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EXHIBIT 10.1
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RESTRUCTURING AGREEMENT
(hereinafter referred to as "Agreement")
by and among
THE AETNA CASUALTY AND SURETY COMPANY,
AETNA CASUALTY & SURETY COMPANY OF CANADA
EXECUTIVE RISK INC.
EXECUTIVE RE INC.,
EXECUTIVE RISK INDEMNITY INC.,
EXECUTIVE RISK SPECIALTY INSURANCE COMPANY
and
EXECUTIVE RISK MANAGEMENT ASSOCIATES
Dated February 13, 1997
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RESTRUCTURING AGREEMENT
THIS RESTRUCTURING AGREEMENT (the "Agreement") is made and
entered into this 13th day of February, 1997 by and among THE AETNA CASUALTY AND
SURETY COMPANY, a Connecticut corporation ("Aetna"), AETNA CASUALTY & SURETY
COMPANY OF CANADA ("Aetna Canada"), EXECUTIVE RISK INC., a Delaware corporation
("ERI"), EXECUTIVE RE INC., a Delaware corporation ("Executive Re"), EXECUTIVE
RISK INDEMNITY INC., a Delaware corporation ("ERII"), EXECUTIVE RISK SPECIALTY
INSURANCE COMPANY ("ERSIC"), a Connecticut corporation, and EXECUTIVE RISK
MANAGEMENT ASSOCIATES, a Connecticut general partnership ("ERMA").
In consideration of the premises and the mutual covenants, obligations
and agreements hereinafter set forth and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
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RESTRUCTURING OF AGENCY RELATIONSHIP
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.1 Termination of 1994 Amended and Restated Agency Agreement.
By their execution hereof, ERI, ERMA, Aetna and Aetna Canada mutually agree that
the Insurance Services Agreement, dated December 24, 1986 between Aetna and
ERMA, as amended by an Amended and Restated Insurance Services Agreement, dated
as of May 1, 1991, between Aetna and ERMA, as further amended by an Amended and
Restated Agency and Insurance Services Agreement, dated January 1, 1994, among
Aetna, ERI and ERMA, as further amended by the First Amendment thereto, dated as
of January 1, 1995, and as further supplemented by the Letter Agreement (the
"1994 Canadian Letter Agreement"), dated May 26, 1995, among ERI, ERII, ERMA,
Aetna and Aetna Canada (collectively, the "1994 Agency Agreement"), is hereby
terminated as to all parties effective as of December 31, 1996, except that
business with an effective date on or after January 1, 1997 written consistent
with the terms of the 1997 Agency Agreement (as defined in Section 1.2 hereof),
including, without limitation, Schedule A thereto (as the same may be updated in
accordance with the terms of the 1997 Agency Agreement), shall be serviced and
administered under the 1997 Agency Agreement and reinsured by ERII pursuant to
the 1997 Quota Share Reinsurance Agreement (as defined in Section 2.3 hereof).
The parties agree that the only obligations of the parties remaining under the
1994 Agency Agreement shall be as set forth in this Agreement and in the 1997
Agency Agreement including all Exhibits and Schedules thereto,
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except that the 1994 Agency Agreement shall continue in force for the purpose of
governing the parties' rights and obligations with respect to the business
written by ERMA pursuant to the terms of such Agreement with policy effective
dates prior to January 1, 1997, until all such policies expire and all
liabilities with respect to such policies have been settled, and ERMA's
obligations to render reports and make payments to Aetna shall be as provided in
the Reporting and Accounting Convention attached hereto as Exhibit C.
.2 1997 Agency Agreement. Upon the execution hereof, Aetna and
ERMA shall enter into an Agency and Insurance Services Agreement (the "1997
Agency Agreement") in the form of Exhibit A hereto.
.3 1997 Canadian Letter Agreement. Upon the execution hereof,
ERMA and Aetna Canada shall enter into a letter agreement in the form of Exhibit
B hereto (the "1997 Canadian Letter Agreement").
.4 Memorandum of Understanding. By their execution hereof, the
parties agree that the Memorandum of Understanding attached as Schedule C to the
1994 Quota Share Reinsurance Agreement (as defined in Section 2.1 hereof) is
hereby terminated as to all parties effective as of December 31, 1996, except
that all business with an effective date on or after January 1, 1997 written
consistent with the terms of such Memorandum of Understanding during the period
January 1, 1997 to the date
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hereof shall be serviced and administered under the 1997 Agency Agreement and
reinsured by ERII pursuant to the 1997 Quota Share Reinsurance Agreement (as
defined in Section 2.3 hereof).
ARTICLE II
RESTRUCTURING OF REINSURANCE RELATIONSHIP
.1 Termination of 1994 Quota Share Reinsurance Agreement. By
their execution hereof, ERII and Aetna agree that the Amended and Restated Quota
Share Reinsurance Agreement, dated as of January 1, 1994, between Aetna and
ERII, as amended by the Amendment thereto, dated as of August 5, 1994, as
further amended by the Second Amendment thereto, dated as of January 1, 1995,
and as further supplemented by the 1994 Canadian Letter Agreement (the "1994
Quota Share Reinsurance Agreement"), is hereby terminated effective December 31,
1996.
.2 Run-off of Reinsurance Business. ERII and Aetna hereby
agree that all applicable terms of the 1994 Quota Share Reinsurance Agreement
shall continue in force solely for the purpose of governing the parties' rights
and obligations with respect to the business ceded by Aetna to ERII pursuant to
the terms of such agreement with effective dates prior to January 1, 1997, until
all liabilities with respect to such business have been settled except that (i)
ERII's only obligation to provide security to Aetna in connection therewith
shall be as provided in the 1997 Quota Share Reinsurance Agreement (as defined
in Section 2.3
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hereof) and (ii) ERII's only obligation to render reports and make payments to
Aetna shall be as provided in the Reporting and Accounting Convention attached
hereto as Exhibit C.
.3 1997 Quota Share Reinsurance Agreement. Upon the execution
hereof, ERII and Aetna shall enter into a Quota Share Reinsurance Agreement, in
the form attached hereto as Exhibit D (the "1997 Quota Share Reinsurance
Agreement"), with respect to the cession by Aetna to ERII of business written
with effective dates on and after January 1, 1997 pursuant to the 1997 Agency
Agreement.
.4 ERII Quota Share Reinsurance Agreement. By their execution
hereof, ERII and Aetna agree that the Quota Share Reinsurance Agreement, dated
as of January 1, 1994, between ERII and Aetna, as amended by the Amendment
thereto, dated as of August 5, 1994, as further amended by the Second Amendment
thereto, dated as of January 1, 1995, and as further amended by the Third
Amendment thereto, dated as of November 1, 1995 (the "ERII Reinsurance
Agreement"), is hereby terminated effective as of December 31, 1996. All
applicable terms of the ERII Reinsurance Agreement shall continue in force
solely for the purpose of governing the parties' rights and obligations with
respect to business ceded by ERII to Aetna pursuant to the terms thereof with
effective dates prior to January 1, 1997, until all liabilities with respect to
such business have been settled, except that all reports and payments with
respect to such
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business shall be made in accordance with the Reporting and Accounting
Convention attached hereto as Exhibit C.
.5 ERSIC Quota Share Reinsurance Agreement. By their execution
hereof, ERSIC and Aetna agree that the Quota Share Reinsurance Agreement, dated
as of January 1, 1994, between ERSIC and Aetna, as amended by the Amendment
thereto, dated as of August 5, 1994, as further amended by the Second Amendment
thereto, dated as of January 1, 1995, and as further amended by the Third
Amendment thereto, dated as of November 1, 1995 (the "ERSIC Reinsurance
Agreement"), is hereby terminated effective December 31, 1996. All applicable
terms of the ERSIC Reinsurance Agreement shall continue in force solely for the
purpose of governing the parties' rights and obligations with respect to
business ceded by ERSIC to Aetna pursuant to the terms thereof with effective
dates prior to January 1, 1997, until all liabilities with respect to such
business have been settled, except that all reports and payments with respect to
such business shall be made in accordance with the Reporting and Accounting
Convention attached hereto as Exhibit C.
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ARTICLE III
CERTAIN AGREEMENTS AND RIGHTS
.1 Exchange Agreement. By their execution hereof, Aetna,
Executive Re and ERI agree that all of the terms of the Exchange Agreement shall
be void and of no further effect on and after the date hereof with no liability
of any such party except that ERI shall cause ERII to make the profit-sharing
distribution payable to Aetna under Section 6.8 of the Exchange Agreement on or
before May 30, 1997.
.2 Securityholders Agreement. By their execution hereof, ERI
and Aetna agree that the Securityholders Agreement, dated as of January 1, 1994,
among ERI, Aetna and the securityholders listed therein (the "Securityholders
Agreement"), as amended by the Amendment thereto, dated as of August 5, 1994, as
further amended by the Amended and Restated Stock Repurchase Agreement (the
"Stock Repurchase Agreement"), dated as of March 22, 1996, among Aetna Life and
Casualty Company ("Aetna Life"), Aetna, and ERI, is hereby amended by
terminating all rights of Aetna thereunder, and all obligations of ERI with
respect to Aetna, including, without limitation, the provisions of Articles 2
and 5 of the Securityholders Agreement, which shall be void and shall have no
further effect on and after the date hereof.
.3 Board Representation. Aetna shall cause Joseph P. Kiernan,
who has been serving as Aetna's designee
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on the Boards of Directors of ERI, Executive Re, ERII and ERSIC and the
Partnership Committee of ERMA pursuant to the terms of the Securityholders
Agreement, to resign from each such position effective on the date hereof by
signing and delivering to ERI a letter of resignation in the form of Exhibit E
hereto.
ARTICLE IV
SETTLEMENT OF ACCOUNTS
.1 Reconciliation of Records. No later than March 15, 1997,
ERMA and Aetna shall reconcile and settle all outstanding accounts for business
with effective dates on or before December 31, 1996, which accounts have been
submitted to Aetna on or before January 15, 1997. This includes business written
pursuant to the 1994 Agency Agreement and reinsured under the 1994 Quota Share
Reinsurance Agreement, the ERII Reinsurance Agreement and the ERSIC Reinsurance
Agreement.
.2 Right of Offset. Each party hereto may offset any balance
or amount due from one party to another, whether on account of any premium,
commission, claim, loss, adjustment expense, salvage, interest or otherwise,
under the Exchange Agreement, 1994 Agency Agreement, 1997 Agency Agreement, 1994
Quota Share Reinsurance Agreement, 1994 Canadian Letter Agreement, 1997 Canadian
Letter Agreement, 1997 Quota Share Reinsurance Agreement, ERII Reinsurance
Agreement or ERSIC Reinsurance Agreement.
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ARTICLE V
COVENANTS
.1 Maintenance of Rates and Forms. During the term of this
Agreement, Aetna shall maintain the existing state insurance department filings
of all rates and forms with respect to business authorized to be written on
Aetna policies under the 1997 Agency Agreement and shall provide ERMA access to
any rates and forms or amendments to existing rates and forms which may be filed
after the date hereof on behalf of Aetna in respect of such business. ERMA may
request Aetna to file amendments to all such rates and forms, or to file
additional rates and forms, although Aetna shall be under no obligation
hereunder to make such filings.
.2 Right of Substitution.
The parties agree that if (i) Aetna receives from A.M. Best
Company, Inc. a claims paying rating of below "A-" or a size rating of less than
XV and (ii) Travelers/Aetna Property Casualty Corp. ("Travelers/Aetna")
maintains or establishes a D&O facility in one of its Subsidiaries or
Affiliates, other than Gulf Insurance Company, which has a higher claims paying
or size rating than Aetna and utilizes such facility to write D&O on a direct,
as distinguished from reinsurance, basis, Aetna shall cause such Subsidiary or
Affiliate to enter into an agency agreement with ERMA, if ERMA so elects, with
terms substantially similar to the terms of the 1997 Agency Agreement, and Aetna
shall cause such Subsidiary or Affiliate to enter into a reinsurance
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agreement with ERII with terms substantially similar to the terms of the 1997
Quota Share Reinsurance Agreement.
.3 No Solicitation. Aetna will ensure that none of Aetna or
any of its property/casualty insurance Subsidiaries or Affiliates may, for a
period of two years from the date hereof, either directly or indirectly through
a recruiting firm, other third party or otherwise, solicit for employment any
individual who is at the time of such act an insurance underwriter in the
employment of ERI or one or more of its Subsidiaries or Affiliates, except that
this covenant shall not apply to Gulf Insurance Company with respect to
solicitation of individuals for employment outside Connecticut. For purposes
hereof, the foregoing restrictions shall apply to any possible relationship
between such underwriter and Aetna or any of its property/casualty insurance
Subsidiaries or Affiliates--i.e. whether as director, officer, employee, agent,
independent contractor, representative, consultant or otherwise. Neither Aetna
nor any such Subsidiary or Affiliate will be deemed in violation of this
provision as a result of media advertising or other recruiting practices not
targeted at such underwriters of ERI and its Subsidiaries and Affiliates. In the
event the 1997 Agency Agreement is terminated pursuant to Sections 10.1(a),
10.1(b) or 10.1(f) thereof, the terms of this Section 5.3 shall terminate
effective immediately therewith.
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.4 Announcements. No party hereto shall issue or cause the
publication of the initial press release or other initial formal public
announcement with respect to this Agreement and the transactions contemplated by
this Agreement without the consent of the other parties, unless such initial
announcement is required by the provisions of applicable law or regulations or
by any governmental entity having jurisdiction over such party. In connection
with any such initial announcement, the parties shall consult with each other
before issuing such announcement with respect to the content thereof.
.5 Return of Forms and Files. ERI agrees to return to Aetna,
on or before February 20, 1997, all policy forms, application forms and
endorsements (whether filed with regulatory authorities or not), as well as
rating plans and other materials filed with regulatory authorities on behalf of
Aetna, which are in the possession of ERI or any of its Subsidiaries or
Affiliates and reasonably accessible, in respect of business written on Aetna
policies pursuant to the 1994 Agency Agreement with effective dates on or before
December 31, 1996; provided, however, that ERI shall not be required to provide
to Aetna its underwriting files on the respective accounts and ERI may retain
copies of any such materials provided to Aetna.
Forms, underwriting and claim files not provided to Aetna will
be maintained on Aetna's behalf in compliance with all regulatory and records
retention requirements and
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access to such files will be provided to Aetna upon request for regulators,
examiners or parties acting under lawful subpoenas. Nothing in this paragraph is
intended to limit Aetna's access to any files or records in order to comply with
any regulatory requirements, court orders, subpoenas, discovery requests served
upon Aetna in a legal proceeding or documents needed in connection with a legal
proceeding or regulatory action.
.6 Access To Records. The parties acknowledge that Aetna has
the right to obtain certain information, as well as copies of certain materials,
and to inspect certain records, data, files and other materials which are the
property of ERMA, with respect to insureds under the 1997 Agency Agreement and
the 1997 Quota Share Reinsurance Agreement. Aetna acknowledges that such
information is highly sensitive and expressly agrees not to use such information
for marketing purposes.
ARTICLE VI
MISCELLANEOUS
.1 Certificate of Incorporation and By-Laws. Aetna
acknowledges that ERI may in its discretion amend or restate, as the case may
be, its Certificate of Incorporation and By-Laws to eliminate all rights of
Aetna thereunder and all obligations of ERI with respect to such rights.
.2 Arbitration. Any dispute arising out of this Agreement
shall be resolved in accordance with the
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arbitration procedures set forth in Section 11.3 of the 1997 Agency Agreement.
.3 Certain Defined Terms. For purposes of this Agreement, the
term "Subsidiary" shall mean, with respect to any person, (i) any corporation of
which shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority of
the board of directors of such corporation are at the time owned, directly or
indirectly through one or more intermediaries, by such person or (ii) in the
case of unincorporated entities, any such entity with respect to which such
person has the power, directly or indirectly, to designate more than 50% of the
individuals exercising functions similar to a board of directors.
For purposes of this Agreement, the term "Affiliate" shall
mean, with respect to any person, any other person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such person. For purposes of this definition, the term "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any person, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such person, whether through the ownership of voting securities
or by agreement or otherwise.
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.4 Notices. Except as otherwise provided in this Agreement,
all notices and other communications hereunder shall be in writing, and shall be
considered deemed given (i) upon delivery if delivered personally, (ii) upon
receipt if sent by facsimile transmission, or (iii) if sent by an overnight
delivery service, one business day after sending by such service, to the parties
at the following addresses or at such other address for a party as may have been
specified to the other parties by like notice:
1. if to ERI, Executive Re, ERII, ERSIC or ERMA at:
Executive Risk Inc.
82 Hopmeadow Street
Simsbury, CT 06070
Telecopy No.: (860) 408-2502
Attention: Robert V. Deutsch
Executive Vice President
1. if to Aetna, at:
The Aetna Casualty and Surety Company
One Tower Square
Hartford, CT 06183
Telecopy No.: (860) 277-3944
Attention: Joseph P. Kiernan
President & Chief Executive
Officer, Bond
.1 Amendment and Waiver. The parties hereto may amend any
provision of this Agreement only by written instrument executed by each party.
Any party may grant consents or waive any of its rights under this Agreement;
provided, however, that each such consent or waiver shall be in writing.
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.2 Governing Law. This Agreement shall be governed and
construed in accordance with the internal laws of the State of Connecticut.
.3 Severability. If any term or provision of this Agreement is
for any reason deemed illegal or invalid, such illegality shall not affect the
validity of the remainder of this Agreement, and each such term or provision
shall be valid and enforceable to the fullest extent permitted by law. In the
event one of the parties hereto becomes subject to any legal requirement,
including, without limitation, any regulation or administrative interpretation
of any insurance or other regulatory agency having authority over it, which
materially adversely affects its ability to enjoy its rights under this
Agreement, the parties shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties with respect to such rights as
closely as possible in an acceptable manner.
.4 Binding Effect; Assignment. This Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and permitted assigns; provided that neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto without the prior written consent of the
other parties.
.5 Modifications. This Agreement may not be modified verbally,
nor may it be modified by any subsequent practice or course of dealing by the
parties, or in any
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manner other than in writing signed by the parties hereto. No waiver may modify
this Agreement or affect the rights of one party with respect to any subsequent
default or failure of performance by any other party.
.6 Entire Agreement. This Agreement and related documents
identified herein set forth the complete understanding of the parties relating
to the specific subject matter addressed herein.
.7 Counterparts. This Agreement may be signed in any number of
counterparts, and each of the counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute the same
Agreement.
.8 Financial Information. Any reference in this Agreement to
any financial information (including any financial ratios) relating to any party
hereto shall be deemed to refer to such financial information as it is prepared
in accordance with generally accepted statutory accounting principles and, where
applicable, as contained in the statutory-basis financial documents filed by the
applicable insurer with its state of domicile.
.9 Interpretation. This Agreement is a result of arm's-length
negotiations among parties hereto and has been prepared jointly by the parties.
In applying and interpreting the provisions of the Agreement, there shall be no
presumption that this Agreement was prepared by any one
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party or that the Agreement should be construed by or in favor of any one party.
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IN WITNESS WHEREOF, the parties have executed this Agreement
by their duly authorized representatives as of the date first above written.
THE AETNA CASUALTY AND SURETY
COMPANY
By:________________________________
AETNA CASUALTY & SURETY COMPANY OF
CANADA
By:________________________________
EXECUTIVE RISK INC.
By:_______________________________
EXECUTIVE RE INC.
By:_______________________________
EXECUTIVE RISK INDEMNITY INC.
By:_______________________________
EXECUTIVE RISK SPECIALTY INSURANCE
COMPANY
By:_______________________________
EXECUTIVE RISK MANAGEMENT
ASSOCIATES
By:_______________________________
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TABLE OF CONTENTS
Page
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ARTICLE I
RESTRUCTURING OF AGENCY RELATIONSHIP................................ 1
1.1 Termination of 1994 Amended and Restated Agency Agreement............................ 1
1.2 1997 Agency Agreement................................................................ 3
1.3 1997 Canadian Letter Agreement....................................................... 3
1.4 Memorandum of Understanding.......................................................... 3
ARTICLE II
RESTRUCTURING OF REINSURANCE RELATIONSHIP............................. 4
2.1 Termination of 1994 Quota Share Reinsurance Agreement................................ 4
2.2 Run-off of Reinsurance Business...................................................... 4
2.3 1997 Quota Share Reinsurance Agreement............................................... 5
2.4 ERII Quota Share Reinsurance Agreement............................................... 5
2.5 ERSIC Quota Share Reinsurance Agreement.............................................. 5
ARTICLE III
CERTAIN AGREEMENTS......................................... 6
3.1 Exchange Agreement................................................................... 6
3.2 Securityholders Agreement............................................................ 7
3.3 Board Representation................................................................. 7
ARTICLE IV
SETTLEMENT OF ACCOUNTS....................................... 7
4.1 Reconciliation of Records ........................................................... 7
4.2 Right of Offset...................................................................... 8
ARTICLE V
COVENANTS............................................. 8
5.1 Maintenance of Rates and Forms....................................................... 8
5.2 Right of Substitution................................................................ 9
5.3 No Solicitation...................................................................... 9
5.4 Announcements ....................................................................... 10
5.5 Return of Forms and Files............................................................ 11
5.6 Access To Records.................................................................... 11
ARTICLE VI
MISCELLANEOUS........................................... 12
6.1 Certificate of Incorporation and By-Laws............................................. 12
6.2 Arbitration.......................................................................... 12
6.3 Certain Defined Terms................................................................ 12
6.4 Notices.............................................................................. 13
6.5 Amendment and Waiver................................................................. 14
6.6 Governing Law........................................................................ 14
6.7 Severability......................................................................... 14
6.8 Binding Effect; Assignment........................................................... 15
6.9 Modifications ....................................................................... 15
6.10 Entire Agreement..................................................................... 15
6.11 Counterparts......................................................................... 15
6.12 Financial Information................................................................ 16
6.13 Interpretation....................................................................... 16
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Exhibits
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Exhibit A.........................................Form of 1997 Agency Agreement
Exhibit B................................Form of 1997 Canadian Letter Agreement
Exhibit C...................................Reporting and Accounting Convention
Exhibit D....................... Form of 1997 Quota Share Reinsurance Agreement
Exhibit E............................................Form of Resignation Letter
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