Document:

Exhibit
10.1

 

EMPLOYMENT
AGREEMENT

 

EMPLOYMENT AGREEMENT (“Agreement”) dated as of June 4, 2003, between Arch Insurance
Group Inc., a Missouri corporation (the “Company”),
and Ralph E. Jones III (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 Company,
Arch Capital Group Ltd., a Bermuda company (“Parent”
and, together with the Company, the “Companies”),
or their Subsidiaries; (b) malfeasance or gross negligence in the performance
of the Executive’s duties; (c) the commission by the Executive of any felony or
any crime involving moral turpitude; (d) willful or prolonged absence from work
by the Executive (other than by reason of disability due to physical or mental
illness) or failure, neglect or refusal by the Executive to perform his duties
and responsibilities without the same being corrected within ten (10) days
after being given written notice thereof; (e) 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 ten (10) days
after being given written notice thereof; (f) the Executive’s use of
illegal drugs without the same being corrected within ten (10) days after being
given written notice thereof; or (g) the material breach by the Executive of
any of the covenants contained in this Agreement.

 

“Confidential
Information” means information that is not generally known to the
public and that was or is used, developed or obtained by the Companies or their
Subsidiaries of 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 5.06.

 

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

 

 

“Good Reason”
means, without the Executive’s written consent, (a) the material diminution of
any material duties or responsibilities of the Executive without the same being
corrected within ten (10) days after being given written notice thereof; or (b)
a reduction in the Executive’s Base Salary.

 

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

 

“Justified
Termination” has the meaning set forth in Section 5.03.

 

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

 

“Notice of
Termination” has the meaning set forth in Section 5.05.

 

“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.  Any questions as to the existence of a
Permanent Disability shall be determined by a qualified, independent physician
selected by the Companies and approved by the Executive (which approval shall
not be unreasonably withheld).  The
determination of any such physician shall be final and conclusive for all
purposes of this Agreement.

 

“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.

 

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

 

“Start Date”
has the meaning set forth in Section 2.01.

 

“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 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,

 

2

 

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.

 

“Unjustified
Termination” has the meaning set forth in Section 5.02.

 

ARTICLE
2

 

EMPLOYMENT

 

SECTION 2.01.  Employment.  The Company shall 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
July 1, 2003 (the “Start Date”)
and ending as provided in Section 5.01 (the “Employment
Period”).  If the Executive
fails to commence the performance of his duties and responsibilities hereunder
by July 1, 2003, he shall forfeit all rights hereunder.

 

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 or as may be reasonably required by the conduct of the
business of the Company.  During the
Employment Period the Executive shall devote substantially all of his working
time and efforts to the business and affairs of the Companies and their
Subsidiaries.  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 or their Subsidiaries, whether for
compensation or otherwise, without prior written consent of the Company.

 

ARTICLE
4

 

BASE
SALARY AND BENEFITS

 

SECTION 4.01.  Base
Salary.  During the
Employment Period, the Executive’s base salary will be $600,000 per annum (the
“Base Salary”).  The Base Salary will be payable bi-monthly
on the 15th and last working day of each month in arrears.  Annually during the Employment

 

3

 

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 be eligible to participate in an annual bonus plan on terms
established from time to time by the Board of Directors of the Company; provided,
however, that the Executive’s target annual bonus will be 100% of the
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:

 

(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)                                 a
maximum of four (4) weeks of paid vacation annually during the Employment
Period; and

 

(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.

 

In addition, during the Employment Period, (i) the
Company shall reimburse the Executive for reasonable housing costs in the New
York Metropolitan area, subject to the Company’s requirements with respect to
reporting and documenting expenses, or (ii) in the event that the Executive
relocates to such area (it being understood that Executive is under no obligation
to do so), the Executive’s Base Salary shall be increased by $50,000.

 

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 Company’s requirements with respect to
reporting and documentation of expenses.

 

SECTION 4.05.  Stock
Options and Restricted Stock.  On
the Start Date, Parent shall grant to the Executive an option to acquire
100,000 shares of Parent’s common stock at an exercise price equal to the
closing market price on the Start Date. 
The other terms of the stock option shall be as set forth in the form of
Stock Option Agreement attached hereto as Exhibit A.

 

4

 

On the Start Date, Parent shall also grant to the Executive 50,000
shares of restricted common stock of Parent on the terms set forth in the form
of Restricted Stock Agreement attached hereto as Exhibit B.  The stock option and restricted stock awards
provided for in this Section 4.05 are made as an inducement essential to
the Executive’s entering into the Agreement.

 

ARTICLE
5

 

TERM
AND TERMINATION

 

SECTION 5.01.  Term.  The Employment Period will terminate on the
fifth anniversary of the Start Date; provided  that (a) the
Employment Period shall terminate prior to such date upon the Executive’s death
or Permanent Disability, (b) the Employment Period may be terminated by the
Company for any reason prior to such date, and (c) the Employment Period may be
terminated by the Executive at any time prior to such date, if such termination
shall be for Good Reason.  In addition,
this Agreement will be automatically extended on the same terms and conditions
for successive one year periods following the original five-year term until
either the Company or the Executive, at least sixty (60) days prior to the
expiration of the original term or any extended term, shall give written notice
of their intention not to renew the Agreement.

 

SECTION 5.02.  Unjustified
Termination.  Except as
otherwise provided in Section 5.03, if the Employment Period shall be terminated
prior to the expiration of the fifth anniversary of the Start Date (or the
extension of the Employment Period pursuant to Section 5.01) by the Executive
for Good Reason or by the Company not for Cause (collectively, an “Unjustified Termination”), the Executive
shall be paid solely (except as provided in Section 5.04 below) an amount
equal to two times the sum of the Base Salary and the target annual bonus set
forth in Section 4.02, provided that the Executive shall be entitled to such
payments only if the Executive has not breached and does not breach the provisions
of Sections 6.01, 7.01, 8.01, 9.01 or 9.02 and the Executive has entered into
and not revoked a general release of claims reasonably satisfactory to the
Company.  Such amounts will be payable
in equal monthly installments commencing on the first month anniversary of the
Date of Termination.  In addition,
promptly following an Unjustified Termination, the Executive shall also be
reimbursed all Reimbursable Expenses incurred by the Executive prior to such
Unjustified Termination.

 

SECTION 5.03.  Justified
Termination.  If the
Employment Period shall be terminated prior to the expiration of the fifth
anniversary of the Start Date (or the extension of the Employment Period
pursuant to Section 5.01) (a) for Cause, (b) as a result of the Executive’s resignation
or leaving of his employment, other than for Good Reason, (c) as a result of
the death or Permanent Disability of the Executive, or (d) as a result of the
Executive’s or the Company’s provision of written notice not to extend the
Employment Period under Section 5.01 

 

5

 

(collectively, a “Justified
Termination”), the Executive shall be entitled to receive solely
(except as provided in Section 5.04 below) the Base Salary through the
Date of Termination and reimbursement of all Reimbursable Expenses incurred by
the Executive prior to such Justified Termination.

 

SECTION 5.04.  Benefits.  Except as otherwise required by
mandatory provisions of law, all of the Executive’s rights to fringe and other
benefits under this Agreement or otherwise, if any, accruing after the
termination of the Employment Period as a result of a Justified Termination
will cease upon such Justified Termination. 
Notwithstanding the foregoing, if such Justified Termination is a result
of a Permanent Disability or if the Employment Period is terminated as a result
of an Unjustified Termination, the Executive shall continue to receive his
major medical insurance coverage benefits from the Company’s plan in effect at
the time of such termination for a period of twelve (12) months after the Date
of Termination.

 

SECTION 5.05.  Notice of
Termination.  Any termination
by the Company for Permanent Disability or Cause or without Cause or by the
Executive for Good Reason shall be communicated by written Notice of
Termination to the other 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 5.06.  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,
and (c) if the Employment Period is terminated for any other reason (including
for Cause), the date designated by the Company in the Notice of Termination.

 

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.  Under all
circumstances and at all times, the Executive will take all appropriate steps
to safeguard Confidential Information in his possession and to protect it
against disclosure, misuse, espionage, loss and theft.

 

6

 

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 for hire” under
Section 201(b) of the Copyright Act of 1976, as amended, and the Companies will
own all of the rights comprised in the copyright therein.  The Executive will promptly and fully
disclose all Intellectual Property and 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 Companies, 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 Companies 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
Companies, will provide the Companies with written confirmation that all such
materials have been delivered to the Companies.

 

7

 

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, their
Subsidiaries and their respective predecessors, and that his services will be
of special, unique and extraordinary value to the Companies.  In addition, the Executive hereby agrees
that at any time during the Employment Period, and for a period ending two (2)
years after the termination of Executive’s employment if such termination is
for Cause or as a result of the Executive’s resignation or leaving employment
not for Good Reason (the “Noncompetition
Period”), he will not directly or indirectly own, manage, control,
participate in, consult with, render services for or in any manner engage in
any business competing with the businesses of the Companies or their
Subsidiaries as such businesses exist or are in process or being planned as of
the date of termination, within any geographical area in which the Companies or
their Subsidiaries engage or plan to engage in such businesses.  Notwithstanding the foregoing, if such
termination is by the Company without Cause or by the Executive for Good Reason,
the Noncompetition Period shall extend for the period for which severance is
paid under Section 5.02.  If such
termination is due to the Company or the Executive giving written notice
pursuant to Section 5.01 of their intention not to extend the Employment
Period, the Noncompetition Period shall be for a period of up to twenty four
(24) months following the date of termination if the Company elects in writing
to pay the Executive the sum of the Base Salary and target annual bonus set
forth in Section 4.02 for such period, such amount to be payable in monthly
installments over such period (it being understood that if the Company does not
elect to make such payments, the Noncompetition Period shall terminate on the
date of termination).  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.

 

SECTION 9.02.  Nonsolicitation.  The Executive hereby agrees that
(a) during the Employment Period and for a period of two (2) years 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 or
their Subsidiaries to leave the employ of the Companies or their Subsidiaries,
or in any way interfere with the relationship between the Companies or their
Subsidiaries and any employee thereof or otherwise employ or receive the
services of any individual who was an employee of the Companies or their Subsidiaries
at any time during such Nonsolicitation Period or within the six-month period
prior thereto and (b) during the Nonsolicitation Period, the Executive will not
induce or attempt to induce any customer, supplier, client, insured, reinsured,
reinsurer, broker, licensee

 

8

 

or other business relation of the Companies or their Subsidiaries to
cease doing business with the Companies or their Subsidiaries.

 

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.

 

ARTICLE
11

 

EXECUTIVE
REPRESENTATIONS

 

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 employment agreement, noncompetition agreement or confidentiality agreement
with any other Person (other than as provided in the separation agreement,
dated June 2003, between the Executive and his former employer, a copy of which
has been provided to the Company) 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, enforceable in accordance with its terms.

 

9

 

ARTICLE
12

 

MISCELLANEOUS

 

SECTION 12.01. 
Remedies.  The Companies will have all
rights and remedies set forth in this Agreement, all rights and remedies which
the Companies have been granted at any time under any other agreement or
contact and all of the rights which the Companies have under any law.  The Companies will be entitled to enforce
such rights specifically, without posting a bond or other security, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law. 
There are currently no disciplinary or grievance procedures in place,
there is no collective agreement in place, and there is no probationary period.

 

SECTION 12.02. 
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 12.03. 
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.  Without limiting the foregoing, all of the rights and obligations of the Company may be
assigned to and assumed by a wholly owned direct or indirect subsidiary of
Parent pursuant to a written assignment and assumption agreement, and such
assignee shall thereafter be the “Company” hereunder.  Following such assignment, Arch Insurance Group Inc. shall have
no liability under this Agreement.

 

SECTION 12.04. 
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 12.05. 
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 12.06. 
Descriptive
Headings.  The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.

 

10

 

SECTION 12.07. 
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 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 delivered to the Company by the
  Executive in the manner set forth herein.

  
	
   

  	
   

  	
   

  
	
  If to the Company:

  	
   

  	
  Arch Insurance Group Inc.

  
	
   

  	
   

  	
  1 Liberty Plaza, 53rd Floor

  
	
   

  	
   

  	
  New York, New York 
  10006

  
	
   

  	
   

  	
  Attn: 
  General Counsel

  

 

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 12.08. 
Withholding.  The Companies 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 12.09. 
No
Third Party Beneficiary.  This
Agreement will not confer any rights or remedies upon any person other than the
Companies, the Executive and their respective heirs, executors, successors and
assigns.

 

SECTION 12.10. 
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.

 

SECTION 12.11. 
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.

 

11

 

SECTION 12.12. 
Survival.  Sections 6.01, 7.01, 8.01 and
Articles 9, 10 and 12 will survive and continue in full force in accordance
with their terms notwithstanding any termination of the Employment Period.

 

SECTION 12.13. 
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.

 

12

 

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

 

	
   

  	
  ARCH INSURANCE GROUP INC.

  	 

	
   

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
  By: 

  	
    /s/ Constantine Iordanou

  	
   

  
	
   

  	
  Printed Name:

  	
  Constantine Iordanou

  	
   

  	 

	
   

  	
  Title:

  	
    President and Chief Executive Officer

  	
   

  	 

	
   

  	
   

  	 

	
   

  	
  /s/ Ralph E. Jones III

  	
   

  
	
   

  	
  Ralph E. Jones III

  	 

							

 

13

 

EXHIBIT A

 

14

 

EXHIBIT B

 

15Exhibit
10.2

 

ARCH
CAPITAL GROUP LTD.

Restricted Share Agreement

 

THIS AGREEMENT, dated as of July 1, 2003, between Arch
Capital Group Ltd. (the “Company”), a Bermuda company, and Ralph E. Jones III
(the “Employee”).

 

WHEREAS, the Employee has
been granted the following award in connection with his retention as an
employee and as compensation for services to be rendered; and the following
terms reflect the Company’s 2002 Long Term Incentive and Share Award Plan (the
“Plan”);

 

NOW, THEREFORE, in consideration of the premises and
mutual covenants contained herein, the parties hereto agree as follows.

 

1.                                       Award
of Shares.  Pursuant to the provisions of the Plan, the terms of
which are incorporated herein by reference, the Employee is hereby awarded
50,000 Restricted Shares (the “Award”), subject to the terms and conditions
herein set forth.  Capitalized terms
used herein and not defined shall have the meanings set forth in the Plan.  In the event of any conflict between this
Agreement and the Plan, the Plan shall control.

 

2.                                       Terms
and Conditions.  It is understood and agreed that the Award of Restricted
Shares evidenced hereby is subject to the following terms and conditions:

 

(a)                                  Vesting
of Award.  Subject to
Section 2(b) below and the other terms and conditions of this Agreement,
this Award shall become vested in two equal annual installments, commencing on
the first anniversary of the date hereof. 
Unless otherwise provided by the Company, all dividends and other
amounts receivable in connection with any adjustments to the Shares under
Section 4(c) of the Plan shall be subject to the vesting schedule in this
Section 2(a).  Notwithstanding the
foregoing, if a Change in Control occurs, then the Restricted Shares shall become
immediately vested in full; provided, however, that in such case,
the Restricted Shares subject to the Award shall not be transferable prior to
the date on which such Restricted Shares are scheduled to vest pursuant to this
Section 2(a), except that a number of Shares having a fair market value equal
to the amount of any income and employment taxes imposed upon vesting of the
Restricted Shares shall be transferable upon such termination solely for the purpose
of funding any such income and employment taxes.

 

For purposes of this Agreement, a “Change in Control”
shall be deemed to occur if 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
more than 50% of the total voting power of all then outstanding Voting Securities.

 

“Permitted Persons” means (A) the Company;
(B) any Related Party; (C) Hellman & Friedman or any of its
subsidiaries or investment funds managed or controlled by

 

 

Hellman & Friedman; (D) Warburg Pincus or any of its subsidiaries
or any investment funds managed or controlled by Warburg Pincus or any of its
subsidiaries; or (E) 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 stockholders of the Company in substantially the same
proportion as their ownership of Voting Securities immediately prior to the
transaction.

 

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

 

(b)                                 Termination of Service; Forfeiture of
Unvested Shares.  Except as otherwise set forth in
Section 2(a) above, in the event the Employee ceases to be an employee of
the Company prior to the date the Restricted Shares otherwise become vested (i)
due to his or her death or Permanent Disability (as defined in the Employment
Agreement between the Employee and Arch Insurance Group Inc., dated as of June
4, 2003 (the “Employment Agreement”) or (ii) due to termination (A) by the
Company not for Cause (as defined in the Employment Agreement) or (B) by the
Employee for Good Reason (as defined in the Employment Agreement), a number of
any unvested Restricted Shares subject to the Award shall become vested in full
at the time of such termination of service determined by (A) multiplying the
total number of Restricted Shares subject to the Award by a fraction, the numerator
of which is the number of months elapsed since the date hereof and the
denominator of which is 24, and (B) subtracting from such product the number of
Restricted Shares that have previously vested prior to such termination of
service (if any); provided, however, that in the case of a
termination by the Company not for Cause or by the Employee for Good Reason,
the Restricted Shares subject to the Award shall not be transferable prior to
the date on which such Restricted Shares are scheduled to vest pursuant to
Section 2(a) above, except that a number of Shares having a fair market value
equal to the amount of any income and employment taxes imposed upon vesting of
the Restricted Shares shall be transferable upon such termination solely for
the purpose of funding any such income and employment taxes.  If the Employee ceases to be an Employee of
the Company for any other reason prior to the date the Restricted Shares become
vested, the Award shall be forfeited by the Employee and become the property of
the Company.  For purposes of this
Agreement, service with any of the Company’s Subsidiaries (as defined in the
Plan) shall be considered to be service with the Company.

 

(c)                                  Certificates.  Each certificate issued in
respect of Restricted Shares awarded hereunder shall be deposited with the Company,
or its designee, together with, if requested by the Company, a stock power
executed in blank by the Employee, and shall bear a legend disclosing the
restrictions on transferability imposed on such Restricted Shares by this
Agreement (the “Restrictive Legend”). 
Upon the vesting of Restricted Shares pursuant to Section 2(a)
hereof and the satisfaction of any withholding tax liability

 

2

 

pursuant to
Section 5 hereof, the certificates evidencing such vested Shares, not
bearing the Restrictive Legend, shall be delivered to the Employee.

 

(d)                                 Rights of a Stockholder.  Prior to the time a
Restricted Share is fully vested hereunder and otherwise as provided in Section
2(b) above, the Employee shall have no right to transfer, pledge, hypothecate
or otherwise encumber such Restricted Share. 
During such period, the Employee shall have all other rights of a
stockholder, including, but not limited to, the right to vote and to receive
dividends (subject to Section 2(a) hereof) at the time paid on such Restricted
Shares.

 

(e)                                  No Right to Continued Employment. 
This Award shall not confer upon the Employee any right with respect to
continuance of employment by the Company nor shall this Award interfere with
the right of the Company to terminate the Employee’s employment at any time.

 

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

 

4.                                       Expenses
of Issuance of Shares.  The issuance
of stock certificates hereunder shall be without charge to the Employee.  The Company shall pay, and indemnify the
Employee from and against any issuance, stamp or documentary taxes (other than
transfer taxes) or charges imposed by any governmental body, agency or official
(other than income taxes) or by reason of the issuance of Shares.

 

5.                                       Withholding.  No later than the date of vesting of (or the
date of an election by the Employee under Section 83(b) of the Code with
respect to) the Award granted hereunder, the Employee 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 at
such time with respect to such Award and the Company shall, to the extent
permitted or required by law, have the right to deduct from any payment of any
kind otherwise due to the Employee, federal, state and local taxes of any kind
required by law to be withheld at such time.

 

6.                                       References.  References
herein to rights and obligations of the Employee shall apply, where
appropriate, to the Employee’s legal representative or estate without regard to
whether specific reference to such legal representative or estate is contained
in a particular provision of this Agreement.

 

7.                                       Notices.  Any
notice required or permitted to be given under this Agreement shall be in
writing and shall be deemed to have been given when delivered personally or by
courier, or sent by certified or registered mail, postage prepaid, return
receipt

 

3

 

requested, duly addressed to the party concerned at the address
indicated below or to such changed address as such party may subsequently by
similar process give notice of:

 

	
  If to the Company:

  
	
   

  
	
  Arch Capital Group Ltd.:

  
	
  Wessex House, 3rd Floor

  
	
  45 Reid Street

  
	
  Hamilton HM 12 Bermuda

  
	
  Attn.: Secretary

  
	
   

  
	
  If to the Employee:

  
	
   

  
	
  To the last address delivered to the Company by the
  Executive in the manner set forth herein.

  

 

8.                                       Governing
Law.  This Agreement shall be governed by and construed in accordance
with the laws of New York, without giving effect to principles of conflict of
laws.

 

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

 

10.                                 Counterparts.  This
Agreement may be executed in two counterparts, each of which shall constitute
one and the same instrument.

 

4

 

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

 

	
   

  	
  ARCH CAPITAL GROUP LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John D. Vollaro

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Ralph E. Jones III

  	
   

  
	
   

  	
  Ralph E. Jones III

  
					

 

5

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