Exhibit 10.6

 

ARCH CAPITAL GROUP LTD.

 

Restricted Share Unit Agreement

 

THIS AGREEMENT, dated as of May 6, 2011, between Arch Capital Group Ltd. (the
“Company”), a Bermuda company, and Mark Lyons (the “Employee”).

 

WHEREAS, the Employee has been granted the following award under the Company’s
2007 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 Share Units.  Pursuant to the
provisions of the Plan, the terms of which are incorporated herein by reference,
the Employee is hereby awarded 18,900* Restricted Share Units (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 Share Units 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 on the first, second and third
anniversaries of the date hereof.  Unless otherwise provided by the Company, all
amounts receivable in connection with any adjustments to the Shares under
Section 4(c) of the Plan or Section 2(e) below shall be subject to the vesting
schedule in this Section 2(a).

 

(b)                                 Termination of Service; Forfeiture of
Unvested Share Units.

 

(i)                           In the event the Employee ceases to be an employee
of the Company prior to the date the Restricted Share Units otherwise become
vested due to his or her death or Permanent Disability (as defined in the
Company’s Incentive Compensation Plan on the date hereof), the Restricted Share
Units shall become immediately vested in full upon such termination of
employment.

 

(ii)                        In the event of termination of employment (other
than by the Company for Cause, as such term is defined in the Company’s
Incentive Compensation Plan on the date hereof) after the attainment of
Retirement Age (as defined in the Company’s Incentive Compensation Plan on the
date hereof), the Restricted Share Units shall continue to vest on the schedule
set forth in Section 2(a) above so long as the Employee does not engage in any
activity in competition with any activity of the Company or any of its
Subsidiaries other than serving on

 

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*Reflects a 3 for 1 share split that was approved at the Company’s May 6, 2011
Annual General Meeting.

 

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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”).  In the event the Employee engages in a Competitive Activity, any
unvested Restricted Share Units shall be forfeited by the Employee and become
the property of the Company.

 

(iii)                     In the event the Employee 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 Employee for Good Reason (as defined
in the Employment Agreement, dated as of August 1, 2006, as amended, between the
Employee and Arch Insurance Group Inc.), in either case, on or before the second
anniversary of the occurrence of the Change in Control, the Restricted Share
Units, to the extent not already vested, shall become immediately vested in full
upon such termination of employment.

 

(iv)                    If the Employee ceases to be an Employee of the Company
for any other reason prior to the date the Restricted Share Units become vested,
the unvested Restricted Share Units shall be forfeited by the Employee and
become the property of the Company; provided that, in the event of a Redundancy
(as defined below), the Committee, in its sole discretion, may, in accordance
with its authority under the Plan, determine that the Restricted Share Units, to
the extent not vested, shall become vested upon such termination of employment.

 

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

 

(vi)                    “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

 

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(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; or (C) 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
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.

 

(vii)                           “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.

 

(c)                              Distribution of Shares.  At the time the
Employee ceases to be an employee of the Company for any reason prior to
attaining Retirement Age, the Company shall distribute to the Employee (or his
or her heirs in the event of the Employee’s death) a number of Shares equal to
the number of vested Restricted Share Units then held by the Employee.  In the
event the Employee ceases to be an employee of the Company after attaining
Retirement Age, a number of Shares equal to the number of vested Restricted
Share Units held by the Employee will be distributed by the Company to the
Employee (or his or her heirs in the event of the

 

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Employee’s death) at the later of (i) the time the Employee ceases to be an
employee of the Company, and (ii) the date the Restricted Share Units are
scheduled to vest pursuant to the schedule set forth in Section 2(a) above
(without regard to any acceleration of such vesting), so long as the Restricted
Share Units are not forfeited before such time as provided in Section 2(b).

 

(d)                                 Rights and Restrictions.  The Restricted
Share Units shall not be transferable, other than pursuant to will or the laws
of descent and distribution.  Prior to vesting of the Restricted Share Units and
delivery of the Shares to the Employee following his termination of employment,
the Employee shall not have any rights or privileges of a shareholder as to the
Shares subject to the Award.  Specifically, the Employee shall not have the
right to receive dividends or the right to vote such Shares prior to vesting of
the Award and delivery of the Shares.

 

(e)                                  Anti-dilution Adjustments.  For the
avoidance of doubt, the terms of Section 4(c) of the Plan, relating to
anti-dilution adjustments, will apply for the Restricted Share Units.

 

(f)                                    Dividend Equivalents.  As of each date on
which a cash dividend is paid on Shares, there shall be granted to the Employee
that number of additional Restricted Share Units (including fractional units)
determined by (i) multiplying the amount of such dividend per Share by the
number of Restricted Share Units held by the Employee, and (ii) dividing the
total so determined by the Fair Market Value of a Share on the date of payment
of such cash dividend.  The Restricted Share Units granted pursuant to this
Section 2(f) will have the same terms and conditions (including vesting dates)
as the Restricted Share Units with respect to which they are granted.

 

(g)                                 No Right to Continued Employment.  This
Award shall not confer upon the Employee any right with respect to continuance
of employment by the Company nor shall this Award interfere with the right of
the Company to terminate the Employee’s employment 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
Employee.  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) or by reason of the issuance of Shares.

 

5.                                       Withholding.  The Employee shall pay to
the Company or make arrangements satisfactory to the Committee regarding payment
of any federal, state or local taxes

 

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of any kind required by law to be withheld with respect to the 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 Employee, federal,
state and local taxes of any kind required by law to be withheld.

 

6.                                       References.  References herein to
rights and obligations of the Employee shall apply, where appropriate, to the
Employee’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, 4th Floor

45 Reid Street

Hamilton HM 12 Bermuda

Attn.: Secretary

 

If to the Employee:

 

To the last address delivered to the Company by the Employee 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.

 

11.                                 Section 409A.  It is intended that this
Agreement and the Award will comply with Section 409A of the Code (and any
regulations and guidelines issued thereunder), to the extent the Agreement and
Award are subject thereto, and the Agreement shall be interpreted on a basis
consistent with such intent.  If an amendment of the Agreement is necessary in
order for it to comply with Section 409A, the parties hereto will negotiate in
good

 

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faith to amend the Agreement in a manner that preserves the original intent of
the parties to the extent reasonably possible.  Notwithstanding any provision of
this Agreement to the contrary, for purposes of this Agreement, the Employee’s
employment will be deemed to have terminated on the date of the Employee’s
“separation from service” (within the meaning of Treas. Reg. Section
1.409A-1(h)) with the Company.  Notwithstanding any provision to the contrary in
this Agreement, if the Employee is deemed on the date of his or her “separation
from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) to be a
“specified employee” (within the meaning of Treas. Reg. Section 1.409A-1(i)),
then with regard to any payment that is required to be delayed pursuant to
Section 409A(a)(2)(B) of the Code (after taking into account any applicable
exceptions to such requirement), such payment shall not be made prior to the
earlier of (i) the expiration of the six (6)-month period measured from the date
of the Employee’s “separation from service,” or (ii) the date of the Employee’s
death (the “Delay Period”).  Upon the expiration of the Delay Period, all
payments delayed pursuant hereto (whether they would have otherwise been payable
in a single sum or in installments in the absence of such delay) shall be paid
to the Employee in a lump sum and any remaining payments due under this
Agreement shall be paid in accordance with the normal payment dates specified
for them herein.  No action or failure to act, pursuant to this Section 11 shall
subject the Company to any claim, liability, or expense, and the Company shall
not have any obligation to indemnify or otherwise protect the Employee from the
obligation to pay any taxes, interest or penalties pursuant to Section 409A of
the Code.

 

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

 

 

 

ARCH CAPITAL GROUP LTD.

 

 

 

 

 

 

 

 

 

 

By:

/s/ Dawna Ferguson

 

 

 

Name:  Dawna Ferguson

 

 

 

Title:  Secretary

 

 

 

 

 

 

 

 

 

 

/s/ Mark D. Lyons

 

 

Mark D. Lyons

 

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