Exhibit 10.14
ARCH CAPITAL GROUP LTD.
Non-Qualified Stock Option Agreement
FOR GOOD AND VALUABLE CONSIDERATION, receipt of which is hereby
acknowledged, Arch Capital Group Ltd. (the "Company"), a Bermuda company, hereby
grants to Xxxxxx X. Xxxxx, an employee of the Company on the date hereof (the
"Option Holder"), the option to purchase common shares, $0.01 par value per
share, of the Company ("Shares"), upon the following terms:
WHEREAS, the Option Holder has been granted the following award in
connection with his retention as an employee and as compensation for services to
be rendered; and the following terms reflect the Company's Long Term Incentive
Plan for New Employees (the "Plan");
(a) GRANT. The Option Holder is hereby granted an option (the
"Option") to purchase 100,000 Shares (the "Option Shares") pursuant to the Plan,
the terms of which are incorporated herein by reference. The Option is granted
as of October 23, 2001 (the "Date of Grant") and such grant is subject to the
terms and conditions herein and the terms and conditions of the applicable
provisions of the Plan. This Option shall not be treated as an incentive stock
option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended. In the event of any conflict between this Agreement and the Plan, the
Plan shall control.
(b) STATUS OF OPTION SHARES. The Option Shares shall upon issue rank
equally in all respects with the other Shares.
(c) OPTION PRICE. The purchase price for the Option Shares shall be,
except as herein provided, $20.00 per Option Share, hereinafter sometimes
referred to as the "Option Price," payable immediately in full upon the exercise
of the Option.
(d) TERM OF OPTION. The Option may be exercised only during the
period (the "Option Period") set forth in paragraph (f) below and shall remain
exercisable until the tenth anniversary of the Date of Grant. Thereafter, the
Option Holder shall cease to have any rights in respect thereof. The right to
exercise the Option shall be subject to sooner termination in the event
employment with the Company is terminated, as provided in paragraph (j) below.
(e) NO RIGHTS OF SHAREHOLDER. The Option Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or in equity.
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(f) EXERCISABILITY. Except as otherwise set forth in paragraph (j)
below, the Option shall become exercisable as to one third of the Option Shares
beginning on the earlier of (A) the date on which the closing occurs under the
Subscription Agreement with new investors entered into substantially
simultaneously with the execution of this agreement or (B) the first anniversary
of the Date of Grant, and as to an additional one-third of the Option Shares on
the first anniversary of the Date of Grant, and as to the final one-third of the
Option Shares on the second anniversary of the Date of Grant, in each case
subject to paragraph (j) below. Subject to paragraph (j) below, the Option may
be exercised at any time or from time to time during the Option Period in regard
to all or any portion of the Option which is then exercisable, as may be
adjusted pursuant to paragraph (g) below.
(g) ADJUSTMENTS FOR RECAPITALIZATION AND DIVIDENDS. In the event
that, prior to the expiration of the Option, any dividend in Shares,
recapitalization, Share split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
such change affects the Shares such that they are increased or decreased or
changed into or exchanged for a different number or kind of shares, other
securities of the Company or of another corporation or other consideration, then
in order to maintain the proportionate interest of the Option Holder and
preserve the value of the Option, (i) there shall automatically be substituted
for each Share subject to the unexercised Option the number and kind of shares,
other securities or other consideration (including cash) into which each
outstanding Share shall be changed or for which each such Share shall be
exchanged, and (ii) the exercise price shall be increased or decreased
proportionately so that the aggregate purchase price for the Shares subject to
the unexercised Option shall remain the same as immediately prior to such event.
(h) NONTRANSFERABILITY. The Option, or any interest therein, may not
be assigned or otherwise transferred, disposed of or encumbered by the Option
Holder, other than by will or by the laws of descent and distribution. During
the lifetime of the Option Holder, the Option shall be exercisable only by the
Option Holder or by his or her guardian or legal representative. Notwithstanding
the foregoing, the Option may be transferred by the Option Holder to members of
his or her "immediate family " or to a trust or other entity established for the
exclusive benefit of solely one or more members of the Option Holder's
"immediate family." Any Option held by the transferee will continue to be
subject to the same terms and conditions that were applicable to the Option
immediately prior to the transfer, except that the Option will be transferable
by the transferee only by will or the laws of descent and distribution. For
purposes hereof, "immediate family" means the Option Holder's children
stepchildren, grandchildren, parents, stepparents, grandparents, spouse,
siblings (including half brother and sisters), in laws, and relationships
arising because of legal adoption.
(i) EXERCISE OF OPTION. In order to exercise the Option, the Option
Holder shall submit to the Company an instrument in writing signed by the Option
Holder, specifying the whole number of Option Shares in respect of which the
Option is being exercised, accompanied by payment, in a manner acceptable to the
Company, of the Option Price for the Option Shares for which the Option is being
exercised. Payment to the Company in cash or Shares already owned by the Option
Holder (provided that the Option Holder has owned such Shares for a minimum
period of six months or has purchased such Shares on the open
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market) and having a total Fair Market Value (as defined below) equal to the
exercise price, or in a combination of cash and such Shares, shall be deemed
acceptable for purposes hereof. Option Shares will be issued accordingly by the
Company within 15 business days, and a share certificate dispatched to the
Option Holder within 30 days.
The Company shall not be required to issue fractional Shares upon
the exercise of the Option. If any fractional interest in a Share would be
deliverable upon the exercise of the Option in whole or in part but for the
provisions of this paragraph, the Company, in lieu of delivering any such
fractional share therefor, shall pay a cash adjustment therefor in an amount
equal to their Fair Market Value (or if any Shares are not publicly traded, an
amount equal to the book value per share at the end of the most recent fiscal
quarter) multiplied by the fraction of the fractional share which would
otherwise have been issued hereunder. Anything to the contrary herein
notwithstanding, the Company shall not be obligated to issue any Option Shares
hereunder if the issuance of such Option Shares would violate the provision of
any applicable law, in which event the Company shall, as soon as practicable,
take whatever action it reasonably can so that such Option Shares may be issued
without resulting in such violations of law. For purposes hereof, Fair Market
Value shall mean the mean between the high and low selling prices per Share on
the immediately preceding date (or, if the Shares were not traded on that day,
the next preceding day that the Shares were traded) on the principal exchange on
which the Shares are traded, as such prices are officially quoted on such
exchange.
(j) TERMINATION OF SERVICE. In the event the Option Holder ceases to
be an employee of the Company for any reason, except due to his death or
Permanent Disability (as defined in the Employment Agreement between the Option
Holder, the Company and Arch Reinsurance Ltd. dated as of October 23, 2001 (the
"Employment Agreement")) or due to a termination of the Option Holder's
employment by the Company for Cause (as defined in the Employment Agreement),
the Option, to the extent then exercisable, may be exercised for 90 days
following termination of employment (but not beyond the Option Period). To the
extent the Option is not exercisable at the time of termination of employment,
the Option shall be immediately forfeited. For purposes of this Option, service
with any of the Company's wholly owned subsidiaries shall be considered to be
service with the Company. In the event of a termination of the Option Holder's
employment for Cause, the Option shall immediately cease to be exercisable and
shall be immediately forfeited. In the event the Option Holder ceases to be an
Employee of the Company due to his death or Permanent Disability, the Option
shall become immediately exercisable in full and shall continue to be
exercisable by the Option Holder (or his Beneficiary or estate in the event of
his death) for the remainder of the Option Period.
(k) OBLIGATIONS AS TO CAPITAL. The Company agrees that it will at
all times maintain authorized and unissued share capital sufficient to fulfill
all of its obligations under the Option.
(l) TRANSFER OF SHARES. The Option, the Option Shares, or any
interest in either, may be sold, assigned, pledged, hypothecated, encumbered, or
transferred or disposed of in any other manner, in whole or in part, only in
compliance with the terms, conditions
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and restrictions as set forth in the governing instruments of the Company,
applicable United States federal and state securities laws and the terms and
conditions hereof.
(m) EXPENSES OF ISSUANCE OF OPTION SHARES. The issuance of stock
certificates upon the exercise of the Option in whole or in part, shall be
without charge to the Option Holder. The Company shall pay, and indemnify the
Option Holder from and against any issuance, stamp or documentary taxes (other
than transfer taxes) or charges imposed by any governmental body, agency or
official (other than income taxes) by reason of the exercise of the Option in
whole or in part or the resulting issuance of the Option Shares.
(n) WITHHOLDING. No later than the date of exercise of the Option
granted hereunder, the Option Holder shall pay to the Company or make
arrangements satisfactory to the Committee regarding payment of any federal,
state or local taxes of any kind required by law to be withheld upon the
exercise of such Option and the Company shall, to the extent permitted or
required by law, have the right to deduct from any payment of any kind otherwise
due to the Option Holder, federal, state and local taxes of any kind required by
law to be withheld upon the exercise of such Option.
(o) REFERENCES. References herein to rights and obligations of the
Option Holder shall apply, where appropriate, to the Option Holder's legal
representative or estate without regard to whether specific reference to such
legal representative or estate is contained in a particular provision of this
Option.
(p) NOTICES. Any notice required or permitted to be given under this
agreement shall be in writing and shall be deemed to have been given when
delivered personally or by courier, or sent by certified or registered mail,
postage prepaid, return receipt requested, duly addressed to the party concerned
at the address indicated below or to such changed address as such party may
subsequently by similar process give notice of:
If to the Company:
Arch Capital Group Ltd.
EXECUTIVE OFFICES:
00 Xxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: Secretary
If to the Option Holder:
To the last address delivered to the Company by the Option Holder in
the manner set forth herein.
(q) GOVERNING LAW. This agreement shall be governed by and construed
in accordance with the laws of Bermuda, without giving effect to principles of
conflict of laws.
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(r) ENTIRE AGREEMENT. This agreement and the Plan constitute the
entire agreement among the parties relating to the subject matter hereof, and
any previous agreement or understanding among the parties with respect thereto
is superseded by this agreement and the Plan.
(s) COUNTERPARTS. This agreement may be executed in two
counterparts, each of which shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the undersigned have executed this agreement as
of the Date of Grant.
ARCH CAPITAL GROUP LTD.
By: /s/ Xxxxx X. Xxxxxxxx
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/s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx
