Document:

Exhibit
10.4

 

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 _________, 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 or her retention as an employee and as
compensation for services to be rendered; and 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 _________ 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

 

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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 (a) due to his death or
Permanent Disability (as defined in the Company’s Incentive Compensation Plan)
or (b) due to termination by the Company not for Cause (as defined in the
Company’s Incentive Compensation Plan), 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).  In the event of termination of employment
(other than by the Company for Cause) after the attainment of Retirement Age
(as defined in the Company’s Incentive Compensation Plan), the Option shall
continue to vest 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 a period of three years following the
later of (i) the last date this Option actually vests under paragraph (f) above
or (ii) the date of termination of employment of the Option Holder (but in no
event beyond the Option Period).  In the
event the Option Holder engages in a Competitive Activity, the Option, to the
extent then exercisable, may be exercised for 90 days following the date on
which the Option Holder engages in such Competitive Activity (but not beyond
the Option Period).  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 (as defined in the Company’s Incentive Compensation Plan), the
Option, to the extent then exercisable, may be exercised for 90 days following
termination of employment (but not beyond the Option Period).  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.  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.

 

(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

 

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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 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.

 

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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:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
					

 

6Exhibit
10.5

 

ARCH
CAPITAL GROUP LTD.

Restricted Share Agreement

 

THIS AGREEMENT, dated as
of September 22, 2004, between Arch Capital Group Ltd. (the “Company”), a
Bermuda company, and Robert Clements (the “Director”).

 

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

 

NOW, THEREFORE, in
consideration of the premises and mutual covenants contained herein, the parties
hereto agree as follows.

 

1.                                       Award of Shares.  Pursuant to the provisions
of the Plan, the terms of which are incorporated herein by reference, the
Director is hereby awarded 1,600 Restricted Shares (the “Award”), subject to
the terms and conditions herein set forth. 
Capitalized terms used herein and not defined shall have the meanings
set forth in the Plan.  In the event of
any conflict between this Agreement and the Plan, the Plan shall control.

 

2.                                       Terms and Conditions.  It is understood and agreed
that the Award of Restricted Shares evidenced hereby is subject to the
following terms and conditions:

 

(a)                                  Vesting of Award. 
Subject to Section 2(b) below and the other terms and conditions of
this Agreement, this Award shall become vested in three equal annual
installments, commencing on the date hereof and thereafter on the first and
second anniversaries thereof.  Unless
otherwise provided by the Company, all dividends and other amounts receivable
in connection with any adjustments to the Shares under Section 4(c) of the
Plan shall be subject to the vesting schedule in this Section 2(a).  Notwithstanding the foregoing, if a Change
in Control occurs and the Director ceases to be a director of the Company for
any reason, then the Restricted Shares shall become immediately vested in full
upon such termination of service.

 

For purposes of this
Agreement, a “Change in Control” shall be deemed to occur if 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 more than 50% of the total voting
power of all then outstanding Voting Securities.

 

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

 

“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
stockholders 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.

 

(b)                                 Termination of Service; Forfeiture of
Unvested Shares.  In the event the Director ceases to be a
director of the Company prior to the date the Restricted Shares otherwise
become vested due to his or her death or Permanent Disability (as defined in
the Company’s Incentive Compensation Plan), the Restricted Shares shall become
immediately vested in full upon such termination of service.  If the Director ceases to be a director of
the Company for any other reason prior to the date the Restricted Shares become
vested, the Award shall be forfeited by the Director and become the property of
the Company.

 

(c)                                  Certificates.  Each certificate issued in
respect of Restricted Shares awarded hereunder shall be deposited with the
Company, or its designee, together with, if requested by the Company, a stock
power executed in blank by the Director, and shall bear a legend disclosing the
restrictions on transferability imposed on such Restricted Shares by this
Agreement (the “Restrictive Legend”). 
Upon the vesting of Restricted Shares pursuant to Section 2 hereof
and the satisfaction of any withholding tax liability pursuant to
Section 5 hereof, the certificates evidencing such vested Shares, not
bearing the Restrictive Legend, shall be delivered to the Director.

 

(d)                                 Rights of a Stockholder.  Prior to the time a
Restricted Share is fully vested hereunder, the Director shall have no right to
transfer, pledge, hypothecate or otherwise encumber such Restricted
Shares.  During such period, the
Director shall have all other rights of a stockholder, including, but not
limited to, the right to vote and to receive dividends (subject to
Section 2(a) hereof) at the time paid on such Restricted Shares.

 

(e)                                  No Right to Continued Services. 
This Award shall not confer upon the Director any right with respect to
continuance of services with the Company nor shall this Award interfere with
the right of the Company to terminate the Director’s services at any time.

 

3.                                       Transfer of Shares. 
The Shares delivered hereunder, or any interest therein, 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 or any
other applicable laws or regulations and the terms and conditions hereof.

 

4.                                       Expenses of Issuance of Shares. 
The issuance of stock certificates hereunder shall be without charge to
the Director.  The Company shall pay,
and indemnify the Director from and against any issuance, stamp or documentary
taxes (other than transfer

 

2

 

taxes) or charges
imposed by any governmental body, agency or official (other than income taxes)
or by reason of the issuance of Shares.

 

5.                                       Withholding. 
No later than the date of vesting of (or the date of an election by the
Director under Section 83(b) of the Code with respect to) the Award
granted hereunder, the Director shall make arrangements satisfactory to the
Committee regarding payment of any federal, state or local taxes of any kind
required by law to be withheld at such time with respect to such Award 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 Director, federal,
state and local taxes of any kind required by law to be withheld at such time.

 

6.                                       References.  References herein to rights and
obligations of the Director shall apply, where appropriate, to the Director’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 Agreement.

 

7.                                       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, 4rd Floor

45 Reid Street

Hamilton HM 12 Bermuda 

Attn.: Secretary

 

If to the Director:

 

To the last address
delivered to the Company by the 

Director in the manner set forth herein.

 

8.                                       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.

 

9.                                       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.

 

10.                                 Counterparts.  This Agreement may be
executed in two counterparts, each of which shall constitute one and the same
instrument.

 

3

 

IN WITNESS WHEREOF, the
undersigned have executed this Agreement as of the date first above written.

 

	
   

  	
  ARCH CAPITAL GROUP LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Robert Clements

  

 

4

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