EXHIBIT 2.5
FORBEARANCE AND LOCK-UP AGREEMENT
This FORBEARANCE AND LOCK-UP AGREEMENT (this "Agreement") is made and
entered into as of October 30, 2002 by and among Highlands Insurance Group,
Inc., a Delaware corporation ("HIGI") and certain of its domestic holding
company and non-insurance company affiliates (the "Debtor Affiliates," together
with HIGI, the "Company") and each of the banks signatory hereto (each, a
"Consenting Bank," and collectively, the "Consenting Banks").
RECITALS
WHEREAS, HIGI has $47,504,390.00 million in principal amount plus accrued
interest thereon outstanding under that certain Credit Agreement, dated as of
April 30, 1997 and amended from time to time (the "Credit Agreement" and such
debt, the "Bank Debt"), among HIGI, the lenders signatory thereto (including the
Consenting Banks) (the "Banks") and The Chase Manhattan Bank, as administrative
agent (the "Administrative Agent");
WHEREAS, the Company and the Consenting Banks now desire to implement a
consensual liquidation of the Company (the "Liquidation"), substantially on the
terms set forth in the Term Sheet attached as Exhibit A hereto (the "Term
Sheet");
WHEREAS, in order to implement the Liquidation, the Company intends,
subject to the terms and conditions of this Agreement, to (a) prepare and file
(i) a disclosure statement (the "Disclosure Statement") and (ii) a
pre-negotiated joint plan of liquidation implementing the terms of the
Liquidation (the "Plan") in cases (the "Chapter 11 Cases") filed under chapter
11 of title 11 of the United States Code (the "Bankruptcy Code"), (b) solicit
the requisite acceptances of such Plan and (c) use its reasonable best efforts
to have such Disclosure Statement approved and such Plan confirmed by the
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"), in each
case, as expeditiously as possible under the Bankruptcy Code and the Federal
Rules of Bankruptcy Procedure;
WHEREAS, in order to facilitate the implementation of the Liquidation,
each of the Consenting Banks is prepared to commit, as set forth in more detail
herein, during the period commencing on the date hereof and ending on the date
that a Termination Event (as defined herein) first occurs, and no longer, (a) to
forbear from exercising remedies in respect of the Bank Debt and (b) not to
sell, transfer or assign any interest in the Bank Debt (including, without
limitation, any grant of a participation right in the Bank Debt), except as
permitted herein; and
WHEREAS, each of the Consenting Banks is prepared to commit, on the terms
and subject to the conditions of this Agreement, to accept the Plan, to support
the confirmation of such Plan and to perform its obligations hereunder.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the Company and
the Consenting Banks hereby agree as follows:
1. Defaults Under Credit Agreement. By executing this Agreement, the
Company hereby acknowledges that it is in default under the Credit Agreement.
Notwithstanding anything herein or in any document or instrument executed and
delivered in connection herewith to the contrary, the execution of the Agreement
by the Consenting Banks shall not be deemed to constitute a waiver by such
Consenting Banks of any of the defaults of the Company under the Credit
Agreement.
2. Forbearance. During the period commencing on the date hereof and ending
on the date that a Termination Event first occurs, and no longer, each of the
Consenting Banks hereby agrees to forebear (and agrees not to give any
instructions to the Administrative Agent inconsistent with such forbearance)
from the exercise of any rights or remedies it may have under the Credit
Agreement or any related documents (collectively, the "Credit Documents"),
applicable law or otherwise with respect to any default in existence or arising
under the Credit Documents; provided, however, that during such period the
Company shall have continued to comply with its obligations under the terms and
conditions of this Agreement. In the event that this Agreement shall terminate,
each of the Consenting Banks shall have, and shall be entitled to exercise, each
of its rights or remedies under the Credit Documents, applicable law or
otherwise, as if this Agreement had never been executed (and shall not be deemed
to have waived any such rights or remedies by virtue of executing this
Agreement).
3. Restriction on Transfer. Each of the Consenting Banks hereby agrees
that, during the period commencing on the date hereof and ending on the date
that a Termination Event first occurs, and no longer, it shall not sell,
transfer or assign any claims arising under or evidenced by the Credit Documents
(the "Relevant Claims") or any option thereon or any right or interest therein
(including, without limitation, any participation right in the Bank Debt),
unless the transferee thereof agrees in writing to be bound by all the terms of
this Agreement by executing a counterpart signature page of this Agreement and
the transferor provides the Company with a copy thereof, in which event the
Company shall be deemed to have acknowledged that its obligations to the
Consenting Banks hereunder shall be deemed to constitute obligations in favor of
such transferee, and the Company shall confirm that acknowledgment in writing.
4. Support of Plan. Each of the Consenting Banks represents that, as of
the date hereof, it is the beneficial owner of the aggregate principal amount of
Bank Debt as set forth on its signature page below. Each of the Consenting Banks
agrees, subject to the conditions (the "Conditions") that (x) Banks in number
and holding an aggregate amount of Bank Debt sufficient to satisfy the
requirements of Section 1126(c) of the Bankruptcy Code are party to this
Agreement (the "Requisite Consent Condition"), (y) the terms of the Plan include
and/or are consistent with the terms set forth in the Term Sheet and that the
Plan is not otherwise different from the draft dated October 22, 2002 (a copy of
which is attached as Exhibit B hereto) in a manner that is materially adverse to
the Consenting Banks and (z) if this Agreement shall not have expired or
terminated, it shall, when solicited after receipt of a Disclosure Statement
previously approved by the Bankruptcy Court pursuant to Section 1125(b) of the
Bankruptcy Code, (a) vote to accept the Plan and (b) not (i) object to
confirmation of the Plan, (ii) vote for or otherwise directly or indirectly
seek, solicit, support or encourage any other plan of reorganization or
liquidation or proposal or offer for the dissolution, winding up, liquidation,
merger, restructuring, or reorganization of the Company or any of its
subsidiaries in the Chapter 11 Cases, (iii) object to the Disclosure Statement
or the solicitation of consents to the Plan or (iv)
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take any other action that is inconsistent with, or that would delay
confirmation of, the Plan. The Company will use its reasonable best efforts to
obtain confirmation of the Plan in accordance with the Bankruptcy Code as
expeditiously as possible, and the Consenting Banks will take all necessary and
appropriate actions to support confirmation of the Plan.
5. Further Acquisition of Bank Debt. This Agreement shall in no way be
construed to preclude the Consenting Banks from acquiring additional Bank Debt.
However, any such additional Bank Debt so acquired shall automatically be deemed
to be Relevant Claims and to be subject to the terms of this Agreement.
6. Additional Holders of Relevant Claims. Any Bank may become a party to
this Agreement by duly executing a written acknowledgment of such Bank's
agreement to be bound by the terms and provisions of this Agreement and to be
deemed a "Consenting Bank" for all purposes hereof, and upon delivery of an
executed copy of such acknowledgment to the Company, such Bank shall thereafter
be deemed to be a Consenting Bank for all purposes hereof.
7. Acknowledgment. This Agreement is not and shall not be deemed to be a
solicitation for consents to the Plan.
8. Representations and Warranties. The Company and each Consenting Bank
represents and warrants to each other that the following statements are true,
correct and complete as of the date hereof:
(a) Corporate Power and Authority. It has all requisite power and
authority (corporate or otherwise) to enter into this Agreement and to
carry out the transactions contemplated by, and perform its respective
obligations under, this Agreement.
(b) Authorization. The execution and delivery of this Agreement and
the performance of its obligations hereunder have been duly authorized by
all necessary corporate, partnership or LLC action on its part.
(c) No Conflicts. The execution, delivery and performance by it of
this Agreement do not and shall not (i) violate any provision of law, rule
or regulation applicable to it or any of its subsidiaries or its
certificate of incorporation or bylaws or other organizational documents
or those of any of its subsidiaries or (ii) conflict with, result in a
breach of or constitute (with due notice or lapse of time or both) a
default under any material contractual obligation to which it or any of
its subsidiaries is a party.
(d) Governmental Consents. The execution, delivery and performance
by it of this Agreement do not and shall not require any registration or
filing with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or
regulatory body, except such filings as may be necessary and/or required
in connection with the commencement of the Chapter 11 Case, the approval
of the Disclosure Statement and confirmation of the Plan.
(e) Binding Obligation. This Agreement is the legally valid and
binding obligation of it, enforceable against it in accordance with its
terms, except for insolvency and bankruptcy, limitations on creditors'
rights, equitable doctrines and limitations on
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equitable remedies including specific enforcement, obligations of good
faith and fair dealing, public policy, illegality, commercial
impracticality, frustration of purpose, limitations on and requirements of
proof of damages, general rules of contract, and any applicable law or
rule which would deny, restrict or limit such enforcement.
9. Releases. The Plan shall contain releases between the Banks and the
Company upon terms and conditions agreed to by, and in form and substance
reasonably satisfactory to, each of the Consenting Banks and the Company.
10. Exculpation. The Plan shall contain a provision addressing exculpation
and limitation of liability, substantially as follows:
"None of the Company, any Bank, or any of their respective current or
former officers, directors, subsidiaries, affiliates, members, managers,
shareholders, partners, representatives, employees, attorneys, advisors and
agents, or any of their respective successors and assigns, and their respective
property, shall have or incur any liability to any holder of a claim or an
interest, or any other party in interest, or any of their respective officers,
directors, subsidiaries, affiliates, members, managers, shareholders, partners,
representatives, employees, attorneys, advisors and agents, or any of their
respective successors and assigns, and their respective property, for any act
taken or omission made in connection with, relating to, or arising out of, the
Liquidation, the Chapter 11 Cases, the negotiating, filing, prosecuting,
administrating, formulating, implementing, confirming or consummating of the
Plan or the property to be distributed under the Plan, including all prepetition
activities in connection therewith, the Disclosure Statement (including any
information provided or statement made in the Disclosure Statement or omitted
therefrom), or any contract, instrument, release or other agreement or document
created in connection with or related to the Plan or the administration of the
Company or the Chapter 11 Cases, except for any act or omission arising out of
such person's gross negligence or willful misconduct as determined by a court of
competent jurisdiction, and in all respects shall be entitled to reasonably rely
upon the advice of counsel with respect to their duties and responsibilities
under the Plan."
11. Conditions. The respective obligations of the parties hereto to
consummate each of the transactions contemplated by the Liquidation and/or the
Plan are also subject to the satisfaction of each of the following conditions:
(a) negotiation, preparation and execution of mutually satisfactory
definitive transaction agreements and other documents, including, without
limitation, the Plan and the Disclosure Statement, incorporating the terms
and conditions of each of the transactions contemplated by the Liquidation
set forth herein and in the Term Sheet and such other terms and conditions
as the parties may mutually agree; and
(b) all authorizations, consents and regulatory approvals required,
if any, in connection with the consummation of the transactions
contemplated by the Liquidation or in connection with implementation of
the Plan shall have been obtained.
12. Termination of Agreement. If any of the following events (any such
event, a "Termination Event") occurs, then each of the Consenting Banks may
terminate its obligations
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hereunder and, as to any such Consenting Banks, this Agreement (including,
without limitation, all releases and waivers hereunder) shall terminate and
become void and of no further effect:
(i) the Company, without the consent of the Consenting Banks,
either grants a lien on or sells or otherwise disposes of any
of its property or assets with a fair market value,
individually or in the aggregate, in excess of $100,000;
(ii) a Plan that satisfies the Conditions has not been filed with
the Bankruptcy Court on or prior to November 7, 2002 or has
not been confirmed by the Bankruptcy Court on or prior to May
7, 2003, unless an extension of time has been agreed to by
such Consenting Bank;
(iii) the Effective Date of the Plan has not occurred on or prior to
June 7, 2003;
(iv) the Company files, propounds or otherwise supports any plan of
reorganization or liquidation that does not satisfy the
Conditions and fails to cure such default within five (5)
business days of receiving written notice thereof;
(v) the Plan is modified or replaced such that it (or any such
replacement) at any time does not satisfy the Conditions;
(vi) the Company shall have disclaimed in writing its intention to
pursue the Liquidation or shall have breached the Term Sheet
and shall not have cured any such breach within five (5)
business days of receiving written notice thereof;
(vii) the conversion of any of the Chapter 11 Cases to cases under
Chapter 7 of the Bankruptcy Code; or
(viii) the failure of the Company to perform in any material respect
any of its obligations under this Agreement;
provided, however, that notwithstanding anything to contrary contained herein or
in any document or instrument executed and delivered in connection herewith, if,
at any time, the Requisite Consent Condition is not satisfied, then this
Agreement shall automatically terminate and become void and of no further effect
without the need for any action by any party hereto. None of the parties hereto
shall have any liability to any other party in respect of any termination of
this Agreement in accordance with the terms hereof.
13. Good Faith Negotiations of Liquidation Documents. The Company and each
Consenting Bank covenants and agrees to negotiate the definitive documents
relating to the Liquidation, including, without limitation, the Plan and the
Disclosure Statement, in good faith.
14. Several and Not Joint. Notwithstanding anything herein or in any
document or instrument executed and delivered in connection herewith to the
contrary, the parties hereto agree that the representations, warranties,
obligations and liabilities of each Consenting Bank hereunder shall be several
and not joint, and no Consenting Bank shall have any liability
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hereunder for any breach by any other Consenting Bank of any obligation of such
set forth herein.
15. Disclosure. Unless required by applicable law or regulation or a
ruling by a court of competent jurisdiction, the Company shall not disclose the
identity of any Consenting Bank or any Consenting Bank's holdings of Relevant
Claims without the prior written consent of such Consenting Bank, and if such
announcement or disclosure is so required by law or regulation or court ruling,
the Company shall afford such Consenting Bank a reasonable opportunity to review
and comment upon any such announcement or disclosure prior to such announcement
or disclosure. The foregoing shall not prohibit the Company from disclosing the
approximate aggregate holdings of Relevant Claims by the Consenting Banks as a
group or the existence and terms of this Agreement and that the Consenting Banks
have expressed support for the Plan.
16. Creditors Committee. Notwithstanding anything herein or in any
document or instrument executed and delivered in connection herewith to the
contrary, the Consenting Banks agree not to seek formation of an official
committee of creditors in the Chapter 11 Cases (a "Committee"); provided,
however, that, in the event that a Committee is formed, nothing in this
Agreement or in any document or instrument executed and delivered in connection
herewith shall preclude a Consenting Bank from seeking to serve on such
Committee and, in the event that any Consenting Bank is appointed to and serves
on a Committee, the terms of this Agreement shall not be construed so as to
limit such Consenting Bank's exercise (in its sole and absolute discretion) of
its fiduciary duties to any person arising from its service on such Committee,
and any such exercise (in the sole and absolute discretion of the Consenting
Bank) of such fiduciary duties shall not be deemed to constitute a breach of the
terms of this Agreement (but the fact of such service on such Committee shall
not otherwise affect the continuing validity or enforceability of this
Agreement).
17. Amendments. This Agreement may not be modified, amended or
supplemented except in writing signed by the Company and each Consenting Bank.
18. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing (including by facsimile with
written confirmation thereof) and unless otherwise expressly provided herein,
shall be delivered during normal business hours by hand, nationally recognized
overnight commercial delivery service or facsimile, confirmation of receipt
received, addressed as follows, or to such other address as may be hereafter
notified by the respective parties hereto:
If to the Consenting Banks, to the address and attention of such parties
set forth on Exhibit C hereto,
With copies, which shall not constitute notice, to:
JPMorgan Chase Bank,
as Administrative Agent
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
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Attention: Xxxxxx X. Xxxxxxx
Facsimile: (000) 000-0000
- and -
White & Case LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx XxXxxxxx, Esq.
Facsimile: (000) 000-0000
If to the Company to:
Highlands Insurance Group, Inc.
0000 Xxxxx Xxxxx
Xxxxxxxxxxxxx, Xxx Xxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxxxxxx
Facsimile: (000) 000-0000
With a copy, which will not constitute notice, to:
Xxxxx Xxxxxx LLP
Xxx Xxxxxxx Xxxxx, Xxxxx 0000
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Facsimile: (000) 000-0000
19. Governing Law; Jurisdiction; WAIVER OF JURY TRIAL. This Agreement
shall be governed by and construed in accordance with the internal laws of the
State of New York, without regard to any conflicts of law provision which would
require the application of the law of any other jurisdiction. By its execution
and delivery of this Agreement, the parties hereto hereby irrevocably and
unconditionally agrees for itself that any legal action, suit or proceeding
against it with respect to any matter under or arising out of or in connection
with this Agreement or for recognition or enforcement of any judgment rendered
in any such action, suit or proceeding, may be brought in the U.S. District
Court for the Southern District of New York. By execution and delivery of this
Agreement, each of the parties hereto hereby irrevocably accepts and submits
itself to the nonexclusive jurisdiction of each such court, generally and
unconditionally, with respect to any such action, suit or proceeding.
Notwithstanding the foregoing consent to New York jurisdiction, upon the
commencement of the Chapter 11 Cases, each of the parties hereto hereby agrees
that the Bankruptcy Court shall have exclusive jurisdiction of all matters
arising out of or in connection with this Agreement. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN CONNECTION
WITH ANY ACTION, DISPUTE, OR PROCEEDING RELATING TO THIS AGREEMENT.
20. Specific Performance. It is understood and agreed by each of the
parties hereto that money damages would not be a sufficient remedy for any
breach of this Agreement by any
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party, and each non-breaching party shall be entitled to specific performance
and injunctive or other equitable relief as a remedy of any such breach.
21. Headings. The headings of the sections, paragraphs and subsections of
this Agreement are inserted for convenience only and shall not affect the
interpretation hereof.
22. Successors and Assigns; No Third-Party Beneficiaries. This Agreement
is intended to bind and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs, executors, administrators and
representatives and, unless expressly stated herein, is not intended, and shall
not be deemed, to confer any rights or remedies upon any person other than the
parties hereto and their respective successors and assigns and no other person
or entity shall be a third-party beneficiary hereof.
23. Entire Agreement. This Agreement and the Term Sheet constitute the
entire agreement among the parties hereto and supersede all prior negotiations,
understandings, agreements or representations by or among the parties hereto, or
any of them, written or oral, with respect to the subject matter hereof.
24. Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same Agreement.
25. Consideration. It is hereby acknowledged by the parties hereto that no
consideration shall be due or paid to the Consenting Banks for their agreement
to support the Plan in accordance with the terms and conditions of this
Agreement other than the Company's agreement to use its reasonable best efforts
to obtain approval of the Disclosure Statement and to take all steps necessary
and desirable to confirm the Plan in accordance with the terms and conditions of
this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed and delivered by its duly authorized officer as of the
date first above written.
HIGHLANDS INSURANCE GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx
Title: Chief Executive Officer
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HIGHLANDS HOLDING COMPANY, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx
Title: Chief Executive Officer
HIGHLANDS CLAIMS AND SAFETY SERVICES, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx
Title: Chief Executive Officer
HIGHLANDS SERVICES CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx
Title: Chief Executive Officer
AMERICAN RELIANCE, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx
Title: Chief Executive Officer
NORTHWESTERN NATIONAL HOLDING COMPANY, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxxxx
--------------------------
Name: Xxxxxxx X. Xxxxxxxxxxx
Title: Chief Executive Officer
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JPMORGAN CHASE BANK
By: /s/ Xxxxxx X. Xxxxxxx
---------------------
Name: Xxxxxx X. Dinner
Title: Managing Director
BANK OF AMERICA
By: /s/ Xxxx Xxxxx
--------------
Name: Xxxx Xxxxx
Title: Managing Director
FLEET BOSTON FINANCIAL
By: /s/ Xxxxxx X. Xxxxxx
--------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice President
BANK OF MONTREAL
By: /s/ Xxxxxxxx X. XxXxxxxxx
-------------------------
Name:
Title:
BANK ONE, NA
By: /s/ C. Xxxxxx Xxxxxx
--------------------
Name: C. Xxxxxx Xxxxxx
Title: First Vice President
DRESDNER BANK, NEW YORK AND
CAYMAN ISLAND BRANCHES
By: /s/ Xxxxxx X. Xxxxx
-------------------
Name: Xxxxxx X. Xxxxx
Title: Director
By: /s/ Xxxxxxx Xxxxxx
------------------
Name: Xxxxxxx Xxxxxx
Title: Associate
