RETENTION AND
CHANGE IN CONTROL AGREEMENT
Agreement, made as of the 5th day of May 2000, by and between Arch Capital
Group Ltd., a Delaware corporation (the "Company"), and Xxxxxx Xxxxxxxx (the
"Executive").
WHEREAS, the board of directors of the Company (the "Board") wishes to
assure that it will have the continued dedication of the Executive and the
availability of his advice and counsel notwithstanding the possibility, threat
or occurrence of a bid to take over control of the Company, and to induce the
Executive to remain in the service of the Company; and
WHEREAS, the Executive is willing to continue to serve the Company or one
of its subsidiaries taking into account the provisions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing, and the respective
covenants and agreements of the parties herein contained, the parties agree as
follows:
1. Position & Responsibilities: The Board retains the Executive to serve as
Chairman of the Board, and in such capacity the Executive shall report to the
Board, and the Executive shall accept said retention. The term of the
Executive's retention shall terminate upon notice by either the Company to the
Executive or by the Executive to the Company.
2. Compensation: Compensation for the Executive's services shall be at an
annual base salary rate equal to 50% of the then annual base salary of the
President and Chief Executive Officer of the Company. The Executive may also
receive an annual cash bonus to be determined by the Board. The annual salary
for each year shall be payable in shares of restricted common stock of the
Company based on the fair market value of the shares of common stock of the
Company on January 1 of that year, except in the case of the salary for 2000,
which shall be based on the fair market value of the shares of common stock of
the Company on May 5, 2000. The shares of restricted stock granted as salary for
any year shall fully vest on January 1 of the following year. If the Executive's
service as chairman is terminated for any reason, he shall receive an amount
equal to a prorated portion of his salary for that year.
3. Additional Terms: The Executive is eligible to participate in the
Company's 1995 and 1999 Long Term Incentive and Share Award Plans under which
annual awards of options and/or other stock-based awards may be granted by the
Board or its duly authorized committee.
4. Definitions.
(i) "Change in Control" means any of the following occurring after the date
hereof:
(A) any person (within the meaning of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), other than a Permitted Person or an
Initial Investor, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or
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indirectly, of Voting Securities representing 35% or more of the total
voting power of all the then outstanding Voting Securities; or
(B) any Initial Investor is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
Voting Securities representing 50% or more of the total voting power of all
the then outstanding Voting Securities; or
(C) the individuals who, as of the date hereof, constitute the Board
together with those who become directors subsequent to such date and whose
recommendation, election or nomination for election to the Board was
approved by a vote of at least a majority of the directors then still in
office who either were directors as of such date or whose recommendation,
election or nomination for election was previously so approved, cease for
any reason to constitute a majority of the members of the Board; or
(D) the consummation of a merger, consolidation, recapitalization,
liquidation, sale or disposition by the Company of all or substantially all
of the Company's assets, or reorganization of the Company, other than any
such transaction which would (x) result in at least 60% of the total voting
power represented by the voting securities of the surviving entity or, in
the case of an asset sale, the successor entity, outstanding immediately
after such transaction being beneficially owned, directly or indirectly, by
the stockholders of the Company immediately preceding the transaction and
(y) not otherwise be deemed a Change in Control under clause (A), (B), (C)
or (E) of this subsection (i); or
(E) the Board adopts a resolution to the effect that, for purposes
hereof, a Change in Control has occurred.
(ii) "Change in Control Date" means any date during the term of this
Agreement on which a Change in Control occurs.
(iii) "Initial Investors" means (A) The Trident Partnership, L.P.; (B)
Xxxxx & McLennan Risk Capital Holdings, Ltd.; or (C) any majority-owned
subsidiary or parent (or equivalent in the case of a non-corporate entity) of
the foregoing.
(iv) "Permitted Persons" means (A) the Company; (B) any Related Party; or
(C) any group (as defined in Rule 13d-3 under the Exchange Act) comprised of any
or all of the foregoing.
(v) "Protection Period" means the period beginning on the Change in Control
Date and ending on the second anniversary of the Change in Control Date.
(vi) "Related Party" means (A) a majority-owned subsidiary of the Company;
(B) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any majority-owned subsidiary of the Company; or (C) a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of Voting Securities.
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(vii) "Voting Security" means any security of the Company which carries the
right to vote generally in the election of directors.
5. Acceleration of Vesting Upon Change in Control. All stock options and
restricted stock issued under the Company's 1995 and 1999 Long Term Incentive
and Share Award Plans (or any successor plan) shall become immediately vested in
full and, in the case of stock options, immediately exercisable in full, upon a
Change in Control in accordance with the applicable restricted stock agreements
and stock option agreements.
6. Termination Following Change in Control. The Executive shall be entitled
to the benefits provided in Section 7 hereof upon any termination of his service
as Chairman of the Board within a Protection Period, except a termination of
such service (a) because of his death, (b) because of a "Disability," (c) by the
Company or any of its subsidiaries for "Cause," or (d) by the Executive other
than due to "Constructive Termination." No benefits shall be paid under Section
7 of this Agreement if the Executive's service terminates outside of a
Protection Period, whether or not a Change in Control is then contemplated.
(i) Disability. The Executive's services shall be deemed to have
terminated because of a "Disability" if, for a period of twelve consecutive
months, the Executive is incapable of substantially fulfilling his
responsibilities with the Company because of physical or mental incapacity
resulting from injury, sickness or disease. Any question as to the
existence, extent or potentiality of the Executive's Disability upon which
the Executive and the Company cannot agree shall be determined by a
qualified, independent physician selected by the Company and approved by
the Executive (which approval shall not be unreasonably withheld). The
determination of any such physician shall be final and conclusive for all
purposes of this Agreement. The Executive or his legal representative or
any adult member of his immediate family shall have the right to present to
such physician such information and arguments as to the Executive's
Disability as he, she or they deem appropriate, including the opinion of
the Executive's personal physician.
(ii) Cause. Termination of the Executive's service by the Company or
any of its subsidiaries for "Cause" shall mean termination by reason of the
Executive's willful engagement in conduct which involves dishonesty or
moral turpitude in connection with his service and which is demonstrably
and materially injurious to the financial condition or reputation of the
Company. An act or omission shall be deemed "willful" only if done, or
omitted to be done, in bad faith and without reasonable belief that it was
in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to the Executive a written notice of
termination from the compensation committee of the Board after reasonable
notice to the Executive and an opportunity for him, together with his
counsel, to be heard before such committee.
(iii) Without Cause. The Company or any of its subsidiaries may
terminate the service of the Executive without Cause during a Protection
Period only by giving the Executive written notice of termination to that
effect. In that event, the Executive's service shall
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terminate on the last day of the month in which such notice is given (or
such later date as may be specified in such notice), and the benefits set
forth in Section 7 hereof shall be provided to the Executive.
(iv) Constructive Termination. Termination of service by the Executive
due to "Constructive Termination" shall mean termination by the Executive
subsequent to any of the following:
(A) the assignment of duties and responsibilities inconsistent in
any material and adverse respect with the Executive's position or a
significant diminution in his duties or responsibilities; provided,
however, that Constructive Termination shall not be deemed to occur
upon a change in duties or responsibilities that is solely and
directly a result of the Company no longer being a publicly traded
entity, and does not involve any other event set forth in this
definition;
(B) a reduction in the Executive's base salary or bonus
opportunity;
(C) the requirement that the Executive work at a location outside
of Fairfield County, Connecticut, or Westchester County, New York;
(D) the failure to provide the Executive with benefits and
incentive compensation opportunities at least as favorable, in the
aggregate, as the benefits and incentive compensation opportunities
available to the Executive immediately prior to a Change in Control;
or
(E) if the Company has failed to obtain the assumption of the
obligations contained in this Agreement by any successor as
contemplated in Section 12(c) hereof.
The Executive shall exercise his right to terminate his services due to
Constructive Termination by giving the Company a written notice of
termination specifying in reasonable detail the circumstances constituting
such Constructive Termination. In that event, the Executive's services
shall terminate on the last day of the month in which such notice is given
unless an earlier date is specified in writing by the Executive. A
termination of services by the Executive shall be due to Constructive
Termination if one of the occurrences specified in this subsection (iv)
shall have occurred, notwithstanding that the Executive may have other
reasons for terminating service, including employment by another company
which the Executive desires to accept.
7. Benefits Upon Termination Within Protection Period. If, within a
Protection Period, the Executive's services with the Company and its
subsidiaries shall be terminated (a) by the Company or any of its subsidiaries
other than for Cause and other than because of a Disability or death, or (b) by
the Executive due to Constructive Termination, the Executive shall be entitled
to the benefits provided for below:
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(i) The Company shall pay to the Executive, through the date of the
Executive's termination of services, salary at the rate then in effect;
(ii) The Company shall pay to the Executive an amount equal to the
product of (A) the amount of the Executive's annual bonus for the year
preceding the year that includes the Change in Control Date (or the year
that includes the termination date, if higher), multiplied by (B) a
fraction, the numerator of which is the number of days elapsed in the
calendar year through the date of termination of the Executive's services,
and the denominator of which is 365; and such payment shall be made in a
lump sum within 10 business days after the date of such termination of
services; and
(iii) The Company shall pay to the Executive an amount equal to 2.99
times the sum of (A) the Executive's annual base salary in effect on the
Change in Control Date (or the date of termination, if higher), and (B) the
Executive's annual bonus for the year preceding the year that includes the
Change in Control Date (or the year that includes the termination date, if
higher); and such payment shall be made in a lump sum within 10 business
days after the date of such termination of services.
8. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any benefit, bonus,
policies or programs provided by the Company or any of its subsidiaries and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any stock option or other
agreements with the Company or any of its subsidiaries; provided, however, that
amounts payable hereunder are in lieu of any severance benefit payable under any
other severance plan or agreement of the Company or its subsidiaries in effect
on the date hereof. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, practice, policy or program of the
Company or any of its subsidiaries at or subsequent to the date of termination
of the Executive's services shall be payable in accordance with such plan,
practice, policy or program.
9. Full Settlement; Legal Expenses. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company or any of its
subsidiaries may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other action by way
of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and amounts payable hereunder will not be reduced
by compensation the Executive receives from other employment. The Company agrees
to pay, upon written demand therefor by the Executive, all legal fees and
expenses which the Executive may reasonably incur as a result of any dispute or
contest by or with the Company or others regarding the validity or
enforceability of, or liability under, any provision of this Agreement
(including as a result of any contest by the Executive about the amount of any
payment hereunder), plus in each case interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Internal Revenue Code of 1986, as
amended (the "Code"), unless the Company prevails on all causes of action in the
dispute or contest. In any such action brought by the Executive for damages or
to enforce any provisions of this Agreement, the Executive shall be entitled to
seek both legal and eq-
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uitable relief and remedies, including, without limitation, specific performance
of the Company's obligations hereunder, in the Executive's sole discretion.
10. Limitation on Payments by the Company. Anything in this Agreement to
the contrary notwithstanding, in the event that any payment or distribution
made, or benefit provided (including, without limitation, the acceleration of
any payment, distribution or benefit and the acceleration of exercisability of
any stock option) by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise) would be subject to the excise tax imposed by Section
4999 of the Code as an "excess parachute payment" (within the meaning of Section
280G of the Code), the payment set forth in Section 7(iii) hereof shall be
reduced to the smallest extent possible such that no amount payable hereunder
constitutes an "excess parachute payment" (within the meaning of Section 280G of
the Code).
11. Confidential Information; Nonsolicitation of Employees and Customers.
The Executive shall hold in a fiduciary capacity for the benefit of the Company
and its subsidiaries all secret or confidential information, knowledge or data
relating to the Company or any of its subsidiaries, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's services with the Company or any of its subsidiaries (except for
information, knowledge or data which shall be or subsequently become known or
generally available to the public other than by acts of the Executive or his
representatives in violation of this Agreement). After the date of termination
of the Executive's services with the Company or any of its subsidiaries, the
Executive shall not, without the prior written consent of the Company,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by the Company. The Executive shall return
to the Company at the time of the termination of the Executive's services with
the Company or any of its subsidiaries all tangible property of the Company or
any its subsidiaries in the Executive's possession, including, but not limited
to, confidential information relating to the Company or any of its subsidiaries.
The Executive shall not, during the term of his retention by the Company or any
of its subsidiaries and for one year thereafter, directly or indirectly, on
behalf of the Executive or any other person or entity, (i) induce, or seek to
induce, any employee of the Company or any of its subsidiaries to terminate
services with the Company or any of its subsidiaries or (ii) solicit business
from any person, firm or company which is (during the period the Executive is
employed by the Company or any of its subsidiaries), or at the time of the
termination of the Executive was, a customer of the Company or any of its
subsidiaries, or induce, or seek to induce, any such customer of the Company or
any of its subsidiaries to cease doing business with the Company or any of its
subsidiaries. In the event of a breach or threatened breach by the Executive of
any provision of this Section 11, the Executive acknowledges that the Company
and its subsidiaries shall be entitled to an injunction restraining the
Executive from such act or threatened act, in addition to monetary damages and
any other available remedies. The Executive hereby expressly consents and agrees
that, for any breach or threatened breach of any provision of this Section 11, a
restraining order and/or an injunction may be issued against the Executive in
addition to any other rights the Company or any of its subsidiaries may have
with respect to such violation or breach. In no event shall an asserted
violation of the provisions of this Section 11 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement. The provisions of this Section 11 shall apply to the Executive
whether or not there has been a Change in Control.
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12. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives or successors in interest.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no such succession had taken place. For this
purpose, any company that becomes directly owned by stockholders of the Company
pursuant to a merger or consolidation in which the Company becomes a wholly
owned subsidiary of such company shall be deemed to be a successor of the
Company. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees (or is required hereunder to assume and
agree) to perform this Agreement by operation of law or otherwise. A subsequent
Change in Control of a successor shall be considered a Change in Control under
Section 4 hereof upon termination of Executive's employment with the successor
within a Protection Period.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Connecticut, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing and
shall be given by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Xxxxxx Xxxxxxxx
000 Xxxxxxxx Xxxxx Xxxxx
Xxxxxxxx, XX 00000
If to the Company:
Arch Capital Group Ltd.
00 Xxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attention: General Counsel
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or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company or any of its subsidiaries may withhold from any amounts
payable under this Agreement such federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's failure to insist upon strict compliance with any
provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Agreement contains the entire understanding of the Company and the
Executive with respect to the subject matter hereof but, except as otherwise
expressly stated herein, does not supersede or override the provisions of any
stock option, employee benefit or other plan, program, policy or practice in
which the Executive is a participant or under which the Executive is a
beneficiary.
(g) The parties expressly agree that if prior to a Change in Control the
Board determines to terminate the Executive's services, this Agreement shall
terminate and the Executive shall not be entitled to any benefits hereunder
(other than under Section 7(i) of this Agreement), whether or not a Change in
Control is then contemplated.
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IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, the Company has caused this
Agreement to be executed as of the date first above written.
ARCH CAPITAL GROUP LTD.
By: /s/ Xxxxx X. Xxxxx
----------------------------------------------
Name: Xxxxx X. Xxxxx
Title: President and Chief Executive Officer
EXECUTIVE:
/s/ Xxxxxx Xxxxxxxx
--------------------------------------------------
Xxxxxx Xxxxxxxx
