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 Peter A. Appel (the
"Executive").
WHEREAS, the Executive is a key employee of the Company or one of its
subsidiaries; and
WHEREAS, the Board of Directors of the Company (the "Board") considers the
maintenance of a sound management to be essential to protecting and enhancing
the best interests of the Company and its stockholders and recognizes that the
possibility of a change in control raises uncertainty and questions among key
employees and may result in the departure or distraction of such key employees
to the detriment of the Company and its stockholders; and
WHEREAS, 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 employ 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. 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 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
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(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)
Marsh & 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.
(vii) "Voting Security" means any security of the Company which carries the
right to vote generally in the election of directors.
2. 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.
3. Termination Following Change in Control. The Executive shall be entitled
to the benefits provided in Section 4 hereof upon any termination of his
employment with the Company and its subsidiaries within a Protection Period,
except a termination of employment (a) because of his death, (b) because of a
"Disability," (c) by the Company or any of its subsidiaries for "Cause," or (d)
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by the Executive other than due to "Constructive Termination." No benefits shall
be paid under Section 4 of this Agreement if the Executive's employment
terminates outside of a Protection Period, whether or not a Change in Control is
then contemplated.
(i) Disability. The Executive's employment shall be deemed to have
terminated because of a "Disability" if the Executive applies for and is
determined to be eligible to receive disability benefits under the
Company's Long-Term Disability Plan.
(ii) Cause. Termination of the Executive's employment 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 employment 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 employment 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 employment shall 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 4
hereof shall be provided to the Executive.
(iv) Constructive Termination. Termination of employment 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 in-
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centive 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 9(c) hereof.
The Executive shall exercise his right to terminate employment 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 employment
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 employment 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 employment, including employment by another
employer which the Executive desires to accept.
4. Benefits Upon Termination Within Protection Period. If, within a
Protection Period, the Executive's employment by 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:
(i) The Company shall pay to the Executive, through the date of the
Executive's termination of employment, salary at the rate then in effect,
together with salary in lieu of vacation accrued to the date on which his
employment terminates, in accordance with the standard payroll practices of
the Company;
(ii) The Company shall pay to the Executive an amount equal to the
product of (A) the amount of the Executive's target annual bonus for the
year including the Change in Control Date (or the year including 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 employment, 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 employment;
(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 target annual bonus for the year including the Change in
Control Date (or the year including 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 employment; and
(iv) The Company shall continue to cover the Executive and his
dependents under, or provide the Executive and his dependents with
insurance coverage no less favorable than, the Company's life, disability,
health and dental benefit plans or programs (as in effect
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on the day immediately preceding the Protection Period or, at the option of
the Executive, on the date of termination of employment) for a period equal
to the lesser of (x) 36 months following the date of termination or (y)
until the Executive is provided by another employer with benefits
substantially comparable (with no preexisting condition limitations) to the
benefits provided by such plans or programs. To the extent any such
benefits cannot be provided under the benefit plans or programs of the
Company or any of its subsidiaries, the Executive will be entitled to
receive, on a monthly basis following termination, cash payments in an
amount equal to the monthly cost of such benefits. The statutory health
care continuation coverage period under Section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code"), ---- will commence at the
end of such 36-month period.
5. 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 employment shall be payable in accordance with such plan,
practice, policy or program.
6. 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 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 equitable relief and
remedies, including, without limitation, specific performance of the Company's
obligations hereunder, in the Executive's sole discretion.
7. 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
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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 4(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).
8. 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 employment by 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 employment 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 employment 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 employment 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
employment 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 8, 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 8, 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 8 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement. The provisions of this Section 8 shall apply to the Executive whether
or not there has been a Change in Control.
9. 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.
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(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 1 hereof upon termination of Executive's employment with the successor
within a Protection Period.
10. 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:
Peter A. Appel
2 Lounsbery Road
Bedford Corners, NY 10549
If to the Company:
Arch Capital Group Ltd.
20 Horseneck Lane
Greenwich, CT 06830
Attention: General Counsel
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.
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(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 and replaces the letter
agreement dated October 25, 1995 between the Company and the Executive 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 employment, this Agreement shall
terminate and the Executive shall not be entitled to any benefits hereunder
(other than under Section 4(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/ Robert Clements
--------------------------------------------
Name: Robert Clements
Title: Chairman of the Board of Directors
EXECUTIVE:
/s/ Peter A. Appel
------------------------------------------------
Peter A. Appel
