Exhibit 10.1


 


EMPLOYMENT AGREEMENT


 


EMPLOYMENT AGREEMENT (“Agreement”)
dated November 28, 2007 between Arch Capital Group Ltd., a Bermuda corporation (the
“Company”),  and
Constantine Iordanou (the “Executive”).


 


The parties hereto agree as follows:


 


ARTICLE 1


 


DEFINITIONS


 


SECTION 1.01.                                         Definitions. For purposes of this Agreement, the following
terms have the meanings set forth below:


 


“Base Salary”  has
the meaning set forth in Section 4.01.


 


“Cause”  means
(a) theft or embezzlement by the Executive with respect to the Companies; (b)
the Executive’s conviction of, or plea of nolo contendere to, any felony or any
misdemeanor involving moral turpitude; (c) willful or prolonged absence from
work by the Executive (other than by reason of disability due to physical or
mental illness) or willful failure or refusal by the Executive to perform his
duties and responsibilities, without the same being corrected within thirty
(30) days after being given written notice thereof; (d) continued and habitual
use of alcohol by the Executive to an extent which materially impairs the Executive’s
performance of his duties, without the same being corrected within thirty (30)
days after being given written notice thereof; (e) the Executive’s use of
illegal drugs, without the same being corrected within thirty (30) days after
being given written notice thereof; or (f) the material breach by the Executive
of any of the provisions contained in this Agreement, including, without limitation,
Section 3.01 and Section 11.01, without the same (other than in the case of
Section 11.01) being corrected within thirty (30) days after being given
written notice thereof.


 


“Companies” means the Company and its
Subsidiaries.


 


“Confidential Information” means
information that is not generally known to the public and that was or  is used, developed or obtained by the Companies in
connection with their business. It shall not include information (a) required
to be disclosed by court or administrative order; (b) lawfully obtainable from
other sources or which is in the public domain through no fault of the
Executive; or (c) the disclosure of which is consented to in writing by the
Companies.


 


“Date of Termination”  has the meaning set forth in Section 5.07.


 


“Employment Period”  has
the meaning set forth in Section 2.01.


 


“Good Reason”  means,
without the Executive’s written consent, (a) any material diminution of the duties
or responsibilities of the Executive, without the same being corrected within
thirty (30) days after being given written notice thereof; or (b) any material
breach by the Companies of the provisions contained in this Agreement, without
the same being corrected within thirty (30) days after being given written
notice thereof. For purposes of clause (a), a material


 

















 


diminution of duties or responsibilities
shall include, without limitation, either of the following:  (i) a requirement that the Executive report
to anyone other than the Board of Directors of the Company; or (ii) if,
following an event or series of events where any Person or group of related
Persons under common control that engages in a substantial property and
casualty insurance or reinsurance business (the “Acquiror”),
other than a Permitted Person, are or become the “beneficial owner” (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), directly or indirectly, of voting
securities of the Company representing more than 50% of the total voting power
of all then outstanding voting securities of the Company, the Executive is no
longer the chief executive officer of the ultimate parent company of the
parent/subsidiary group then including the Company, the Acquiror and their
Subsidiaries. For purposes of this paragraph, “Permitted Persons” means
(A) the Company; (B) any Related Party; (C) Warburg Pincus or any of
its subsidiaries or any investment funds managed or controlled by Warburg
Pincus or any of its subsidiaries; or (D) any group (as defined in
Rule 13b-3 under the Exchange Act) comprised of any or all of the
foregoing; and “Related Party” means (A) a majority-owned subsidiary of
the Company; (B) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any majority-owned subsidiary of the Company;
or (C) any entity, 50% or more of the voting power of which is owned
directly or indirectly by the stockholders of the Company in substantially the
same proportion as their ownership of voting securities of the Company
immediately prior to the transaction. The Executive shall be required to give
the Company written notice that an event or condition constituting Good Reason
has occurred within ninety (90) days after such occurrence.


 


“Intellectual Property”  has the meaning set forth in Section 7.01.


 


“Notice of Termination”  has the meaning set forth in Section 5.06.


 


“Noncompetition Period”  has the meaning set forth in Section 9.01.


 


“Person” means an individual, a
partnership, a corporation, a limited liability company, an association, a
joint stock company, an estate, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.


 


“Permanent Disability”  means those circumstances where the Executive is unable to
continue to perform the usual customary duties of his assigned job or as
otherwise assigned in accordance with the provisions of this Agreement for a
period of six (6) months in any twelve (12) month period because of physical,
mental or emotional incapacity resulting from injury, sickness or disease.


 


“Reimbursable Expenses”  has the meaning set forth in Section 4.04.


 


“Subsidiary” or “Subsidiaries”
means, with respect to any Person, any corporation, partnership, limited
liability company, association or other business entity of which (a) if a
corporation, fifty (50) percent or more of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or combination thereof; or (b) if a
partnership, limited liability company, association or other business entity,
fifty (50) percent or more of the partnership


 


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or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes of this definition, a Person or Persons will be deemed to have a
fifty (50) percent or more ownership interest in a partnership, limited
liability company, association or other business entity if such Person or
Persons are allocated fifty (50) percent or more of partnership, limited liability
company, association or other business entity gains or losses or control the
managing director or member or general partner of such partnership, limited
liability company, association or other business entity.


 


ARTICLE 2


 


EMPLOYMENT


 


SECTION 2.01.                                         Employment. The Company shall continue to employ the
Executive, and the Executive shall accept employment with the Company, upon the
terms and conditions set forth in this Agreement for the period beginning on November
28, 2007 (the date of the beginning of such period to be referred to herein as
the “Start Date”) and ending as provided in
Section 5.01 (the “Employment Period”).


 


ARTICLE 3


 


POSITION AND DUTIES


 


SECTION 3.01.                                         Position and Duties. During the Employment Period, the
Executive shall serve as President and Chief Executive Officer of the Company
and shall have such responsibilities, powers and duties as may from time to
time be prescribed by the Board of Directors of the Company; provided that such responsibilities, powers and duties are
substantially consistent with those customarily assigned to individuals serving
in such position at comparable companies. During the Employment Period the
Executive shall devote substantially all of his working time and efforts to the
business and affairs of the Companies. The Executive shall not directly or
indirectly render any services of a business, commercial or professional nature
to any other person or for-profit organization not related to the business of
the Companies, whether for compensation or otherwise, without prior written
consent of the Company. Notwithstanding the foregoing, the Executive may
continue to serve as a non-employee director of the Insurance Service Office
(or any successor thereto) and a reasonable number of non-profit organizations
so long as such service does not interfere with the performance of the
Executive’s duties hereunder.


 


SECTION 3.02.                                         Company Board Seat. During the Employment Period, the
Company shall use its best efforts to cause the Executive to be elected to the
Board of Directors of the Company. In the event that the Executive’s employment
with the Company terminates for any reason, the Executive shall resign from the
Board of Directors of the Company and any committee of such Board of Directors
on which he serves.


 


SECTION 3.03.                                         Work Permits. The Executive shall use his best efforts to
obtain, maintain and renew suitable (for the purposes of the Executive’s contemplated
employment by the Company) work permit by the Bermuda government authorities
and any other permits required


 


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by any Bermuda
government authority. The Company shall be responsible for all permit fees.


 


SECTION 3.04.                                         Work Location. While employed by the Company hereunder, the
Executive shall perform his duties at the offices of the Company in Bermuda. The
Executive shall travel to such places outside of Bermuda on the business of the
Company in such manner and on such occasions as his duties may require. There
are currently no disciplinary or grievance procedures in place, there is no
collective agreement in place, and there is no probationary period.


 


SECTION 3.05.                                         Relocation. Upon the termination of the Executive’s
employment for any reason, the Company shall reimburse the Executive for all
reasonable expenses incurred by him for relocating all of his household items
to the United States and airfare for the Executive and his family to return to
the United States, in each case, subject to the Company’s requirements with respect
to reporting and documentation of such expenses. Any such expenses must be incurred
by the Executive not later than the last day of the calendar year following the
calendar year in which the Executive’s “separation from service” (within the
meaning of Treas. Reg. Section 1.409A-1(h)) with the Company occurs. Any such
reimbursement shall be made promptly by the Company and, in all events, no
later than the last day of the second calendar year following the calendar year
in which the Executive’s “separation from service” with the Company occurs.


 


ARTICLE 4


 


BASE SALARY AND BENEFITS


 


SECTION 4.01.                                         Base Salary. During the Employment Period, the Executive’s
base salary will be $1,000,000 per annum (the “Base Salary”).
The Base Salary shall be payable monthly on the 15th day of each
month, two weeks in arrears and two weeks in advance. Normal hours of
employment are 8:30 a.m. to 5:00 p.m., Monday through Friday. The Base Salary
has been computed to reflect that the Executive’s duties are likely, from time
to time, to require more than the normal hours per week and the Executive shall
not be entitled to receive any additional remuneration for work outside normal
hours. Annually during the Employment Period, the Board of Directors of the
Company shall review with the Executive his job performance and compensation,
and, if deemed appropriate by the Board of Directors of the Company, in its discretion,
the Executive’s Base Salary may be increased.


 


SECTION 4.02.                                         Bonuses. In addition to the Base Salary, the Executive shall
participate in an annual bonus plan on terms established from time to time by
the Board of Directors of the Company, in consultation with the senior
executives of the Company, including the Executive. The Executive’s target
annual bonus will be 100% of his Base Salary.


 


SECTION 4.03.                                         Benefits. In addition to the Base Salary, and any bonuses
payable to the Executive pursuant to this Agreement, the Executive shall be
entitled to the following benefits during the Employment Period:


 


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(a)                such
major medical, life insurance and disability insurance coverage as is, or may
during the Employment Period, be provided generally for other senior executive
officers of the Company as set forth from time to time in the applicable plan
documents;


 


(b)               in
addition to the usual public holidays and eight (8) paid days off for sick
leave, a maximum of four (4) weeks of paid vacation annually during the term of
the Employment Period (Section 11 of the Bermuda Employment Act 2000 shall
otherwise not apply to the Executive’s employment hereunder);


 


(c)                benefits
under any plan or arrangement available generally for the senior executive
officers of the Company, subject to and consistent with the terms and
conditions and overall administration of such plans as set forth from time to
time in the applicable plan documents;


 


(d)                 payment
by the Company of the reasonable cost of preparation of annual tax returns and
associated tax planning on a basis no less favorable than  such arrangements provided on the date
hereof to similarly situated senior executives residing in Bermuda, and the
cost paid by the Company under this Section 4.03(d) for one calendar year may
not affect such cost paid by the Company in any other calendar year;


 


(e)                  payment
by the Company of an amount equal to the excess, if any, of the amount of
income and employment taxes payable by the Executive to Bermuda, New York and
any other governmental taxing authority over the amount that would have been
payable by the Executive had he resided in New York for the entire calendar
year, such reimbursement to be made on or before the last day of the calendar
year following the calendar year for which the excess tax was incurred, and the
amount eligible for reimbursement under this Section 4.03(e) in one calendar
year shall not affect the amount eligible for reimbursement hereunder in any
other calendar year; and


 


(f)                    other
fringe benefits customarily provided to similarly situated senior executives
residing in Bermuda.


 


SECTION 4.04.                                         Expenses. The Company shall reimburse the Executive for all
reasonable expenses incurred by him in the course of performing his duties
under this Agreement which are consistent with the Company’s policies in effect
from time to time with respect to travel, entertainment and other business
expenses (“Reimbursable Expenses”),  subject to the Companies’ requirements with respect to
reporting and documentation of expenses. During the Employment Period any
private aircraft owned or leased by the Companies at such time (if any), or
such other air transportation as is reasonably acceptable to the Executive,
shall be made available to him upon his reasonable request and at the Company’s
expense for travel between Bermuda and the New York Metropolitan area, and the
level of eligible aircraft use for one calendar year under this Agreement will
not affect the level of eligible aircraft use for any other calendar year.


 


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SECTION 4.05.                                         Stock Options and Restricted Stock. The Executive shall be
eligible to participate in Company’s Long Term Incentive and Share Award Plans
(and any similar plan adopted by the Company) under which awards of options or
other stock-based awards may be granted by the Board of Directors of the
Company. In consideration for the Executive’s entering into this Agreement, the
following awards of restricted Company common stock granted to the Executive by
the Company shall, notwithstanding any provision in the applicable award
agreement to the contrary, become vested in full on November 28, 2007: 13,333
shares granted on February 23, 2006 (6667 shares under such grant have already
vested) and 45,000 shares granted on May 11, 2007.


 


ARTICLE 5


 


TERM AND TERMINATION


 


SECTION 5.01.                                         Term. The Employment Period will terminate on the fifth
anniversary of the Start Date unless otherwise agreed by the parties; provided,
that (a) the Employment Period shall terminate prior to such date upon
the Executive’s death or Permanent Disability, and (b) the Employment Period
may be terminated at any time by the Company upon 30 days’ prior written notice
to the Executive or by the Executive upon 60 days’ prior written notice to the
Company. In addition, this Agreement will be automatically extended on the same
terms and conditions for successive one year periods following the original
five (5) year term until either the Company or the Executive, at least twelve
(12) months prior to the expiration of the original term or any extended term,
shall give written notice of their intention not to renew the Agreement (it being
understood that any such notice by the Company or the Executive shall not be
considered a termination of employment by the Company or the Executive for
purposes of Section 5.03).


 


SECTION 5.02.                                         Termination Due to Death or Permanent Disability. If the Employment
Period shall be terminated due to the death of the Executive, the Executive’s
estate or legal representative shall be paid solely (except as provided in
Section 5.05 below) (i) a portion of the bonus (if any) that would have
been payable to the Executive for the year of termination as determined by the
Board of Directors in accordance with the annual bonus plan, prorated for the
portion of the bonus year during which he was employed by the Company, and (ii)
an amount equal to two times the sum of the Base Salary and the target annual
bonus set forth in Section 4.02. Such amount will be payable in a lump sum within
ninety days (with the payment date within such period as determined by the
Company) following the Executive’s death and shall be offset by any proceeds
received by the Executive’s estate or legal representative from any life insurance
coverages provided by the Company or any of its affiliates. If the Employment
Period shall be terminated by reason of a termination of employment due to the
Permanent Disability of the Executive, the Executive (or his legal representative)
shall be paid solely (except as provided in Section 5.05 below) (i) a
portion of the bonus (if any) that would have been payable to the Executive for
the year of termination as determined by the Board of Directors in accordance
with the annual bonus plan, prorated for the portion of the bonus year during
which he was employed by the Company, which shall be paid on March 15 of the
year following the year that the Executive becomes Permanently Disabled, and
(ii) at a rate equal to 40% of the Base Salary on a monthly basis during the
period beginning on the date of the Executive’s Permanent Disability up to the
month in which the Executive reaches age 65, offset by any proceeds received by
the


 


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Executive or
his legal representative from any disability insurance coverages provided by
the Company or any of its affiliates. In addition, promptly following any such
termination, the Executive (or his estate or legal representative) shall also
be reimbursed all Reimbursable Expenses incurred by the Executive prior to such
termination.


 


SECTION 5.03.                                         Termination for Good Reason or Without Cause. If the
Employment Period shall be terminated (a) by the Executive for Good Reason or
(b) by the Company not for Cause, subject to reduction as set forth in Section
12.01, the Executive shall be paid solely (except as provided in
Section 5.05 below) (i) a portion of the bonus (if any) that would have been
payable to the Executive for the year of termination as determined by the Board
of Directors in accordance with the annual bonus plan, prorated for the portion
of the bonus year during which he was employed by the Company, and (ii) an
amount equal to two times the sum of the Base Salary and the target annual
bonus set forth in Section 4.02. Subject to Section 13.10 below, such
amount will be paid in equal monthly installments for a period of eighteen (18)
months commencing on the first month anniversary of the Date of Termination and
continuing on each of the following seventeen (17) monthly anniversaries
thereof. In addition, promptly following any such termination, the Executive
shall also be reimbursed all Reimbursable Expenses incurred by the Executive
prior to such termination.


 


SECTION 5.04.                                         Termination for Cause or Other Than Good Reason. If the Employment
Period shall be terminated (a) for Cause, or (b) as a result of the Executive’s
resignation or leaving of his employment, other than for Good Reason,  the Executive shall be entitled to receive solely the Base
Salary through the Date of Termination and reimbursement of all Reimbursable
Expenses incurred by the Executive prior to such termination.


 


SECTION 5.05.                                         Benefits. If the Employment Period is terminated as a result
of a termination of employment as specified in Section 5.02 or 5.03, the
Executive and his spouse shall continue to receive major medical insurance
coverage benefits from the Company’s plan in effect at the time of such
termination, at the expense of the Company, for a period equal to the lesser of
(x) eighteen (18) months following the Date of Termination or (y) if applicable,
until the Executive is provided by another employer with benefits substantially
comparable (with no preexisting condition limitations) to the benefits provided
by such plan. 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 period. In addition,
if the Employment Period is terminated as a result of a termination of
employment as specified in Section 5.02 or 5.03, any unvested stock options and
any unvested shares of restricted stock of the Company granted to the Executive
under Section 4.05 shall vest in accordance with the terms of the applicable
award agreements. Except as otherwise required by mandatory provisions of law,
all of the Executive’s rights to fringe and other benefits under this Agreement
or other plans or arrangements of the Companies, if any, accruing after the
termination of the Employment Period as a result of a termination of employment
as specified in Section 5.04 will cease upon such termination; provided, that
the foregoing shall not apply with respect to the Executive’s rights as set
forth in any deferred compensation plans maintained by the Company or its
affiliates, and under Section 11.03.


 


SECTION 5.06.                                         Notice of Termination. Any termination by the Company or by
the Executive for any reason shall be communicated by written Notice of Termination
to the other


 


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party hereto. For
purposes of this Agreement, a “Notice of Termination”
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of employment
under the provision indicated.


 


SECTION 5.07.                                         Date of Termination. “Date of Termination”  shall mean (a) if the Employment Period is terminated as a
result of a Permanent Disability, five (5) days after a Notice of Termination
is given, (b) if the Employment Period is terminated for Good Reason, the date
specified in the Notice of Termination consistent with the terms hereof, (c) if
the Employment Period is terminated for Cause, the date designated by the
Company in the Notice of Termination, (d) if the Employment Period terminates
due to expiration of the term of this Agreement, the date the term expires, and
(e) if the Employment Period is otherwise terminated under Section 5.01, after
the applicable notice period specified in such section has elapsed.


 


SECTION 5.08.                                         Separation From Service. Notwithstanding any provision of
this Agreement to the contrary, for purposes of Section 5.02, 5.03 and Section
5.05, the Executive will be deemed to have terminated his employment on the
date of his “separation from service” (within the meaning of Treas. Reg. Section
1.409A-1(h)) with the Company, the Employment Period will be deemed to have
ended on the date of his “separation from service” with the Company, and the
Date of Termination will be deemed to be the date of his “separation from
service” with the Company.


 


ARTICLE 6


 


CONFIDENTIAL INFORMATION


 


SECTION 6.01.                                         Nondisclosure and Nonuse of Confidential Information. The
Executive will not disclose or use at any time during or after the Employment
Period any Confidential Information of which the Executive is or becomes aware,
whether or not such information is developed by him, except to the extent that
such disclosure or use is directly related to and required by the Executive’s
performance of duties assigned to the Executive pursuant to this Agreement.


 


ARTICLE 7


 


INTELLECTUAL PROPERTY


 


SECTION 7.01.                                         Ownership of Intellectual Property. In the event that the
Executive as part of his activities on behalf of the Companies generates,
authors or contributes to any invention, design, new development, device,
product, method of process (whether or not patentable or reduced to practice or
comprising Confidential Information), any copyrightable work (whether or not
comprising Confidential Information) or any other form of Confidential
Information relating directly or indirectly to the business of the Companies as
now or hereinafter conducted (collectively, “Intellectual
Property”), the Executive acknowledges that such Intellectual
Property is the sole and exclusive property of the Companies and hereby assigns
all right title and interest in and to such Intellectual Property to the
Companies. Any copyrightable work prepared in whole or in part by the Executive
during the Employment Period will be deemed “a work made


 


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for hire”
under Section 201(b) of the United States Copyright Act of 1976, as amended,
and the Companies will own all of the rights comprised in the copyright therein.
The Executive will cooperate with the Companies to protect the Companies’
interests in and rights to such Intellectual Property (including providing
reasonable assistance in securing patent protection and copyright registrations
and executing all documents as reasonably requested by the Companies, whether
such requests occur prior to or after termination of Executive’s employment
hereunder).


 


ARTICLE 8


 


DELIVERY OF MATERIALS UPON TERMINATION OF EMPLOYMENT


 


SECTION 8.01.                                         Delivery of Materials upon Termination of Employment. As
requested by the Company, from time to time and upon the termination of the
Executive’s employment with the Company for any reason, the Executive will
promptly deliver to the Company all copies and embodiments, in whatever form or
medium, of all Confidential Information or Intellectual Property in the
Executive’s possession or within his control (including written records, notes,
photographs, manuals, notebooks, documentation, program listings, flow charts,
magnetic media, disks, diskettes, tapes and all other materials containing any
Confidential Information or Intellectual Property) irrespective of the location
or form of such material and, if requested by the Company, will provide the Company
with written confirmation that all such materials have been delivered to the
Company.


 


ARTICLE 9


 


NONCOMPETITION AND NONSOLICITATION


 


SECTION 9.01.                 Noncompetition. The Executive acknowledges that during his
employment with the Company, he will become familiar with trade secrets and
other Confidential Information concerning the Companies and their respective
predecessors, and that his services will be of special, unique and
extraordinary value to the Companies. In addition, in consideration of the
rights to the payments set forth in Article 5 of this Agreement, the Executive
hereby agrees that at any time during the Employment Period, and for a period
ending eighteen (18) months after the termination of Executive’s employment
(the “Noncompetition Period”), he will not
directly or indirectly own, manage, control, participate in, render services
(as an employee, consultant or in any other capacity) for or in any manner
engage in any business competing with the insurance and reinsurance businesses
of the Companies as such businesses exist as of the termination of Executive’s
employment, within any geographical area in which the Companies engage in such
businesses; provided, however, that, if such termination is by
the Company not for Cause or by the Executive for Good Reason under Section
5.03, the Executive shall be bound by this Section 9.01 only to extent that the
Company provides to the Executive the benefits set forth in Section 5.03 and
Section 5.05; provided, further, that, if such termination is due
to (i) the expiration of the original five year term of this Agreement or any extended
term or (ii) by reason of Executive’s resignation or leaving of his employment
other than for Good Reason, the Executive shall be bound by this Section 9.01
for the period of up to eighteen (18) months that the Company, at its sole
option, within thirty (30) days following such termination, specifies in a
written election given to the Executive, and the Company shall (a) pay the Executive
an amount equal to two times the sum of the Base Salary and the target annual
bonus set


 


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forth in Section 4.02 prorated for
the period selected by the Company and identified in the above-referenced written
election (such amount to be paid, subject to Section 13.10 below, in eighteen
(18) equal monthly installments beginning, subject to Section 13.10 below,
one month following the Executive’s “separation from service” (within the
meaning of Treas. Reg. Section 1.409A-1(h)) with the Company and continuing for
the next seventeen (17) months thereafter), and (b) provide the benefits set
forth in Section 5.05. It shall not be considered a violation of this Section
9.01 for the Executive to be a passive owner of not more than 2% of the
outstanding stock of any class of a corporation which is publicly traded, so
long as the Executive has no active participation in the business of such
corporation. In addition, it shall not be considered a violation of this Section
9.01 for the Executive to provide services in a non-managerial capacity to a
non-risk bearing entity (for example, as an insurance broker or analyst).


 


SECTION 9.02.                                         Nonsolicitation. The Executive hereby agrees that (a) during
the Employment Period and for a period of eighteen (18) months after the
termination of Executive’s employment (the “Nonsolicitation
Period”) the Executive will not, directly or indirectly through
another entity, induce or attempt to induce any employee of the Companies to
leave the employ of the Companies, or in any way interfere with the
relationship between the Companies and any employee thereof and (b) during the
Nonsolicitation Period, the Executive will not induce or attempt to induce any
customer, supplier, client, insured, reinsured, reinsurer, broker, licensee or
other business relation of the Companies to cease doing business with the
Companies.


 


SECTION 9.03.                                         Enforcement. If, at the enforcement of Sections 9.01 or
9.02, a court holds that the duration, scope or area restrictions stated herein
are unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances will be
substituted for the stated duration, scope or area and that the court will be permitted
to revise the restrictions contained in this Article 9 to cover the maximum
duration, scope and area permitted by law.


 


ARTICLE 10


 


EQUITABLE RELIEF


 


SECTION 10.01.                                   Equitable Relief. The Executive acknowledges that (a) the
covenants contained herein are reasonable, (b) the Executive’s services are
unique, and (c) a breach or threatened breach by him of any of his covenants
and agreements with the Companies contained in Sections 6.01, 7.01, 8.01, 9.01
or 9.02 could cause irreparable harm to the Companies for which they would have
no adequate remedy at law. Accordingly, and in addition to any remedies which
the Companies may have at law, in the event of an actual or threatened breach
by the Executive of his covenants and agreements contained in Sections 6.01,
7.01, 8.01, 9.01 or 9.02, the Companies shall have the absolute right to apply
to any court of competent jurisdiction for such injunctive or other equitable
relief as such court may deem necessary or appropriate in the circumstances,
and the Companies will be entitled to enforce such rights specifically, without
posting a bond or other security.


 


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ARTICLE 11


 


REPRESENTATIONS; CERTAIN COVENANTS


 


SECTION 11.01.                                   Executive Representations. The Executive hereby represents
and warrants to the Company that (a) the execution, delivery and performance of
this Agreement by the Executive does not and will not conflict with, breach,
violate or cause a default under any contract, agreement, instrument, order, judgment
or decree to which the Executive is a party or by which he is bound, (b) the Executive
is not a party to or bound by any noncompetition agreement with any other
Person and (c) upon the execution and delivery of this Agreement by the Company,
this Agreement will be the valid and binding obligation of the Executive.


 


SECTION 11.02.                                   Company Representations. The Company hereby represents and
warrants to the Executive that (a) it has all necessary corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder and (b) the execution and delivery of this Agreement by the Company
has been duly and validly authorized by all necessary corporate action. The Company
also agrees to use reasonable best efforts to maintain an effective
Registration Statement on Form S-8 (or any similar successor form) covering the
issuance to the Executive of (i) any shares of the Company’s common stock upon
the exercise of any options granted under a plan of the Company and (ii) any
shares of restricted common stock of the Company granted under a plan of the
Company.


 


SECTION 11.03.                                   General Indemnification. The Company agrees that if the Executive
is made a party, or is threatened to be made a party, to any pending or
threatened action, suit or proceeding, whether civil, criminal, administrative
or investigative (each, a “Proceeding”),
by reason of the fact that he is or was a director, officer or employee of the
Company or is or was serving at the request of the Company as a director, officer,
member, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, the Executive shall be indemnified and held harmless by the Company to
the fullest extent permitted or authorized by applicable law and the Company’s
certificate of incorporation or bylaws, against all cost, expense, liability
and loss reasonably incurred or suffered by the Executive in connection
therewith, including, without limitation, attorneys’ fees and disbursements and
judgments, and the Company shall advance expenses in connection therewith, to
the fullest extent permitted or authorized by applicable law and the Company’s
certificate of incorporation or bylaws. Such indemnification shall continue as
to the Executive even if he has ceased to be a director, member, employee or
agent of the Company or other entity and shall inure to the benefit of the
Executive’s heirs, executors and administrators. The Company agrees to continue
and maintain a directors’ and officers’ liability insurance policy covering the
Executive to the extent the Company provides such coverage for its other
executive officers.


 


SECTION 11.04.                                   Legal Fees. The Company shall reimburse the Executive within
sixty (60) days after the date hereof for all reasonable expenses incurred by
him for legal advice in finalizing the Agreement, subject to a maximum of
$15,000. In addition, the Company agrees to pay all legal fees which the
Executive may reasonably incur as a result of any dispute or contest by or with
the Company regarding the validity or enforceability of, or liability under,
any provision of this Agreement or otherwise in connection with the enforcement
of this Agreement, unless the Company substantially prevails on all material
causes of action in the dispute or contest. Following the final determination
of the dispute or contest in which the Executive has substantially prevailed on
all material causes of action, the Company shall pay all such reasonable legal
fees and expenses within ten (10) days following written demand therefor
(supported by


 


11

















 


documentation
of such costs) by the Executive, and the Executive shall make such written demand
within sixty (60) days following the final determination of the proceeding; provided,
however, that such payment shall be made no later than on or prior to the
end of the calendar year following the calendar year in which the fee or
expense is incurred. Notwithstanding the foregoing, in the event a final
determination of the dispute or contest has not been made by December 20
of the year following the calendar year in which the fee or expense is
incurred, the Company shall, within ten (10) days after such December 20, reimburse
such reasonable legal fees and expenses (supported by documentation of such
costs) incurred in the prior taxable year; provided, however, that the
Executive shall return such amounts to the Company within ten (10) business
days following the final determination if the Executive did not substantially
prevail on all material causes of action in the proceeding. The amount of any
expenses eligible for payment under this Section 11.04 during a calendar
year will not affect the amount of any expenses eligible for payment under this
Section 11.04 in any other taxable year.


 


ARTICLE 12


 


CERTAIN ADDITIONAL PAYMENTS


 


SECTION 12.01.                                   Anything
in this Agreement or the Company’s Incentive Compensation Plan to the contrary
notwithstanding, in the event it shall be  determined that
any payment, award, benefit or distribution (including, without limitation, the
acceleration of any payment, award, distribution or benefit), by the Company or
any of its affiliates to or for the benefit of the Executive (whether pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this Article 12) (as reduced as set
forth in this Section 12.01, a “Payment”) would
be subject to the excise tax imposed by Section 4999 of the Code or any
corresponding provisions of state or local tax law, or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the “Excise Tax”),
then the Executive shall be paid an additional payment (a “Gross-Up
Payment”) in an amount such that after payment by the Executive of
all taxes (including any Excise Tax, and any federal, state and local income
tax or employment tax) imposed upon the Gross-Up Payment and any interest or
penalties imposed with respect to such taxes, the Executive retains from the
Gross-Up Payment an amount equal to the Excise Tax imposed upon the Payments; provided
that the Payments, in the aggregate, shall be reduced (subject to the following
sentences of this section) by an amount equal to the lesser of: (x) the
smallest amount possible such that no Payment would be treated as a “parachute
payment” under Section 280G of the Code; and (y) $2,500,000. The reduction of
the Payments, if applicable, shall be made by reducing the payments under
Section 5.03. No reduction shall be made with respect to any Payment
received or otherwise required to be included in income for federal income tax
purposes prior to such event. Notwithstanding anything to the contrary in the
three preceding sentences, if, without regard to any Gross-Up Payment and
without any reduction in Payments, the net amount retained by the Executive,
after subtracting from the Payments otherwise to be made all taxes imposed
thereon (including the Excise Tax), would exceed the after-tax amount that
would be retained by the Executive with the Gross-Up Payment and after the
reduction computed above, then no reduction in Payments shall be made and no Gross-Up
Payment shall be made. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax and employment
taxes at the highest marginal rates of federal income and employment taxation
in the calendar year in which


 


12

















 


the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of taxation
in the state and locality of the Executive’s residence (or, if greater, the state
and locality in which the Executive is required to file a nonresident income
tax return with respect to the Payment) on the date of termination of
employment, net of the reduction in federal income taxes that may be obtained
from the deduction of such state and local taxes. In addition, no reduction
shall be made (and no Excise Tax shall be withheld) with respect to any Payment
if the Executive (i) provides to the Company an opinion of counsel reasonably
acceptable to the Company to the effect that no Excise Tax should be due with
respect to the Payments and (ii) releases the Company from any liability under
this Article 12.


 


SECTION 12.02.                                   Subject
to the provisions of Section 12.03, all determinations required to be made
under this Article 12, including the determination of whether a Gross-Up
Payment is required and of the amount of any such Gross-up Payment, shall be
made by a “Big 4” accounting firm (other than the regular outside accounting
firm retained by the Company) selected by the Company and agreed to by the
Executive, which agreement shall not be unreasonably withheld (the “Accounting Firm”), which Accounting Firm shall provide
detailed supporting calculations both to the Company and the Executive within
15 business days after the receipt of notice from the Company that the
Executive has received a Payment, or such earlier time as is requested by the
Company. The initial Gross-Up Payment, if any, as determined pursuant to this
Section 12.02, shall be paid to the Executive (or for the benefit of the Executive
to the extent of the Company’s withholding obligation with respect to
applicable taxes) within 10 days after the receipt of the Accounting Firm’s
determination. Any determination by the Accounting Firm meeting the
requirements of this Section 12.02 shall be binding upon the Company and the Executive.
As a result of the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-Up Payments which will not have been made by the
Company should have been made (“Underpayment”),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 12.03 and the
Executive thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and any
such Underpayment shall be paid by the Company to or for the benefit of the
Executive within 10 days after delivery of copies of a statement setting forth
such determination, and the underlying calculations, to the Company and the Executive.
The fees and disbursements of the Accounting Firm shall be paid by the Company.
If required, the Company shall enter into an engagement letter with the Accounting
Firm containing reasonable and customary terms and provisions.


 


SECTION 12.03.                                   The
Executive shall  notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of a Gross-Up Payment. Such notification shall be
given as soon as practicable but not later than ten business days after the
Executive receives written notice of such claim and shall apprise the Company
of the nature of such claim and the date on which such Claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in writing
prior to the expiration of such period that it desires to contest such claim,
the Executive shall:


 


13

















 


(i)                                     give the Company
any information reasonably requested by the Company relating to such claim,


 


(ii)                                  take such action in
connection with contesting such claim as the Company shall reasonably request
in writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company,


 


(iii)                               cooperate with the
Company in good faith in order effectively to contest such claim, and


 


(iv)                              permit the Company to
participate in any proceedings relating to such claim;


 


provided,
however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax, income tax or employment tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 12.03, the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to  a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis, from any
Excise Tax, income tax or employment tax, including interest or penalties with
respect thereto, imposed with respect to such advance; and further  provided
that any extension of the statute of limitations relating to the payment of
taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.


 


SECTION 12.04.                                   If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 12.03, the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company’s
complying with the requirements of Sections 12.01, 12.02 and 12.03) promptly
pay to the Company, upon receipt of the refund, the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 12.03, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the


 


14

















 


amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment required
to be paid.


 


SECTION 12.05.                                   Anything
in this Agreement to the contrary notwithstanding, except as otherwise provided
in Treas. Reg. Section 1.409A-3(i)(1)(v), in no event shall any payment by the
Company pursuant to this Article 12 be made later than the end of the Executive’s
taxable year next following the Executive’s taxable year in which he remits the
related taxes.


 


ARTICLE 13


 


MISCELLANEOUS


 


SECTION 13.01.                                   Certain Procedures. There are currently no disciplinary or
grievance procedures in place, there is no collective agreement in place, and
there is no probationary period.


 


SECTION 13.02.                                   Consent to Amendments. The provisions of this Agreement may
be amended or waived only by a written agreement executed and delivered by the
Company and the Executive. No other course of dealing between the parties to
this Agreement or any delay in exercising any rights hereunder will operate as
a waiver of any rights of any such parties.


 


SECTION 13.03.                                   Successors and Assigns. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto will
bind and inure to the benefit of the respective successors and assigns of the
parties hereto whether so expressed or not, provided that
the Executive may not assign his rights or delegate his obligations under this
Agreement without the written consent of the Company; provided further that
the Company may not assign the rights of the Company hereunder except to a
Person that expressly assumes the obligations of the Company hereunder.


 


SECTION 13.04.                                   Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.


 


SECTION 13.05.                                   Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures
of more than one party, but all of which counterparts taken together will
constitute one and the same agreement.


 


SECTION 13.06.                                   Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.


 


SECTION 13.07.                                   Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally
to the recipient, two (2) business days after the date when sent to the
recipient by reputable express courier service (charges prepaid) or four (4)
business days after the date when mailed to the recipient by certified or registered


 


15

















 


mail, return
receipt requested and postage prepaid. Such notices, demands and other communications
will be sent to the Executive and to the Company at the addresses set forth
below.


 


	
  If to the
  Executive:

  	
   

  	
  To the last
  address of the Executive on record with the Company.

  
	
   

  	
   

  	
   

  
	
  Copies
  (which shall not constitute notice) of notices to the Executive shall also be
  sent to:

  
	
   

  
	
   

  	
   

  	
  Roberts
  & Holland LLP

  825 Eighth Avenue, 37th Floor

  New York, NY  10019

  Attn:  David E. Kahen, Esq.

  
	
   

  	
   

  	
   

  
	
  If to the
  Company:

  	
   

  	
  Arch Capital
  Group Ltd.

  Executive Offices:

  Wessex House

  3rd Floor

  45 Reid Street

  PO Box HM 339

  Hamilton, HM 12

  Bermuda

  Attn:  General Counsel

  
	
   

  	
   

  	
   

  
	
  Copies
  (which shall not constitute notice) of notices to the Company shall also be
  sent to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cahill
  Gordon & Reindel LLP

  80 Pine Street

  New York, NY  10005

  Attn:  Glenn J. Waldrip, Jr., Esq.

  



 


or to such other address or to
the attention of such other person as the recipient party has specified by
prior written notice to the sending party.


 


SECTION 13.08.                                   Withholding. The Company may withhold from any amounts
payable under this Agreement such federal, state, local or foreign taxes as
shall be required to be withheld pursuant to any applicable law or regulation.


 


SECTION 13.09.                                   No Third Party Beneficiary. This Agreement will not confer
any rights or remedies upon any person other than the Company, the Executive
and their respective heirs, executors, successors and assigns.


 


SECTION 13.10.                                   Section 409A. It is intended that this Agreement will comply
with Section 409A of the Code and any regulations and guidelines issued thereunder,
to the extent the Agreement is subject thereto, and the Agreement shall be
interpreted on a basis consistent with such intent. Notwithstanding any
provision to the contrary in this Agreement, if the Executive is deemed on the
date of his “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


 


16

















 


409A(a)(2)(B)
of the Code, the portion, if any, of such payment so required to be delayed
shall not be made prior to the earlier of (i) the expiration of the six
(6)-month period measured from the date of his “separation from service”, or
(ii) the date of his death (the “Delay Period”). Upon the expiration of the
Delay Period, all payments delayed pursuant to this Section shall be paid to
the Executive in a lump sum. The Company shall not have any obligation to
indemnify or otherwise protect the Executive from any obligation to pay any
taxes pursuant to Section 409A of the Code.


 


SECTION 13.11.                                   Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the parties and
supersedes any prior understandings, agreements or representations by or among
the parties, written or oral, that may have related in any way to the subject
matter hereof, including, without limitation, the Employment Agreement between
the Company, Arch Capital Group (U.S.) Inc. and the Executive, dated as of
December 20, 2001, as amended on August 1, 2003.


 


SECTION 13.12.                                   Construction. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rule of strict construction will be applied against any party. Any
reference to any federal, state, local or foreign statute or law will be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The use of the word “including”
in this Agreement means “including without limitation” and is intended by the
parties to be by way of example rather than limitation.


 


SECTION 13.13.                                   Survival. Sections 6.01, 7.01, 8.01 and Articles 9, 10, 12
and 13 will survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.


 


SECTION 13.14.                                   GOVERNING LAW. ALL QUESTIONS CONCERNING THE CONSTRUCTION,
VALIDITY AND INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL
LAW OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.


 


SECTION 13.15.                                   Jurisdiction. The parties agree to the nonexclusive
jurisdiction of the federal and state courts situated in New York County, New
York, for the resolution of any dispute arising under this Agreement or under
any stock option or restricted stock agreements between the Company and the
Executive.


 


17

















 


IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date and year first above written.


 


	
   

  	
  ARCH CAPITAL
  GROUP LTD.

  
	
   

  	
  By:

  	
  /s/ John D.
  Vollaro

  
	
   

  	
  Printed
  Name:

  	
  John D.
  Vollaro

  
	
   

  	
  Title:

  	
  Executive
  Vice President and Chief

  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Constantine Iordanou

  
	
   

  	
  Constantine Iordanou

  
					



 


18