EXECUTION COPY
FORBEARANCE AGREEMENT
Dated as of February 4, 2000
American-Amicable Holdings Corporation ("American-Amicable"),
Southwestern Financial Corporation, Southwestern Financial Services Corporation,
PennCorp Occidental Corp., KB Investment L.L.C., KB Management L.L.C. (each a
"Pledgor," and collectively, the "Pledgors") and the lenders signatory to the
Credit Agreement that are parties hereto (the "Majority Banks"), the Managing
Agents and the Co-Agents named therein (the "Agents") and THE BANK OF NEW YORK,
as administrative agent for the Banks (the "Administrative Agent") and
collateral agent under the Security Agreements (the "Collateral Agent"), hereby
agree as follows, (with certain terms used herein, being defined in, or
incorporated by reference pursuant to, Section 10 hereof):
1. Forbearance. (a) (i) The Administrative Agent, the Collateral
Agent and the Majority Banks will, subject to Section 1(a)(ii), forbear from
exercising their rights and remedies under the Credit Agreement and the Security
Agreements that result solely from the existence of the Bankruptcy Default from
the Forbearance Effective Date through the Termination Date (the "Forbearance
Period").
(ii) Upon the occurrence of a Termination Event of Default, the
agreement by the Administrative Agent, the Collateral Agent and the Majority
Banks under Section 1(a)(i) hereof to forbear shall be immediately terminated
without any notice to any Person.
(b) The agreement by the Administrative Agent, the Collateral Agent
and the Majority Banks under Section 1(a) to forbear from exercising their
rights and remedies shall not constitute a waiver of such rights and remedies,
or of the Bankruptcy Default.
2. Representations and Warranties. Each Pledgor acknowledges, agrees,
warrants and represents that:
(a) The Secured Obligations are valid, binding and
enforceable obligations of the Company and such Pledgor, except as
enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, whether at law or in
equity (including principles of good faith and fair dealing).
(b) (i) The Security Interest granted by such Pledgor under
its Security Agreement is and shall at all times be valid, perfected
and enforceable against the Pledgor and all third parties, in
accordance with the terms thereof, as security for the
Secured Obligations, and (ii) the Collateral under such Security
Agreement shall not, nor shall any financial asset that is the
subject of any security entitlement that is Collateral, at any time
be subject to any Lien that is prior to, on a parity with or junior
to such Security Interest, except, in the case of Collateral that is
not Securities and Instruments Collateral, Stock Collateral or Notes
Collateral, Liens permitted by Section 8.07 of the Credit Agreement
and Section 8.07 of the Cash Collateral Agreement (other than under
clause (c) or (d) of either thereof).
(c) Upon the occurrence of the Bankruptcy Default, the
Loans will be due and payable, without setoff, counterclaim or
defense.
(d) The Banks have not waived the Bankruptcy Default, or
any other present or future Events of Default, under the Credit
Agreement. Nothing herein shall be construed as any such waiver.
(e) Such Pledgor is not aware of the occurrence of any
unwaived Event of Default, other than the Bankruptcy Default.
(f) Such Pledgor's agreements, acknowledgments, warranties
and representations contained in this Forbearance Agreement, whether
in this Section 2 or otherwise, are material to the willingness of
the Administrative Agent, the Collateral Agent and the Banks to enter
into this Forbearance Agreement.
(g) Such Pledgor has the power, and has taken all necessary
action (including any necessary stockholder action) to authorize it,
to execute, deliver and perform in accordance with its terms, this
Forbearance Agreement. This Forbearance Agreement has been duly
executed and delivered by the duly authorized officers of such
Pledgor and is, the legal, valid and binding obligation of such
Pledgor enforceable in accordance with its terms, except as
enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally, whether at law or in
equity (including principles of good faith and fair dealing). The
execution, delivery and performance in accordance with their
respective terms by such Pledgor of this Forbearance Agreement do not
and (absent any change in any Applicable Law or applicable Contract)
will not (A) require any Governmental Approval (hereinafter defined)
or any other consent or approval, including any consent or approval
of the stockholders of such Pledgor or of any of its Subsidiaries, to
have been obtained, or any Governmental Registration (hereinafter
defined) to have been made, other than Governmental Approvals and
other consents and approvals and Governmental Registrations that have
been obtained or made, are final and not subject to review on appeal
or to collateral attack, are in full force and effect, or (B)
violate, conflict with, result in a breach of, constitute a default
under, or result in or require the creation of any Lien (other than
the Security Interests) upon any assets of such Pledgor or any
Subsidiaries under (1) any Contract to which such Pledgor, or any
such Subsidiary is a party or by which such Pledgor, or any such
Subsidiary or any of their respective properties may be bound, or (2)
any Applicable Law. As used herein, "Governmental Approval" shall
mean any authority, consent, approval, license (or the like) or
exemption (or the like) of any governmental unit; "Governmental
Registration" shall mean any registration or filing (or the like)
with, or report or notice (or the like) to, any governmental unit.
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3. Pledgor Waiver. As an inducement to the Administrative Agent, the
Collateral Agent and the Majority Banks to enter into this Forbearance
Agreement, each Pledgor waives and affirmatively agrees not to allege, assert or
otherwise pursue any Loan Document Related Claim that it may have, as of the
date hereof, against the Administrative Agent, the Collateral Agent and the
Majority Banks, whether known or unknown, including (i) the enforceability,
applicability or validity of any provisions of the PennCorp Agreements or the
Security Agreements, or (ii) the enforcement or validity of this Forbearance
Agreement, (iii) the existence, validity, enforceability or perfection of the
Security Interests, or (iv) the conduct of the Banks, the Administrative Agent,
the Collateral Agent, the Managing Agents or the Co-Agents under any of the
Contracts referred to in clauses (i) or (ii) or in administering the financial
arrangements under the Loan Documents between the Company, the Pledgors and the
Banks.
4. Events of Default. The parties to this Forbearance Agreement agree
that each of the following shall constitute a "Forbearance Agreement Event of
Default" under this Forbearance Agreement, and an Event of Default under the
Security Agreements, whatever the reason for such event whether it shall be
voluntary or involuntary or within or without the control of the Company or any
Subsidiary, or be effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or
non-governmental body:
(a) The failure by any Pledgor to perform or observe any of its
obligations hereunder in any material respect; or
(b) The inaccuracy or incorrectness of any representation or warranty
made by any of the Pledgors under this Forbearance Agreement in any material
respect; or
(c) Any payment of interest on the Loans shall not be made when and
as due and in accordance with the terms of, prior to the Petition Date, the
Credit Agreement and, on and after the Petition Date, the Cash Collateral
Agreement or, if the Cash Collateral Agreement shall not then be in effect, in
accordance with the terms of the Cash Collateral Agreement as if that Contract
were in full force and effect; or
(d) The net cash proceeds of the Company's sale of the shares of the
Southwestern Life Insurance Company and Security Life and Trust Insurance
Company pursuant to the Swiss Re Sale Contract shall not, immediately upon
receipt, have been applied to the payment of the Secured Obligations in an
amount sufficient to pay all of the then outstanding Secured Obligations; or
(e) The Company shall have failed to comply with its obligations
(after giving effect to all amendments, waivers and other modifications thereof
or the termination thereof) under Section 5.16 of the Swiss Re Sale Contract; or
(f) The Company shall fail to have at least $8,500,000 in the
Collateral Account upon the date on which the Company files the bankruptcy
petition that results in the Bankruptcy Default; or
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(g) (i) The occurrence under any Executive Employment Agreement of an
Improper Executive Termination (as defined in such Executive Employment
Agreement), (ii) the amendment of, or the waiver by the Company of any rights
under, in any case without the consent of the Majority Banks, Section 8(b) of
any Executive Employment Agreement, or (iii) the rejection by the Company of any
Executive Employment Agreement.
5. Notice of Default under Other Agreements.Each Pledgor shall notify
the Administrative Agent in writing immediately upon obtaining knowledge of a
Forbearance Agreement Event of Default.
6. No Modification. The Pledgors agree that all terms of the Security
Agreements, subject to Section 1 hereof, remain in full force and effect. In the
event the terms of this Forbearance Agreement conflict with the terms of the
Security Agreements, then the terms of this Forbearance Agreement shall control.
The Pledgors hereby reaffirm all of the Secured Obligations.
7. Expenses. The Pledgors shall be jointly and severally liable to
pay all reasonable legal fees and expenses incurred by the Administrative Agent
and the Collateral Agent in connection with, arising out of, or in any way
related to, this Forbearance Agreement, including those relating to drafting and
negotiating this Forbearance Agreement. Such fees and expenses shall be due and
payable within 10 business days of such demand for payment. Such fees and
expenses shall be added to and constitute a part of the Secured Obligations.
8. Effective Date. This Forbearance Agreement shall be effective as
of the date first written above, but shall not become effective as of such date
until the time (such time, the "Forbearance Effective Date"):
(a) as this Forbearance Agreement has been executed and delivered by
each Pledgor, the Majority Banks, the Administrative Agent and the Collateral
Agent;
(b) all interest accrued to the date immediately prior to the
Petition Date, the Agent's fee payable under Section 2.05(b) of the Credit
Agreement in an amount that would have been due if the date of payment was on
February 29, and all reasonable amounts due under Section 11.03 of the Credit
Agreement for which invoices have been delivered to the Company on or prior to
such date, have been paid;
(c) the Company has paid to the Administrative Agent for the account
of each Bank that has executed this Forbearance Agreement, the Swiss Re Consent,
the Waco Consent and the Cash Collateral Agreement, a non-refundable fee in an
amount equal to 0.50% of the unpaid principal amount of such Bank's Loans on the
close of business on the Business Day immediately preceding the Petition Date
after giving effect to any prepayment on such Business Day;
(d) $20,400,000 in the aggregate shall have been deposited in the
Collateral Account by Pacific Life and Accident Insurance Company after January
27, 2000, and prior to the Petition Date; and
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(e) In the event that the Closing (as that term is defined in the
Waco Sale Contract) occurs on February 4, 2000, at least $12,500,000 in the
aggregate shall have been deposited in the Collateral Account by
American-Amicable Holdings Corporation on or after February 4, 2000 and prior to
the Petition Date.
9. Governing Law. The rights and duties of the Pledgors, the
Administrative Agent and the Banks under this Forbearance Agreement shall,
pursuant to New York General Obligations Law Section 5-1401, be governed by the
law of the State of New York.
10. Definitions. (a) Reference is hereby made to the Credit
Agreement, dated as of March 12, 1997, among PennCorp Financial Group, Inc. (the
"Company"), the Banks, the Agents and the Administrative Agent (as amended,
modified or waived prior to the date hereof, the "Credit Agreement").
(b) All capitalized terms not otherwise defined herein have the
meanings ascribed to them in the PennCorp Agreements or in a Security Agreement.
(c) For purposes of this Forbearance Agreement:
"Bankruptcy Default" means the Event of Default under Section 9(g) of
the Credit Agreement resulting from and only from the filing by the Company of a
petition commencing a case (the "Chapter 11 Case") under Chapter 11 of Title 11
of the United States Code as contemplated by the Swiss Re Sale Contract. No
other Event of Default under Section 9(g) of the Credit Agreement shall
constitute a "Bankruptcy Default".
"Cash Collateral Agreement" means the Cash Collateral Agreement among
the Company, the Banks and the Administrative Agent in the form attached hereto
as Exhibit A, with such changes thereto as may have been approved in writing by
the Majority Banks.
"Chapter 11 Case" shall have the meaning ascribed to that term in the
definition of "Bankruptcy Default".
"Closing" shall have the meaning ascribed to that term in the Swiss
Re Sale Contract.
"Credit Agreement" has the meaning ascribed to that term in Section
10(a).
"Executive Employment Agreement" shall mean the (i) Employment
Agreement dated January 28, 2000 between the Company and Xxxxx Xxxx, (ii)
Employment Agreement dated January 28, 2000 between the Company and Xxxxx
Xxxxxxxxx, and (iii) Employment Agreement dated January 28, 2000 between the
Company and Xxxxx XxXxxxxxx.
"Forbearance Agreement Event of Default" shall have the meaning
ascribed to that term in Section 4.
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"Forbearance Effective Date" shall have the meaning ascribed to that
term in Section 8.
"Loan Document Related Claim" means any claim or dispute (whether
arising under Applicable Law, including any "environmental" or similar law,
under Contract or otherwise and, in the case of any proceeding relating to any
such claim or dispute, whether civil, criminal, administrative or otherwise) in
any way arising out of, related to, or connected with, the Loan Documents, the
relationships established thereunder or any actions or conduct thereunder or
with respect thereto, whether such claim or dispute arises or is asserted before
or after the Agreement Date.
"PennCorp Agreements" shall mean, prior to the Petition Date the
Credit Agreement, and after the Petition Date the Cash Collateral Agreement.
"Petition Date" shall mean the date of the filing of the petition
commencing the Chapter 11 Case.
"Swiss Re Consent" means the Swiss Re Consent of the Banks dated as
of January 31, 2000 among the Company and the Majority Banks.
"Swiss Re Sale Contract" shall have the meaning ascribed to that term
in the Swiss Re Consent.
"Termination Date" shall mean the earlier to occur of (a) the
dismissal of the Chapter 11 Case, (b) the conversion of the Chapter 11 Case to a
case under Chapter 7 of the Bankruptcy Code, (c) the termination of the Swiss Re
Sale Contract by the Company for any reason other than in connection with the
Company's acceptance of a Superior Proposal (as defined in the Swiss Re Sale
Contract) to which the Majority Banks have consented, and (d) May 31, 2000.
"Termination Event of Default" means (i) a Forbearance Agreement
Event of Default; (ii) prior to the Bankruptcy Default, an Event of Default
under the Credit Agreement, and on or after the Bankruptcy Default, an Event of
Default under the Cash Collateral Agreement in the form approved by the
Bankruptcy Court in the Chapter 11 Case, or, if such Bankruptcy Court shall not
have approved the Cash Collateral Agreement under the Cash Collateral Agreement
as if that Contract were in full force and effect except for Sections 9(a),
9(p), and 9(q) thereof; (iii) an Event of Default under the Swiss Re Consent; or
(iv) an Event of Default under the Waco Consent.
"Waco Consent" means the Waco Consent dated as of January 31, 2000
among the Company and the Majority Banks.
"Waco Sale Contract" shall have the meaning assigned thereto in the
Waco Consent.
(d) For purposes of the Security Agreements, the term "Event of
Default" as used therein is including Termination Event of Default.
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IN WITNESS WHEREOF, the parties hereto have caused this Forbearance
Agreement to be duly executed as of the day and year first above written.
AMERICAN-AMICABLE HOLDINGS
CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Senior Vice President
SOUTHWESTERN FINANCIAL CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Senior Vice President
SOUTHWESTERN FINANCIAL SERVICES
CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Assistant Secretary
KB MANAGEMENT L.L.C.
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Assistant Secretary
KB INVESTMENT L.L.C.
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Assistant Secretary
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PENNCORP OCCIDENTAL CORP.
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: President
THE BANK OF NEW YORK, as
Administrative Agent, Collateral Agent and
as a Bank
By: /s/ Xxxxx X. Xxxx
---------------------------------
Name: Xxxxx X. Xxxx
Title: Vice President
THE CHASE MANHATTAN BANK, as a
Managing Agent and as a Bank
By: /s/ Xxxxx X. Xxxxx
---------------------------------
Name: Xxxxx X. Xxxxx
Title: M.D.
BANK OF AMERICA, N.A., formerly known as
Nations Bank, N.A., as a Managing
Agent and as a Bank
By: /s/ Xxxxxxx X. Xxxxxxxxxxx XX
---------------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx XX
Title: Managing Director
FLEET NATIONAL BANK, as a
Co-Agent and as a Bank
By: /s/ Xxxxxx X. Xxxxxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxxxxx
Title: Senior Vice President
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MELLON BANK, N.A., as a Co-Agent
and as a Bank
By: /s/ Xxxx X. Xxxx
---------------------------------
Name: Xxxx X. Xxxx
Title: First Vice President
BANK OF MONTREAL, as a Co-Agent
and as a Bank
By: /s/ Xxxxxx X. XxXxxx
---------------------------------
Name: Xxxxxx X. XxXxxx
Title: Director
CIBC INC., as a Co-Agent and as a Bank
By: /s/ Xxxxxx Xxxxxxx
---------------------------------
Name: Xxxxxx Xxxxxxx
Title: Executive Director
CIBC World Markets Corp., as agent
DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES, as a Co-
Agent and as a Bank
By: /s/ Xxxxxxx X. Xxxxxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxxxxx
Title: Senior Vice President
By: /s/ Xxxxxx X. Xxxxxxxx, XX
---------------------------------
Name: Xxxxxx X. Xxxxxxxx, XX
Title: Assistant Vice President
FIRST UNION NATIONAL BANK
By: /s/ Xxxxxx X. Xxxxxxxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxxxxxxx
Title: Senior Vice President
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BEAR XXXXXXX & CO., INC.
By: /s/ Xxxx X. XxXxxxxxx
---------------------------------
Name: Xxxx X. XxXxxxxxx
Title: Senior Managing Director
DK ACQUISITION PARTNERS, L.P.
By: X.X. Xxxxxxxx & Co., its General Partner
By: /s/ Xxxxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxxxx X. Xxxxxxx
Title: General Partner
ING (U.S.) CAPITAL CORPORATION
By: /s/ Xxxx Xxxxxxxx
---------------------------------
Name: Xxxx Xxxxxxxx
Title: Senior Associate
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