Exhibit 4.1


 


CERTIFICATE OF
DESIGNATION


 


OF


 


8.00% NON-CUMULATIVE
PREFERRED SHARES, SERIES A


 


OF


 


ARCH CAPITAL
GROUP LTD.


 


Arch Capital
Group Ltd., an exempted company with limited liability registered under the
laws of Bermuda (the “Company”),
CERTIFIES that pursuant to resolutions of a duly authorized committee the board
of directors (the “Board of Directors”)
of the Company adopted on January 20, 2006, the creation of the series of 8.00%
Non-Cumulative Preferred Shares, Series A, US$0.01 par value per share, US$25.00
liquidation preference per share (the “Series A Non-Cumulative
Preferred Shares”), were authorized and the designation, preferences
and privileges, voting rights, relative, participating, optional and other
special rights, and qualifications, limitations and restrictions of the Series A
Non-Cumulative Preferred Shares, in addition to those set forth in the Bye-Laws
(as amended, restated, supplemented, altered or modified from time to time, the
“Bye-Laws”) of the Company, were fixed
as follows:


 


Section 1.               Designation.  The distinctive serial designation of the Series A
Non-Cumulative Preferred Shares is “8.00% Non-Cumulative Preferred Shares, Series A.”
Each share of the Series A Non-Cumulative Preferred Shares shall be
identical in all respects to every other share of Series A Non-Cumulative Preferred
Shares, except as to the respective dates from which dividends thereon shall
accrue, to the extent such dates may differ as permitted pursuant to Section 4(a) below.


 


Section 2.               Number
of Shares.  The authorized number of
shares of Series A Non-Cumulative Preferred Shares shall be 8,000,000.  Shares of Series A Non-Cumulative Preferred
Shares that are redeemed, purchased or otherwise acquired by the Company shall
be cancelled.


 


Section 3.               Definitions.  As used herein with respect to Series A Non-Cumulative
Preferred Shares:


 


“Business Day” means a day that is a Monday, Tuesday,
Wednesday, Thursday or Friday and is not a day on which banking institutions in
New York City generally are authorized or obligated by law or executive order
to close.


 


“Certificate of Designation” means this Certificate of
Designation relating to the Series A Non-Cumulative Preferred Shares, as
it may be amended, restated, supplemented, altered or modified from time to
time.


 


“Commission” means the U.S. 
Securities and Exchange Commission.


 

















 


“Common Shares” means the Common Shares, par value $0.01 per
share, of the Company.


 


“Companies Act” means the Companies Act 1981 of Bermuda, as
amended from time to time.


 


“Dividend Payment Date” has the meaning specified in Section 4(a).


 


“Dividend Period” has the meaning specified in Section 4(a).


 


“Dividend Record Date” has the meaning specified in Section 4(a).


 


“Junior Shares” means the Common Shares, and any other class
or series of shares of the Company that ranks junior to the Series A Non-Cumulative
Preferred Shares either as to the payment of dividends (whether such dividends
are cumulative or non-cumulative) or as to the distribution of assets upon any
liquidation, dissolution or winding-up of the Company.


 


“Liquidation Preference” has the meaning specified in Section 6(b).


 


“Parity Shares” means the Series A Non-Cumulative Preferred
Shares and any other class or series of shares of the Company that ranks
equally with the Series A Non-Cumulative Preferred Shares with respect to both
(a) the payment of dividends (whether such dividends are cumulative or non-cumulative)
and (b) the distribution of assets upon a liquidation, dissolution or winding-up
of the Company.


 


“Preferred Shares” means any and all series of preference
shares of the Company, including the Series A Non-Cumulative Preferred
Shares.


 


“Preferred Shares Directors” has the meaning specified in Section 8(b).


 


“Taxing Jurisdiction” has the meaning specified in Section 5(a).


 


“Voting Preferred Shares” means, with regard to any election
or removal of a Preferred Shares Director or any other matter as to which the
holders of Series A Non-Cumulative Preferred Shares are entitled to vote
as specified in Section 8 of this Certificate of Designation, any
and all series of Parity Shares upon which like voting rights have been
conferred and are exercisable with respect to such matter.


 


Section 4.               Dividends.


 


(a)           Rate.  Dividends on the Series A Non-Cumulative
Preferred Shares will not be mandatory.  Subject
to applicable Bermuda law and regulation, holders of Series A Non-Cumulative
Preferred Shares shall be entitled to receive, only when, as and if declared by
the Board of Directors or a duly authorized committee of the Board of Directors,
out of lawfully available funds for the payment of dividends under Bermuda law
and regulation, non-cumulative cash dividends at the annual rate of 8.00%
applied to the liquidation preference amount of US$25.00 per share of Series A
Non-Cumulative Preferred Shares.  Such
dividends shall be payable


 


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quarterly in arrears (as provided below in this Section 4(a)),
but only when, as and if declared by the Board of Directors or a duly authorized
committee of the Board of Directors, on the 15th day of February,
May, August and November of each year (each, a “Dividend
Payment Date”), commencing on May 15, 2006; provided
that if any such Dividend Payment Date would otherwise occur on a day that is
not a Business Day, such Dividend Payment Date shall instead be (and any
dividend payable on the Series A Non-Cumulative Preferred Shares on such
Dividend Payment Date shall instead be payable on) the immediately succeeding
Business Day.


 


Dividends, if
so declared, that are payable on Series A Non-Cumulative Preferred Shares
on any Dividend Payment Date will be payable to holders of record of Series A
Non-Cumulative Preferred Shares as they appear on the share register of the
Company on the applicable record date, which shall be the 15th calendar day of
the month immediately preceding the applicable Dividend Payment Date or such
other record date fixed by the Board of Directors or a duly authorized
committee of the Board of Directors that is not more than 60 nor less than 10
days prior to such Dividend Payment Date (each, a “Dividend
Record Date”).  Any such day
that is a Dividend Record Date shall be a Dividend Record Date whether or not
such day is a Business Day.


 


Each dividend
period (a “Dividend Period”) shall commence
on and include a Dividend Payment Date (other than the initial Dividend Period,
which shall commence on and include the date of original issue of the Series A
Non-Cumulative Preferred Shares, provided that, for any share of Series A
Non-Cumulative Preferred Shares issued after such original issue date, the
initial Dividend Period for such shares may commence on and include such other
date as the Board of Directors or a duly authorized committee of the Board of
Directors shall determine and publicly disclose at the time such additional
shares are issued) and shall end on and include the calendar day preceding the
next Dividend Payment Date.  Dividends
payable on the Series A Non-Cumulative Preferred Shares in respect of any
Dividend Period shall be computed on the basis of a 360-day year consisting of
twelve 30-day months, except that dividends for the initial Dividend Period
will be calculated based upon the actual number of calendar days from the
original issue date to the calendar day preceding the first Dividend Payment
Date, divided by a 360 day year. 
Dividends payable in respect of a Dividend Period shall be payable in
arrears (i.e., on the first Dividend Payment Date after such Dividend Period).


 


Dividends on
the Series A Non-Cumulative Preferred Shares shall be non-cumulative.  Accordingly, if the Board of Directors or a
duly authorized committee of the Board of Directors does not declare a dividend
on the Series A Non-Cumulative Preferred Shares payable in respect of any
Dividend Period before the related Dividend Payment Date, in full or otherwise,
then such undeclared dividends shall not cumulate and will not accrue and will
not be payable and the Company shall have no obligation to pay such undeclared
dividends for the applicable Dividend Period on the related Dividend Payment
Date or at any future time or to pay interest with respect to such dividends,
whether or not dividends are declared on Series A Non-Cumulative Preferred
Shares or any other preference shares the Company may issue in the future.


 


Holders of Series A
Non-Cumulative Preferred Shares shall not be entitled to any dividends or other
distributions, whether payable in cash, securities or other property, other
than


 


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dividends (if any) declared and payable on
the Series A Non-Cumulative Preferred Shares as specified in this Section 4
(subject to the other provisions of this Certificate of Designation).


 


(b)           Priority
of Dividends.  So long as any Series A
Non-Cumulative Preferred Shares remain outstanding for any Dividend Period,
unless the full dividends for the latest completed Dividend Period on all
outstanding Series A Non-Cumulative Preferred Shares and any Parity Shares
have been declared and paid (or declared and a sum sufficient for the payment
thereof has been set aside), (1) no dividend shall be declared or paid on
the Common Shares or any other Junior Shares (other than a dividend payable
solely in Junior Shares), and (2) no Common Shares or other Junior Shares
shall be purchased, redeemed or otherwise acquired for consideration by the
Company, directly or indirectly (other than (i) as a result of a
reclassification of Junior Shares for or into other Junior Shares, or the
exchange or conversion of one Junior Share for or into another Junior Share, (ii) through
the use of the proceeds of a substantially contemporaneous sale of Junior
Shares and (iii) as permitted by the Bye-Laws in effect as of the date of
this Certificate of Designation).


 


When dividends
are not paid (or declared and a sum sufficient for payment thereof set aside)
in full on any Dividend Payment Date (or, in the case of Parity Shares having
dividend payment dates different from the Dividend Payment Dates, on a dividend
payment date falling within the Dividend Period related to such Dividend
Payment Date) upon the Series A Non-Cumulative Preferred Shares and any
Parity Shares, all dividends declared by the Board of Directors or a duly
authorized committee thereof on the Series A Non-Cumulative Preferred
Shares and all such Parity Shares and payable on such Dividend Payment Date
(or, in the case of Parity Shares having dividend payment dates different from
the Dividend Payment Dates, on a dividend payment date falling within the
Dividend Period related to such Dividend Payment Date) shall be declared by the
Board of Directors or such committee of the Board of Directors pro rata so that
the respective amounts of such dividends shall bear the same ratio to each
other as all declared but unpaid dividends per share on the Series A Non-Cumulative
Preferred Shares and all Parity Shares payable on such Dividend Payment Date
(or, in the case of Parity Shares having dividend payment dates different from
the Dividend Payment Dates, on a dividend payment date falling within the
Dividend Period related to such Dividend Payment Date) bear to each other.


 


(c)           Restrictions
on Payment of Dividends.  Pursuant to
and subject to the Companies Act, the Company may not lawfully declare or pay a
dividend if the Company has reasonable grounds for believing that the Company
is, and would after payment of the dividend be, unable to pay its liabilities
as they become due, or that the realizable value of the Company’s assets would,
after payment of the dividend, be less than the aggregate value of the Company’s
liabilities, issued share capital and share premium accounts.


 


Section 5.               Payment
of Additional Amounts.


 


(a)           The
Company will make all payments on the Series A Non-Cumulative Preferred
Shares free and clear of and without withholding or deduction at source for, or
on account of, any present or future taxes, fees, duties, assessments or
governmental charges of whatever nature imposed or levied by or on behalf of
Bermuda or any other jurisdiction in which the Company is organized (a “Taxing Jurisdiction”) or any political subdivision or taxing
authority


 


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thereof or therein, unless such taxes, fees, duties, assessments or
governmental charges are required to be withheld or deducted by (x) the laws
(or any regulations or rulings promulgated thereunder) of a Taxing Jurisdiction
or any political subdivision or taxing authority thereof or therein or (y) an
official position regarding the application, administration, interpretation or
enforcement of any such laws, regulations or rulings (including, without
limitation, a holding by a court of competent jurisdiction or by a taxing
authority in a Taxing Jurisdiction or any political subdivision thereof).  If a withholding or deduction at source is
required, the Company will, subject to certain limitations and exceptions
described below, pay to the holders of the Series A Non-Cumulative Preferred
Shares such additional amounts as dividends as may be necessary so that every
net payment made to such holders, after the withholding or deduction, will not
be less than the amount provided for in Section 4(a) to be
then due and payable.


 


(b)           The
Company will not be required to pay any additional amounts for or on account
of:


 


(1)            any tax, fee, duty, assessment
or governmental charge of whatever nature that would not have been imposed but
for the fact that such holder was a resident, citizen, domiciliary or national
of, or engaged in business or maintained a permanent establishment or was
physically present in, the relevant Taxing Jurisdiction or any political
subdivision thereof or otherwise had some connection with the relevant Taxing Jurisdiction
other than by reason of the mere ownership of, or receipt of payment under,
such Series A Non-Cumulative Preferred Shares or any Series A Non-Cumulative
Preferred Shares presented for payment more than 30 days after the Relevant
Date.  The “Relevant
Date” means, in respect of any payment, the date on which such
payment first becomes due and payable, but if the full amount of the moneys
payable has not been received by the dividend disbursing agent on or prior to
such due date, it means the first date on which, the full amount of such moneys
having been so received and being available for payment to holders, notice to
that effect shall have been duly given to the holders of the Series A Non-Cumulative
Preferred Shares;


 


(2)            any estate,
inheritance, gift, sale, transfer, personal property or similar tax, assessment
or other governmental charge or any tax, assessment or other governmental
charge that is payable otherwise than by withholding or deduction from payment
of the liquidation preference;


 


(3)            any tax, fee,
assessment or other governmental charge that is payable otherwise than by
withholding or deduction from payment of the liquidation preference of or any
dividends on the Series A Non-Cumulative Preferred Shares;


 


(4)            any tax, fee, duty,
assessment or other governmental charge that is imposed or withheld by reason
of the failure by the holder of such Series A Non-Cumulative Preferred
Shares to comply with any reasonable request by the Company addressed to the
holder within 90 days of such request (a) to provide information
concerning the nationality, citizenship, residence or identity of the holder or
(b) to make any declaration or other similar claim or satisfy any
information or reporting requirement, which is required or imposed by statute,
treaty, regulation or administrative practice of the relevant


 


5

















 


Taxing
Jurisdiction or any political subdivision thereof as a precondition to
exemption from all or part of such tax, fee, duty, assessment or other governmental
charge;


 


(5)            any withholding or
deduction required to be made pursuant to any EU Directive on the taxation of
savings implementing the conclusions of the ECOFIN Council meetings of 26-27 November 2000,
3 June 2003 or any law implementing or complying with, or introduced in
order to conform to, such EU Directive; or


 


(6)            any combination of items
(1), (2), (3), (4) and (5).


 


(c)           In
addition, the Company will not pay additional amounts with respect to any
payment on any such Series A Non-Cumulative Preferred Shares to any holder
who is a fiduciary, partnership, limited liability company or other pass-thru
entity other than the sole beneficial owner of such Series A Preferred
Shares if such payment would be required by the laws of the relevant taxing
jurisdiction (or any political subdivision or relevant taxing authority thereof
or therein) to be included in the income for tax purposes of a beneficiary or
partner or settlor with respect to such fiduciary or a member of such
partnership, limited liability company or other pass-thru entity or a beneficial
owner to the extent such beneficiary, partner or settlor would not have been
entitled to such additional amounts had it been the holder of the Series A
Non-Cumulative Preferred Shares.


 


Section 6.               Liquidation
Rights.


 


(a)           Voluntary
or Involuntary Liquidation.  Upon any
voluntary or involuntary liquidation, dissolution or winding-up of the affairs
of the Company, holders of Series A Non-Cumulative Preferred Shares and
any Parity Shares shall be entitled to receive, out of the assets of the
Company or proceeds thereof (whether capital or surplus) available for
distribution to shareholders of the Company, after satisfaction of all
liabilities and obligations to creditors of the Company, if any, but before any
distribution of such assets or proceeds is made to or set aside for the holders
of Common Shares and any other Junior Shares as to such a distribution, in full
a liquidating distribution in an amount equal to US$25.00 per Series A Non-Cumulative
Preferred Share, plus any declared and unpaid dividends.


 


(b)           Partial
Payment.  If, in any distribution
described in Section 6(a) above, the assets of the Company or
proceeds thereof are not sufficient to pay the Liquidation Preferences in full
to all holders of Series A Non-Cumulative Preferred Shares and all holders
of any Parity Shares, the amounts paid to the holders of Series A Non-Cumulative
Preferred Shares and to the holders of all such other Parity Shares shall be
paid pro rata in accordance with the respective aggregate Liquidation
Preferences of the holders of Series A Non-Cumulative Preferred Shares and
the holders of all such other Parity Shares but only to the extent the Company
has assets or proceeds thereof available after satisfaction of all liabilities
to creditors.  In any such distribution,
the “Liquidation Preference” of any holder
of Preferred Shares of the Company shall mean the amount otherwise payable to
such holder in such distribution (assuming no limitation on the assets of the
Company available for such distribution), including any declared and unpaid
dividends (and, in the case of any holder of shares other than Series A Non-Cumulative
Preferred Shares and on which dividends accrue on a cumulative basis, an amount
equal to any unpaid, accrued cumulative dividends, whether or not declared, as
applicable).  Holders of Series A 


 


6

















 


Non-Cumulative Preferred Shares will not be entitled to any other
amounts from the Company after they have received their full Liquidation
Preference.


 


(c)           Residual
Distributions.  If the Liquidation
Preference has been paid in full to all holders of Series A Non-Cumulative
Preferred Shares and any holders of Parity Shares, the holders of other shares
of the Company shall be entitled to receive all remaining assets of the Company
(or proceeds thereof) according to their respective rights and preferences.


 


(d)           Merger,
Consolidation and Sale of Assets not Liquidation.  For purposes of this Section 6,
the consolidation, amalgamation, merger, arrangement, reincorporation, de-registration
or reconstruction involving the Company or the sale or transfer of all or
substantially all of the shares or the property or business of the Company
shall not constitute a liquidation, dissolution or winding-up.


 


Section 7.               Redemption.


 


(a)           Optional
Redemption.


 


(1)           The
Series A Non-Cumulative Preferred Shares may not be redeemed by the
Company prior to February 1, 2011, subject to the exceptions set forth in Section 7(a)(2) and
Section 7(f).  On or after February 1,
2011, the Company, at its option, may redeem, in whole at any time or in part
from time to time, the shares of Series A Non-Cumulative Preferred Shares
at the time outstanding, upon notice given as provided in Section 7(c) below,
at a redemption price equal to US$25.00 per share, together (except as
otherwise provided herein below) with an amount equal to any dividends that
have been declared but not paid prior to the redemption date (but with no
amount in respect of any dividends that have not been declared prior to such
date).  The redemption price for any shares
of Series A Non-Cumulative Preferred Shares redeemed pursuant to this Section 7
shall be payable on the redemption date to the holder of such shares against
book entry transfer or surrender of the certificate(s) evidencing such shares
to the Company or its agent.  Any
declared but unpaid dividends payable on a redemption date that occurs
subsequent to the Dividend Record Date for a Dividend Period shall not be paid
to the holder entitled to receive the redemption price on the redemption date,
but rather shall be paid to the holder of record of the redeemed shares on such
Dividend Record Date relating to the Dividend Payment Date as provided in Section 4
above.  Holders of Series A
Non-Cumulative Preferred Shares shall have no right to require the redemption
of Series A Non-Cumulative Preferred Shares.


 


Prior to
delivering notice of redemption as provided below, the Company will file with
its corporate records a certificate signed by one of the Company’s officers
affirming the Company’s compliance with the redemption provisions under the
Companies Act relating to the Series A Non-Cumulative Preferred Shares,
and stating that there are reasonable grounds for believing that the Company
is, and after the redemption will be, able to pay its liabilities as they
become due and that the redemption will not render the Company insolvent or
cause it to breach any provision of applicable Bermuda law or regulation.  The Company will mail a copy of this certificate
with the notice of any redemption.


 


7

















 


(2)           At
any time prior to February 1, 2011, if the Company shall have submitted to
the holders of Common Shares a proposal for an amalgamation, consolidation,
merger, arrangement, reconstruction, reincorporation, deregistration or any
other similar transaction involving the Company that requires, or the Company
shall have submitted any proposal for any other matter that, as a result of any
change in Bermuda law or regulation after such Series A Non-Cumulative Preferred
Shares are issued (whether by enactment or official interpretation), that
requires, in either case, a vote of the holders of the Series A Non-Cumulative
Preferred Shares at the time outstanding, voting separately as a single class
(alone or with one or more other classes or series of preference shares), the
Company shall have the option (but not obligation), by not less than 30 days
nor more than 60 days prior written notice, to the relevant holders, in such
form and given in such manner as to be in accordance with paragraph (c) below,
to redeem all of the outstanding Series A Non-Cumulative Preferred Shares
pursuant to this clause for cash at a redemption price of US$26.00 per share
being redeemed, plus all declared and unpaid dividends, if any, to the date of
redemption, without interest on such unpaid dividends.


 


(b)           No
Sinking Fund.  The Series A Non-Cumulative
Preferred Shares will not be subject to any mandatory redemption, sinking fund,
retirement fund or purchase fund or other similar provisions.  Holders of Series A Non-Cumulative Preferred
Shares will have no right to require redemption, repurchase or retirement of
any shares of Series A Non-Cumulative Preferred Shares.


 


(c)           Notice
of Redemption.  Notice of every
redemption of Series A Non-Cumulative Preferred Shares shall be given by
first class mail, addressed to the holders of record of the shares to be
redeemed at their respective last addresses appearing on the share register of
the Company, mailed at least 30 days and not more than 60 days before the date
fixed for redemption.  Any notice mailed
as provided in this subsection shall be conclusively presumed to have been
duly given, whether or not the holder receives such notice, but failure duly to
give such notice by mail, or any defect in such notice or in the mailing
thereof, to any holder of Series A Non-Cumulative Preferred Shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other Series A Non-Cumulative Preferred Shares.  Notwithstanding the foregoing, if the Series A
Non-Cumulative Preferred Shares or any depositary shares representing interests
in the Series A Non-Cumulative Preferred Shares are issued in book-entry
form through The Depository Trust Company or any other similar facility, notice
of redemption may be given to the holders of Series A Non-Cumulative Preferred
Shares at such time and in any manner permitted by such facility.  Each such notice given to a holder shall
state: (1) the redemption date; (2) the number of Series A Non-Cumulative
Preferred Shares to be redeemed and, if less than all the Series A Non-Cumulative
Preferred Shares held by such holder are to be redeemed, the number of such Series A
Non-Cumulative Preferred Shares to be redeemed from such holder; (3) the redemption
price; and (4) that the Series A Non-Cumulative Preferred Shares
should be delivered via book entry transfer or the place or places where certificates
for such Series A Non-Cumulative Preferred Shares are to be surrendered
for payment of the redemption price.


 


(d)           Partial
Redemption.  In case of any
redemption of only part of the Series A Non-Cumulative Preferred Shares at
the time outstanding, the shares to be redeemed shall be selected either pro
rata or in such other manner as the Company may determine to be fair and


 


8

















 


equitable.  Subject to the
provisions hereof, the Company shall have full power and authority to prescribe
the terms and conditions upon which Series A Non-Cumulative Preferred
Shares shall be redeemed from time to time. 
If fewer than all the shares represented by any certificate are
redeemed, a new certificate shall be issued representing the unredeemed shares
without charge to the holder thereof.


 


(e)           Effectiveness
of Redemption.  If notice of
redemption has been duly given and if on or before the redemption date
specified in the notice all funds necessary for the redemption have been set
aside by the Company for the benefit of the holders of the Series A Non-Cumulative
Preferred Shares called for redemption, so as to be and continue to be
available therefor, then, notwithstanding that any certificate for any share so
called for redemption has not been surrendered for cancellation or transferred
via book entry, on and after the redemption date, no further dividends will be
declared on all shares so called for redemption, all shares so called for
redemption shall no longer be deemed outstanding and all rights with respect to
such shares shall forthwith on such redemption date cease and terminate, except
only the right of the holders thereof to receive the amount payable on such
redemption, without interest.


 


(f)            Tax
Redemption.


 


(1)           If,
as a result of a “change in tax law,” there is a substantial probability that
the Company or any successor company would be required pay additional amounts
with respect to the Series A Non-Cumulative Preferred Shares with respect
to the Series A Non-Cumulative Preferred Shares, the Company shall be
entitled (but not obligated) at any time thereafter, by not less than 30 days
nor more than 60 days prior written notice to the relevant holders of the Series A
Non-Cumulative Preferred Shares, to redeem any or all Series A Non-Cumulative
Preferred Shares pursuant to this clause for cash at a redemption price of US$25.00
per share being redeemed, plus all declared and unpaid dividends, if any, to
the date of redemption, without interest on such unpaid dividends.  For the purposes of this provision, a “change in tax law” shall be (a) a change in or
amendment to laws, regulations or rulings of any jurisdiction, political
subdivision or taxing authority described in the next sentence, (b) a
change in the official application or interpretation of those laws, regulations
or rulings, (c) any execution of or amendment to any treaty affecting
taxation to which any jurisdiction, political subdivision or taxing authority
described in the next sentence is party after the date of original issuance of
the Series A Non-Cumulative Preferred Shares, or (d) a decision
rendered by a court of competent jurisdiction in Bermuda or any taxing
jurisdiction or any political subdivision, whether or not such decision was
rendered with respect to the Company. 
The jurisdictions, political subdivisions and taxing authorities
referred to in the previous sentence are (a) Bermuda or any political
subdivision or governmental authority of or in Bermuda with the power to tax, (b) any
jurisdiction from or through which the Company or its dividend disbursing agent
is making payments on the Series A Non-Cumulative Preferred Shares or any
political subdivision or governmental authority of or in that jurisdiction with
the power to tax, or (c) any other jurisdiction in which the Company or
its successor company is organized or generally subject to taxation or any
political subdivision or governmental authority of or in that jurisdiction with
the power to tax.


 


(2)           If
the entity formed by a consolidation, merger or amalgamation involving the
Company or the entity to which the Company conveys, transfers or leases substantially
all of


 


9

















 


its properties and assets is required to pay additional amounts in
respect of any tax, assessment or governmental charge imposed on any holder of Series A
Non-Cumulative Preferred Shares as a result of a change in tax law that
occurred after the date of the consolidation, merger, amalgamation, conveyance,
transfer or lease, the Company shall be entitled (but not obligated) at any
time thereafter by not less than 30 days nor more than 60 days prior written
notice to the relevant holders of Series A Non-Cumulative Preferred
Shares, in such form and given in such manner as in accordance with paragraph (c) above,
to redeem any or all Series A Non-Cumulative Preferred Shares pursuant to
this clause for cash at a redemption price of US$25.00 per share being
redeemed, plus all declared and unpaid dividends, if any, to the date of
redemption, without interest on such unpaid dividends.


 


Section 8.               Voting
Rights.


 


(a)           General.  The holders of Series A Non-Cumulative Preferred
Shares shall not have any voting rights except as set forth below or as
otherwise from time to time required by law.


 


(b)           Right
To Elect Two Directors Upon Nonpayment Events.  Whenever dividends on any Series A Non-Cumulative
Preferred Shares shall not have been declared and paid for the equivalent of six
or more Dividend Periods, whether or not consecutive (a “Nonpayment
Event”), the holders of Series A Non-Cumulative
Preferred Shares, together with the holders of any outstanding shares of Voting
Preferred Shares, voting together as a single class, shall be entitled to elect
two additional directors to the board of directors of the Company (the “Preferred  Shares Directors”),
provided that it shall be a qualification for election for any such
Preferred Shares Director that the election of such director shall not cause
the Company to violate the corporate governance requirements of any securities
exchange or other trading facility on which securities of the Company may then
be listed or quoted that listed or quoted companies must have a majority of
independent directors.  Each Preferred
Shares Director will be added to an already existing class of directors.  The number of Preferred Shares Directors on
the Board of Directors shall never be more than two at any one time.


 


In the event
that the holders of the Series A Non-Cumulative Preferred Shares, and any
such other holders of Voting Preferred Shares, shall be entitled to vote for
the election of the Preferred Shares Directors following a Nonpayment Event,
such directors shall be initially elected following such Nonpayment Event only
at a special meeting called at the request of the holders of record of at least
20% of the aggregate voting power of the Series A Non-Cumulative Preferred
Shares or of any other such series of Voting Preferred Shares then outstanding
(unless such request for a special meeting is received less than 90 days before
the date fixed for the next annual or special meeting of the shareholders of
the Company, in which event such election shall be held only at such next
annual or special general meeting of shareholders), and at each subsequent
annual general meeting of shareholders of the Company, so long as the rights
related to a Nonpayment Event remain in effect. 
Such request to call a special general meeting for the initial election
of the Preferred Shares Directors after a Nonpayment Event shall be made by
written notice, signed by the requisite holders of Series A Non-Cumulative
Preferred Shares or Voting Preferred Shares, and delivered to the Secretary of
the Company in such manner as provided for in Section 11 below, or
as may otherwise be required by Bermuda law and regulation.


 


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If and when
dividends have been paid (or declared and a sum sufficient for payment thereof
set aside) in full on the Series A Non-Cumulative Preferred Shares for at
least four Dividend Periods (whether or not consecutive) after a Nonpayment
Event, then the right of the holders of Series A Non-Cumulative Preferred
Shares to elect the Preferred Shares Directors shall cease (but subject always
to revesting of such voting rights in the case of any future Nonpayment Event
pursuant to this Section 8) and the number of Dividend Periods in
which dividends have not been declared and paid shall be reset to zero, and, if
and when any rights of holders of Series A Non-Cumulative Preferred Shares
and Voting Preferred Shares to elect the Preferred Shares Directors shall have
ceased, the terms of office of all the Preferred Shares Directors shall forthwith
terminate and the number of directors constituting the Board of Directors shall
automatically decrease by two.  In
determining whether dividends have been paid for four Dividend Periods
following a Nonpayment Event, the Company may take account of any dividends it
elects to pay for such a Dividend Period after the regular Dividend Payment
Date for that period has passed.


 


Any Preferred
Shares Director may be removed at any time without cause by the holders of
record of a majority of the aggregate voting power, as determined by the Bye-laws
of the Company, of Series A Non-Cumulative Preferred Shares and Voting
Preferred Shares then outstanding (voting together as a single class), when
they have the voting rights described above. 
Until the right of the holders of Series A Non-Cumulative Preferred
Shares and any Voting Preferred Shares to elect the Preferred Shares Directors
shall cease, any vacancy in the office of a Preferred Shares Director (other
than prior to the initial election of Preferred Shares Directors after a
Nonpayment Event) may be filled by the written consent of the Preferred Shares
Director remaining in office, or if none remains in office, by a vote of the
holders of record of a majority of the outstanding shares of the Series A Non-Cumulative
Preferred Shares and any Voting Preferred Shares (voting together as a single
class), when they have the voting rights described above.  Any such vote of shareholders to remove, or
to fill a vacancy in the office of, a Preferred Shares Director may be taken
only at a special meeting of such shareholders, called as provided above for an
initial election of Preferred Shares Directors after a Nonpayment Event (unless
such request is received less than 90 days before the date fixed for the next
annual or special general meeting of the shareholders of the Company, in which
event such election shall be held at such next annual or special general
meeting of shareholders).  The Preferred
Shares Directors shall each be entitled to one vote per director on any matter
that shall come before the Board of Directors for a vote, unless otherwise
adjusted pursuant to the Bye-Laws.  Each
Preferred Shares Director elected at any special general meeting of
shareholders of the Company or by written consent of the other Preferred Shares
Director shall hold office until the next annual general meeting of the
shareholders of the Company if such office shall not have previously terminated
as above provided.


 


(c)           Variation
of Rights.  Subject to the terms of
the Bye-Laws and the Companies Act, any or all of the special rights attached
to the Series A Non-Cumulative Preferred Shares may, whether or not the
Company is being wound-up, be varied with the consent in writing of the holders
a majority of the voting power represented by the issued Series A
Non-Cumulative Preferred Shares or with the sanction of a resolution passed by
a majority of the voting power represented by the votes cast at a separate
general meeting of the holders of the Series A Non-Cumulative Preferred
Shares in accordance with the Companies Act.  Subject to the


 


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terms of the Bye-Laws and the Companies Act, rights conferred upon the
holders of Series A Non-Cumulative Preferred Shares shall not be deemed to
be varied by the creation or issue of further shares ranking pari passu
therewith.


 


(d)           Changes
for Clarification.  Subject to
applicable Bermuda law and regulation, without the consent of the holders of
the Series A Non-Cumulative Preferred Shares, so long as such action does
not affect the special rights, preferences, privileges and voting powers, and
limitations and restrictions, of the Series A Non-Cumulative Preferred
Shares taken as a whole, the Company may amend, restate, alter, supplement, modify
or repeal any terms of the Series A Non-Cumulative Preferred Shares:


 


(i)            to
cure any ambiguity, or to cure, correct or supplement any provision contained
in this Certificate of Designation that may be defective or inconsistent; or


 


(ii)           to
make any provision with respect to matters or questions arising with respect to
the Series A Non-Cumulative Preferred Shares that is not inconsistent with
the provisions of this Certificate of Designation.


 


(e)           Changes
After Provision for Redemption.  No
vote or consent of the holders of Series A Non-Cumulative Preferred Shares
shall be required pursuant to Section 8(b), (c) or (d) above
if, at or prior to the time when any such vote or consent would otherwise be
required pursuant to such Section, all outstanding Series A Non-Cumulative
Preferred Shares shall have been redeemed, or shall have been called for
redemption upon proper notice and sufficient funds shall have been set aside
for such redemption, in each case pursuant to Section 7 above.


 


(f)            Procedures
for Voting and Consents.  The rules and
procedures for calling and conducting any meeting of the holders of Series A
Non-Cumulative Preferred Shares (including, without limitation, the fixing of a
record date in connection therewith), the solicitation and use of proxies at
such a meeting, the obtaining of written consents and any other aspect or
matter with regard to such a meeting or such consents shall be governed by any rules the
Board of Directors or a duly authorized committee of the Board of Directors, in
its discretion, may adopt from time to time, which rules and procedures
shall conform to the requirements of the Bye-Laws, applicable law and any
national securities exchange or other trading facility on which the Series A
Non-Cumulative Preferred Shares is listed or traded at the time.  Whether the vote or consent of the holders of
a plurality, majority or other portion of the shares of Series A Non-Cumulative
Preferred Shares and any Voting Preferred Shares has been cast or given on any
matter on which the holders of shares of Series A Non-Cumulative Preferred
Shares are entitled to vote shall be determined by the Company by reference to
the aggregate voting power, as determined by the Bye-Laws, of the shares voted
or covered by the consent.


 


(g)           Bye-Laws.
For the avoidance of doubt, the provisions of this Section 8 shall
be subject to Bye-law 45 (as may be amended, restated, supplemented, altered or
modified from time to time) of the Bye-Laws of the Company.


 


Section 9.               Ranking.  The Series A Non-Cumulative Preferred
Shares will, with respect to the payment of dividends and distributions of
assets upon liquidation, dissolution and winding-up, rank senior to Junior
Shares and pari passu with any Parity Shares of the Company,


 


12

















 


including other series of Preferred Shares of the Company that the
Company may issue from time to time in the future.


 


Section 10.             Record
Holders.  To the fullest extent
permitted by applicable law, the Company and the transfer agent for the Series A
Non-Cumulative Preferred Shares may deem and treat the record holder of any
share of Series A Non-Cumulative Preferred Shares as the true and lawful
owner thereof for all purposes, and neither the Company nor such transfer agent
shall be affected by any notice to the contrary.


 


Section 11.             Notices.  All notices or communications in respect of Series A
Non-Cumulative Preferred Shares shall be sufficiently given if given in writing
and delivered in person or by first class mail, postage prepaid, or if given in
such other manner as may be permitted in this Certificate of Designation, the Bye-Laws
or by applicable law.


 


Section 12.             No
Preemptive Rights.  No share of Series A
Non-Cumulative Preferred Shares shall have any rights of preemption whatsoever
as to any securities of the Company, or any warrants, rights or options issued
or granted with respect thereto, regardless of how such securities, or such warrants,
rights or options, may be designated, issued or granted.


 


Section 13.             Other
Rights.  The shares of Series A Non-Cumulative
Preferred Shares shall not have any voting powers, preferences or relative,
participating, optional or other special rights, or qualifications, limitations
or restrictions thereof, other than as set forth herein or in the Bye-laws or
as provided by applicable law.  The Series A
Non-Cumulative Preferred Shares are not convertible into or exchangeable for
any other securities or property of the Company.


 


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IN WITNESS
WHEREOF, ARCH CAPITAL GROUP LTD. has caused this certificate to be signed by John
D. Vollaro, its Executive Vice President and Chief Financial Officer, this 1st
day of February, 2006.


 


	
   

  	
   

  	
  ARCH CAPITAL
  GROUP LTD.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ John D. Vollaro

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  	
  John D.
  Vollaro

  
	
   

  	
   

  	
   

  	
  Title:

  	
  Executive
  Vice President and Chief

  Financial Officer

  
						



 


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