MANAGEMENT SUBSCRIPTION AGREEMENT
This Management Subscription Agreement (this "AGREEMENT") is made as of
October 24, 2001 by and between Arch Capital Group Ltd., a company organized
under the laws of Bermuda (the "COMPANY"), and each of the Purchasers named
below (each, a "PURCHASER" and, collectively, the "PURCHASERS"), in connection
with the purchase by each Purchaser of the Securities (as defined below).
WHEREAS, the Company has entered into a subscription agreement dated as
of even date herewith with the purchasers named therein (the "WARBURG/H&F
AGREEMENT"), a true and correct copy of which has been provided to the
Purchasers. Reference is made throughout this Agreement to certain terms,
conditions and other provisions of the Warburg/H&F Agreement. The terms,
conditions and other provisions so referenced are incorporated into and made a
part of this Agreement as if such terms, conditions and other provisions were
set forth herein. Certain capitalized terms used herein, but not defined, are
defined, and shall have the meanings ascribed thereto, in the Warburg/H&F
Agreement (including SCHEDULE A thereto).
For good and valid consideration, the receipt of which is hereby
acknowledged, the Company and each of the Purchasers agree as follows:
A. SUBSCRIPTION AND PURCHASE OF SECURITIES
1. AGREEMENT TO PURCHASE. Subject to satisfaction of the conditions set
forth in Section B below (or incorporated therein by reference), each Purchaser,
severally and not jointly, hereby irrevocably subscribes for and agrees to
purchase, for the aggregate purchase price set forth below the name of such
Purchaser on the signature page hereto (such Purchaser's "TOTAL PURCHASE
PRICE"), series A convertible preference shares (the "PREFERENCE SHARES") and
class A warrants (such warrants issued hereunder, the "WARRANTS" and together
with the Preference Shares, the "SECURITIES") of the Company. The Preference
Shares will have the rights and privileges set forth in the form of Certificate
of Designations attached to the Warburg/H&F Agreement as EXHIBIT I (the
"CERTIFICATE"). The Preference Shares will be convertible, on the terms and
conditions set forth in the Certificate, into Common Shares (such shares, the
"CONVERSION SHARES") or, in the circumstances set forth in Section D hereof (or
incorporated therein by reference), common shares of Newco. The form of the
Warrants is attached to the Warburg/H&F Agreement as EXHIBIT II. The Warrants
will be exercisable, on the terms and conditions thereof for Common Shares (such
shares, the "WARRANT SHARES").
2. NUMBER OF SECURITIES PURCHASED. The number of Preference Shares to be
purchased by each Purchaser shall be equal to such Purchaser's Total Purchase
Price divided by the Estimated Per Share Price. The number of Warrants to be
purchased by each Purchaser shall be equal to (a) the Adjusted Warrant Amount
times (b) the number of Com-
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mon Shares issuable as of the date hereof upon exercise of all class A warrants
outstanding on the date hereof (which is 2,531,079) divided by (c) the number of
Common Shares outstanding as of June 30, 2001 (which is 12,863,079).
3. ADJUSTMENTS. If the transactions contemplated by this Agreement and
the Warburg/H&F Agreement, or options granted to management concurrently
herewith, trigger an anti-dilution adjustment under existing class A warrants,
the number of Warrants purchased by each Purchaser hereunder shall be adjusted
upward to reflect the greater number of shares issuable upon exercise of
outstanding class A warrants as a result of such anti-dilution adjustment. In
the event that there is an adjustment pursuant to Section B.1, B.2 or B.3 of the
Warburg/H&F Agreement, there shall be a similar adjustment hereunder, it being
understood that the Purchasers' rights under this sentence are subject to
Section C.1.g of this Agreement.
4. CLOSING DATE. Subject to the terms and conditions hereof, the purchase
and sale of the Securities shall occur at the Closing Date (as determined
pursuant to the Warburg/H&F Agreement).
5. DELIVERIES. As of the close of business on the business day
immediately preceding the Closing Date, the Company shall advise the Purchasers
of the Estimated Per Share Price. On the Closing Date, (a) each Purchaser shall
pay its Total Purchase Price by wire transfer of immediately available funds to
the account of the Company designated by the Company and (b) the Company shall
deliver to such Purchaser certificates for the Securities purchased by such
Purchaser, registered in the name of such Purchaser or its designee.
B. CONDITIONS PRECEDENT TO SALE OF PREFERENCE
SHARES ON THE CLOSING DATE
1. MUTUAL CONDITIONS. The obligation of the Company to sell, and of each
Purchaser to buy, the Securities on the Closing Date, is subject to the
satisfaction, or waiver by the parties hereto, of the following conditions:
(a) The purchase and sale of securities pursuant to the
Warburg/H&F Agreement shall have occurred, or shall occur substantially
concurrently with the purchase and sale hereunder.
(b) There shall not be in effect an order or injunction of a court
of competent jurisdiction prohibiting the consummation of the sale and
purchase of the Securities hereunder that are to be purchased on the
Closing Date.
(c) The Company and the Purchasers shall have executed and
delivered the Shareholders Agreement, pursuant to which the Purchasers
shall have the rights of,
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and be subject to the obligations of, an "Investor" solely for purposes
of Article IV and Sections 3.4 and 5.3 thereof and the provisions
implementing Section C.1.f hereof.
2. CONDITIONS OF THE COMPANY. The obligation of the Company to sell the
Securities on the Closing Date is subject to the satisfaction, or waiver by the
Company, of the following conditions:
(a) The representations and warranties made by each Purchaser in
this Agreement shall be true and accurate in all material respects as of
the Closing Date.
(b) Each Purchaser shall have complied with and performed all
agreements and covenants to be complied with or performed by it in all
material respects at or prior to the Closing Date.
C. REPRESENTATIONS, WARRANTIES AND AGREEMENTS
1. PURCHASER ACKNOWLEDGMENTS. Each Purchaser, severally and not jointly,
understands, acknowledges and hereby covenants and agrees with the Company as
follows:
(a) Subject to the terms and conditions of this Agreement, such
Purchaser's agreement to purchase Securities hereunder is and shall be
irrevocable.
(b) The offering and sale of the Securities is intended to be
exempt from registration under the United States Securities Act of 1933,
as amended (the "ACT"), by virtue of Section 4(2) of the Act. The
Securities, the Conversion Shares and the Warrant Shares have not been
registered under the Act. Except to the extent set forth in the
Shareholders Agreement, the Company is under no obligation to register
the Securities, the Conversion Shares or the Warrant Shares or to assist
such Purchaser in complying with any exemption from registration.
(c) There is no existing public or other market for the
Securities, and it is not expected that any such market will develop.
There can be no assurance that such Purchaser will be able to sell or
dispose of its Securities. Without limiting the generality of the
foregoing, in order not to jeopardize the offering's exempt status under
the Act, a transferee of such Securities may, among other things, be
required to fulfill the investor suitability requirements thereunder.
(d) All certificates issued for the Securities, the Conversion
Shares and the Warrant Shares will bear the legend set forth in Section
D.1.d of the Warburg/H&F Agreement.
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(e) Prior to the earlier of the Shareholders Meeting and the four
month anniversary of the Closing Date, the Securities, Conversion Shares
and the Warrant Shares may not be sold, transferred or otherwise disposed
of, directly or indirectly, without approval of the Transaction Committee
(excluding Xxxxxx Xxxxxxxx or Xxxxx Xxxxx in the case of a sale, transfer
or other disposition by Xxxxxx Xxxxxxxx or Xxxxx Xxxxx, as the case may
be).
(f) Each Purchaser shall be subject to the restrictions of Section
5.2 of the Shareholders Agreement with respect to the Securities acquired
by it under this 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 Warburg/H&F
Agreement and any securities acquired in respect thereof.
(g) The terms of the purchase of the Securities hereunder shall,
except as explicitly set forth herein, be on substantially the same terms
and conditions set forth in the Warburg/H&F Agreement as it may be
amended, modified, interpreted or implemented in the future. No consent
of any Purchaser hereunder shall be required with respect to any
amendment, modification, interpretation or implementation of the
Warburg/H&F Agreement unless the consequences of such modification,
amendment or interpretation of, or such action or determination made by
Warburg and H&F implementing the terms of, or such waiver of any rights
by Warburg and H&F under, the Warburg/H&F Agreement applies differently
to any Purchaser than to Warburg and H&F (or, if they apply differently,
it is because of differences in the treatment of Warburg and H&F under
the Warburg/H&F Agreement (as opposed to other Purchasers under the
Warburg/H&F Agreement or this Agreement) and such differences are not
made more adverse to any Purchaser, or more favorable to Warburg and H&F,
as a result of such modification, amendment or interpretation, such
action or determination, or such waiver). Without limiting the generality
of, but subject to, the foregoing, and for the avoidance of doubt, the
Purchasers acknowledge and agree:
(i) Warburg and H&F shall jointly have the sole right (on
behalf of themselves and all Purchasers under the Warburg/H&F
Agreement and this Agreement) 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 Warburg/H&F
Subscription Agreement (including the right to approve any
amendment or acceleration of, or to waive compliance by Arch with,
any of the terms thereof), which decisions shall apply with equal
force to Section A.3 of this Agreement; PROVIDED that the
consequences of such determinations and actions by Warburg and H&F
do not apply differently to any Purchaser 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
under the
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Warburg/H&F Agreement or this Agreement and such differences are
not made more adverse to any Purchaser or more favorable to
Warburg and H&F as a result of such determination or action);
(ii) the Purchasers 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 Warburg/H&F
Agreement, it being acknowledged that each Purchaser shall,
however, have the obligations of a "Purchaser" under Sections
D.4(d), (g) and (i) thereof (and which are incorporated herein by
reference);
(iii) no Purchaser shall be considered an "original
signatory" to the Warburg/H&F Agreement for purposes of Section
E.6 thereof; PROVIDED that no amendment, modification or waiver of
Section E of the Warburg/H&F Agreement shall affect any Purchaser
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 under the Warburg/H&F Agreement or
this Agreement and such differences are not made more adverse to
any Purchaser or more favorable to Warburg and H&F as a result of
such determination or action);
(iv) no consent of any Purchaser shall be required to
effect any modification or amendment to the Warburg/H&F Agreement
(including, without limitation, Schedules A and B, and Exhibits I,
II and III thereto), unless such amendment or modification affects
a Purchaser 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 under the
Warburg/H&F Agreement or this Agreement and such differences are
not made more adverse to any Purchaser or more favorable to
Warburg and H&F as a result of such determination or action);
(v) the Purchasers shall have no rights under Section F.2,
and no right to assign under Section F.4, of the Warburg/H&F
Agreement; and
(vi) the Purchasers 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
implementing Section C.1.f hereof; 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 the Purchasers and
(B) any amendment or modification of the Sections of the
Shareholders Agreement that do apply to any Purchaser, so long as,
in the case of clause (B), such amend-
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ment or modification does not affect any Purchaser 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 under the Warburg/H&F Agreement or the
Shareholders Agreement, and such differences are not made more
adverse to any Purchaser, or more favorable to Warburg and H&F as
a result of such determination or action).
2. PURCHASER REPRESENTATIONS. Each Purchaser, severally and not jointly,
hereby represents and warrants and covenants to the Company as follows:
(a) The Securities to be purchased by such Purchaser are being
purchased for such Purchaser's own account, and not with a view to
distribution, assignment or resale to others or to fractionalization in
whole or in part. No other person has or will have a direct or indirect
beneficial interest in such Securities or any component thereof.
(b) The financial situation of such Purchaser is such that it can
afford to bear the economic risk of holding the Securities for an
indefinite period, and such Purchaser can afford to suffer the complete
loss of its investment in the Securities. Such Purchaser has (i)
knowledge and experience in financial and business matters such that it
is capable of evaluating the risks of the investment in the Securities
and (ii) carefully reviewed the terms and provisions of this Agreement
and the terms, conditions and other provisions of the Warburg/H&F
Agreement incorporated herein by reference and has evaluated the
restrictions and obligations contained herein.
(c) This Agreement has been duly authorized, executed and
delivered by such Purchaser and, assuming due execution and delivery by
each other party hereto, constitutes a valid and binding obligation of
such Purchaser enforceable in accordance with its terms.
(d) Such Purchaser shall hold the Securities subject to, and shall
have voting rights with respect thereto as specified in, the Company's
Bye-laws and the Certificate in effect from time to time and shall not
assign, sell, hypothecate or otherwise transfer the Securities, the
Conversion Shares or the Warrant Shares other than in accordance with
applicable law and the provisions with respect thereto in such documents.
(e) Such Purchaser covenants and agrees to make available to the
Company and the appropriate insurance regulatory governmental authorities
all information concerning such Purchaser required to be furnished to
such governmental authorities in connection with obtaining requisite
approvals, and further covenants and agrees to
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make all filings, and seek to acquire all consents, required by such
governmental authorities.
(f) The execution, delivery and performance by such Purchaser of
this Agreement and the consummation of the transactions contemplated
hereby do not and will not (i) assuming compliance with the matters
referred to in Section B.1(a) hereof, violate any provision of any
applicable law, statute, ordinance, rule, regulation, judgment,
injunction, order or decree or (ii) violate or result in a default under
any agreement or other instrument binding upon such Purchaser, except in
each case as would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on such Purchaser.
(g) Such Purchaser has, or will have prior to the Closing Date,
sufficient cash or other sources of immediately available funds to enable
it to make payment of the purchase price for the Securities as required
hereunder and all related fees and expenses.
D. RIGHT TO EXCHANGE PREFERENCE SHARES
The Company hereby agrees to the same terms, covenants and agreements set
forth in Section E of the Warburg/H&F Agreement as if such terms, covenants and
agreements were set forth herein and as if the Purchasers under this Agreement
were substituted for the purchasers under the Warburg/H&F Agreement, it being
understood that the Purchasers' rights under this sentence are subject to
Section C.1.g of this Agreement. For the avoidance of doubt, the minimum
threshold for the initial exchange under such Section shall be Preference Shares
representing a minimum of $150 million in Liquidation Preference held by the
Purchasers under this Agreement and the purchasers under the Warburg/H&F
Agreement, in the aggregate.
E. ADDITIONAL PROVISIONS
1. MODIFICATION. This Agreement may not be modified, amended or
supplemented except in writing and signed by the party against whom any
modification, amendment or supplement is sought. No term or condition of this
Agreement may be, or will be deemed to have been, waived except in writing by
the party charged with the waiver. A waiver shall operate only as to the
specific term or condition waived and will not constitute a waiver for the
future or act on anything other than that which is specifically waived. Any
modification, amendment, supplement or waiver to be executed by the Company must
be approved by the Transaction Committee.
2. NOTICES. Any notice or other communications required or permitted to
be given pursuant to this Agreement shall be in writing and shall be sent by
registered or cer-
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tified mail, return receipt requested, postage prepaid, by hand delivery
(including courier services), or by facsimile as follows:
if to the Company, to:
Arch Capital Group Ltd.
00 Xxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
Facsimile: (000) 000-0000
with copies to:
Xxxxxx Xxxxxx & Xxxxxxx
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxx Xxxx, Esq.
Facsimile: (000) 000-0000
and if to any Purchaser, at the address set forth on the signature pages hereof
or, with respect to the Company and the Purchasers, to such other person or
address as either party shall specify by like notice to the other party. Any
notice or communication shall be deemed given or made (a) when delivered by
hand, (b) when mailed, three business days after being deposited in the mail,
postage prepaid, sent by certified mail, return receipt requested, and (c) when
sent by facsimile, receipt acknowledged.
3. SUCCESSORS, ASSIGNS. This Agreement and all of the terms and
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns; PROVIDED that this Agreement
is not transferable or assignable by any Purchaser (other than to any Affiliate
of such Purchaser) without the Company's consent
4. GOVERNING LAW. The validity and effects of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of New York.
5. ENTIRE AGREEMENT. This Agreement and the terms, conditions and other
provisions of the Warburg/H&F Agreement incorporated herein by reference
constitute the entire agreement among the parties hereto and supersedes all
prior agreements, understandings and arrangements, oral or written, among the
parties hereto with respect to the subject matter hereof.
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6. SEVERABILITY. If any one or more of the provisions contained in this
Agreement shall be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability will not affect any other
provision hereof.
7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be considered an original and all of which
together shall be deemed to be one and the same instrument.
8. CURRENCIES. Unless otherwise specifically indicated, all payments and
currency amounts indicated herein refer to and shall be denominated in United
States Dollars. "Dollars" and "$" shall denote United States Dollars.
[Signature pages follow]
S-1
IN WITNESS WHEREOF, each Purchaser has executed this Agreement as of the
date first above-written.
SOUND VIEW PARTNERS LP
By: Xxxxxx Xxxxxxxx,
its General Partner
/s/ Xxxxxx Xxxxxxxx
----------------------------------
Amount Subscribed: $2.0 million
Notices to:
With copies to:
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IN WITNESS WHEREOF, each Purchaser has executed this Agreement as of the
date first above-written.
OTTER CAPITAL LLC
By: Xxxx X. Xxxxxxxx,
its Managing Member
/s/ Xxxx X. Xxxxxxxx
------------------------------------
Amount Subscribed: $7.5 million
Notices to: Otter Capital LLC
Xxx Xxxxxxxx Xxxxx
Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
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IN WITNESS WHEREOF, each Purchaser has executed this Agreement as of the
date first above-written.
/s/ Xxxxx X. Xxxxx
------------------------------------
Xxxxx X. Xxxxx
Amount Subscribed: $1.0 million
Notices to:
With copies to:
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IN WITNESS WHEREOF, each Purchaser has executed this Agreement as of the
date first above-written.
/s/ Xxxx X. Xxxxxx
------------------------------------
Xxxx X. Xxxxxx
Amount Subscribed: $2.0 million
Notices to:
With copies to:
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IN WITNESS WHEREOF, each Purchaser has executed this Agreement as of the
date first above-written.
/s/ Xxxxxx X. Xxxxx
------------------------------------
Xxxxxx X. Xxxxx
Amount Subscribed: $400,000
Notices to:
With copies to:
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IN WITNESS WHEREOF, each Purchaser has executed this Agreement as of the
date first above-written.
/s/ Marc Grandisson
------------------------------------
Marc Grandisson
Amount Subscribed: $250,000
Notices to:
With copies to:
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Accepted and agreed to as of the date first above-written.
ARCH CAPITAL GROUP LTD.
By: /s/ Xxxxx Xxxxxxxx
-------------------------------------
Name: Xxxxx Xxxxxxxx
Title: Senior Vice President
and General Counsel
