Exhibit 10.42
RETROCESSION SETTLEMENT AGREEMENT
This RETROCESSION SETTLEMENT AGREEMENT ("this Agreement") dated as of
the 7th day of January, 2000, is entered into by and among RELIANCE INSURANCE
COMPANY, a corporation organized under the insurance laws of the Commonwealth of
Pennsylvania ("Reliance"), RELIANCE GROUP HOLDINGS, INC., a corporation
organized under the laws of the State of Delaware, on behalf of itself and each
of its subsidiaries and affiliates ("Reliance Group"), SUN LIFE ASSURANCE
COMPANY OF CANADA, a corporation organized under the insurance laws of Canada
("Sun Life"), PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, a corporation
organized under the insurance laws of the State of New York, and AMERICAN
PHOENIX LIFE AND REASSURANCE COMPANY, a corporation organized under the
insurance laws of the State of Connecticut (Phoenix Home Life Mutual Insurance
Company and American Phoenix Life and Reassurance Company are referred to
together as "Phoenix"), and COLOGNE LIFE REINSURANCE COMPANY, a corporation
organized under the insurance laws of the State of Connecticut ("Cologne Life")
(Sun Life, Phoenix and Cologne Life individually, a "Retrocessionaire", and
collectively, the "Retrocessionaires").
WHEREAS, Reliance and each of the insurers (individually, an "Insurer";
collectively, the "Insurers") listed on Exhibit A attached hereto have
heretofore entered into the reinsurance agreements (individually, a "Reinsurance
Agreement"; collectively, the "Reinsurance Agreements") listed on Exhibit A,
pursuant to which Reliance agreed to reinsure, and the Insurers agreed to cede,
certain subject business (as defined in the Reinsurance Agreements); and
WHEREAS, Reliance is negotiating with certain of the Insurers the
complete and final settlement of their respective obligations under the
Reinsurance Agreements in accordance with the terms of certain Settlement
Agreements (as hereinafter defined) to be entered into between Reliance and such
Insurers; and
WHEREAS, Reliance asserts that each of the Retrocessionaires has
heretofore entered into one or more of the agreements listed on Exhibit B
(including the Occupational Accident Excess of Loss Whole Account Retrocession,
Burning Cost Premium Protection, and Occupational Disease and Cumulative Trauma
Whole Account Quota Share Reinsurance), pursuant to which, Reliance asserts,
each Retrocessionaire has agreed to reinsure, and Reliance has agreed to
retrocede, certain liabilities under policies issued by the Insurers and
reinsured by Reliance; and
WHEREAS, the draft contract wordings also listed on Exhibit B were
provided to the Retrocessionaires naming Reliance as a retrocedent pursuant to
which Reliance asserts the Retrocessionaires are obligated to provide
retrocessional coverage to Reliance (the documents listed in Exhibit B are
hereinafter collectively referred to as the "Asserted Retrocession Agreements");
and
WHEREAS, two of the retrocessionaires, Sun Life and Phoenix, have
commenced arbitration proceedings, inter alia, to rescind certain of the
Asserted Retrocession Agreements; and
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WHEREAS, Reliance has commenced an arbitration proceeding seeking,
inter alia, a declaration that the Asserted Retrocession Agreements are valid
and enforceable; and
WHEREAS, this Agreement will enable Reliance, Sun Life, and Phoenix to
avoid the expense and uncertainty of arbitration, litigation, or other
proceedings; and
WHEREAS, upon the fulfillment of certain conditions (as hereinafter
provided), Reliance and the Retrocessionaires wish to fully and finally settle
their respective obligations to each other under the Asserted Retrocession
Agreements.
NOW THEREFORE, in consideration of the mutual promises contained herein
and other good and valuable consideration, the parties hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Aon" means Aon Re Inc., all subsidiary and affiliated entities, and
all predecessors and successors of Aon Re Inc. or of any subsidiary or
affiliated entity thereof.
"Asserted Retrocession Agreements" shall have the meaning set forth in
the fourth whereas clause of this Agreement.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 2.07 hereof.
"Cologne Life" shall have the meaning set forth in the first paragraph
of this Agreement.
"Delphi" means Delphi Financial Group, Inc., all subsidiary and
affiliated entities, and all predecessors and successors of Delphi Financial
Group, Inc. or of any subsidiary or affiliated entity thereof.
"Delphi Release" shall have the meaning set forth in Section 2.04
hereof.
"Insurer" and "Insurers" shall have the meanings set forth in the first
whereas clause of this Agreement.
"Measured Cost " shall have the meaning set forth in Section 6.01(a)
hereof.
"Phoenix" shall have the meaning set forth in the first paragraph of
this Agreement.
"Quota Share Retrocession Agreement" means that agreement by which
Reliance Standard Life, Safety National, and Lumbermens Mutual Casualty Company
agreed to reinsure, and Reliance agreed to retrocede, certain policy liabilities
under reinsurance policies underwritten by Unicover on behalf of Reliance, and
which agreement bears an effective date of April 1, 1998.
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"Rattner" means Rattner Mackenzie Limited, all subsidiary and
affiliated entities, and all predecessors and successors of Rattner Mackenzie
Limited or of any subsidiary or affiliated entity thereof.
"Reinsurance Agreement" and "Reinsurance Agreements" shall have the
meanings set forth in the first whereas clause of this Agreement.
"Reinsurance Agreement Liability" means, for each Reinsurance
Agreement, the estimated ultimate gross nominal underwriting loss (estimated
ultimate gross premium minus estimated ultimate gross commission minus estimated
ultimate gross claims).
"Reliance" shall have the meaning set forth in the first paragraph of
this Agreement.
"Reliance Compensation" shall have the meaning set forth in Section
6.01(b) hereof.
"Reliance Adjustment" shall have the meaning set forth in Schedule II.
"Reliance Group" shall have the meaning set forth in the first
paragraph of this Agreement.
"Reliance Measured Cost" shall have the meaning set forth in Schedule
II.
"Reliance Recovered Amount from Aon," "Reliance Recovered Amount from
Rattner," "Reliance Recovered Amount from Unicover," and "Reliance Recovered
Amounts," shall have the meanings set forth in Section 6.01(c) hereof.
"Reliance Release" shall have the meaning set forth in Section 2.03
hereof.
"Reliance Standard Life" means Reliance Standard Life Insurance
Company.
"Retrocession Settlement Amount" shall have the meaning set forth in
Section 2.02(a) hereof.
"Retrocessionaire" and "Retrocessionaires" shall have the meanings set
forth in the first paragraph of this Agreement.
"Retrocessionaires Adjustment" shall have the meaning set forth in
Schedule III.
"Retrocessionaires Measured Cost" shall have the meaning set forth in
Schedule III.
"Retrocessionaires Recovered Amount from Aon," "Retrocessionaires
Recovered Amount from Rattner," "Retrocessionaires Recovered Amount from
Unicover," and "Retrocessionaires Recovered Amounts" shall have the meanings set
forth in Section 6.01(d) hereof.
"Safety National" means Safety National Casualty Corporation.
"Settlement Agreement" means an agreement to effect a complete and
final settlement of the respective obligations of Reliance and an Insurer under
the Reinsurance Agreement or
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Agreements between them, and that is contingent, if at all, principally upon a
one-time payment by Reliance to the Insurer.
"Sun Life" shall have the meaning set forth in the first paragraph of
this Agreement.
"This Agreement" shall have the meaning set forth in the first
paragraph of this Agreement.
"Total Reinsurance Agreement Liability" means the sum of the
Reinsurance Agreement Liability for all Reinsurance Agreements listed on Exhibit
A.
"Unicover" shall mean Unicover Managers, Inc., Unicover Managers LLC,
all affiliates and successors of either of them, and all predecessors and
successors of Unicover Managers, Inc. or Unicover Managers LLC or of any
subsidiary or affiliated entity of any of them.
"Unicover Business" means all insurance, reinsurance, and
retrocessional transactions, and all other business or transactions of any kind
or character, in which Unicover was involved directly or indirectly, or that are
otherwise related to Unicover in any way, including but not limited to all
transactions of any kind or character involving any of the Reinsurance
Agreements, Settlement Agreements, or Asserted Retrocession Agreements.
ARTICLE II
TERMS AND CLOSING OF THIS AGREEMENT
Section 2.01 Settlement Agreements.
(a) Reliance shall use commercially reasonable efforts to enter into
Settlement Agreements with each of the Insurers.
(b) Neither Reliance nor Reliance Group shall pay or accept any
consideration for a Settlement Agreement other than the consideration recited in
that Settlement Agreement. The consideration prohibited by the previous sentence
includes, but is not limited to, any agreements, arrangements, or understandings
that are conditioned upon, or would not have been entered into except in
connection with or consideration of, a Settlement Agreement.
(c) At the Closing, Reliance shall deliver to each Retrocessionaire a
true and complete copy of each such written Settlement Agreement, and shall
fully disclose, by notice to all Retrocessionaires, all terms of any agreements,
arrangements, or understandings described in Section 2.01(b) or otherwise
related to any Settlement Agreement, whether written or unwritten.
Section 2.02 Retrocession Settlement Amount.
(a) If, on or before January 21, 2000, Reliance has reached Settlement
Agreements which taken together cover Reinsurance Agreements aggregating not
less than 95% of the Total Reinsurance Agreement Liability, and subject to the
satisfaction of the conditions precedent stated in Section 4.01, the
Retrocessionaires shall pay to Reliance on the Closing Date an aggregate amount
equal to $281,523,831 (payable severally by Cologne Life, Phoenix and Sun
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Life in the amounts set forth in Exhibit C hereto) (the "Retrocession
Settlement Amount"). Payment of the Retrocession Settlement Amount shall be made
by wire transfer of immediately available funds to a Reliance bank account or
accounts designated in writing by Reliance. For purposes of determining whether
Reliance has satisfied the requirement that it reach by January 21, 2000,
Settlement Agreements covering Reinsurance Agreements aggregating not less than
95% of the Total Reinsurance Agreement Liability, the parties agree that the
percentage figures assigned to each Reinsurance Agreement listed on Exhibit A
shall govern.
(b) Any payments otherwise due and owing to the Retrocessionaires after
the execution of this Agreement shall be suspended and placed in an interest
bearing fiduciary account until payment of the Retrocession Settlement Amount or
the termination of this Agreement pursuant to Section 9.01. If this Agreement is
terminated pursuant to Section 9.01, then, on the next business day after such
termination, Reliance shall pay the amounts in the fiduciary account to the
Retrocessionaires or their designated agents. Reliance's failure to timely remit
premium to each Retrocessionaire or its agent from the execution date of this
Agreement until the next business day after its termination shall not constitute
a breach or other default under the Asserted Retrocession Agreements. Each
Retrocessionaire may set off against loss payments otherwise due Reliance in
connection with the Reinsurance Agreements all amounts that Reliance deposits
pursuant to this Section 2.02(b) until Reliance remits premium to that
Retrocessionaire upon termination of this Agreement. Notwithstanding the
foregoing, the parties recognize that Phoenix and Sun Life have commenced
arbitration proceedings to rescind the Asserted Retrocession Agreements, have
tendered back to their purported retrocedents all premium received from them and
are not accepting any additional premium from their purported retrocedents;
accordingly this Section 2.02(b) shall not apply to Phoenix and Sun Life.
Section 2.03 Releases by Reliance, Reliance Group, and
Retrocessionaires. At the Closing, each Retrocessionaire, on the one hand, and
Reliance and Reliance Group, on the other hand, will exchange a fully executed
mutual limited release in the form of Exhibit D (the "Reliance Release").
Section 2.04 Releases by Retrocessionaires and Delphi, Reliance
Standard Life, and Safety National. At the Closing, each Retrocessionaire, on
the one hand, and Reliance on behalf of Delphi, Reliance Standard Life, and
Safety National, on the other hand, will exchange a fully executed mutual
limited release in the form of Exhibit E (the "Delphi Release"). Following
execution of this Agreement, Cologne Life and Phoenix shall make reasonable
efforts (which efforts, however, shall not involve the payment of money) to
persuade the other members of the Unicover Occupational Accident Reinsurance
Pool, including Connecticut General Life Insurance Company, Reliastar Life
Insurance Company, the Lincoln National Life Insurance Company, and Life
Reassurance Corporation of America, to enter into mutual limited releases with
Safety National, Reliance Standard Life, and Delphi similar in form to Exhibit
E.
Section 2.05 Delivery of Certificates and Documents by Reliance. At the
Closing, Reliance shall deliver the following to each Retrocessionaire:
(a) Certificates of responsible officers of Reliance and Reliance Group
confirming to the best of their knowledge after reasonable inquiry (i)
satisfaction of the conditions set forth in Sections 2.01(b), 2.01(c), and
2.02(a) and (ii) that the representations and warranties of Reliance
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and Reliance Group set forth herein are true and correct on the date of the
certificates as if made on such date; and
(b) Copies of all documents that (i) are in the possession, custody, or
control of Reliance or Reliance Group, or in the possession, custody, or control
of any person or entity from which Reliance or Reliance Group has the practical
ability to obtain the documents without instituting any legal proceedings to do
so, and (ii) relate to, refer to, describe, evidence, or constitute any
Reinsurance Agreement, any Settlement Agreement, the Asserted Retrocession
Agreements, or the Unicover Business, together with certificates of responsible
officers of Reliance and Reliance Group that to the best of their knowledge
after reasonable inquiry they have delivered all such documents and the logs
required by Section 2.05(c). As used in this Agreement, the terms "documents"
and "possession, custody or control" have the same meanings as under Rule 34(a)
of the Federal Rules of Civil Procedure.
(c) Section 2.05(b) shall not require Reliance to deliver either (i)
documents the disclosure of which would, in the reasonable opinion of Paul,
Weiss, Rifkind, Wharton & Garrison, violate any of the confidentiality
agreements listed on Exhibit F, copies of each of which Reliance has delivered
to the Retrocessionaires, or (ii) documents covered by either the
attorney-client privilege or the protection of documents prepared in
anticipation of litigation or for trial; but under both clauses (i) and (ii)
above, provided that Reliance delivers to each Retrocessionaire a log of all
such confidential documents, whenever created, and a log of all such privileged
or protected documents created prior to March 15, 1999, stating for each such
document on each log the information customarily stated in privilege logs.
Section 2.06. Payment under Settlement Agreements. Promptly after
receiving payment of the Retrocession Settlement Amount, Reliance shall pay all
amounts payable to Insurers under all Settlement Agreements. By the end of the
third business day after it makes any payment under any Settlement Agreement,
Reliance shall deliver to each Retrocessionaire a certificate of a responsible
officer of Reliance confirming payment of same, together with evidence of such
payment.
Section 2.07. The Closing. The closing of this Agreement (the
"Closing") shall be held at the offices of Gibson, Dunn & Crutcher LLP, 200 Park
Ave., 48th Floor, New York, New York 10166 or at such other place as the parties
may agree, at 9:30 a.m. on January 21, 2000 (the "Closing Date"), or on such
other date and time as the parties may agree.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of Reliance and Reliance
Group. Reliance and Reliance Group each represents and warrants to each
Retrocessionaire that:
(a) Reliance and Reliance Group each has the corporate power to enter
into this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by the boards of directors of
Reliance and Reliance Group, respectively.
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(b) This Agreement constitutes a valid and binding obligation of
Reliance and Reliance Group, enforceable in accordance with its terms. No other
corporate proceedings by Reliance or Reliance Group are necessary to authorize
this Agreement or the transactions contemplated hereby.
(c) Exhibit A is a complete list of all agreements or contracts for
which Reliance or Reliance Group contends that the Asserted Retrocession
Agreements provide Reliance retrocessional reinsurance or any other right of
indemnity.
(d) Other than as disclosed on Exhibit G to this Agreement, neither
Reliance nor Reliance Group has any retrocessional reinsurance or other
contractual right of indemnity with respect to any of the Reinsurance Agreements
other than as may have been provided by the Retrocessionaires under the Asserted
Retrocession Agreements.
(e) Reliance has previously delivered to Gibson, Dunn & Crutcher LLP on
behalf of the Retrocessionaires true and complete copies of all written
agreements and arrangements, and has fully disclosed the terms and conditions of
all non-written agreements and arrangements, direct or indirect, between
Reliance Group or any subsidiary thereof and either (i) any Insurer or any
subsidiary or affiliate of each Insurer or (ii) any agent, broker, or other
intermediary, which agreements or arrangements arise out of or are related to
the Unicover Business.
(f) Based on advice of their respective counsel and actuaries, Reliance
and Reliance Group each believes that the Retrocession Settlement Amount and
other consideration to be given by the Retrocessionaires hereunder is present
fair equivalent value for the releases and other consideration to be given by
Reliance and Reliance Group hereunder.
(g) Except as set forth in Exhibit H, no Settlement Agreement that
Reliance has reached to date with any Insurer will lapse or is otherwise
terminable before January 21, 2000.
Section 3.02 Representations and Warranties of Retrocessionaires. Each
Retrocessionaire severally represents and warrants to each of Reliance and
Reliance Group that:
(a) Such Retrocessionaire has the corporate power to enter into this
Agreement and to carry out its obligations hereunder. The board of directors of
each Retrocessionaire has authorized the officer signing this agreement on
behalf of that Retrocessionaire to do so and evidence of such authority has been
provided to Reliance.
(b) This Agreement constitutes a valid and binding obligation of such
Retrocessionaire, enforceable in accordance with its terms. No other corporate
proceedings by such Retrocessionaire are necessary to authorize this Agreement
or the transactions contemplated hereby.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01 Conditions Precedent to Certain Obligations of each
Retrocessionaire. The obligations of each Retrocessionaire under Sections 2.02,
2.03, and 2.04 of this Agreement shall
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be subject to the satisfaction, as of the Closing Date, of the following
conditions (any or all of which may be waived in whole or in part by each
Retrocessionaire):
(a) Delivery to each Retrocessionaire of the Reliance Release duly
executed by Reliance and Reliance Group;
(b) Delivery to each Retrocessionaire of the Settlement Agreements
described in Section 2.01(c);
(c) Delivery to each Retrocessionaire of all certificates and documents
described in Section 2.05;
(d) Delivery to each Retrocessionaire of the Delphi Release duly
executed by Delphi, Reliance Standard Life, and Safety National;
(e) Delivery to each Retrocessionaire of copies of all agreements
pursuant to which Safety National or Reliance Standard Life paid Reliance as
described in Section 4.02(d) below, or pursuant to which any of Safety National,
Reliance Standard Life, or Delphi released Reliance, or Reliance released any of
Safety National, Reliance Standard Life, or Delphi from any claim arising out of
or related to the Unicover Business;
(f) Delivery to each Retrocessionaire of a certificate of an officer of
Reliance confirming that all conditions stated in Section 4.01(e) have been
satisfied;
(g) Delivery to each Retrocessionaire of copies of all agreements
pursuant to which Aon returned funds to Reliance as described in Section 4.02(e)
below, Aon paid Reliance as described in Section 4.02(f) below, or pursuant to
which Aon and Reliance or Reliance Group released each other from any claim
arising out of or related to the Unicover Business;
(h) Delivery to each Retrocessionaire of a certificate of an officer of
Reliance confirming that all conditions stated in Section 4.01(g) have been
satisfied; and
(i) Delivery to each Retrocessionaire of a certificate of an officer of
Reliance confirming that all conditions stated in Sections 4.02(d), 4.02(e), and
4.02(f) have been satisfied.
Section 4.02 Conditions Precedent to Certain Obligations of Reliance
and Reliance Group. The obligations of Reliance and Reliance Group under
Sections 2.01(c), 2.03, 2.04, and 2.05 of this Agreement shall be subject to the
satisfaction, as of the Closing Date, of the following conditions (any or all of
which may be waived in whole or in part by Reliance or Reliance Group):
(a) Receipt by Reliance of the Retrocession Settlement Amount;
(b) Delivery to Reliance and Reliance Group of the Reliance Release
duly executed by each Retrocessionaire;
(c) Delivery to Reliance and Reliance Group of the Delphi Release duly
executed by each Retrocessionaire;
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(d) Receipt by Reliance from Safety National and Reliance Standard Life
of substantially all of the funds, fees, or other compensation or consideration
that Safety National and Reliance Standard Life received relating to the
Reinsurance Agreements (which funds, fees, or other compensation or
consideration Reliance estimates to have been $58,113,432);
(e) Receipt by Reliance from Aon of any funds Aon may be holding in any
capacity (including broker for Insurers, broker of the Asserted Retrocession
Agreements, but only to the extent applicable to the Reinsurance Agreements, and
broker of the Quota Share Retrocession Agreement) relating to the Reinsurance
Agreements (which funds Reliance estimates to be $31,123,084); and
(f) Receipt by Reliance from Aon of substantially all of the
commissions, fees, brokerage, or other compensation or consideration that Aon
received in any capacity (including broker for Insurers, broker of the Asserted
Retrocession Agreements, but only to the extent applicable to the Reinsurance
Agreements, and broker of the Quota Share Retrocession Agreement) in connection
with the Reinsurance Agreements (which commissions, fees, brokerage, or other
compensation or consideration Reliance estimates to have been $25,639,383).
ARTICLE V
TERMINATION OF ASSERTED RETROCESSION AGREEMENTS;
DISMISSAL OF PROCEEDINGS
Section 5.01 Termination of Agreements. Effective upon payment in full
of the Retrocession Settlement Amount, and without execution or delivery of any
other document: (a) no Retrocessionaire shall have any further obligation
whatsoever (including, but not limited to, obligations in law or equity, which
exist or may in the future exist, whether known or unknown to any party, and
whether concealed or unconcealed) to Reliance or Reliance Group arising out of
or related to any of the Asserted Retrocession Agreements or any other agreement
arising out of or related to Unicover Business, other than this Agreement,
except that this Section 5.01 does not extend to or affect any liabilities or
obligations of Phoenix or Cologne Life with respect to reinsurance business
ceded by Reliance to the Unicover Occupational Accident Reinsurance Pool; and
(b) Reliance and Reliance Group shall have no further obligation whatsoever
(including, but not limited to, obligations in law or equity, which exist or may
in the future exist, whether known or unknown to any party, and whether
concealed or unconcealed) to any Retrocessionaire under any of the Asserted
Retrocession Agreements.
Section 5.02. Dismissal of Proceedings. Immediately after the Closing,
Reliance, Sun Life, and Phoenix will cause their respective attorneys to
execute, deliver, and file documents substantially in the form attached as
Exhibit I.
ARTICLE VI
SHARING OF COSTS AND RECOVERIES
Section 6.01 Definitions.
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(a) The "Measured Cost" as of any given date shall mean (i) the total
cash consideration that Reliance has then actually paid in consideration of all
Settlement Agreements, minus (ii) $56,523,831, and minus (iii) the Reliance
Compensation.
(b) "Reliance Compensation" shall mean all funds, fees, and other
compensation or consideration that Reliance received in connection with the
Reinsurance Agreements, minus amounts Reliance actually paid to Unicover in
connection with the Reinsurance Agreements (but amounts that Reliance has set
aside in a segregated account shall not be deemed paid to Unicover unless and
until Unicover actually receives them), minus amounts Reliance actually paid and
the Retrocessionaires or their managing general underwriters actually received
in connection with the Asserted Retrocession Agreements, minus amounts that
Reliance actually paid and that Aon or Rattner actually received as
retrocessional commissions, fees, brokerage or other compensation or
consideration in connection with the Asserted Retrocession Agreements.
(c) In the event and to the extent that Reliance or Reliance Group
recovers from Aon, Rattner, or Unicover, whether by agreement, litigation,
arbitration, settlement, or otherwise, any amounts on account of or otherwise
reasonably allocable to any Reinsurance Agreement or the Asserted Retrocession
Agreements, then the recovered amount, net of reasonable attorneys fees and
other out-of-pocket expenses of collection actually paid to third parties, shall
be: (i) if recovered from Aon, a "Reliance Recovered Amount from Aon," (ii) if
recovered from Rattner, a "Reliance Recovered Amount from Rattner," and (iii) if
recovered from Unicover, a "Reliance Recovered Amount from Unicover" (but
amounts that Reliance has set aside in a segregated account and not actually
paid to Unicover shall in no event be deemed a Reliance Recovered Amount from
Unicover), provided that the Reliance Recovered Amount from Aon shall not exceed
$13,705,357, the Reliance Recovered Amount from Rattner shall not exceed the
total amount that Reliance actually paid and that Rattner actually received as
retrocessional commissions, fees, brokerage or other compensation or
consideration in connection with the Asserted Retrocession Agreements, and the
Reliance Recovered Amount from Unicover shall not exceed the total amount that
Reliance paid Unicover in fees and other compensation related to the Reinsurance
Agreements. "Reliance Recovered Amounts" shall be the sum of the "Reliance
Recovered Amount from Aon," the "Reliance Recovered Amount from Rattner," and
the "Reliance Recovered Amount from Unicover."
(d) In the event and to the extent that any Retrocessionaire recovers
from Aon, Rattner, or Unicover, whether by agreement, litigation, arbitration,
settlement, or otherwise, any amounts on account of or otherwise reasonably
allocable to any Reinsurance Agreement or the Asserted Retrocession Agreements,
but as to the latter only to the extent applicable and reasonably allocable to
the Reinsurance Agreements, then the recovered amount, net of reasonable
attorneys fees and other out-of-pocket expenses of collection actually paid to
third parties, shall be (i) if recovered from Aon, a "Retrocessionaires
Recovered Amount from Aon," (ii) if recovered from Rattner, a "Retrocessionaires
Recovered Amount from Rattner," and (iii) if recovered from Unicover, a
"Retrocessionaires Recovered Amount from Unicover," provided that the
Retrocessionaires Recovered Amount from Aon shall not exceed $13,705,357 minus
the Reliance Recovered Amount from Aon; the Retrocessionaires Recovered Amount
from Rattner shall not exceed the total amount that Reliance actually paid and
that Rattner actually received as retrocessional commissions, fees, brokerage or
other compensation or consideration in connection with the Asserted Retrocession
Agreements minus the Reliance Recovered Amount
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from Rattner; and the Retrocessionaires Recovered Amount from Unicover shall not
exceed the total amount that Reliance paid Unicover in fees and other
compensation related to the Reinsurance Agreements minus the Reliance Recovered
Amount from Unicover. "Retrocessionaires Recovered Amounts" shall be the sum of
the "Retrocessionaires Recovered Amount from Aon," the "Retrocessionaires
Recovered Amount from Rattner," and the "Retrocessionaires Recovered Amount from
Unicover."
Section 6.02 Sharing of Costs and Recoveries by Reliance and the
Retrocessionaires. On or before the 15th day after the end of each calendar
quarter starting with the quarter ending March 31, 2000, and for as long as
necessary thereafter, Reliance will pay the Retrocessionaires and the
Retrocessionaires will pay Reliance amounts computed in accordance with
Schedules I, II, and III to this Agreement. On each of those dates, whether or
not a payment is required, each party will submit to each other party a
certificate of a responsible officer attesting to the correct amount of the
then-current Measured Cost, Reliance Recovered Amounts, Retrocessionaires
Recovered Amounts, as applicable; providing all pertinent underlying amounts and
calculations; and attaching copies of all pertinent underlying documentation
(for example, agreements, awards, or judgments under which amounts may have been
recovered from Aon, Rattner, or Unicover).
Section 6.03 Allocation of Costs and Recoveries between the
Retrocessionaires. The total payments by all Retrocessionaires to Reliance under
Section 6.02 and Schedules I, II, and III shall be divided between the
Retrocessionaires in the same proportion as the Retrocessionaires Recovered
Amounts that each Retrocessionaire recovered shall bear to the total
Retrocessionaires Recovered Amounts that all Retrocessionaires recovered, in
each case irrespective of whether recovered from Aon, Rattner, or Unicover, but
for purposes of this Section 6.03 Retrocessionaires Recovered Amounts shall be
computed without regard to the proviso in Section 6.01(d). Payments by Reliance
to the Retrocessionaires up to the total amount that all Retrocessionaires have
then paid Reliance under Section 6.02 shall be made so as to achieve the
proportion described in the previous sentence, and any payments by Reliance to
the Retrocessionaires above that amount shall be made in the proportions stated
in Exhibit J.
ARTICLE VII
AUDITS; COOPERATION; ACCESS TO DOCUMENTS AND EMPLOYEES
Section 7.01 Audit of Reliance Documents Relating to Settlement
Agreements. The Retrocessionaires shall have the right to conduct reasonable
audits, no less often than annually, of all documents in the possession,
custody, or control of Reliance or Reliance Group that relate in any way to any
Settlement Agreement, the consideration therefor, any agreement, arrangement, or
understanding described in Section 2.01(b), or Reliance's payment under any
Settlement Agreement. Reliance shall not execute any Settlement Agreement the
terms of which do not permit Reliance to disclose to the Retrocessionaires all
documents relating thereto, as required by this Section 7.01. Reliance and
Reliance Group shall make all such documents available for inspection and
copying by the Retrocessionaires or their agents during normal business hours at
its offices in New York, New York.
Section 7.02 Cooperation and Access to Employees.
11
(a) Reliance and Reliance Group will extend to each Retrocessionaire,
at the expense of Reliance or Reliance Group (except that each Retrocessionaire
agrees to reimburse Reliance or Reliance Group for all reasonable out-of-pocket
expenses for travel and other incidentals, but not for compensation of its
employees, that Reliance or Reliance Group incurs at the request of that
Retrocessionaire), all reasonable cooperation in connection with any litigation
or arbitration relating to the Unicover Business. This cooperation will include,
but not be limited to, making available to each Retrocessionaire (but where
reasonably practicable Sun and Phoenix shall participate jointly), for a
reasonable time, each employee of Reliance or Reliance Group (other than the
attorneys named on a separate schedule agreed to by the parties, each of whom
Reliance and Reliance Group represent to be a member of the legal departments of
Reliance or Reliance Group) with knowledge of matters reasonably relevant to the
Unicover Business (excluding the negotiation and consummation of this
Agreement), upon reasonable notice and during normal business hours, to be
interviewed and to prepare for and participate in arbitration or litigation
proceedings relating to the Unicover Business. Reliance and Reliance Group
further agree that they will cooperate with any reasonable efforts of the
Retrocessionaires to obtain access to former employees of Reliance or Reliance
Group regarding such arbitration or litigation proceedings. This cooperation
will also include promptly giving each Retrocessionaire copies of all documents
described in Section 2.05(b) that come into the possession, custody, or control
of Reliance or Reliance Group after the date of this Agreement, subject to the
same requirements, conditions, and limitations set forth in Section 2.05(c).
(b) Reliance and Reliance Group will extend to each Retrocessionaire
all reasonable cooperation in any litigation, arbitration, or other proceeding
that any Retrocessionaire may reasonably think necessary or desirable to enforce
any right of Reliance or Reliance Group to documents in the possession, custody,
or control of Aon, Rattner, or Unicover. This cooperation shall include, but not
be limited to, the execution of powers of attorney designating each
Retrocessionaire, or any of them, to prosecute such proceedings against Rattner
or Unicover on behalf of Reliance and Reliance Group and assignments to each
Retrocessionaire, or any of them, of all rights (to the maximum extent
assignable) of Reliance and Reliance Group to documents in the possession,
custody, or control of Aon, Rattner, or Unicover. If documents are received from
Aon, Rattner, or Unicover as a result of any such proceeding, Reliance and
Reliance Group shall immediately give each Retrocessionaire copies of all such
documents unless, in the reasonable opinion of Paul, Weiss, Rifkind, Wharton &
Garrison, such disclosure would violate a confidentiality agreement that is
binding upon Reliance. In the event such a determination is made by Paul, Weiss,
Rifkind, Wharton & Garrison, Reliance shall promptly identify the applicable
confidentiality agreement to each Retrocessionaire and shall promptly provide a
log to each Retrocessionaire of each confidential document, stating for each
such document the information customarily stated in privilege logs.
(c) Reliance and Reliance Group will not enter into any confidentiality
agreement that would reduce or limit their rights to disclose any documents to
the Retrocessionaires.
ARTICLE VIII
CONFIDENTIALITY; PUBLICITY
Section 8.01 Confidentiality.
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(a) This Agreement and its terms shall remain confidential and shall
not be disclosed to any person other than the parties hereto, provided, however,
that each party may disclose this Agreement and its terms (i) to its directors,
officers, employees, and attorneys, and those of its parent company, who have a
legitimate need to know such information, (ii) to its accountants and other
professional advisors who have a legitimate need to know such information, (iii)
to rating agencies, (iv) to regulatory agencies, (v) as required by law
(including, without limitation, pursuant to any insurance or securities law or
any legal, regulatory or legislative proceeding), but only after giving the
other parties notice of such proposed disclosure as far in advance as practical,
and (vi) in the case of the Retrocessionaires only, to their retrocessionaires
on the Unicover Business. The disclosing party shall inform the person or entity
obtaining this Agreement or any information about its terms of the confidential
nature of the terms of this Agreement and its terms and the need to maintain
that confidentiality. In the event that disclosure of the Agreement itself is
made pursuant to subsections (ii) or (vi) above, the disclosing party shall
first obtain a signed confidentiality agreement substantially in the form of
Exhibit K to this Agreement. In the event that disclosure of the Agreement
itself is made pursuant to subsections (iv) or (v) above, the disclosing party
will make reasonable efforts to file any copy of this Agreement under seal.
(b) Reliance and each Retrocessionaire may disclose material terms of
this Agreement, but not a copy of the Agreement itself, to Aon, Delphi, Safety
National, or Reliance Standard, but only for the purpose of obtaining from the
recipient the return of funds, fees, commissions, brokerage, or other
compensation or consideration in respect of or otherwise attributable to the
Reinsurance Agreements, provided that the proposed recipient has first signed a
confidentiality agreement substantially in the form of Exhibit L.
(c) With the prior approval of the Retrocessionaires, which they will
not unreasonably withhold, Reliance may disclose material terms of this
Agreement, but not a copy of the Agreement itself, to Insurers or brokers for
Insurers, but only for the purposes of negotiating Settlement Agreements or of
obtaining from the recipient the return of funds, fees, commissions, brokerage,
or other compensation or consideration in respect of or otherwise attributable
to the Reinsurance Agreements, provided that the proposed recipient has first
signed a confidentiality agreement substantially in the form of Exhibit L.
(d) Reliance Group may disclose either the terms or a copy of this
Agreement to any potential material investor in or acquirer of Reliance Group
(i) that is conducting a due diligence investigation of Reliance Group, (ii)
that has signed a confidentiality agreement with Reliance Group that covers this
Agreement and the terms thereof and obligates the recipient to use that
information for the sole purpose of evaluating a possible material investment in
or acquisition of Reliance Group, and (iii) to which Reliance Group has
disclosed information that is, in the reasonable opinion of the chief financial
officer of Reliance Group, Reliance Group's own most sensitive and confidential
information.
Section 8.02 Publicity.
(a) Each party to this Agreement, on behalf of itself and its
respective subsidiaries, directors, officers, and employees, covenants that it
shall not issue any press release or make any other statement that contains or
might reasonably be deemed to imply any
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disparaging remarks concerning another party to this Agreement or make
statements that present another party to this Agreement in a negative context
with respect to the Reinsurance Agreements, Settlement Agreements, Asserted
Retrocession Agreements, or Unicover Business, provided, however, that nothing
herein will prohibit any party from making any statement to the extent that such
party reasonably determines upon advice of counsel that such statement is
required by law.
(b) If any party to this Agreement contemplates any public release or
announcement about this Agreement, the party contemplating such a release or
announcement will send the other parties to this Agreement the text of the
proposed release or announcement a reasonable time in advance of its issuance.
ARTICLE IX
GENERAL PROVISIONS
Section 9.01 Termination. In the event that, as of 11:59 p.m., Eastern
Standard Time, on January 21, 2000, any condition precedent stated in Section
4.01 has not been either satisfied or waived by each Retrocessionaire, then any
Retrocessionaire may terminate this Agreement by notice to all other parties. In
the event that, as of 11:59 p.m., Eastern Standard Time, on January 21, 2000,
any condition precedent stated in Section 4.02 has not been either satisfied or
waived by each of Reliance and Reliance Group, then either Reliance or Reliance
Group may terminate this Agreement by notice to all other parties. If any party
so terminates this Agreement, then (i) this Agreement shall terminate and the
rights, duties, and obligations hereunder of the parties hereto and of their
respective directors, officers, employees, agents, representatives, successors
or assigns, shall be void ab initio and (ii) this Agreement shall be deemed to
have been made solely for purposes of settlement, and no party shall refer to
this Agreement or the fact that any party executed it in any subsequent legal
proceeding. Notwithstanding the foregoing, (x) no termination of this Agreement
pursuant to this Section 9.01 shall eliminate any liability of the parties
hereto with respect to any breaches hereof arising before such termination and
(y) the provisions of Section 8.01 of this Agreement relating to the obligations
of the parties hereto to keep information confidential shall survive the
termination of this Agreement.
Section 9.02 Entire Agreement. This Agreement and its schedules and
exhibits constitutes the entire agreement between the parties with respect to
the transactions contemplated hereby, and supersedes all prior agreements and
understandings, written and oral, among the parties with respect to the subject
matters hereof. Any amendment or modification hereto shall be null and void
unless made in writing by amendment to this Agreement and executed by all
parties.
Section 9.03 Governing Law. This Agreement shall be governed by,
interpreted under and construed in accordance with New York law, without regard
to conflicts or choice of laws principles.
Section 9.04. Arbitration.
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(a) Any dispute or claim arising out of or relating to this Agreement,
including its formation and validity, shall be referred to arbitration.
Arbitration shall be initiated by the delivery, by mail, facsimile, or other
reliable means, of a written demand for arbitration by one party or the other.
The arbitration shall be held in New York, New York, or such other place as the
parties may mutually agree.
(b) For purposes of any arbitration between one or both of Reliance and
Reliance Group, on the one hand, and one or more of the Retrocessionaires, on
the other hand, Reliance and Reliance Group shall be one party and the
Retrocessionaires together shall be one party.
(c) Arbitration shall be conducted before a three-person Arbitration
Panel appointed as follows. Each party shall appoint one arbitrator, and the two
arbitrators so appointed shall then appoint an impartial Umpire before
proceeding. If either party fails to appoint an arbitrator within thirty (30)
days after it receives a written request by the other party to do so, the other
party may appoint an arbitrator for it. Should the two party appointed
arbitrators fail to choose an Umpire within thirty (30) days of the appointment
of the second arbitrator, each arbitrator shall propose three names, of whom the
other shall strike two, and the decision shall be made from the remaining two by
drawing lots. The arbitrators and Umpire shall be present or former executives
or officers of insurance or reinsurance companies or shall be arbitrators
certified by ARIAS-U.S. The arbitrators and Umpire shall have no financial
interest in the outcome of the arbitration.
(d) The arbitrators and Umpire shall interpret this Agreement under New
York law. They may permit or order such discovery, if any, as they think
appropriate and may conduct the hearing of the arbitration by written
submissions, oral testimony, or any combination thereof as they think
appropriate.
(e) The decision of a majority of the Arbitration Panel shall be final
and binding, except to the extent otherwise provided in the Federal Arbitration
Act. The Arbitration Panel shall render its award in writing. Judgment upon the
award may be entered in any court having jurisdiction, pursuant to the Federal
Arbitration Act. Unless the Arbitration Panel orders otherwise, each party shall
pay: (1) the fees and expenses of its own arbitrator, and (2) an equal share of
the fees and expenses of the Umpire and of the other expenses of the
arbitration.
(f) It is the intent and desire of the parties that any arbitration
under this Section 9.04 should be concluded and an award rendered as
expeditiously as reasonably possible and that the arbitrators should schedule
and conduct the arbitration accordingly.
Section 9.05 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement shall
become effective when one or more counterparts have been signed by each party
hereto and delivered to the other parties hereto. For purposes of the foregoing,
a facsimile of a signed counterpart shall constitute an original, and delivery
of a facsimile signature shall be effective.
Section 9.06 No Third Party Beneficiaries. Nothing in this Agreement is
intended or shall be construed to give any person, other than the parties
hereto, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
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Section 9.07 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and assigns
and legal representatives. This Agreement is not assignable except by operation
or law or by mutual written consent of the parties.
Section 9.08 Waivers. The terms of this Agreement may be waived only by
a written instrument signed by the party waiving compliance. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof; nor shall any waiver on the part of any party of
any right, power, privilege, nor any single or partial exercise of any such
right, power or privilege, preclude any further exercise thereof or the exercise
of any other such right, power or privilege.
Section 9.09 Currency. All payments hereunder shall be in United States
Dollars. All monetary amounts referred to herein are in United States Dollars.
All reports and accounts hereunder shall be rendered in United States Dollars.
Section 9.10 Headings. The headings in this Agreement are for the
convenience of reference only and shall not affect its interpretation.
Section 9.11 Preparation. This Agreement is the product of informed
arms-length negotiations between the parties hereto and competent counsel of
their choice, and may involve compromises of previously asserted positions. This
Agreement has been jointly prepared by the parties hereto and the terms hereof
will not be construed in favor of or against any party to this Agreement by
reason of its participation in such preparation. By executing this Agreement, no
party is conceding liability, and this Agreement shall not be construed as an
admission of any kind relating to any claim, liability or obligation relating to
the Asserted Retrocession Agreements.
Section 9.12 Notices. All notices, requests, demands, approvals and
other communications under this Agreement shall be in writing and shall be
delivered personally; by facsimile transmission; by certified, registered or
express mail, postage prepaid; or by a recognized overnight courier service. Any
such notice or other communication shall be deemed given upon actual delivery if
actually delivered during normal business hours, and at the beginning of the
next business day if actually delivered outside normal business hours, in each
case to the following addresses:
If to Reliance
or Reliance Group: Lowell Freiberg
Chief Financial Officer
Executive Vice President
Reliance Group Holdings
55 East 52nd Street, 29th Floor
New York, New York 10055
Tel: (212) 909-1160
Fax: (212) 909-1864
with copies to:
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Jeffrey A. Welikson, Esq.
Reliance National
77 Water Street, 21st Floor
New York, New York 10005
Tel: (212) 858-3862
Fax: (212) 858-9118
and
Howard E. Steinberg, Esq.
Reliance Group Holdings
55 East 52nd Street, 29th Floor
New York, New York 10055
Tel: (212) 909-1136
Fax: (212) 909-1241
and
Brad S. Karp, Esq.
Claudia Hammerman, Esq.
Paul, Weiss, Rifkind, Wharton
& Garrison
1285 Avenue of the Americas
New York, New York 10019
Tel: (212) 373-3000
Fax: (212) 757-3990
If to Sun Life: Sun Life Assurance Company of
Canada
150 King Street West
Toronto, Ontario, M5H 1J9
Canada
Attention: Senior Vice-President
and Chief Legal Officer
Tel: (416) 979-4024
Fax: (416) 260-8318
and
Attention: Vice President &
General Manager, Reinsurance
Tel: (416) 979-6059
Fax: (416) 585-9908
with copies to:
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Peter R. Chaffetz, Esq.
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Tel: (212) 408-2335
Fax: (212) 541-5369
If to Phoenix: Dona D. Young, Esq.
Phoenix Home Life Mutual
Insurance Company
One American Row
Hartford, Connecticut 06115
Tel: (860) 403-5967
Fax: (860) 403-5543
with copies to:
Alan J. Levin, Esq.
Edwards & Angell, LLP
90 State House Square
Hartford, Connecticut 06103
Tel: (860) 541-7747
Fax: (860) 527-4198
If to Cologne Life: Charles F. Barr, Esq.
Cologne Life Reinsurance Company
Financial Centre
Post Office Box 10351
Stamford, Connecticut 06904-2351
Tel: (203) 328-5506
Fax: (203) 328-5877
with copies to:
David J. Grais, Esq.
Gibson, Dunn & Crutcher LLP
200 Park Avenue
18
New York, New York 10166
Tel: (212) 351-4087
Fax: (212) 351-5229
Any party may, by notice given in accordance with this Agreement to the
other parties, designate another address, fax number or person for receipt of
notices hereunder.
IN WITNESS WHEREOF, and intending to be legally bound, the parties have
executed this Agreement by their duly authorized representatives on the date(s)
so indicated.
RELIANCE INSURANCE COMPANY
By: /s/ Lowell C. Freiberg
--------------------------
Name: Lowell C. Freiberg
Title: Senior Vice-sPresident
Date: January 7, 2000
RELIANCE GROUP HOLDINGS, INC.
By: /s/ Lowell C. Freiberg
--------------------------
Name: Lowell C. Freiberg
Title: Executive Vice President
Date: January 7, 2000
SUN LIFE ASSURANCE COMPANY OF CANADA
By: /s/ Thomas A. Bogart By: /s/ Robin E. Fitzgerald
-------------------------- --------------------------
Name: Thomas A. Bogart Name: Robin E. Fitzgerald
Title: SVP & Chief Legal Officer Title: VP & GM, Reinsurance
Date: January __, 2000 Date: January __, 2000
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By: /s/ Dona D. Young
--------------------------
Name: Dona D. Young
Title: Executive Vice President, Individual Insurance and General Counsel
Date: January 7, 2000
AMERICAN PHOENIX LIFE AND REASSURANCE COMPANY
By: /s/ David W. Searfoss
--------------------------
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Name: David W. Searfoss
Title: Vice President and Chief Financial Officer
Date: January 7, 2000
COLOGNE LIFE REINSURANCE COMPANY
By: /s/ Charles F. Barr
--------------------------
Name: Charles F. Barr
Title: Assistant General Counsel
Date: January 7, 2000
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