Exhibit 10.1

 

ACE LIMITED

EXECUTIVE SEVERANCE AGREEMENT

 

THIS AGREEMENT, effective as of this 2nd day of January, 2002, is made by and
between ACE Limited, a Cayman Islands company (the “Company), and Philip
Bancroft (the “Executive”).

 

WHEREAS, the Company considers it essential to foster the continued employment
of well qualified, senior executive management personnel; and

 

WHEREAS, the Company has determined that appropriate steps should be taken to
foster such continued employment by setting forth the benefits and compensation
to be awarded to such personnel in the event of a voluntary or involuntary
termination within the meaning of this Agreement; and

 

WHEREAS, the Company further recognizes that the possibility of a Change in
Control of the Company exists and that such possibility, and the uncertainty and
questions that it may raise among executive management, may result in the
departure or distraction of executive personnel to the detriment of the Company;
and

 

WHEREAS, the Company has further determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company’s executive management, including the Executive, to their
assigned duties without

--------------------------------------------------------------------------------

distraction in the face of potentially disturbing circumstances arising from the
possibility of a Change in Control;

 

NOW, THEREFORE, in consideration of the promises and the mutual covenants herein
contained, the Company and the Executive hereby agree as follows:

 

1. Term of Agreement. The term of this Agreement shall be for a rolling, three
(3) year term commencing on the date hereof, and shall be deemed automatically
(without further action by either the Company or the Executive) to extend each
day for an additional day such that the remaining term of the Agreement shall
continue to be three (3) years. However, on the Executive’s 62nd birthday, this
Agreement shall cease to extend automatically and, on such date, the remaining
term of this Agreement shall be three (3) years. In addition, the Company may,
by notice to the Executive, cause this Agreement to cease to extend
automatically and, upon such notice, the “Term” of this Agreement shall be three
(3) years following such notice.

 

2. Definitions.

 

(a) Base Amount shall mean the Executive’s annual includible compensation for
the base period as described in Section 280G(b)(3) of the Code.

 

(b) Beneficial Owner or Beneficial Ownership shall have the meaning ascribed to
such term in Rule 13d-3 of the Exchange Act.

 

(c) Board or Board of Directors shall mean the Board of Directors of ACE
Limited, or its successor.

 

(d) Cause shall mean:

 

-2-

--------------------------------------------------------------------------------

(i) the Executive’s material fraud, malfeasance, gross negligence, or willful
misconduct with respect to business affairs of the Company that is directly or
materially harmful to the business or reputation of the Company or any
subsidiary of the Company, or

 

(ii) Executive’s conviction of or failure to contest prosecution for a felony or
a crime involving moral turpitude.

 

A termination of Executive for “Cause” based on clause (i) of the preceding
sentence shall take effect thirty (30) days after the Company gives written
notice of such termination to Executive specifying the conduct deemed to qualify
as Cause, unless Executive shall, during such 30-day period, remedy the events
or circumstances constituting cause to the reasonable satisfaction of the
Company. A termination for Cause based on clause (ii) above shall take effect
immediately upon giving of the termination notice. The Company shall have sole
discretion to determine whether an Executive’s termination is for Cause.

 

(e) Change in Control shall mean:

 

(1) An acquisition by any Person (as such term is defined in Section 3(a) (9) of
the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a
“group” as defined in Section 13(d) thereof) of Beneficial Ownership of the
Shares then outstanding (the “Company Shares Outstanding”) or the voting
securities of the Company then outstanding entitled to vote generally in the
election of directors (the “Company Voting Securities Outstanding”), if such
acquisition of Beneficial Ownership results in the Person beneficially owning
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) fifty
percent (50%) or more of the Company Shares Outstanding or fifty percent (50%)
or more of the combined voting power of the Company Voting Securities
Outstanding; excluding,

 

-3-

--------------------------------------------------------------------------------

however, any such acquisition by a trustee or other fiduciary holding such
Shares under one or more employee benefit plans maintained by the Company or any
of its subsidiaries; or

 

(2) The approval of the shareholders of the Company of a reorganization, merger,
consolidation, complete liquidation, or dissolution of the Company, the sale or
disposition of all or substantially all of the assets of the Company or any
similar corporate transaction (in each case referred to in this Section 3(e) as
a “Corporate Transaction”), other than a Corporate Transaction that would result
in the outstanding common stock of the Company immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into common stock of the surviving entity or a parent or affiliate thereof) at
least fifty percent (50%) of the outstanding common stock of the Company or such
surviving entity or parent or affiliate thereof immediately after such Corporate
Transaction; provided, however, if the consummation of such Corporate
Transaction is subject, at the time of such approval by shareholders, to the
consent of any government or governmental agency, the Change in Control shall
not occur until the obtaining of such consent (either explicitly or implicitly);
or

 

(3) A change in the composition of the Board such that the individuals who, as
of the Effective Date, constitute the Board (such Board shall be hereinafter
referred to as the “Incumbent Board”) cease for any reason to constitute at
least a majority of the Board; provided, however, for purposes of this Section
3(e) that any individual who becomes a member of the Board subsequent to the
Effective Date whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of those individuals
who are members of the Board and who were also members of the Incumbent Board
(or deemed to be such pursuant to this proviso) shall be considered as though
such individual were a member of the Incumbent Board; but, provided, further,
that any such individual whose initial assumption of

 

-4-

--------------------------------------------------------------------------------

office occurs as a result of either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act, including any successor to such Rule), or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board, shall not be so considered as a member of the Incumbent Board.

 

(f) Code shall mean the Internal Revenue Code of 1986, as amended from time to
time.

 

(g) Disability shall mean the Executive’s inability as a result of physical or
mental incapacity to substantially perform his duties for the Company on a
full-time basis for a period of six (6) months.

 

(h) Employment shall mean any work that is a reasonable match with the
Executive’s qualifications, skills and experience, including any
self-employment, consulting or independent contractor arrangement, or
employer-employee relationship.

 

(i) Excess Severance Payment shall have the same meaning as the term “excess
parachute payment” defined in Section 280G(b)(l) of the Code.

 

(j) Excise Tax shall mean the excise tax imposed under Code Section 4999.

 

(k) Exchange Act shall mean the Securities Exchange Act of 1934, as amended from
time to time, or any successor act thereto.

 

(l) Involuntary Termination shall mean termination of employment that is
involuntary on the part of the Executive and that occurs for reasons other than
for Cause, Disability or death.

 

(m) Reasonable Compensation shall have the same meaning as provided in Section
280G(b)(4) of the Code.

 

-5-

--------------------------------------------------------------------------------

(n) Severance Payment shall have the same meaning as the term “parachute
payment” defined in Section 280G(b)(2) of the Code.

 

(o) Shares shall mean the shares of common stock of the Company.

 

(p) Threatened Change in Control shall mean any pending tender offer for any
class of the Company’s outstanding Shares, or any pending bona fide offer to
acquire the Company by merger or consolidation, or any other pending action or
plan to effect, or which would lead to, a Change in Control of the Company. A
Threatened Change in Control Period shall commence on the first day the actions
described in the preceding sentence become manifest and shall end when such
actions are abandoned or the Change in Control occurs.

 

(q) Voluntary Termination shall mean termination of employment that is voluntary
on the part of the Executive but is due to:

 

(i) a significant reduction of the Executive’s responsibilities, title or status
resulting from a formal change in such title or status, or from the assignment
to the Executive of any duties inconsistent with his title, duties, or
responsibilities;

 

(ii) a reduction in the Executive’s compensation or benefits; or

 

(iii) a Company-required involuntary relocation of Executive’s place of
residence or a significant increase in the Executive’s travel requirements.

 

A termination shall not be considered voluntary within the meaning of this
Agreement if such termination is the result of Cause, Disability, or death of
the Executive. The Company shall have sole discretion to determine whether an
Executive’s termination is Voluntary within the meaning of this Section 2.(q).

 

3. Events That Trigger Benefits Under This Agreement. The Executive shall be
eligible for the compensation and benefits described in Section 4. of this
Agreement as follows:

 

(a) The Executive’s employment is Involuntarily Terminated within the meaning of
Section 2.(l) of this Agreement;

 

-6-

--------------------------------------------------------------------------------

(b) The Executive’s employment if Voluntarily Terminated within the meaning of
Section 2.(q) of this Agreement;

 

(c) A Change in Control occurs with the result that the Executive’s employment
is Involuntarily or Voluntarily Terminated within twenty four (24) months
following the date of the Change in Control;

 

(d) A Change in Control occurs with the result that the Executive’s employment
is Involuntarily or Voluntarily Terminated within six (6) months prior to the
date of the Change in Control; or

 

(e) A Threatened Change in Control occurs and the Executive’s employment is
Involuntarily or Voluntarily Terminated during a Threatened Change in Control
Period.

 

4. Benefits Upon Termination. If the Executive becomes eligible for benefits
under Section 3. above, the Company shall pay or provide to the Executive the
following compensation and benefits:

 

(a) Salary. The Executive will continue to receive his current salary (subject
to withholding of all applicable taxes) for the twenty four (24) month period
following the Executive’s date of termination in the same manner as it was being
paid as of the date of termination. For purposes hereof, the Executive’s
“current salary” shall be the highest rate in effect during the twelve-month
period prior to the Executive’s termination.

 

(b) Qualified and Non-Qualified Plan Coverage. The Executive shall continue to
participate in the tax-qualified and non-qualified retirement and savings plans
of the Company during the twenty four (24) month period following the
Executive’s date of

 

-7-

--------------------------------------------------------------------------------

termination unless the Executive commences Employment prior to the end of the
twenty four (24) month period, in which case, such participation shall end on
the date of his new Employment.

 

(c) Health, Dental, and Life Insurance Coverage. The health, dental, and life
insurance benefits coverage (including any executive medical plan) provided to
the Executive at his date of termination shall be continued by the Company
during the twenty four (24) month period following the Executive’s date of
termination unless the Executive commences Employment prior to the end of the
twenty four (24) month period, in which case, such insurance coverages shall end
on the date of his new Employment. The Company shall provide for such insurance
coverages at its expense at the same level and in the same manner as if the
Executive’s employment had not terminated (subject to the customary changes in
such coverages if the Executive retires under a Company retirement plan, reaches
age 65, or similar events and subject to Executive’s right to make any changes
in such coverages that an active employee is permitted to make). Any additional
coverages the Executive had at termination, including dependent coverage, will
also be continued for such period on the same terms, to the extent permitted by
the applicable policies or contracts. Any costs the Executive was paying for
such coverages at the time of termination shall be paid by the Executive by
separate check payable to the Company each month in advance. If the terms of any
benefit plan referred to in this Section do not permit continued participation
by the Executive, the Company will arrange for other coverage at its expense
providing substantially similar benefits. If the Executive is covered by a
split-dollar or similar life insurance program at the date of termination, he
shall have the option in his sole discretion to have such policy transferred to
him upon termination, provided that the Company is paid for its interest m the
policy upon such transfer.

 

-8-

--------------------------------------------------------------------------------

(d) Restricted Stock Grants and Options. All outstanding restricted stock grants
and options under any Company stock plan that the Executive holds on the date of
his termination shall continue to vest in accordance with the vesting schedule
of the applicable plan during the twenty four (24) month period following the
Executive’s date of termination unless the Executive commences Employment prior
to the end of the twenty four (24) month period, in which case, such continued
vesting shall end on the date of his new Employment. No new stock based grants
shall be issued to the Executive after the date that the Executive’s employment
is terminated.

 

(e) Outplacement Services. The Company shall provide the Executive with
outplacement services in accordance with the Company’s Executive Outplacement
Services Plan.

 

5. Limitation and Adjustment of Benefits.

 

(a) Limitation and Adjustment of Benefits Upon Termination. Notwithstanding
anything in this Agreement to the contrary, if, in the opinion of independent
tax accountants or counsel selected and retained by the Company and reasonably
acceptable to the Executive (“Tax Counsel”), any of the compensation or benefits
payable, or to be provided, to Executive by the Company or any member of its
affiliated group (the Company and all members of its affiliated group
hereinafter collectively referred to as the “Controlled Group”) under this
Agreement are treated as Excess Severance Payments (whether alone or in
conjunction with payments or benefits outside of this Agreement), the Company
shall direct Tax Counsel to determine and compare (i) Executive’s net income
after payment of all federal, state, and local taxes assuming that all of the
compensation and benefits payable by the Controlled Group under this Agreement
and all such other arrangements are paid to Executive and Executive pays the

 

-9-

--------------------------------------------------------------------------------

Excise Tax; and (ii) Executive’s net income after payment of all federal, state,
and local taxes assuming that the total amount of compensation and benefits
payable by the Controlled Group under this Agreement and all such other
arrangements is reduced such that no Excess Severance Payments result and the
Excise Tax is not triggered. If the amount calculated under (ii) above is less
than 95% of the amount calculated under (i) above, then the full amount due from
the Controlled Group under all such arrangements shall be payable to Executive.
If the amount calculated under (ii) above is at least 95% of the amount
calculated under (i) above, then the total amount of compensation and benefits
payable under all such arrangements shall be reduced, as provided in 5(b) below,
such that Executive shall receive no Excess Severance Payments and shall have no
liability for Excise Tax.

 

(b) Reduction of Amount. In the event that the amount of any Severance Payments,
including any benefits, that would be payable to or for the benefit of Executive
under this Agreement must be modified or reduced to comply with this Section 5,
Executive shall direct which Severance Payments are to be modified or reduced;
provided, however, that no increase in the amount of any payment or change in
the timing of the payment shall be made without the consent of the Company.

 

(c) Avoidance of Penalty Taxes. This Section 5 shall be interpreted so as to
maximize the net after-tax dollar value to Executive. In determining whether any
Excess Severance Payments exist and the most advantageous outcome for Executive,
the parties shall take into account all provisions of Code Section 280G, and the
Regulations thereunder, including making appropriate adjustments to such
calculations for amounts established to be Reasonable Compensation. Both the
Company and Executive shall cooperate fully with Tax Counsel and provide Tax
Counsel with all Compensation and benefit amounts, personal tax information and

 

-10-

--------------------------------------------------------------------------------

other information necessary or helpful in calculating such net after-tax
amounts. In the event of any Internal Revenue Service examination, audit, or
other inquiry, the Company and Executive agree to take action to provide, and to
cooperate in providing, evidence to the Internal Revenue Service and, if
applicable, the state revenue department, to achieve this goal.

 

(d) Correction of Determination. If it is established pursuant to a final
determination of a court or an Internal Revenue Service proceeding, or pursuant
to an opinion of Tax Counsel, that notwithstanding the good faith of the Company
and Executive in applying the terms of this Section 5, either (i) the amounts
paid to Executive unintentionally constituted Excess Severance Payments and
triggered the Excise Tax, even though the payments to Executive were reduced in
an effort to avoid such result; or (ii) the amounts paid to Executive were
reduced by more than was necessary to avoid triggering the Excise Tax, then the
parties shall make the applicable correction that will achieve the goal
described in Section 5(c) hereof. In the event the error referred to in clause
(i) hereof occurs, Executive is hereby required to repay to the Company, within
15 days after the error is discovered, the amount necessary to avoid the Excise
Tax; provided, however, that if Executive, based on advice from Tax Counsel and
Executive’s own tax advisor, determines that the return of such amounts will not
serve to eliminate the Excess Severance Payments and the Excise Tax, the Company
then shall be obligated to pay to Executive, within 15 days after Executive
notifies the Company of Executive’s determination, the total amount by which the
original amount of Executive’s compensation and benefits were reduced pursuant
to the terms of Sections 5(a) and (b) hereof. In the event the error referred to
in clause (ii) hereof occurs, the Company is hereby required to repay to
Executive, within 15 days after the error is discovered, the maximum amount of
the

 

-11-

--------------------------------------------------------------------------------

compensation and benefits that were reduced pursuant to the terms of Sections
5(a) and (b) hereof that Executive may receive without triggering the Excise
Tax.

 

6. Obligation Not to Solicit.

 

(a) Executive hereby agrees that, regardless of whether other provisions of this
Agreement may have been terminated: (i) while he is employed by the Company; and
(ii) for at least two years following his termination of employment (the
“Restricted Period”), Executive shall not in any manner attempt to induce or
assist others to attempt to induce any officer, employee, customer or client of
the Company to terminate its association with the Company, nor do anything
directly or indirectly to interfere with the relationship between the Company
and any such persons or concerns.

 

(b) In the event that the Executive engages in any activity within the meaning
of Sections 6.(a) all compensation and benefits described in Section 4 shall
immediately cease. The Company shall have sole discretion to determine whether
an Executive has engaged in business within the meaning of Sections 6.(a).

 

7. Confidentiality. The terms of this Agreement are to be of the highest
confidentiality. In order to insure and maintain such confidentiality, it is
agreed that neither party, including all persons and entities under a party’s
control, shall, directly or indirectly, publicize or disclose to third persons
the terms of this Agreement or the substance of negotiations with respect to it;
provided, however, that nothing herein shall be construed to prevent disclosures
which are reasonably necessary to enforce the terms of this Agreement or which
are otherwise required by law to be made to governmental agencies or others;
moreover, nothing herein shall be construed to prevent the parties hereto, or
their attorneys, from making such disclosures for legitimate business purposes
to their respective insurers, financial

 

-12-

--------------------------------------------------------------------------------

institutions, accountants and attorneys or, in the case of a corporation,
limited liability company or partnership, to its respective officers, directors,
employees, managers, members and agents or any of its respective subsidiaries,
group or divisions, provided that each such recipient of such disclosures agrees
to be bound by the requirements concerning disclosure of confidential
information as set forth in this Paragraph 7.

 

8. Settlement of Disputes; Arbitration.

 

(a) All claims by the Executive for benefits under this Agreement shall be
directed to and determined by the Company and shall be in writing. Any denial by
the Company of a claim for benefits under this Agreement shall be delivered to
the Executive in writing and shall set forth the specific reasons for the denial
and the specific provisions of this Agreement relied upon. The Company shall
afford a reasonable opportunity to the Executive for a review of the decision
denying a claim and shall further allow the Executive to appeal to the Company a
decision of the Company within sixty (60) days after notification by the Company
that the Executive’s claim has been denied.

 

(b) Any further dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in Philadelphia,
Pennsylvania, or in such other location as may be agreed to by the parties, in
accordance with the National Rules for Resolution of Employment Disputes of the
American Arbitration Association, then in effect. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction.

 

9. Miscellaneous.

 

(a) Executive’s Obligation to Seek Other Employment. The Executive shall be
required to diligently seek other Employment following his termination.

 

-13-

--------------------------------------------------------------------------------

(b) Notices. Any notice or other communication required or permitted under this
Agreement shall be effective only if it is in writing and shall be deemed to
have been duly given when delivered personally or seven days after mailing if
mailed first class by registered or certified mail, postage prepaid, addressed
as follows:

 

If to the Company:

 

ACE Limited

ACE Global Headquarters

17 Woodbourne Avenue

Hamilton HM08

Bermuda

 

Attention:

  

Keith White

         

Chief Administrator

    

 

If to the Executive:

 

or to such other address as any party may designate by notice to the others.

 

(c) Assignment. This Agreement shall inure to the benefit of and shall be
binding upon the parties hereto and their respective executors, administrators,
heirs, personal representatives, and successors, but, except as hereinafter
provided, neither this Agreement nor any right hereunder may be assigned or
transferred by either party thereto, or by any beneficiary or any other person,
nor be subject to alienation, anticipation, sale, pledge, encumbrance,
execution, levy, or other legal process of any kind against the Executive, his
beneficiary or any other person. Notwithstanding the foregoing, any person or
business entity succeeding to substantially all of the business of the Company
by purchase, merger, consolidation, sale of assets, or otherwise, shall be bound
by and shall adopt and assume this Agreement and the Company shall obtain the
assumption of this Agreement by such successor. If Executive shall die while any
amount would still be payable to Executive hereunder (other than amounts that,
by

 

-14-

--------------------------------------------------------------------------------

their terms, terminate upon the death of Executive) if Executive had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the executors, personal
representatives or administrators of Executive’s estate.

 

(d) No Obligation to Fund. The agreement of the Company (or its successor) to
make payments to the Executive hereunder shall represent solely the unsecured
obligation of the Company (and its successor), except to the extent the Company
(or its successors) in its sole discretion elects in whole or in part to fund
its obligations under this Agreement pursuant to a trust arrangement or
otherwise.

 

(e) Applicable Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania.

 

(f) Amendment. This Agreement may only be amended by a written instrument signed
by the parties hereto, which makes specific reference to this Agreement.

 

(g) Severability. If any provision of this Agreement shall be held invalid or
unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provisions hereof.

 

(h) Withholding. The Company shall have the right to withhold any and all local,
state and federal taxes which may be withheld in accordance with applicable law.

 

(i) Other Benefits. Nothing in this Agreement shall limit or replace the
compensation or benefits payable to Executive, or otherwise adversely affect
Executive’s rights, under any other benefit plan, program, or agreement to which
Executive is a party.

 

-15-

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its
behalf by its duly authorized officers and the Executive has hereunder set his
hand, as of the date first above written.

 

ACE Limited

By:

       

--------------------------------------------------------------------------------

Name:

 

--------------------------------------------------------------------------------

Title:

 

--------------------------------------------------------------------------------

[Name of Executive]

By:        

--------------------------------------------------------------------------------

     

 

-16-