SECOND AMENDED AND RESTATED FORBEARANCE AGREEMENT
Exhibit 10.67
SECOND AMENDED AND RESTATED FORBEARANCE AGREEMENT
This Second Amended and Restated Forbearance Agreement (this “Agreement”) is entered into as
of June 30, 2008 by and between HSBC BANK USA, NATIONAL ASSOCIATION (“HSBC”), SCOTTISH ANNUITY &
LIFE INSURANCE COMPANY (CAYMAN) LTD. (“SALIC”), SCOTTISH RE GROUP LIMITED (“SRGL”) and SCOTTISH RE
(DUBLIN) LIMITED (“SCOTTISH (DUBLIN)”).
RECITALS
WHEREAS, SALIC and HSBC entered into (i) the 1992 ISDA Master Agreement, the Schedule thereto
and the Credit Support Annex to the Schedule (collectively, the “Master Agreement”), each dated as
of June 28, 2004 and (ii) the letter agreement (the “Confirmation”) confirming the terms of the
total rate of return swap transaction, dated as of December 22, 2005;
WHEREAS, HSBC, SALIC and Scottish (Dublin) entered into that certain Letter Agreement dated
August 4, 2006 (the “August 4, 2006, Letter Agreement”);
WHEREAS, HSBC and SALIC entered into that certain Forbearance Agreement dated September 1,
2006 (the “Forbearance Agreement”);
WHEREAS, HSBC and SALIC entered into that certain Amended and Restated Forbearance Agreement
dated November 25, 2006 (the “Amended and Restated Forbearance Agreement”), which amended and
restated the Forbearance Agreement in its entirety and which is hereby amended and restated in its
entirety by this Agreement;
WHEREAS, in connection with the Master Agreement and pursuant to the terms of the August 4,
2006, Letter Agreement and this Agreement, HSBC currently holds Eligible Collateral as Credit
Support under the Master Agreement in an amount equal to US$25,000,000 (the “Collateral”);
WHEREAS, SALIC has requested, and HSBC has agreed, subject to the terms and conditions of this
Agreement, to forbear from demanding any amounts of additional Eligible Collateral as Credit
Support under the Master Agreement and the Confirmation during the period commencing on the date
hereof and ending at 11:59 p.m. (Prevailing Eastern Time) on December 15, 2008 (the “Forbearance
Period”) unless terminated earlier pursuant to Section 4; and
WHEREAS, SALIC and HSBC agree that the execution of this Agreement shall not constitute a
novation, discharge, extinguishment or refunding, nor is it to be construed as a release, waiver or
modification of any of the terms, conditions, representations, warranties, covenants, rights or
remedies set forth in the Master
Agreement, the Confirmation or any other documents, except as expressly provided herein.
NOW, THEREFORE, SALIC, SRGL, Scottish (Dublin) and HSBC hereby agree as follows:
SECTION
1. Recitals. The recitals set forth above are hereby incorporated into this
Agreement.
SECTION
2. Defined Terms. Capitalized terms used but not defined herein shall have the meaning
set forth in the Master Agreement and the Confirmation, provided that if terms are defined in both
the Master Agreement and the Confirmation, the definition provided in the Confirmation shall
control.
SECTION
3. Collateral. SALIC and HSBC agree and acknowledge that HSBC shall continue to have
rights pursuant to the Master Agreement and the Confirmation with respect to the US$25,000,000
which is currently held as Eligible Collateral as Credit Support under the Master Agreement. HSBC
shall be entitled to take any action with respect to such amount as may be permitted under the
Master Agreement and Confirmation.
SECTION
4. Forbearance. Subject to the terms and conditions of this Agreement, including the
timely remittance of amounts due pursuant to Sections 4.12, 5.10, 5.15, 5.16, 5.22, 5.23 and 5.24,
HSBC agrees that during the Forbearance Period, HSBC will not seek to require the posting of,
and/or make any request or demand for, any additional Eligible Collateral as Credit Support under
the Master Agreement and the Confirmation. The Forbearance Period shall terminate if any of the
events set forth in Section 4.1 through 4.15 has occurred.
Section 4.1 Trigger Event. The occurrence after the date hereof of any trigger event
(other than as a result of a downgrade by Standard & Poor’s Ratings Services, a division of
The XxXxxx-Xxxx Companies, Inc. (“S&P”) or Xxxxx’x Investors Services, Inc. (“Moody’s”) of
the insurer financial strength rating assigned to SALIC or any of its affiliates), event of
default or any early termination event (each as defined in the relevant agreement), under
that certain Coinsurance Retrocession Agreement (Treaty Number 8074) effective as of
December 22, 2005 (the “Coinsurance Agreement”), by and between Scottish (Dublin) and
Scottish Re (U.S.), Inc. (“Scottish (U.S.)”), the Security Agreement dated December 22,
2005 (the “Security Agreement”) by and between Scottish
(Dublin) and the STructured Asset
Repackaged Trust II, 2005-A (the “STARTS Trust”), the Master Agreement, the Confirmation or
the August 4, 2006, Letter Agreement.
Section 4.2 Litigation. Any litigation, case, proceeding or similar action is
instituted or brought against SALIC, SRGL or any of SRGL’s direct or indirect subsidiaries
(collectively, the “Scottish Parties” and each a “Scottish Party”) (other than by HSBC
under the Master Agreement) to collect upon or enforce any indebtedness equal to or
exceeding US$25,000,000 of any Scottish Party that individually or in the aggregate, if
determined adversely, would reasonably be expected to adversely affect the rights of or the
ability to collect payment by HSBC or the STARTS Trust under the Covered Agreements.
Section 4.3 Covenants. The failure by SALIC, SRGL or any of their respective
affiliates to comply with any of the covenants contained in Section 5 of this Agreement.
2
Section 4.4 Liquidity. The failure by SRGL or SALIC to maintain liquidity in accordance with
the applicable liquidity requirements set forth on Schedule 4.4.
Section 4.5 Bankruptcy. SRGL, SALIC, Scottish (Dublin) or Scottish (U.S.) (i) is dissolved
(other than pursuant to a consolidation, amalgamation or merger); (ii) becomes insolvent or is
unable to pay its debts or fails or admits in writing in a judicial, regulatory or administrative
proceeding or filing its inability generally to pay its debts as they become due; (iii) makes a
general assignment, arrangement or composition with or for the benefit of its creditors; (iv)
institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy
or any other relief under any bankruptcy or insolvency law or other similar law affecting
creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case
of any such proceeding or petition instituted or presented against it; (v) has a resolution passed
for its winding-up, official management or liquidation (other than pursuant to a consolidation,
amalgamation or merger); (vi) seeks or becomes subject to the appointment of an administrator,
provisional liquidator, conservator, receiver, rehabilitator, supervisor, trustee, custodian or
other similar official for it or for all or substantially all its assets; (vii) has a secured party
take possession of all or substantially all its assets or has a distress, execution, attachment,
sequestration or other legal process levied, enforced or sued on or against all or substantially
all its assets; (viii) voluntarily agrees to become subject to a consent order or other voluntary
binding agreement that has the effect of a consent order with any regulatory authority; or (ix)
causes or is subject to any event with respect to it which, under the applicable laws of any
applicable jurisdiction, has an analogous effect to any of the events specified in clauses (i) to
(ix) (inclusive).
Section 4.6 Dividend Payments. SRGL or SALIC declares any cash dividend, return of capital,
capital distribution or similar payment; provided that the foregoing shall not limit any such
dividend, return of capital, capital distribution or similar payment solely made between SRGL and
SALIC.
Section 4.7 Contractual Rights Under Sale Agreements. SRGL fails to maintain in place one or
more written enforceable agreements which provide for aggregate minimum sale net cash proceeds to
be received by SRGL or SALIC on the date such sale is consummated of at least (i) US$6,000,000 in
connection with the sale of its wealth management business (the “Wealth Management Business”) and
(ii) US$65,000,000 in connection with the sale of its international life reinsurance business (the
“International Business”).
Section 4.8 Sales of Blocks of Business. With respect to SRGL’s sale of the Wealth Management
Business, the International Business or its North America life reinsurance business (the “North
America Business”), (i) SRGL is denied in writing any required consents or approvals for such
sales, including, but not limited to, the approvals or consents of the shareholders of SRGL
(“Shareholder Approval”), the approvals or consents of any relevant regulatory authority or any
material third party or (ii) SALIC or SRGL amends or terminates any definitive documentation
relating to such sales without
the prior written consent of HSBC, if such amendments would reasonably be expected to
adversely affect the rights of or the ability to collect payment by HSBC or the STARTS
3
Trust under the Covered Agreements.
Section 4.9 Material Adverse Change. A material adverse change occurs with respect to SRGL,
SALIC, Scottish (Dublin) or Scottish (U.S.) on or after the date of this Agreement that reasonably
would be expected to adversely affect the rights of or the ability to collect payment by HSBC or
the STARTS Trust under the Covered Agreements.
Section 4.10 Formula Amount. Scottish (Dublin) fails to maintain in Reinsurance Trust Account
A an amount at least equal to the sum of the Formula Amount (as defined in the Coinsurance
Agreement) in accordance with the applicable provisions of the Coinsurance Agreement.
Section 4.11 Other Obligations. Any Scottish Party fails to perform any of its obligations
under or is not in compliance with any agreement or transaction to which it is a party, including,
but not limited to, (i) in connection with the capital markets collateral facility with Stingray
Investor Trust (the “Stingray Facility”), (ii) under any funding agreement issued in connection
with any repackaging or resecuritization special purpose vehicle (“SPV”) (each, a “Funding
Agreement Facility”) or (iii) relating to securitization transactions to fund Regulation XXX
reserve requirements for business ceded by a Scottish Party and reinsured by Ballantyne Re plc (the
“Ballantyne XXX Facility”), Orkney Re, Inc., Orkney Re II plc (the “Orkney II XXX Facility”),
Clearwater Re Limited (the “Clearwater XXX Facility”) or any other party in a similar transaction
and, in each case, (A) such failure would reasonably be expected to adversely affect the rights of
or the ability to collect payment by HSBC or the STARTS Trust under the Covered Agreements or (B)
such failure would constitute an event of default or event that with the passage of time or notice
or both would constitute an event of default with respect to the Stingray Facility, a Funding
Agreement Facility or the Clearwater XXX Facility.
Section 4.12 Sale of Assets. Any Block of Business Sale (as defined in Section 5.10) or
recapture by any Scottish Party of any block of business occurs which constitutes more than five
percent (5%) of the associated United States statutory reserves attributable to the North America
Business (as detailed on page 4, Tables 1 and 2, of the Actuarial Appraisal developed by the
Scottish Parties in connection with the sale of the North America Business and attached hereto as
Exhibit A), in any one or more related transactions without the prior written consent of HSBC,
which consent shall be requested prior to the execution of the definitive documentation; provided
that the foregoing limitation shall in no event prohibit the Scottish Parties from transferring the
assets currently funded under and terminating the liabilities related to the Clearwater XXX
Facility, in whole but not in part, including the underlying insurance policies and all payments
due thereon to a third party (the “Clearwater Block”) without the consent of HSBC so long as (1)
the aggregate amounts paid to the Clearwater Lenders (as defined below) and any third parties in
connection with the termination of all of the liabilities related to the Clearwater XXX Facility do
not exceed the current assets funded under the Clearwater XXX Facility, (2) such transfer and
termination does not, in the aggregate,
negatively impact the liquidity profile of SRGL or SALIC, (3) HSBC is notified within one (1)
Business Day of the Scottish Parties agreeing to transfer the Clearwater Block,
4
including the terms and conditions thereof; provided, however, that such notification must actually
be received by HSBC promptly but no later than 5 p.m. (Prevailing Eastern Time) on the Business Day
before the consummation of such transfer or termination of the Clearwater Block and (4) HSBC shall
receive, on the same day as such transfer or termination of the Clearwater Block is consummated, an
amount of Eligible Collateral as Credit Support under the Master Agreement and the Confirmation
equal to fifty percent (50%) of any and all amounts transferred or otherwise funded to the
Clearwater Lenders or Clearwater Re Limited, whether as collateral, capital or any other type of
payment made to the surplus account at Clearwater Re Limited, in connection with the Clearwater
Forbearance Agreement (as defined in Section 4.13 below).
Section 4.13 Clearwater Forbearance Agreement. The termination or amendment of the
forbearance agreement with Citibank N.A. and Calyon New York Branch (together, the “Clearwater
Lenders”) with respect to the Clearwater XXX Facility (the “Clearwater Forbearance Agreement”)
prior to the end of the Forbearance Period, other than in connection with a termination and
satisfaction in full, or assignment, transfer or other solution pursuant to which the Scottish
Parties are relieved from continuing obligations to the Clearwater Lenders.
Section 4.14 Representations. Any of the representations in Section 10 was not true when made.
Section 4.15 RBC. Except with respect to contractual payments or contributions required
pursuant to written agreements currently in effect as of the date hereof (unless as otherwise set
forth in Schedule 4.15) of the types generally described on Schedule 4.15 of this Agreement (each
such payment, a “Permitted Contractual Payment”), on or after July 31, 2008, SALIC or SRGL makes
any payment or contribution, directly or indirectly, to (i) any special purpose reinsurance company
or SPV (ii) (a) Scottish (U.S.), which payment or contribution would cause Scottish (U.S.)’s total
adjusted capital to exceed one hundred fifty percent 150% of its company action level risk-based
capital as determine pursuant to the laws of the State of Delaware (“CAL RBC”), (b) Scottish
(Dublin), which payment or contribution would cause Scottish (Dublin)’s solvency margin to exceed
one hundred fifty percent 150% of its targeted level, or (c) Scottish Re Life Corporation
(“Scottish Re Life”), which payment or contribution would cause Scottish Re Life’s total adjusted
capital to exceed one hundred seventy five percent 175% of its CAL RBC, in each case, as such total
adjusted capital or funds available for solvency, as applicable, is based upon an estimated
calculation determined in good faith and in accordance with the requirements set forth for such
calculations by the applicable Scottish Party’s domiciliary regulatory authority, as of the date
such funding is made; it being understood that no Scottish Party identified in this clause (ii)
shall be obligated to reduce its capital to the extent that as of the date of this Agreement, such
Scottish Party has capital in excess of the applicable percentage set forth in clauses (ii)(a)
through (c) of this Section 4.15. For the avoidance of doubt, no capital contribution or other
payment relating to reserve strengthening or cash flow analysis will be deemed a Permitted
Contractual Payment for the purposes of this Section 4.15.
5
If the Forbearance Period has not been terminated prior to 11:59 p.m. (prevailing Eastern Time) on
December 15, 2008, it shall terminate on 11:59 p.m. (prevailing Eastern Time) on December 15, 2008.
SECTION
5. SALIC Covenants. During the Forbearance Period, SALIC shall comply with the
following covenants:
Section 5.1 Delivery of Information. SALIC shall, and shall cause its affiliates to,
furnish (i) promptly but not later than five (5) Business Days following the request to
HSBC and its advisors and attorneys all information in the possession of SALIC or any of
its affiliates reasonably requested by HSBC, and (ii) within a reasonable time, other
summaries and reports as are reasonably requested by HSBC relating to (A) the financial
condition, (B) regulatory matters and related correspondence, (C) litigation, (D) notice
from the government of the United States or any other nation, or any political subdivision
thereof, whether state or local, and any agency, authority, instrumentality, regulatory
body, court, central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to government
(including any supra-national bodies such as the European Union or the European Central
Bank) (each, a “Governmental Authority”), (E) sale process or (F) strategic direction, in
each case, with respect to any Scottish Party. HSBC will send all requests under this
Section 5.1 in writing to SALIC (such requests may be sent to
XXXX.xxxxxxxxxxx@xxxxxxxxxx.xxx with a copy to Xxxxx Xxxxxxxxxxx (such copy may be sent to
xxxxx.xxxxxxxxxxx@xxxxxxxxxx.xxx). SALIC shall provide a weekly summary of the status of
the North America Business sale process, and SALIC shall provide a copy of the bids
received in connection with such sale process within three (3) Business Days of receipt by
any Scottish Party. SALIC shall provide HSBC with bi-weekly updates (which may be
telephonic) regarding material litigation affecting SALIC, SRGL, Scottish (U.S.) or
Scottish (Dublin); provided that, solely with respect to the bi-weekly updates regarding
material litigation and solely to the extent a portion of the information furnished by
SALIC to HSBC in connection therewith would reasonably be deemed to be covered by attorney
client privilege (such information, the “Privileged Information”), unless HSBC enters into
a specific confidentiality and common interest agreement in relation to such Privileged
Information, in a form reasonably acceptable to HSBC and SRGL, such updates will be limited
to the discussion of information other than Privileged Information. SALIC shall provide to
HSBC notice within two (2) Business Days of any material changes with respect to the
information covered under this Section 5.1.
Section 5.2 Access to Data Room. On and after the date hereof, SALIC shall provide
HSBC access to all information in any data room prepared and maintained for prospective
purchasers of any Scottish Party; provided that HSBC hereby acknowledges that access to
certain portions of any such data room or to certain documents therein may be made
contingent upon the execution by HSBC of certain reasonably requested third-party consents
or waivers. For the avoidance
of doubt, the parties acknowledge that the Scottish Parties shall have no obligation
to maintain any such data room for the purposes of this Agreement.
Section 5.3 Bi-Weekly Liquidity Projections. SALIC shall, and shall cause
6
SRGL to, furnish liquidity projections substantially in the form of the current liquidity schedule
provided to HSBC (a copy of which is attached as Exhibit B hereto) and information with respect to
the variance of the most recent bi-weekly liquidity projection to the bi-weekly liquidity
projection previously provided (i) promptly but not later than three (3) calendar days after any
material change in the liquidity profile of SRGL or SALIC since the most recent liquidity
projection delivered to HSBC and (ii) promptly but not later than every other Thursday of every
calendar month beginning on July 3, 2008, showing updated liquidity projections with respect to
SRGL and SALIC for the next succeeding twelve calendar months, certified by any of the chief
executive officer, president, chief financial officer, executive vice president, treasurer, any
director, manager or authorized officer (as appointed by the relevant board of directors) (each, a
“Responsible Officer”) of SRGL or SALIC, and reviewed by a Responsible Officer of FTI Consulting,
Inc. who has knowledge of and is familiar with matters relating to the liquidity of SRGL and SALIC,
to the effect that such updated liquidity projections are fairly stated in all material respects;
provided that, if such liquidity projections are not delivered as set forth in this Section, SALIC
shall have a two (2) day cure period to remedy the non-delivery.
Section 5.4 Forbearance Milestones. SALIC shall, and shall cause its affiliates to, (i)
furnish to HSBC, promptly but not later than 11:59 p.m. (prevailing Eastern Time) on June 30, 2008,
unaudited other-than-temporary impairment amounts for SRGL for the year ended and as of December
31, 2007, calculated in accordance with generally accepted accounting principles in the United
States (“GAAP”), and the resulting effects of such amounts on the liquidity of SRGL, (ii) file with
the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its
principal functions (the “SEC”), SRGL’s audited financial statements for the year ended December
31, 2007 and Annual Report on Form 10-K not later than 5 p.m. (prevailing Eastern Time) on July 15,
2008 with respect to SRGL, (iii) provide to HSBC, upon execution of this Agreement, unaudited
financial statements prepared in accordance with GAAP for the year ended December 31, 2007 with
respect to SRGL, (iv) provide to HSBC promptly but not later than 5 p.m. (prevailing Eastern Time)
on July 31, 2008, audited financial statements prepared in accordance with GAAP for the year ended
December 31, 2007 with respect to SALIC, (v) furnish to HSBC, promptly but not later than 5 p.m.
(prevailing Eastern Time) on August 31, 2008, unaudited financial statements prepared in accordance
with GAAP for the three month period ended March 31, 2008 with respect to SRGL and SALIC, (vi)
furnish to HSBC, promptly but not later than 5 p.m. (prevailing Eastern Time) on September 30,
2008, unaudited financial information prepared in accordance with GAAP for the three month period
ended June 30, 2008 with respect to SRGL and SALIC, (vii) furnish to HSBC, promptly but not later
than 5 p.m. (prevailing Eastern Time) on November 30, 2008, the unaudited financial statements
prepared in accordance with GAAP for the period ended September 30, 2008 with respect to SRGL and
SALIC, (viii) furnish to HSBC, promptly but not later than 5 p.m. (prevailing Eastern Time) on July
15, 2008, a copy of the binding letter of intent entered into between certain Scottish Parties and
one or more of ING North America Insurance Corporation, ING America Insurance Holdings, Inc.,
Security Life of Denver Insurance Company (“SLD”) and Security Life of Denver International Ltd
(collectively, the “ING Parties”) to effect a
7
partial recapture and reinsurance transaction, effective as of June 30, 2008 (the “Recapture”), of
the business ceded by Scottish (U.S.) to the Ballantyne XXX Facility, (ix) execute all definitive
documentation and consummate the Recapture, promptly but not later than 5 p.m. (prevailing Eastern
Time) on August 15, 2008 with an effective date not later than June 30, 2008, and permit HSBC to
review any and all documentation relating to the Recapture, (x) furnish to HSBC, promptly but not
later than 5 p.m. (prevailing Eastern Time) on September 30, 2008, a copy of the binding letter of
intent entered into between certain Scottish Parties and one or more ING Parties to effect the
assignment to SLD of Scottish (U.S.)’s interests in the reinsurance agreement and reinsurance trust
agreement between Scottish (U.S.) and Ballantyne Re plc (the “Assignment Transaction”), (xi)
execute all definitive documentation and consummate the Assignment Transaction, promptly but not
later than 5 p.m. (prevailing Eastern Time) on November 15, 2008 with an effective date not later
than September 30, 2008, and permit HSBC to review any and all documentation relating to the
Assignment Transaction and (xii) execute all definitive documentation and consummate the Clearwater
Forbearance Agreement on terms reasonably satisfactory to HSBC (including, for the avoidance of
doubt, terms relating to any existing event of default under the Clearwater XXX Facility), promptly
but not later than 11:59 p.m. (prevailing Eastern Time) on June 30, 2008, and, immediately upon the
execution of this Agreement, furnish to HSBC a true, correct and complete copy of the Clearwater
Forbearance Agreement.
Section 5.5 Wealth Management Business Milestones. SALIC shall, and shall cause SRGL to, with
respect to the sale of the Wealth Management Business, (i) obtain Shareholder Approval, if
necessary, promptly but not later than 5 p.m. (prevailing Eastern Time) on July 1, 2008, (ii)
obtain all required regulatory approvals and other required consents promptly but not later than 5
p.m. (prevailing Eastern Time) on July 15, 2008, and (iii) consummate such sales, and actually
receive net cash proceeds from such sales of at least US$6,000,000 not later than 5 p.m.
(prevailing Eastern Time) on July 15, 2008.
Section 5.6 International Business Milestones. SALIC shall, and shall cause SRGL to, with
respect to the sale of the International Business, (i) obtain Shareholder Approval, if necessary,
promptly but not later than 5 p.m. (prevailing Eastern Time) on July 31, 2008, (ii) obtain all
required regulatory approvals and other required consents promptly but not later than 5 p.m.
(prevailing Eastern Time) on September 20, 2008, and (iii) consummate such sales, and actually
receive net cash proceeds from such sales of at least US$65,000,000 (other than with respect to the
International Business relating to SALIC, Singapore branch) not later than 5 p.m. (prevailing
Eastern Time) on September 20, 2008.
Section 5.7 North America Business Milestones. SALIC shall, and shall cause SRGL to, with
respect to the sale of the North America Business, (i) obtain binding offers to purchase the North
America Business by 5 p.m. (prevailing Eastern Time) on July 31, 2008, (ii) select a bidder with
which to proceed on an exclusive basis not later than 5 p.m. (prevailing Eastern Time) on August 8,
2008, (iii) execute all definitive documentation with such bidder promptly but not later than 5
p.m. (prevailing Eastern Time) on
September 15, 2008, and furnish substantially final drafts of such definitive documentation to
HSBC at least one (1) Business Day prior to the execution, (iv) obtain
8
Shareholder Approval, if necessary, promptly but not later than 5 p.m. (prevailing Eastern Time) on
November 30, 2008, (v) obtain all required regulatory approvals and other required consents,
including, but not limited to, consents from cedents and reinsurers, as applicable, promptly but
not later than 5 p.m. (prevailing Eastern Time) on November 30, 2008 and (vi) consummate such
sale(s) not later than 5 p.m. (prevailing Eastern Time) on December 15, 2008.
Section 5.8 Non-Contractual Payments, Distributions, Redemptions or Restructurings. SALIC
shall, and shall cause its affiliates to, (i) not make any payments (except for Permitted
Contractual Payments), distributions of funds or assets (including posting or delivering of
collateral), redemptions or restructurings in connection with or involving any Scottish Party
(including any securitization transactions used to fund Regulation XXX reserve requirements)
without the consent of HSBC in its sole discretion and (ii) permit HSBC to review any and all
documentation relating to any non-contractual payments, distributions, redemptions or
restructurings approved by HSBC; provided, however, that the foregoing limitation shall not apply
to (A) amounts paid or distributed by SRGL, including indemnification payments to certain
underwriters named as defendants (other than such underwriters’ legal fees), in 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, individually or in the aggregate, do not have a
negative impact of more than US$3,000,000 on the liquidity of SRGL and/or SALIC and (B) payments in
respect of each of the Recapture and the Assignment Transaction, provided such payments do not, in
the aggregate, negatively impact the liquidity profile of SRGL or SALIC in an amount exceeding
US$1,500,000 in addition to the amounts already reflected in the current liquidity schedule
provided to HSBC.
Section 5.9 HSBC XXX Facility. SALIC shall, and shall cause its affiliates to, cause any
purchaser of any block of the business of any Scottish Party which is part of the reserves financed
by the STARTS Trust or includes any obligation of any Scottish Party to HSBC or the STARTS Trust
under the Covered Agreements and any other documentation with respect to any agreement between HSBC
and a Scottish Party (collectively and together with the Coinsurance Agreement, the “HSBC XXX
Facility”), to (a) assume all the obligations of any Scottish Party to HSBC or the STARTS Trust
under the HSBC XXX Facility, provided that HSBC must be satisfied in its sole discretion with the
identity of the party assuming such obligations and the terms and other aspects of such assumption,
(b) redeem the HSBC XXX Facility in full at a price determined by HSBC calculated in accordance
with the terms of the Transaction Documents and this Agreement, or (c) arrange for SALIC to make
reasonable and adequate provisions, other than through the assumption or redemption set forth in
the foregoing clauses (a) and (b), respectively, with respect to the HSBC XXX Facility to HSBC’s
satisfaction in its sole discretion.
Section 5.10 Application of Proceeds. Except with respect to the sale of the International
Business or the Wealth Management Business, SALIC shall, and shall cause
its affiliates to, (i) deposit an amount equal to twenty five percent (25%) of the Sale
Proceeds (as defined below) into Reinsurance Trust Account B and (ii) use an amount
9
equal to the lesser of the outstanding balance under the Clearwater XXX Facility or Twenty five
percent (25%) of the Sale Proceeds (as defined below) to deposit into the surplus account of
Clearwater Re Limited in connection with the Clearwater Forbearance Agreement, in each case,
promptly but not later than 5 p.m. (prevailing Eastern Time) on the second (2nd)
Business Day following the consummation of the sale by any Scottish Party of any block of business
of any Scottish Party (each such sale, a “Block of Business Sale”) which does not include the HSBC
XXX Facility or the Clearwater XXX Facility; provided, however, that if a Block of Business Sale
includes the Clearwater XXX Facility but does not include the HSBC XXX Facility, SALIC shall, and
shall cause its affiliates to, deposit fifty percent (50%) of the Sale Proceeds (as defined below)
into Reinsurance Trust Account B promptly but not later than 5 p.m. (prevailing Eastern Time) on
the second (2nd) Business Day following the consummation of such Block of Business Sale.
Notwithstanding anything in this Section 5.10 to the contrary, prior to the redemption in full of
the Clearwater XXX Facility, SALIC shall be permitted to post as additional Eligible Collateral as
Credit Support under the Master Agreement and Confirmation an amount equal to the amount to be
deposited into Reinsurance Trust Account B in lieu of making such a deposit into Reinsurance Trust
Account B. In the event that the Clearwater XXX Facility is redeemed in full, an amount equal to
fifty percent (50%) of the Sale Proceeds (as defined below) shall be deposited into Reinsurance
Trust Account B or posted as additional Eligible Collateral. As used in this Section 5.10, “Sale
Proceeds” means all net cash sale proceeds from a Block of Business Sale. For the avoidance of
doubt, a Block of Business Sale may include individual blocks or all the business of one or more
Scottish Parties and may be a stock sale, asset sale, reinsurance transaction or any other
transaction with similar effect.
Section 5.11 Discussions Regarding HSBC XXX Facility. SALIC shall, and shall cause its
affiliates to, permit HSBC to have discussions and negotiations with any of MassMutual Financial
Group, Cerberus Capital Management, L.P., the ING Parties or Xxxxxxx Xxxxx and, following notice
from SRGL that it has selected a bidder or bidders with which to proceed on an exclusive basis for
the purchase of the Wealth Management Business, the International Business or the North America
Business, such bidder or bidders, concerning the HSBC XXX Facility, including, but not limited to,
the disclosure of the terms of this Agreement; provided that HSBC will provide SALIC with advance
notice prior to commencing any such discussions or negotiations (provided that, except with respect
to discussions and negotiations between HSBC and the ING Parties, HSBC shall permit SALIC and its
affiliates to participate in the discussions and negotiations permitted under this Section). For
the avoidance of doubt, the parties agree that HSBC has already provided the notice required under
this Section 5.11 with respect to discussions and negotiations with the ING Parties and Xxxxxxx
Xxxxx. Upon termination of the Forbearance Period as scheduled, HSBC shall be permitted to have
discussions or negotiations concerning the HSBC XXX Facility with any person, provided (i) such
person is subject to an obligation not to disclose confidential information to the extent required
under the Transaction Documents and (ii) HSBC is otherwise permitted under the terms of any
relevant confidentiality agreement executed with SALIC or its affiliates to discuss any matters
covered thereby.
10
Section 5.12 Investment Manager Reports. SALIC shall, and shall cause its affiliates to, use
commercially reasonable best efforts to cause the Investment Manager to furnish to HSBC, by the
last Business Day of each calendar month but not later than 5 p.m. (prevailing Eastern Time) on the
second (2nd) Business Day following the last Business Day of each calendar month, a
report, in form and substance satisfactory to HSBC, of the compliance or non-compliance with the
investment guidelines and the status of its removal of the assets set forth in Schedule 5.18-2,
5.18-3, 5.18-4 or other assets that are to be removed from the Reinsurance Trust Account B, as
determined by HSBC, pursuant to the investment guidelines applicable to Reinsurance Trust Account
B.
Section 5.13 Additional Covenants. SALIC shall, and shall cause its affiliates to, comply with
all the covenants set forth on Schedule 5.13 of this Agreement.
Section 5.14 Future Funding Requests. SALIC and Scottish (Dublin) agree, and SALIC shall cause
its affiliates to agree, that immediately upon the earlier of (A) any early termination of the
Forbearance Period pursuant to Section 4 or (B) 5 p.m. (prevailing Eastern Time) on December 15,
2008, (i) any and all rights of Scottish (Dublin) or any of its affiliates to request or obtain
funding from the STARTS Trust pursuant to Section 3.3(h) of that certain Trust Assignment Agreement
dated as of December 22, 2005, by and between the STARTS Trust and Scottish (Dublin) (the
“Assignment Agreement”) shall automatically terminate and (ii) the STARTS Trust shall have no
further obligation to make any deposits into Reinsurance Trust Account B pursuant to Section 3.3(h)
of the Assignment Agreement and all such obligations shall immediately and forever terminate.
Section 5.15 Additional Collateral Upon Execution of Agreement. No later than 12:00 p.m.
(prevailing Eastern Time) on July 1, 2008, SALIC shall, and/or shall cause its affiliates to, post
additional Eligible Collateral as Credit Support under the Master Agreement and the Confirmation
equal to the greater of (i) US$22,000,000 and (ii) any and all amounts paid to the Clearwater
Lenders or Clearwater Re Limited, whether as collateral, capital or any other type of payment, in
connection with the Clearwater Forbearance Agreement.
Section 5.16 Additional Collateral Upon Liquidity Trigger. SALIC shall, and shall cause its
affiliates to, (i) post additional Eligible Collateral as Credit Support under the Master Agreement
and the Confirmation in an amount equal to fifty percent (50%) of the amount by which the liquidity
of SRGL exceeds the amount set forth for the relevant two week period in the liquidity pro forma
attached hereto as Exhibit B by the lesser of (A) the amount set forth in Exhibit B plus
US$10,000,000 or (B) one hundred ten percent (110%) of the amount set forth in Exhibit B (the
“Excess Liquidity Amount”) if such increase in the liquidity of SRGL remains at or above such level
for two consecutive biweekly liquidity reporting periods and (ii) use an amount equal to fifty
percent (50%) of the Excess Liquidity Amount in connection with its obligations with respect to the
Clearwater XXX Facility, in each case, promptly but not later than 5 p.m. (prevailing Eastern Time)
on the third (3rd) Business Day following the last Business Day of the consecutive
bi-weekly liquidity reporting periods. Notwithstanding anything in this Agreement to the contrary,
the calculation of the Excess Liquidity Amount shall not
11
include liquidity resulting directly from the facts and circumstances resulting in payments being
made under Sections 4.12, 5.10 or 5.24 hereof.
Section 5.17 Revision of this Agreement upon Certain Events. SALIC agrees that if any Scottish
Party is (a) currently a party to any forbearance or other similar agreement or (b) enters into any
future forbearance or other future similar agreement with a creditor other than HSBC on terms more
favorable to such other creditor than the terms of this Agreement, the terms of this Agreement will
be revised so that HSBC will obtain treatment at least as relatively favorable as any such other
creditor. For the avoidance of doubt, HSBC shall have the right to (i) incorporate any term from
the Clearwater Forbearance Agreement into this Agreement or (ii) replace any terms in this
Agreement with a substantially similar term from the Clearwater Forbearance Agreement, in each
case, with two (2) Business Days notice to SALIC; provided that the parties shall agree to timing,
in good faith, with respect to any term which would require regulatory approval prior to
effectiveness.
Section 5.18 Replacement of Assets in Reinsurance Trust Account B. Within one (1) Business
Day of the date hereof (the “First Replacement Date”), SALIC shall, and shall cause its affiliates
to, deliver instructions to the trustee of Reinsurance Trust Account B and take all commercially
reasonable best efforts to cause the trustee to remove all the assets listed on Schedule 5.18-1
from Reinsurance Trust Account B and replace such assets with an amount of cash or securities
consented to by HSBC in its sole discretion with a market value equal to the current market value
of such assets as of the First Replacement Date. Promptly but not later than 5 p.m. (prevailing
Eastern Time) on August 31, 2008 (the “Second Replacement Date”), SALIC shall, and shall cause its
affiliates to, deliver instructions to the trustee of Reinsurance Trust Account B and take all
commercially reasonable best efforts to cause the trustee to remove all the assets listed on
Schedule 5.18-2 from Reinsurance Trust Account B and replace such assets with an amount of cash or
securities consented to by HSBC in its sole discretion with a market value equal to the current
market value of such assets as of the Second Replacement Date. Promptly but not later than 5 p.m.
(prevailing Eastern Time) on September 30, 2008 (the “Third Replacement Date”), SALIC shall, and
shall cause its affiliates to, deliver instructions to the trustee of Reinsurance Trust Account B
and take all commercially reasonable best efforts to cause the trustee to remove all the assets
listed on Schedule 5.18-3 from Reinsurance Trust Account B and replace such assets with an amount
of cash or securities consented to by HSBC in its sole discretion with a market value equal to the
current market value of such assets as of the Third Replacement Date. Promptly but not later than 5
p.m. (prevailing Eastern Time) on December 14, 2008 (the “Fourth Replacement Date”), SALIC shall,
and shall cause its affiliates to, deliver instructions to the trustee of Reinsurance Trust Account
B and take all commercially reasonable best efforts to cause the trustee to remove all the assets
listed on Schedule 5.18-4 from Reinsurance Trust Account B and replace such assets with an amount
of cash or securities consented to by HSBC in its sole discretion with a market value equal to the
current market value of such assets as of the Fourth Replacement Date. For the purposes of this
Section 5.18, market value shall be calculated in accordance with Section 7 of the Investment
Management Agreement relating to Reinsurance Trust Account B. HSBC
12
and SALIC agree that the provisions and procedures in the Confirmation relating to
Alternate Valuation shall apply with respect to any dispute regarding market value of the
securities to be removed and replaced hereunder.
Section 5.19 Compliance Certificate. On and after the date hereof, SALIC shall cause a
compliance certificate in the form attached hereto as Exhibit C to be provided by Scottish (Dublin)
within fifteen (15) days following the delivery of a Quarterly Reinsurance Report (as defined in
the Coinsurance Agreement), provided that, if such certificate is not delivered, SALIC shall have a
fifteen (15) day cure period to remedy the non-delivery.
Section 5.20 Amendments. Within eight (8) Business Days of the date hereof, SALIC shall, and
shall cause its affiliates to, execute the amendments described in Exhibit D; provided that the
amendments to the Coinsurance Agreement set forth in paragraph 5 of Exhibit D hereto shall be
subject to the timing requirements specified in Section 5.25.
Section 5.21 Formation or Acquisition of Subsidiaries. SALIC shall not, and shall cause its
affiliates not to, form or acquire any direct or indirect subsidiary after the date hereof with an
initial capitalization of US$1,000,000 or more or after the capital of a previously unreported
subsidiary is increased above US$1,000,000 without the consent of HSBC.
Section 5.22 Redemption Fee and North America Business Sale Fee. SRGL and SALIC shall, and
shall cause their respective affiliates to, pay any fee specified in clauses (1), (2) and (3) below
to HSBC, as applicable.
(1) If the HSBC XXX Facility is redeemed in full on or prior to August 1,
2008, a fee shall be paid directly to HSBC in the aggregate amount of
US$1,000,000.
(2) If the HSBC XXX Facility is redeemed in full after August 1, 2008 but
on or prior to August 31, 2008, a fee shall be paid directly to HSBC in the
aggregate amount of US$2,000,000.
(3) After August 31, 2008, (A) a fee shall be paid directly to HSBC in the
aggregate amount of US$6,000,000 (the “Redemption Fee”) upon the redemption
in full of the HSBC XXX Facility; and (B) prior to the redemption of the
HSBC XXX Facility, upon the transfer or sale of any portion of the assets
or liabilities comprising
the North America Business, other than the transfer or sale of the
liabilities reinsured in the Clearwater XXX Facility, a portion of the
Redemption Fee based on the Transfer Ratio (as defined below) shall become
due and shall be paid to HSBC on the date of the transfer of the North
America Business (the “Distribution Date”); provided, that upon the
transfer or sale of seventy-five percent (75%) of the liabilities
comprising the North America Business in
13
the aggregate, other than the transfer or sale of the liabilities reinsured
in the Clearwater XXX Facility, in any one or series of transactions, the
entire remaining portion of the Redemption Fee remaining unpaid on such
date shall become immediately due and payable to HSBC; provided, further,
that upon the notice by HSBC that the HSBC XXX Facility shall be redeemed
in full, in which case the entire Redemption Fee less any portion of such
fee paid to HSBC prior to such date pursuant to this clause (B) shall
become immediately due and payable. For purpose of this Section, “Transfer
Ratio” means a quotient, the numerator of which is the liabilities of the
North America Business transferred or sold to any third party, other than
the transfer or sale of the liabilities reinsured in the Clearwater XXX
Facility, and the denominator of which is the total liabilities of the
North America Business, other than the transfer or sale of the liabilities
reinsured in the Clearwater XXX Facility, on the date hereof.
Section 5.23 Additional Collateral On Or Prior to August 15, 2008. Prior to 5 p.m. (Prevailing
Eastern Time) on August 15, 2008, SALIC shall, and/or shall cause its affiliates to, post
additional Eligible Collateral as Credit Support under the Master Agreement and the Confirmation
equal to US$6,000,000.
Section 5.24 Petition For Reduction of RBC and Application of Released Funds. SRGL and SALIC
shall, and shall cause any other applicable Scottish Party to, use their respective commercially
reasonable best efforts, subject to any required regulatory approval, which such Scottish Parties
shall also use their respective commercially reasonable best efforts to obtain, to reduce the ratio
of Scottish (U.S.)’s total adjusted capital to one hundred twenty five (125%) of its CAL RBC on or
prior to August 15, 2008. SALIC shall, and/or shall cause its affiliates to, post additional
Eligible Collateral as Credit Support under the Master Agreement and the Confirmation equal to
thirty-three percent (33%) of any increase in liquidity from a reduction in capital in Scottish
(U.S.) within two (2) Business Days of any related release of funds or increase in liquidity.
Section 5.25 Form D Filing Milestones. SALIC shall, and shall cause its affiliates to, (i)
file on Form D a request for approval for the amendments to the Coinsurance Agreement set forth in
paragraph 5 of Exhibit D hereto with the Delaware Department of
Insurance (the “Department”), promptly but not later than 12 p.m. (prevailing Eastern Time) on
the eighth (8th) Business Day after the date of this Agreement, provided SALIC and HSBC
have agreed on the form of amendment to the Coinsurance Agreement promptly but no later than 11:59
p.m. (prevailing Eastern Time) on the sixth (6th) Business Day after the date of this
Agreement and (ii) furnish to HSBC, promptly but not later than 5 p.m. (prevailing Eastern Time) on
the thirtieth (30th) day following the date on which the Department receives the Form D,
written confirmation of the Department’s approval or non-disapproval of such amendments.
Section 5.26 Funding Amounts During the Forbearance Period. SALIC and Scottish (Dublin)
agree, and SALIC shall cause its affiliates to agree that, during the
14
Forbearance Period, (i) the amount of each deposit to be made by the STARTS Trust into
Reinsurance Trust Account B pursuant to Section 3.3(h) of the Assignment Agreement shall in
no case exceed the lesser of (A) US$18,000,000 or (B) the applicable actual increase in
Excess Reserve (as defined in the Coinsurance Agreement) and (ii) the aggregate amount of
all deposits to be made by the STARTS Trust into Reinsurance Trust Account B pursuant to
Section 3.3(h) of the Assignment Agreement shall in no case exceed US$25,000,000.
SECTION 6. HSBC Covenants. During the Forbearance Period, HSBC shall comply with the
following covenants:
Section 6.1 Amendments. Within thirty (30) days of the date hereof, HSBC shall
execute, or use reasonable efforts to cause the STARTS Trust to execute, the amendments
described in Exhibit D.
Section 6.2 Make-Whole Amount Waiver. In the event that the HSBC XXX Facility is
redeemed in full on or prior to December 15, 2008, HSBC shall waive any amount of the
Make-Whole Amount exceeding US$4,000,000.
SECTION 7. Events of Default. SALIC and HSBC agree and acknowledge that (i) any failure to
make timely payment under Sections 4.12, 5.10, 5.15, 5.16, 5.22, 5.23, 5.24 or (ii) any early
termination of the Forbearance Period pursuant to Section 4, including, but not limited to, as a
result of the failure by SALIC to comply with any of the covenants contained in Section 5 of this
Agreement, will be deemed an Event of Default under the Master Agreement.
SECTION 8. Release. To the fullest extent permitted by applicable law, in consideration of
HSBC’s execution of this Agreement, each of SRGL, SALIC and Scottish (Dublin) does hereby forever
release, discharge and acquit HSBC and its parent, subsidiary and affiliate corporations or
partnerships, the STARTS Trust and each of the foregoing’s respective officers, directors,
partners, trustees, shareholders, agents, attorneys and employees, and their respective successors,
heirs and assigns (collectively, the “Releasees”) of and from any and all claims, demands,
liabilities, responsibilities,
disputes, causes of action (whether at law or equity) (collectively, “Claims”), of every type,
kind, nature, description or character, and irrespective of how, why or by reason of what facts,
whether such Claims have heretofore arisen, are now existing or hereafter arise, or which could,
might, or may be claimed to exist, of whatever kind or name, whether known or unknown, suspected or
unsuspected, liquidated or unliquidated, each as though fully set forth herein at length, which in
any way arise out of, are connected with or in any way relate to actions or omissions which
occurred on or prior to the date hereof in connection with the Transaction Documents, the Master
Agreement, the Confirmation, the August 4, 2006, Letter Agreement, this Agreement or any other
related agreement (collectively, the “Covered Agreements”). For the avoidance of doubt, the parties
agree that nothing in this Section 8 shall release any Claims against the Releasees relating to any
demand for Eligible Collateral after the termination of the Forbearance Period or relating to any
breach of the Covered Agreements occurring after the date hereof. Each of SRGL and SALIC, jointly
and severally, further agree to indemnify, within ten (10) days of receipt of any request therefor,
the Releasees and hold each of the Releasees harmless from and against any and all such Claims
which might be brought against any of the Releasees on behalf of any person or entity, including,
15
without limitation, officers, directors, agents, trustees, creditors or shareholders of the
Scottish Parties in connection with the Covered Agreements, except for such Claims brought by or on
behalf of a third party that is not a Scottish Party which are finally determined to arise from the
Releasees’ gross negligence, willful misconduct or bad faith. For purposes of the release
contained in this Section 8, any reference to the Scottish Parties shall mean the Scottish Parties
and shall include, as applicable, each of their respective successors and assigns, including,
without limitation, any receiver, trustee or debtor-in-possession, acting on behalf of such
parties.
SECTION 9. Reservation of Rights. Except as specifically set forth in this Agreement, the
Master Agreement, the Confirmation and other documents shall remain in full force and effect and
are hereby ratified and confirmed. HSBC expressly reserves all rights, and nothing herein shall
constitute a waiver by HSBC or otherwise entitle SALIC or any Scottish Party to a waiver of any
existing or hereafter arising (whether known or unknown by HSBC) (i) event requiring an early
settlement, (ii) any event of default under any document, (iii) any trigger event (as defined in
the Coinsurance Agreement), or (iv) other provision under any documents, nor shall HSBC’s or
SALIC’s execution and delivery of this Agreement establish a course of dealing among HSBC and SALIC
or in any other way obligate HSBC to hereafter provide any waiver or further forbearance prior to
the enforcement of its rights or to provide any financial or other accommodations to or on behalf
of SALIC or any Scottish Party. Except as specifically set forth in this Agreement, including the
release provided in Section 8, SALIC and any Scottish Party that is a signatory hereto expressly
reserves all rights, and, except as set forth in the release provided in Section 8, nothing herein
shall constitute a waiver by SALIC or any such Scottish Party under the Master Agreement, the
Confirmation and other documents.
SECTION 10. Additional Representations and Warranties. SALIC represents and warrants to HSBC
that, (i) other than as a result of the ratings downgrades, no trigger event, event of default or
early termination event (as defined in the relevant agreement) under any of the Covered Agreements
has occurred and is continuing or shall result from the execution of this Agreement and (ii) no
event has occurred which would permit HSBC to terminate the Forbearance Period (as such term is
defined in the Amended and Restated Forbearance Agreement) under the Amended and Restated
Forbearance Agreement. SALIC further represents and warrants to HSBC that (A) the total adjusted
capital and surplus of Scottish (U.S.) as of March 31, 2008 was one hundred eighty percent (180%)
of its CAL RBC, (B) the liquidity strain relating to the Orkney II XXX Facility shown on Exhibit B
is not the result of the recent restructuring of such facility, (C) the Clearwater Lenders or
Clearwater Re Limited received collateral, capital or any other payments on the execution of the
Clearwater Forbearance Agreement in an amount equal to or less than US$22,000,000 in connection
therewith, (D) SALIC has determined, in good faith, that the Clearwater Forbearance Agreement does
not contain any terms which would reasonably be deemed to be more favorable to the Clearwater
Lenders or Clearwater Re Limited than the terms contained in this Agreement and (E) for Scottish
(U.S.), Scottish (Dublin) and Scottish Re Life, respectively, all applicable net worth maintenance
“keepwell” agreements or any other similar agreements require payments in respect of capital and
surplus only in the event that the applicable CAL RBC or solvency margin of Scottish (U.S.),
Scottish (Dublin) or Scottish Re Life, as applicable, falls at or below the applicable CAL RBC or
solvency margin amounts set forth in Section 4.15.
SECTION 11. Conditions to Effectiveness. This Agreement shall become effective and
16
be deemed effective as of the date hereof if the parties have received a counterpart of this
Agreement executed by the other.
SECTION 12. Fees and Expenses. SALIC shall reimburse HSBC for all fees, costs, and expenses
incurred by HSBC in connection with this Agreement and each of the other documents, instruments and
agreements executed in connection herewith, including, but not limited to, such reasonable fees,
costs and expenses incurred in connection with the negotiation, drafting, implementation and
enforcement of this Agreement. For the avoidance of doubt, SALIC shall pay by wire transfer of
immediately available funds to HSBC (i) no later than 5:00 p.m. (prevailing Eastern Time) on the
fifth (5th) Business Day following receipt of an invoice, for disbursement to HSBC’s
advisors or attorneys, as applicable, all such reasonable fees and expenses of HSBC’s advisors and
attorneys, (ii) within two (2) days of execution of this Agreement, all outstanding fees payable
pursuant to this Agreement as of the date hereof and (iii) no later than 5:00 p.m. (prevailing
Eastern Time) on the fifteenth (15th) Business Day following receipt of an invoice, any
other amounts payable pursuant to this Agreement after the date hereof. HSBC will send all
requests for payment under this Section 12 in writing to SALIC (such requests may be sent to
XXXX.xxxxxxxxxxx@xxxxxxxxxx.xxx), with a copy to Xxxxx Xxxxxxxxxxx (such copy may be sent to
xxxxx.xxxxxxxxxxx@xxxxxxxxxx.xxx).
SECTION 13. Counterparts. This Agreement may be executed in one or more counterparts, each of
which shall be considered an original counterpart. Each of the parties hereto agrees that a
signature transmitted to HSBC or its counsel by facsimile or electronic transmission shall be
effective to bind the party so transmitting its signature.
SECTION 14. Waiver of Rights under this Agreement. Any single or partial exercise of any right
under this Agreement shall not preclude other or further exercise thereof or the exercise of any
other right, and no waiver, amendment or other variation of the terms, conditions or provisions of
this Agreement whatsoever shall be valid unless in writing signed by each of the parties and then
only to the extent in such writing specifically set forth. The failure of any party to enforce at
any time any provision of this Agreement shall not be construed to be a waiver of such provisions,
nor in any way to affect the validity of this Agreement or any part hereof or the right of such
party thereafter to enforce each and every such provision. No waiver of any breach of this
Agreement shall be held to constitute a waiver of any other or subsequent breach.
SECTION 15. Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. This Agreement is solely for the
benefit of the parties hereto and is not intended to confer upon any other third party any rights
or benefits.
SECTION 16. Governing Law. This Agreement shall be construed in accordance with the laws of
New York (without reference to choice of law doctrine).
SECTION 17. Confidentiality. Each party shall treat as confidential all information relating
to the provisions and negotiation of this Agreement, provided that a party may disclose
confidential information (i) if and to the extent required by law, (ii) if and to the extent the
information has come into the public domain through no fault of that party, or (iii) if and to the
extent the other parties have given prior written consent to the disclosure. Notwithstanding
17
anything herein to the contrary, each party is hereby expressly authorized to disclose to any and
all persons, without limitation of any kind, the tax treatment and tax structure of the
transactions contemplated by this Agreement.
SECTION 18. Miscellaneous. For all purposes of this Agreement except as otherwise expressly
provided or unless the context otherwise requires (i) all terms shall include the plural as well as
the singular, (ii) any agreement, instrument, statute or certificate referred to in this Agreement
shall mean such agreement, instrument, statute or certificate as the same may be amended, modified,
restated, supplemented or replaced from time to time (as permitted hereby in the case of
agreements, instruments or certificates) and includes all attachments thereto and instruments
incorporated therein, (iii) the words “herein”, “hereof” and “hereunder” and other words of similar
import refer to this Agreement as a whole and not to any particular Part, Section or other
subdivision,
(iv) the words “include”, “includes” and “including” shall be construed to be followed by the
words “without limitation”, (v) the word “or” is not exclusive, and (vi) Section headings are for
the convenience of the reader and shall not be considered in interpreting this Agreement or the
intent of the parties hereto.
SECTION 19. SRGL Guarantee.
Section 19.1 Unconditional Guarantee. For valuable consideration, receipt whereof is
hereby acknowledged, and to induce HSBC to enter into this Agreement, SRGL hereby
unconditionally and irrevocably guarantees to HSBC all debts, liabilities, obligations,
covenants and duties of SALIC under the Covered Agreements (the “Guaranteed Obligations”).
Without limiting the generality of the foregoing, SRGL’s liability shall extend to all
amounts that constitute part of the Guaranteed Obligations and would be owed by SALIC to
HSBC under the Covered Agreements but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy, reorganization or similar proceeding
involving SALIC. For the avoidance of doubt, this Section 19.1 contains a guarantee of
payment and not of collection merely.
Section 19.2 Guarantee Absolute. SRGL hereby guarantees that the Guaranteed
Obligations will be paid, fulfilled and completed strictly in accordance with the terms of
the Covered Agreements, regardless of the requirements of any law, order, writ, injunction
and decree applicable to it or to its business or property now or hereafter in effect in
any jurisdictions affecting any of such terms or the rights of HSBC with respect thereto.
The obligations of SRGL under the guarantee contained in this Section 19 are independent of
the Guaranteed Obligations, and a separate action or actions may be brought and prosecuted
against SRGL to enforce the guarantee contained in this Section 19, irrespective of whether
any action is brought against the SALIC or whether SALIC is joined in any such action or
actions. The liability of SRGL under the guarantee contained in this Section 19 shall be
irrevocable, absolute and unconditional, irrespective of, and SRGL hereby irrevocably
waives any defense it may now or hereafter have in any way relating to, any or all of the
following:
a) any lack of validity or enforceability of the Covered Agreements or any
other agreement or instrument relating thereto;
18
b) any change in the time, manner or place of payment of, or in any other
term of, all or any of the Guaranteed Obligations, or any other amendment
or waiver of, or any consent to departure from, the Covered Agreements;
c) any taking, exchange, release or non-perfection of any collateral or
any taking, release or amendment or waiver of, or consent to departure from, any other guaranty, for all or any of the Guaranteed
Obligations;
d) any change, restructuring or termination of the corporate structure or
existence of SALIC; or
e) any other circumstance (including, without limitation, any statute of
limitations to the fullest extent permitted by applicable law) which might
otherwise constitute a defense available to, or a discharge of, SALIC.
The guarantee of payment contained in this Section 19 shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any of the Guaranteed
Obligations is rescinded or must otherwise be returned by HSBC upon the insolvency,
bankruptcy or reorganization of SALIC or otherwise, all as though such payment had not been
made.
Section 19.3 Waivers. SRGL hereby expressly waives promptness, diligence, notice of
acceptance, presentment, demand for payment, protest, any requirement that any right or
power be exhausted or any action be taken against SALIC of all or any portion of the
Guaranteed Obligations, and all other notices and demands whatsoever.
a) SRGL hereby waives any right to revoke the guarantee contained in this
Section 19, and acknowledges that the guarantee contained in this Section
19 is continuing in nature and applies to all Guaranteed Obligations,
whether existing now or in the future, direct or indirect, at stated
maturity, by acceleration or otherwise and absolute or contingent and
regardless of whether any Guaranteed Obligation is reduced to zero at any
time or from time to time.
b) SRGL acknowledges that it will receive substantial direct and indirect
benefits from the arrangements contemplated in this Agreement and that the
waivers set forth in Sections 19.3 and 19.4 are knowingly made in
contemplation of such benefits.
Section 19.4 Subrogation. SRGL waives the exercise of any rights that it may now or
hereafter acquire against SALIC that arise from the existence, payment, performance or
enforcement of the Guaranteed Obligations, including, without limitation, any right of
subrogation, reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of HSBC against SALIC or any collateral, whether or not
such claim, remedy or right arises in equity or under contract, statute or common law,
including, without limitation, the right to take or receive from SALIC, directly or
indirectly, in cash or other property or by set-off or in any other
19
manner, payment or security on account of such claim, remedy or right, unless and until all
of the Guaranteed Obligations and all other amounts payable under the guarantee contained
in this Section 19 shall have been paid in full in cash and the Guaranteed Obligations
shall have terminated. If any amount shall be paid to SRGL in violation of the preceding
sentence at any time prior to the later of the payment in full in cash of all Guaranteed
Obligations that are payments and all other amounts payable under the guarantee contained
in this Section 19 and the termination of the Guaranteed Obligations, such amount shall be
held in constructive trust for the benefit of HSBC and shall forthwith be paid to HSBC to
be credited and applied to the Guaranteed Obligations and all other amounts payable under
the guarantee contained in this Section 19, whether matured or unmatured, in accordance
with the terms of the Covered Agreements, or to be held as collateral for any Guaranteed
Obligations or other amounts payable under the guarantee contained in this Section 19
thereafter arising.
Section 19.5 Survival. The guarantee contained in this Section 19 is a continuing
guarantee and shall (a) remain in full force and effect until payment, fulfillment or
completion of the Guaranteed Obligations, (b) be binding upon SRGL, its successors and
assigns, (c) inure to the benefit of and be enforceable by HSBC and its respective
successors, transferees and assigns and (d) shall be reinstated if at any time any payment
to HSBC hereunder is required to be restored.
[Signature Pages Follow]
20
IN WITNESS WHEREOF, the parties hereto have caused this Second Amended and Restated
Forbearance Agreement to be executed by their respective officers thereto duly authorized as of the
date first written above.
| HSBC BANK USA, NATIONAL ASSOCIATION |
||||
| By: | /s/ Xxxxxx Xxxxxxx | |||
| Name: | Xxxxxx Xxxxxxx | |||
| Title: | Senior Vice President | |||
| SCOTTISH ANNUITY & LIFE INSURANCE COMPANY (CAYMAN) LTD. |
||||
| By: | /s/ Xxxx Xxxxxxx | |||
| Name: | Xxxx Xxxxxxx | |||
| Title: | President | |||
| SCOTTISH RE GROUP LIMITED, solely with respect to Section 19 |
||||
| By: | /s/ Xxxxxx X. Xxxxxx | |||
| Name: | Xxxxxx X. Xxxxxx | |||
| Title: | President & CEO | |||
| SCOTTISH RE (DUBLIN) LIMITED, solely with respect to Sections 5.14 and 5.26 |
||||
| By: | /s/ Xxxxxx Xxxxx | |||
| Name: | Xxxxxx Xxxxx | |||
| Title: | General Manager | |||
Signature Page of Second Amended and Restated Forbearance Agreement
