfolio and the Surplus Account Portfolio, respectively, and the
related Exhibit B-4 (Weighted Average Rating Factor),
Exhibit B-5 (Maximum Target Duration) and Exhibit C
(Servicer Concentration Limits) shall be amended to reflect the
following:
(i) ABS
limited to AAA/Aaa rated.
(ii)
Credit card, MBS and auto aggregate limited to 30% each (currently
50%).
(iii)
Auto dealer floor plan receivables (a sub group of auto loan ABS)
with 5% bucket at AAA/Aaa.
(iv)
New servicer concentration limits to be agreed upon by the parties
after execution of the Forbearance Agreement.
(v) No
CDO’s; increase bucket of AAA/Aaa rated cash CLO’s to
10%.
(vi) No
Alt-A.
(vii)
Reduce the cure period for duration breach from 6 months to
1 month.
(viii)
Increase the legal final maturity permitted for AAA/Aaa rated CMBS
to 50 years.
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