Exhibit 10.2
ARCH CAPITAL GROUP LTD.
00 Xxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
November 8, 2001
The Trident Partnership, L.P. ("TRIDENT I") Warburg Pincus Private Equity VIII, X.X.
Xxxxx Appin House Warburg Pincus International Partners, L.P.
0 Xxxxxx Xxxxxx Xxxxxxx Xxxxxx Xxxxxxxxxxx International
Xxxxxxxx XX 11 Bermuda Partners I, X.X.
Xxxxxxx Xxxxxx Netherlands International
Trident II, L.P. ("TRIDENT II") Partners II, X.X.
Xxxxx Appin House (collectively, "WARBURG")
0 Xxxxxx Xxxxxx 000 Xxxxxxxxx Xxxxxx
Xxxxxxxx XX 11 Bermuda New York, NY 10017
Xxxxx & XxXxxxxx Capital Professionals HFCP IV (Bermuda), L.P. ("H&F")
Fund, L.P. c/x Xxxxxxx & Xxxxxxxx LLC
Xxxxx & XxXxxxxx Employees' Securities One Maritime Plaza
Company, L.P. Suite 1200
(together, the "CO-INVESTMENT FUNDS") Xxx Xxxxxxxxx, XX 00000
x/x Xxxxxx xxx Xxxxxx Xxxxxx Xxxxx
Xxxxx Xxxxxx Xxxxxx
Xxxxxx Town Grand Cayman
Cayman Islands, British West Indies
Xxxxx & XxXxxxxx Risk Capital Holdings,
Ltd. ("XXXXX")
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Ladies and Gentlemen:
This letter agreement (this "AGREEMENT") confirms the
agreement reached today among each of the parties signatories hereto regarding
the participation of Trident II and the Co-Investment Funds in the purchase of a
portion of the Securities, as contemplated by, and on the terms set forth in,
this Agreement and the Subscription Agreement dated as of October 24, 2001 (the
"SUBSCRIPTION AGREEMENT") by and among
Arch Capital Group Ltd.
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("ARCH"), Warburg and H&F (the "PURCHASERS"), and certain other matters in
connection therewith. Capitalized terms used herein without definition shall
have the meanings ascribed to such terms in the Subscription Agreement.
1. INVESTMENT BY TRIDENT II. Warburg hereby assigns, without
recourse or warranty by it, to Trident II and the Co-Investment Funds
(collectively, the "ASSIGNEES") the right, and obligation, to purchase an
aggregate of $35,000,000 of the Securities on the terms and conditions set forth
in the Subscription Agreement (except as explicitly modified hereby), as
Purchasers under the Subscription Agreement. The Assignees acknowledge that
their investment will be required to be made on the Closing Date, simultaneously
with the investments being made by the Investors. The Assignees shall become
"Purchasers" under the Subscription Agreement and "Investors" under the
Shareholders Agreement (solely for purposes of Sections 3.4 and 5.3 and Article
IV thereof and the provisions implementing the provisions described in paragraph
6(b) below); PROVIDED that:
(i) Warburg and H&F shall jointly have the sole right (on
behalf of themselves and all other Purchasers) to make any and all
determinations with respect to, or to take any and all actions
necessary to effectuate the provisions of, Section B of the
Subscription Agreement (including the right to approve any amendment or
acceleration of, or to waive compliance by Arch with, any of the terms
thereof), PROVIDED that the consequences of such determinations and
actions by Warburg and H&F do not apply differently to any Assignee
than to Warburg and H&F (or, if they apply differently, it is because
of differences in the treatment of Warburg and H&F as opposed to other
Purchasers existing in the Subscription Agreement (as modified by this
Agreement) and such differences are not made more adverse to any
Assignee or more favorable to Warburg and H&F as a result of such
determination or action);
(ii) Warburg and H&F shall have the sole right to determine
whether each condition for the Purchasers contained in Section C of the
Subscription Agreement is satisfied;
(iii) the failure of the conditions set forth in Section C.2
of the Subscription Agreement due to any breach by any Assignee of any
representation, warranty or covenant shall not affect the obligation of
the Company to sell the Securities on the Closing Date to either
Warburg or H&F;
(iv) the Assignees shall be subject to Section D.1 and D.2 of
the Subscription Agreement, including the covenants thereunder;
(v) Assignees shall have no rights (including no right to
consent to any action proposed to be taken by Arch under, or any right
to waive compliance by Arch with, any covenant or agreement) as a
"Purchaser" under Section D.4 of the Subscrip-
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tion Agreement, it being acknowledged that each Assignee shall,
however, have the obligations of a "Purchaser" under Sections D.4(d),
(g) and (i) thereof; PROVIDED that any information provided to the
Company pursuant to Section D.4(g) shall be held confidentially and not
used for any purpose other than as set forth in Section D.4(g);
(vi) no Assignee shall be considered an "original signatory"
to the Subscription Agreement for purposes of Section E.6 thereof,
PROVIDED that no amendment, modification or waiver of Section E of the
Subscription Agreement shall affect any Assignee differently than
Warburg and H&F (or, if they apply differently, it is because of
differences in the treatment of Warburg and H&F as opposed to other
Purchasers existing in the Subscription Agreement (as modified by this
Agreement) and such differences are not made more adverse to any
Assignee or more favorable to Warburg and H&F as a result of such
determination or action);
(vii) no consent of any Assignee shall be required to effect
any modification or amendment to the Subscription Agreement (including,
without limitation, Schedules A and B, and Exhibits I, II and III
thereto), unless such amendment or modification affects an Assignee
differently than Warburg and H&F (or, if they apply differently, it is
because of differences in the treatment of Warburg and H&F as opposed
to other Purchasers existing in the Subscription Agreement (as modified
by this Agreement) and such differences are not made more adverse to
any Assignee or more favorable to Warburg and H&F as a result of such
determination or action);
(viii) the Assignees shall have no rights under Section F.2,
and no right to assign under Section F.4, of the Subscription
Agreement; and
(ix) for the avoidance of doubt, the Assignees shall become
parties to the Shareholders Agreement as "Investors" solely for
purposes of Sections 3.4 and 5.3 and Article IV thereof and the
provisions thereof implementing the provisions of paragraph 6(b) below;
it being further understood that Warburg and H&F can consent on behalf
of all other Investors to (A) any amendment or modification whatsoever
of the Sections of the Shareholders Agreement that do not apply to any
Assignee and (B) any amendment or modification of the Sections of the
Shareholders Agreement that do apply to any Assignee, so long as in the
case of clause (B) such amendment or modification does not affect any
Assignee differently than Warburg and H&F (or, if they apply
differently, it is because of differences in the treatment of Warburg
and H&F as opposed to other Purchasers existing in the Subscription
Agreement or the Shareholders Agreement (as modified by this Agreement)
and such differences are not made more adverse to any Assignee or more
favorable to Warburg and H&F as a result of such determination or
action).
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2. TERMINATION OF MARSH BOARD OBSERVER RIGHTS. The parties
acknowledge that the rights of Xxxxx & McLennan Risk Capital Holdings, Ltd.
("MARSH") under Section 5(g) of the Amended and Restated Subscription Agreement
dated as of June 28, 1995 (the "1995 MARSH SUBSCRIPTION AGREEMENT") by and
between Arch and Xxxxx, as amended by paragraph 2 of the Amendment to Amended
and Restated Subscription Agreement dated as of October 31, 2000 by and between
Arch and Marsh, have been terminated.
3. DESIGNATION OF TRIDENT DIRECTOR; REPORTS. The parties
acknowledge that all rights of The Trident Partnership, L.P. ("TRIDENT I") under
Section 5(b) of the Amended and Restated Subscription Agreement dated as of June
28, 1995 (the "1995 TRIDENT SUBSCRIPTION AGREEMENT") between Arch and Trident I
have been terminated. For so long as Trident I owns any equity interest in Arch,
Arch agrees furnish to Trident I a copy of its annual and quarterly reports
filed under the Securities Exchange Act of 1934.
4. CAPITAL COMMITMENT TO TRIDENT II. Arch is hereby released
from any obligation (pursuant to the Trident II partnership agreement or
otherwise) to make any additional capital contributions to Trident II; in
respect of (i) any investment made by Trident II on or after the date hereof or
(ii) the expenses relating to any such investment; PROVIDED that Arch shall
remain committed to fund its portion (equal to $4,662,388.79) of the outstanding
capital call with respect to AXIS Specialty Limited. This release shall be
without any penalty, forfeiture of rights or other adverse consequence to Arch
or Arch's investment in Trident II, which shall continue with respect to Arch's
interest in all investments of Trident II existing as of the date hereof and the
AXIS investment. For the avoidance of doubt, Arch shall be entitled to its share
of profits, losses and distributions, and be obligated for its share of
management fees and partnership expenses, with respect to Arch's interest in all
investments of Trident II existing as of the date hereof and the Axis
investment. Subject to the foregoing, Arch shall continue to be a Trident II
limited partner and be subject to the rights and obligations of limited
partners, including the indemnification provisions. Upon the Closing Date, Arch
and Trident II shall enter into an appropriate amendment to the Trident II
partnership agreement to reflect the foregoing.
5. EXCHANGE/CANCELLATION OF XXXXX'X WARRANTS. Effective upon
the Closing Date, all of Xxxxx'x 905,397 Class A Warrants of the Company shall
be canceled in exchange for the issuance by Arch of 140,380 Common Shares.
Effective upon the Closing Date, all of Xxxxx'x 1,770,601 Class B Warrants of
the Company shall be canceled in exchange for the payment by Arch of cash equal
to $7.50 per Class B Warrant (such price aggregating $13,279,507.50). On the
Closing Date, Marsh agrees to deliver to the Company all certificates
representing such Class A Warrants and Class B Warrants (or a certificate of
loss and related appropriate document), and the Company shall deliver the
certificate(s), registered in the name of Marsh, representing the Common Shares
issued to Marsh in exchange for its Class A Warrants. For the avoidance of
doubt, any cancellation or exchange of Class B War-
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rants made pursuant to the terms of this Section 5 shall have no effect on any
amount that may become payable to the Purchasers under Section B.2 of the
Subscription Agreement.
6. REGISTRATION; TAG-ALONG; TAKE-ALONG. (a) For the avoidance
of doubt, the parties acknowledge that this Agreement does not affect the rights
of Marsh under Section 6 (Registration Rights) of the 1995 Marsh Subscription
Agreement or of Trident I under Section 6 (Registration Rights) of the 1995
Trident Subscription Agreement.
(b) Arch, the Purchasers and the Assignees also agree that the
Shareholders Agreement will provide that:
(i) if any Assignee exercises its right under Section 4.3
thereof, any cutback pursuant to Section 4.4 thereof will treat the
Assignees at least as favorably as Warburg and H&F (I.E., the Assignees
will have priority under clause (b), and not under clause (c),
thereof);
(ii) each Assignee will have the rights of a Tag-Along
Investor under Section 5.1 thereof to participate ratably on the basis
of securities owned in a Third Party Sale (excluding any sale or
distribution described in the last sentence of Section 5.1 of the
Shareholders Agreement) on the same terms as the Selling Investor (but,
for the avoidance of doubt, not have the obligations of a Selling
Investor under Section 5.1 thereof); PROVIDED that such Assignee shall
only be responsible for its pro rata portion of any indemnification
(except in respect of representations specifically relating to such
Assignee);
(iii) in the event of a Third Party Sale (excluding any sale
or distribution described in the last sentence of Section 5.1 of the
Shareholders Agreement), the Selling Investor will have the right to
require each Assignee to participate ratably on the basis of securities
owned in such Third Party Sale on the same terms as the Selling
Investor; PROVIDED that such Assignee shall only be responsible for its
pro rata portion of any indemnification (except in respect of
representations specifically relating to such Assignee).
(iv) each Assignee shall be subject to the restrictions of
Section 5.2 of the Shareholders Agreement with respect to the
Securities acquired by it under the Subscription Agreement and any
securities acquired in respect thereof, to the same extent that Warburg
and H&F are restricted with respect to the Securities acquired by them
under the Subscription Agreement and any securities acquired in respect
thereof.
"Tag-Along Investor," "Third Party Sale and "Selling Investor" have the meanings
given to them in the Shareholders Agreement and to the extent necessary the term
"Tag-Along Investor" shall be deemed to include more than one party.
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7. FURTHER ASSURANCES. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary or desirable under applicable legal requirements, to
consummate and make effective the transactions contemplated by this Agreement.
If at any time after the Closing Date, any further action is necessary or
desirable to carry out the purposes of this Agreement, the parties hereto shall
use their reasonable best efforts to take or cause to be taken all such
necessary or desirable action and execute, and deliver and file, or cause to be
executed, delivered and filed, all necessary or desirable documentation. Each of
Trident I, Trident II, Marsh and the Co-Investment Funds agree (to the full
extent of their current or future ownership of securities of Arch) to vote in
favor of all matters to be submitted to shareholders of Arch in connection with
the foregoing or the transactions contemplated by the Subscription Agreement
(and the grants of any shares or options contemplated thereby or in connection
therewith). Each of the parties will consult with each other with respect to the
issuance of any press release or public announcement with respect to the
foregoing.
8. NOTICES. All notices or other communications given or made
hereunder shall be validly given or made if in writing and delivered by
facsimile transmission or in person at, or mailed by registered or certified
mail, return receipt requested, postage prepaid, to, the addresses (and shall be
deemed effective at the time of receipt thereof):
(i) If to Arch:
Arch Capital Group Ltd.
00 Xxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxx, President and Chief
Executive Officer
Facsimile: (000) 000-0000
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(ii) If to Trident I, Trident II, Marsh or the Employee
Co-Investment Funds, to it at:
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxxx
Facsimile: (000) 000-0000
and
c/x Xxxxx & McLennan Capital, Inc.
00 Xxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxx
Facsimile: (000) 000-0000
or to such other address as the party to whom notice is to be given may have
previously furnished notice in writing to the other in the manner set forth
above. A notice hereunder shall not be deemed given until copies thereof are
given as contemplated above. Notices to all other parties hereto shall be given
in accordance with the Subscription Agreement.
9. ENTIRE AGREEMENT; AMENDMENT. This Agreement contains all of
the terms agreed upon by the parties with respect to the subject matter hereof.
This Agreement may be amended or the provisions thereof waived only by a written
instrument signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought.
10. HEADINGS. The headings of the sections of this Agreement
are inserted for convenience only and shall not constitute a part hereof.
11. ASSIGNMENT. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party
without the prior written consent of the other party; PROVIDED that this
Agreement may be assigned by a Purchaser consistent with an assignment in
accordance with Section F.4 of the Subscription Agreement.
12. SEVERABILITY. In the event that any provision or any part
of this Agreement is held to be illegal, invalid or unenforceable, such
illegality, invalidity or unenforceability shall not effect the validity or
enforceability of any other provision or part thereof.
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13. GOVERNING LAW. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the substantive laws
of the State of
New York, without giving effect to principles of conflicts of
laws.
14. COUNTERPARTS. This Agreement and any instrument delivered
in connection herewith may be executed in any number of counterparts with the
same effect as if the signatures on all counterparts are upon the same
instrument.
[Signature pages follow]
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Please confirm that the foregoing is in accordance with your
understanding by signing and returning to us the duplicate enclosed copy of this
Agreement.
Very truly yours,
ARCH CAPITAL GROUP LTD.
By: /s/ Xxxxx X. Xxxxx
--------------------------------
Name: Xxxxx X. Xxxxx
Title: President and CEO
Agreed to and Accepted
As of the Date First Above Written:
THE TRIDENT PARTNERSHIP, L.P.
By: /s/ Xxxxxxx Xxxxxxxx
----------------------------------------------
Name: Xxxxxxx Xxxxxxxx
Title: Asst. Secretary, Trident Corp. General Partner
TRIDENT II, L.P.
By: MMC Capital, Inc., as Manager
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Principal
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XXXXX & MCLENNAN RISK
CAPITAL HOLDINGS, LTD.
By: /s/ Xxxx X. Xxxxxxx
----------------------------------------------
Name: Xxxx X. Xxxxxxx
Title: Assistant Secretary
XXXXX & XXXXXXXX CAPITAL
PROFESSIONALS FUND, L.P.
By: MMC Capital, Inc., as Manager
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Principal
XXXXX & MCLENNAN EMPLOYEES'
SECURITIES COMPANY, L.P.
By: MMC Capital, Inc., as Manager
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: Principal
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HFCP IV (BERMUDA), L.P.
By: H&F Investors IV, LLC,
its General Partner
By: H&F Investors III, Inc.
its Manager
By: /s/ Xxxx X. Xxxxx, Xx.
----------------------------------------------
Name: Xxxx X. Xxxxx, Xx.
Title: Vice President
WARBURG PINCUS PRIVATE EQUITY VIII, X.X.
XXXXXXX XXXXXX INTERNATIONAL PARTNERS, X.X.
XXXXXXX XXXXXX NETHERLANDS INTERNATIONAL PARTNERS I, X.X.
XXXXXXX XXXXXX NETHERLANDS INTERNATIONAL PARTNERS II, C.V.
By: Warburg, Xxxxxx & Co.,
its General Partner
By: /s/ Xxxxxxx Xxx
----------------------------------------------
Name: Xxxxxxx Xxx
Title: Partner
