Exhibit
10.2


 


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 John C.R. Hele, 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 under the Company’s 2007 Long Term Incentive and Share Award
Plan (the “Plan”);


 


(a)   Grant. 
The Option Holder is hereby granted an option (the “Option”) to purchase
40,000 Shares (the “Option Shares”) pursuant to the Plan, the terms of which
are incorporated herein by reference. 
The Option is granted as of April 1, 2009 (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.  Upon issue, the Option Shares shall 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, $55.74 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 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.


 


(f)    Exercisability.  Except as otherwise set forth in paragraph (j) below,
the Option shall become exercisable  in three equal
annual installments on the first, second and third anniversaries 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 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 (which shall include a broker
assisted exercise arrangement), 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 market) and
having a total Fair Market Value 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, 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 multiplied by the fraction of the fractional share which would
otherwise have been issued hereunder. 
Anything to the contrary herein notwithstanding, the Company shall 


 


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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.


 


(j)    Termination of Service.


 


1.     In the event the Option Holder ceases to be an employee of the
Company due to his death or Permanent Disability (as defined in the Employment
Agreement, dated as of October 22, 2008, between the Option Holder and the
Company, the “Employment Agreement”), the Option, to the extent not already
exercisable in full, 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 a period of three years following such
termination of employment (but not beyond the Option Period).


 


2.     In the event of termination of employment (other than by the
Company for Cause, as such term is defined in the Employment Agreement after
the attainment of Retirement Age (as defined in the Company’s Incentive Compensation
Plan on the date hereof), the Option shall continue to become exercisable on
the schedule set forth in paragraph (f) above so long as the Option Holder
does not engage in any activity in competition with any activity of the Company
or any of its Subsidiaries other than serving on the board of directors (or similar
governing body) of another company or as a consultant for no more than 26 weeks
per calendar year (“Competitive Activity”) 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. 
In the event the Option Holder engages in a Competitive Activity, (A) the
Option, to the extent then exercisable, may be exercised for 30 days following
the date on which the Option Holder engages in such Competitive Activity (but
not beyond the Option Period) and (B) the Option, to the extent then not
exercisable, shall be immediately forfeited.


 


3.     In the event the Option Holder ceases to be an employee of the
Company after a Change in Control (as defined below) due to termination (A) by the Company not for Cause or (B) by
the Option Holder for Good Reason (as defined in the Employment Agreement), in
either case, on or before the second anniversary of the occurrence of
the Change in Control, the Option, to the extent not already exercisable in
full, shall become immediately exercisable in full and shall continue to be
exercisable by the Option Holder for a period of 90 days following such
termination of employment (but not beyond the Option Period).


 


4.     In the event that the Option Holder ceases to be an employee of
the Company for any other reason, except due to a termination of the Option
Holder’s employment by the Company for Cause, (A) the Option, to the
extent then exercisable, may be exercised for 90 days following termination of
employment (but not beyond the Option Period) and (B) the Option, to the
extent then not exercisable, shall be immediately forfeited; provided that, in
the event of a Redundancy (as defined below), the Committee, 


 


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in its sole discretion, may, in accordance with its authority under the
Plan, determine that the Option, to the extent not exercisable, shall become
exercisable and shall continue to be exercisable by the Option Holder for a
period of 90 days following such termination of employment (but not beyond the
Option Period).


 


5.     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.


 


6.     For purposes of this Option, service
with any of the Company’s Subsidiaries (as defined in the Plan) shall be considered to be service with
the Company.


 


7.     “Change in Control” shall mean:


 


(A)            any person (within the meaning of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), other than a
Permitted Person, 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 or value of all the then
outstanding Voting Securities; or


 


(B)              the individuals who, as of the date hereof,
constitute the Board of Directors of the Company (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


 


(C)              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 more than 50% of
the total voting power and value represented by the voting securities of the
surviving entity outstanding immediately after such transaction being
beneficially owned by the former shareholders of the Company and (y) not
otherwise be deemed a Change in Control under subparagraphs (A) or (B) of
this paragraph.


 


“Permitted Persons” means
(A) the Company; (B) any Related Party; (C) Warburg Pincus or
any of its subsidiaries or any investment funds managed or controlled by
Warburg Pincus or any of its subsidiaries; or (D) any group (as defined in
Rule 13b-3 under the Exchange Act) comprised of any or all of the foregoing.


 


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“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) any entity, 50% or more of the voting
power of which is owned directly or indirectly by the shareholders of the
Company in substantially the same proportion as their ownership of Voting
Securities immediately prior to the transaction.


 


“Voting
Security” means any security of the Company which carries the right to vote
generally in the election of directors.


 


8.               “Redundancy”
shall mean termination of employment by the Company due to its need to reduce
the size of its workforce, including due to closure of a business or a
particular workplace or change in business process.  Whether a termination
of employment is due to a “redundancy” shall be determined by the Committee in
its sole and absolute discretion, such determination being final and binding on
all parties hereto and all persons claiming through, in the name of or on
behalf of such parties.


 


(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 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 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.


 


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(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.:


Wessex House

45 Reid Street

Hamilton HM 12 Bermuda 

Attn:  Secretary


 


If to the Option Holder:


 


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 New York, without giving effect to
principles of conflict of laws thereof.


 


(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/ Dawna
  Ferguson

  
	
   

  	
   

  	
  Name:  Dawna Ferguson

  
	
   

  	
   

  	
  Title:  Secretary

  
	
   

  	
   

  
	
   

  	
  /s/ John C.R.
  Hele

  
	
   

  	
  John C.R. Hele

  



 


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