Exhibit
10.4


 


ARCH CAPITAL GROUP LTD.

Share Appreciation Right Agreement


 


AGREEMENT,
made and entered into this 5th day of May, 2010, by and between Arch Capital
Group Ltd. (the “Company”), a Bermuda company, and
           (the “SAR Holder”).


 


WHEREAS,
the SAR Holder 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, and for other good and valuable consideration, the Company and the SAR
Holder agree as follows:


 


(a)                                 Grant.  Pursuant to the provisions of the Plan, the
terms of which are incorporated herein by reference, the Company hereby grants
to the SAR Holder a Share Appreciation Right (the “SAR”) with respect to
         Shares.  The SAR represents a right to be paid, upon
exercise of the SAR, an amount measured by (x) the difference between the
Fair Market Value per Share on the date of exercise and the exercise price per
Share of the SAR, multiplied by (y) the number of Shares with respect to
which the SAR is exercised, with such amount to be paid in the form of Shares
valued at their Fair Market Value on the date of exercise.  The SAR is granted as of May 5, 2010
(the “Date of Grant”), and such grant is subject to the terms and conditions
herein and the terms and conditions of the Plan.  In the event there is any conflict between
the terms of the Plan and this Agreement, the terms of the Plan shall control.  Capitalized terms used herein but not defined
shall have the meanings given to them in the Plan.


 


(b)                                 Exercise Price.  The exercise price of the SAR shall be equal
to $75.03 per Share.


 


(c)                                  Status of
Shares.  Upon issue, the shares
received upon exercise of the SAR shall rank equally in all respects with the
other Shares.


 


(d)                                 Term of SAR.  The SAR may be exercised only during the
period (the “SAR Period”) set forth in paragraph (f) below and shall
remain exercisable until the tenth anniversary of the Date of Grant.  Thereafter, the SAR Holder shall cease to
have any rights in respect thereof.  The
right to exercise the SAR shall be subject to sooner termination as provided in
paragraph (j) below.


 


(e)                                  No Rights of
Shareholder.  The SAR
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 SAR shall become exercisable  in three equal
annual installments on the first, second and third anniversaries of the Date of
Grant, in each case subject to paragraph (j) below.  Subject to paragraph (j) below, the SAR
may be exercised at any time or from time to time during the SAR Period 


 

















 


in
regard to all or any portion of the SAR 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 SAR, 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 SAR Holder and preserve the value of the SAR, (i) there shall
automatically be substituted for each Share subject to the unexercised SAR 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 SAR shall remain the same as immediately
prior to such event.


 


(h)                                 Nontransferability.  The SAR, or any interest therein, may not be
assigned or otherwise transferred, disposed of or encumbered by the SAR Holder,
other than by will or by the laws of descent and distribution.  During the lifetime of the SAR Holder, the
SAR shall be exercisable only by the SAR Holder or by his or her guardian or
legal representative.  Notwithstanding
the foregoing, the SAR may be transferred by the SAR 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 SAR Holder’s “immediate
family.”  Any SAR held by the transferee
will continue to be subject to the same terms and conditions that were
applicable to the SAR immediately prior to the transfer, except that the SAR
will be transferable by the transferee only by will or the laws of descent and
distribution.  For purposes hereof, “immediate
family” means the SAR 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 SAR.  In order to exercise the SAR, the SAR Holder
shall submit to the Company an instrument specifying the whole number of Shares
in respect of which the SAR is being exercised. Shares will be issued
accordingly by the Company, and a share certificate dispatched to the SAR
Holder within 30 days. The payment upon a SAR exercise shall be solely the
number of whole Shares calculated in paragraph (a) above.  Fractional Shares shall be rounded down to
the nearest whole Share with no cash consideration being paid upon exercise.
Anything to the contrary herein notwithstanding, the Company shall not be
obligated to issue any Shares hereunder if the issuance of such 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
Shares may be issued without resulting in such violations of law.


 


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(j)                                    Termination of
Service.


 


1.                                      In the event
the SAR Holder ceases to be an employee of the Company due to his death or
Permanent Disability (as defined in the Company’s Incentive Compensation Plan
on the date hereof), the SAR, to the extent not already exercisable in full,
shall become immediately exercisable in full and shall continue to be
exercisable by the SAR 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 SAR Period).


 


2.                                      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 SAR shall continue to become
exercisable on the schedule set forth in paragraph (f) above so long as
the SAR 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 SAR Holder (or his Beneficiary or estate in
the event of his death) for the remainder of the SAR Period.  In the event the SAR Holder engages in a
Competitive Activity, (A) the SAR, to the extent then exercisable, may be
exercised for 30 days following the date on which the SAR Holder engages in
such Competitive Activity (but not beyond the SAR Period) and (B) the SAR,
to the extent then not exercisable, shall be immediately forfeited.


 


3.                                      In the event
the SAR Holder 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 SAR Holder for Good Reason (as defined in the
Employment Agreement, dated as of
        , between the SAR Holder and
        .), in either case, on or
before the second anniversary of the occurrence of the Change in Control, the
SAR, to the extent not already exercisable in full, shall become immediately
exercisable in full and shall continue to be exercisable by the SAR Holder for
a period of 90 days following such termination of employment (but not beyond the
SAR Period).


 


4.                                      In the event
that the SAR Holder ceases to be an employee of the Company for any other
reason, except due to a termination of the SAR Holder’s employment by the
Company for Cause, (A) the SAR, to the extent then exercisable, may be exercised
for 90 days following termination of employment (but not beyond the SAR Period)
and (B) the SAR, to the extent then not exercisable, shall be immediately
forfeited; 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 SAR, to the extent not exercisable, shall become
exercisable and shall continue to be exercisable by the SAR Holder for a period
of 90 days following such termination of employment (but not beyond the SAR
Period).


 


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5.                                      In the event of
a termination of the SAR Holder’s employment for Cause, the SAR shall
immediately cease to be exercisable and shall be immediately forfeited.


 


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


 


7.                                      “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


 


(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.


 


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“Voting
Security” means any security of the Company which carries the right to vote
generally in the election of directors.


 


8.                    “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.


 


(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 SAR.


 


(l)                                     Transfer of
Shares.  The SAR, the Shares issued
hereunder, or any interest in either, may be sold, assigned, pledged,
hypothecated, encumbered, or transferred or disposed of in any other manner, in
whole or in part, only in compliance with the terms, conditions and
restrictions as set forth in the governing instruments of the Company,
applicable United States federal and state securities laws and the terms and
conditions hereof.


 


(m)                             Expenses of
Issuance of Shares.  The
issuance of stock certificates upon the exercise of the SAR in whole or in
part, shall be without charge to the SAR Holder.  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) by reason of
the exercise of the SAR in whole or in part or the resulting issuance of Shares
hereunder.


 


(n)                                 Withholding.  No later than the date of exercise of the SAR
granted hereunder, the SAR 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 SAR
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 SAR Holder,
federal, state and local taxes of any kind required by law to be withheld upon
the exercise of such SAR.


 


(o)                                 References.  References herein to rights and obligations
of the SAR Holder shall apply, where appropriate, to the SAR 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
SAR.


 


(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, 


 


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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 SAR Holder:


 


The
last address delivered to the Company by the SAR Holder in the manner set forth
herein.


 


(q)                                 Governing Law.  This agreement shall be governed by and
construed in accordance with the laws of New York, without giving effect to
principles of conflict of laws thereof.


 


(r)                                    Entire
Agreement.  This
agreement and the Plan constitute the entire agreement among the parties
relating to the subject matter hereof, and any previous agreement or
understanding among the parties with respect thereto is superseded by this
agreement and the Plan.


 


(s)                                   Counterparts.  This agreement may be executed in two
counterparts, each of which shall constitute one and the same instrument.


 


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IN
WITNESS WHEREOF, the undersigned have executed this agreement as of the Date of
Grant.


 


	
   

  	
  ARCH
  CAPITAL GROUP LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Dawna Ferguson

  
	
   

  	
   

  	
  Name:
  Dawna Ferguson

  
	
   

  	
   

  	
  Title:
  Secretary

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  



 


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