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 Robert Clements, a director 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 following terms reflect the Company’s
2002 Long Term Incentive and Share Award Plan (the “Plan”);


 


(a)           Grant.  The Option Holder is hereby granted an option
(the “Option”) to purchase 10,000 Shares (the “Option Shares”) pursuant to the
Plan, the terms of which are incorporated herein by reference.  The Option is granted as of September 22,
2004 (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, $39.00 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 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 as to one third of the Option
Shares on the Date of Grant, 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 (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 (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, 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


 


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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 a director of the Company (a) due to his death or Permanent
Disability (as defined in the Company’s Incentive Compensation Plan) or
retirement after attainment of age 65 or (b) for any reason following a Change
in Control (as defined in the Restricted Share Agreement, dated as of September
22, 2004, between the Option Holder and the Company), 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 service (but not beyond the Option Period).  In the event the Option Holder ceases to be a
director of the Company for any other reason, the Option, to the extent then
exercisable, may be exercised for 90 days following termination of service (but
not beyond the Option Period).  To the
extent the Option is not exercisable at the time of termination of service, the
Option shall be immediately forfeited.


 


(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, 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


 


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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:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Robert Clements

  
					



 


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