Document:

Exhibit 10.1
Option Agreement

                             OPTION AGREEMENT

THIS AGREEMENT is dated for reference the 4th day of October, 2002.

BETWEEN:

               TERRY LONEY  An Ontario resident with an address at
               326 Penman Avenue
               Garson, Ontario  P3L 1S5

               (the "Optionor")
                                                          OF THE FIRST PART

AND:
               MANCHESTER INC.
               a Nevada corporation with its registered address at
               Suite 880, 50 West Liberty Drive
               Reno, Nevada  89501

               ("Manchester")
                                                             OF SECOND PART

WHEREAS:

A.   The  Optionor  is  the  owner of an undivided 100%  right,  title  and
     interest in and to mineral claims described in this Agreement;

B.   Manchester  wishes to acquire the option to acquire a 80% interest  in
     the  Optionor's  property on the terms and subject to  the  conditions
     contained in this Agreement;

NOW  THEREFORE  THIS  AGREEMENT  WITNESSES that  in  consideration  of  the
premises and the mutual covenants and agreements hereinafter contained, the
parties hereto agree as follows:

1.   DEFINITIONS

1.1  In this Agreement, the following terms will have the meaning set forth
     below:

     (A)  "Exploration and Development" means any and all activities comprising
        or undertaken in connection with the exploration and development of the
          Property, the construction of a mine and mining facilities on or in
          proximity to the Property and placing the Property into commercial
          production;

     (B)  "Property" means and includes:

          (i)  the mining claims in the Sudbury Mining District, Ontario, Canada
               listed in Schedule A to this Agreement; and

    (ii) all rights and appurtenances pertaining to the mining claims listed in
           Schedule A, including all water and water rights, rights of way, and
     easements, both recorded and unrecorded, to which the Optionor is entitled;

     (C)  "Property Expenditures" means all reasonable and necessary monies
    expended on or in connection with Exploration and Development as determined
    in accordance with generally accepted accounting principles including,
    without limiting the generality of the foregoing:

     (i)  the cost of entering upon, surveying, prospecting and drilling on the
          Property;

    (ii) the cost of any geophysical, geochemical and geological reports or
         surveys relating to the Property;

   (iii)     all filing and other fees and charges necessary or advisable to
     keep the Property in good standing with any regulatory authorities having
     jurisdiction;

   (iv) all rentals, royalties, taxes (exclusive of all income taxes and
     mining taxes based on income and which are or may be assessed against any
     of the parties hereto) and any assessments whatsoever, whether the same
     constitute charges on the Property or arise as a result of the operation
               thereon;

          (v)  the cost, including rent and finance charges, of all buildings,
   machinery, tools, appliances and equipment and related capital items that
   may be erected, installed and used from time to time in connection with
   Exploration and Development;

  (vi) the cost of construction and maintenance of camps required for
       Exploration and Development;

 (vii)     the cost of transporting persons, supplies, machinery and
          equipment in connection with Exploration and Development;

 (viii)    all wages and salaries of persons engaged in Exploration and
  Development and any assessments or levies made under the authority of any
  regulatory body having jurisdiction with respect to such persons or
  supplying food, lodging and other reasonable needs for such persons;

 (ix) all costs of consulting and other engineering services including
      report preparation;

 (x)  the cost of compliance with all statutes, orders and regulations
  respecting environmental reclamation, restoration and other like work
  required as a result of conducting Exploration and Development; and

(xi) all costs of searching for, digging, working, sampling, transporting,
 mining and procuring diamonds, other minerals, ores, and metals from and
 out of the Property;

2.   OPTION

2.1  The  Optionor  hereby  grants to Manchester the  exclusive  right  and
   option to acquire an undivided 80% right, title and interest in and to the
     Property (the "Option") for total consideration consisting of a 1% Net
     Smelter Return attached as schedule "C" hereto, cash payments  to  the
     Optionor totalling $8,000 US and the incurrence of Property Expenditures
     totalling $209,800 US to be made as follows:

     (A)  upon execution of this Agreement, the payment to the Optionor  of
          the sum of $8,000 US;

     (B)  by October 31, 2003, the incurrence of Property Expenditures in
          the amount of $23,800 US;

     (C)       by October 31, 2004, the incurrence of Property Expenditures in
       the  further      amount of $186,000 US for total aggregate Property
       Expenditures of $209,800 by October 31, 2004, provided that
       any Property Expenditures incurred prior to October 31, 2003 which
       are in excess of $23,800 will be  applied to the further required
       amount of $186,000.

Upon  making  the cash payments and Property Expenditures as  specified  in
Paragraph 2.1, Manchester shall have acquired an undivided 80% right, title
and interest in and to the Property.

This Agreement is an option only and the doing of any act or the making  of
any  payment by Manchester shall not obligate Manchester to do any  further
acts or make any further payments.

3.   TRANSFER OF TITLE

3.1  Upon  execution  of this Agreement, Manchester shall  be  entitled  to
     record this Agreement against title to the Property.

3.2  Upon  making the cash payments and Property Expenditures as  specified
     in Paragraph 2.1, the Optionor shall deliver to Manchester a duly executed
     bill  of sale or quit claim deed and such other executed documents  of
     transfer as required, in the opinion of Manchester's lawyers, for  the
     transfer of an undivided 80% interest in the Property to Manchester.

4.   JOINT VENTURE

4.1  Upon  Manchester  acquiring an interest in the  Property  pursuant  to
     paragraph 2.1, the Optionor and Manchester agree to join and participate in
     a single purpose joint venture ( the "Joint Venture") for the purpose of
     further  exploring and developing and, if economically and politically
     feasible, constructing and operating a mine on the Property.  The Joint
     Venture shall be governed by an agreement which shall be in the form of
     joint venture agreement attached as Schedule B hereto.

5.
     RIGHT OF ENTRY

5.1  During  the  currency  of  this Agreement, Manchester,  its  servants,
     agents and workmen and any persons duly authorised by Manchester, shall
     have the right of access to and from and to enter upon and take possession
     of  and  prospect, explore and develop the Property in such manner  as
     Manchester in its sole discretion may deem advisable for the purpose of
     incurring Property Expenditures as contemplated by Section 2, and shall
     have the right to remove and ship therefrom ores, minerals, metals, or
     other products recovered in any manner therefrom.

6.   COVENANTS OF MANCHESTER

6.1  Manchester covenants and agrees that:

     (A)  during the term of this Agreement, Manchester shall keep the Property
          clear of all liens, encumbrances and other charges and shall keep the
          Optionor indemnified in respect thereof;

  B)  Manchester shall carry on all operations on the Property in a good and
      workmanlike manner and in compliance with all applicable governmental
      regulations and restrictions including but not limited to the posting of
      any reclamation bonds as may be required by any governmental regulations
      or regulatory authorities;

C)  during the term of the option herein, Manchester shall pay or cause to
   be paid any rates, taxes, duties, royalties, workers' compensation or other
   assessments or fees levied with respect to its operations thereon and in
   particular Manchester shall pay the yearly claim maintenance payments
   necessary to maintain the claims in good standing;

(D)  Manchester  shall  maintain books of account in  respect  of  its
expenditures and operations on the Property and, upon reasonable notice,
shall make such books available for inspection by representatives of the
          Optionor;

(E)  Manchester shall allow any duly authorised agent or representative of
 the Optionor to inspect the Property at reasonable times and intervals and
 upon reasonable notice given to Manchester, provided however, that it is
 agreed and understood that any such agent or representative shall be at his
 own risk in respect of, and Manchester shall not be liable for, any injury
 incurred while on the Property, howsoever caused;

(F)  Manchester shall allow the Optionor access at reasonable times to all
  maps, reports, sample results and other technical data prepared or obtained
  by Manchester in connection with its operations on the Property;

(G)  Manchester shall indemnify and save the Optionor harmless of and from
 any and all costs, claims, loss and damages whatsoever incidental to or
 arising out of any work or operations carried out by or on behalf of
 Manchester on the Property, including any liability of an environmental
 nature.

7.   REPRESENTATIONS AND WARRANTIES

7.1  The Optionor hereby represents and warrants that:

     (A)  the  Property is in good standing with all regulatory authorities
 having jurisdictions and all required claim maintenance payments have been
 made;

     (B)  it has not done anything whereby the mineral claims comprising the
          Property may be in any way encumbered;

(C)  it has full corporate power and authority to enter into this Agreement
 and the entering into of this Agreement does not conflict with any
 applicable laws or with its charter documents or any contract or other
          commitment to which it is party; and

     (D)  the execution of this Agreement and the performance of its terms have
          been duly authorised by all necessary corporate actions including the
          resolution of its Board of Directors.

7.2  Manchester hereby represents and warrants that:

     (A)  it has full corporate power and authority to enter into this Agreement
          and the entering into of this Agreement does not conflict with any
          applicable laws or with its charter documents or any contract or other
          commitment to which it is party; and

     (B)  the execution of this Agreement and the performance of its terms have
          been duly authorised by all necessary corporate actions including the
          resolution of its Board of Directors.

8.   ASSIGNMENT

8.1  With  the  consent  of  the other party, which consent  shall  not  be
     unreasonably withheld, Manchester and the Optionor has the right to assign
     all or any part of its interest in this Agreement and or in the Property,
     subject to the terms and conditions of this Agreement.  It shall be  a
     condition  precedent to any such assignment that the assignee  of  the
     interest  being transferred agrees to be bound by the  terms  of  this
     Agreement, insofar as they are applicable.

9.   CONFIDENTIALITY OF INFORMATION

9.1  Each  of  Manchester and the Optionor shall treat all  data,  reports,
     records and other information of any nature whatsoever relating to this
     Agreement and the Property as confidential, except where such information
     must be disclosed for public disclosure requirements of a public company.

10.  TERMINATION

10.1 Until  such time as Manchester has acquired an undivided 80%  interest
     in the Property pursuant to Section 2, this Agreement shall terminate upon
     any of the following events:

     (A)  upon the failure of Manchester to make a payment or incur Property
 Expenditures required by and within the time limits prescribed by Paragraph
          2.1;

     (B)  in the event that Manchester, not being at the time in default under
          any provision of this Agreement, gives 30 day's written notice to the
          Optionor of the termination of this Agreement;

     (C)  in the event that Manchester shall fail to comply with any of its
  obligations hereunder, other than the obligations contained in Paragraph
  2.1, and subject to Paragraph 11.1,  and within 30 days of receipt by
  Manchester of written notice from the Optionor of such default, Manchester
          has not:

(i)  cured such default, or commenced proceedings to cure such default and
    prosecuted same to completion without undue delay; or

          (ii) given the Optionor notice that it denies that such default has
               occurred.

(D)  delivery of notice of termination by Manchester pursuant to Paragraph
          2.1 in the event the Geological Report is not acceptable;

(E)  the inability of Manchester to complete the private placement referred
          to in Paragraph 2.1(c).

In the event that Manchester gives notice that it denies that a default has
occurred, Manchester shall not be deemed in default until the matter  shall
have  been  determined finally through such means of dispute resolution  as
such matter has been subjected to by either party.

10.2 Upon  termination of  this Agreement under Paragraph 10.1,  Manchester
     shall:

     (A)  transfer any interest in title to the Property, in good standing to
          the Optionor free and clear of all liens, charges, and encumbrances;

   (B)  turn over to the Optionor copies of all maps, reports, sample results,
   contracts and other data and documentation in the possession of Manchester
   or, to the extent within Manchester's control, in the possession of its
   agents, employees or  independent contractors, in connection with its
          operations on the Property; and

 (C)  ensure that the Property is in a safe condition and complies with all
          environmental and safety standards imposed by any duly authorised
          regulatory authority.

10.3 Upon   the  termination  of  this  Agreement  under  Paragraph   10.1,
     Manchester shall cease to be liable to the Optionor in debt, damages or
     otherwise  save for the performance of those of its obligations  which
     theretofore should have been performed, including those obligations in
     Paragraph 10.2.

10.4 Upon  termination  of  this  Agreement, Manchester  shall  vacate  the
     Property within a reasonable time after such termination, but shall have
     the right of access to the Property for a period of six months thereafter
     for  the  purpose of removing its chattels, machinery,  equipment  and
     fixtures.

11.  FORCE  MAJEURE

11.1 The  time  for  performance of any act or making any  payment  or  any
     expenditure required under this Agreement shall be extended by the period
     of  any  delay  or  inability to perform due to fire, strikes,  labour
     disturbances, riots, civil commotion, wars, acts of God, any present or
     future law or governmental regulation, any shortages of labour, equipment
     or materials, or any other cause not reasonably within the control of the
     party in default, other than lack of finances.

12.  REGULATORY APPROVAL

12.1 If  this  Agreement is subject to the prior approval of any securities
     regulatory bodies, then the parties shall use their best efforts to obtain
     such regulatory approvals.

13.  NOTICES

13.1 Any  notice, election, consent or other writing required or  permitted
     to be given hereunder shall be deemed to be sufficiently given if delivered
     or mailed postage prepaid or if given by telegram, telex or telecopier,
     addressed as follows:

     In the case of the Optionor:       Terry Loney
                                   326 Penman Avenue
                                   Garson, Ontario
                                   Canada  P3L 1S5

                                   Telecopier: (705) 693-7705

     In the case of Manchester :        Manchester Inc.
                                   #200-675 West Hastings Street
                                   Vancouver, BC
                                   Canada  V6B 1N2

Telecopier: (604) 681-7622

and  any such notice given as aforesaid shall be deemed to have been  given
to  the  parties hereto if delivered, when delivered, or if mailed, on  the
third  business  day  following the date of mailing,  or,  if  telegraphed,
telexed  or  telecopied, on the same day as the telegraphing,  telexing  or
telecopying thereof PROVIDED HOWEVER that during the period of  any  postal
interruption in Canada any notice given hereunder by mail shall  be  deemed
to have been given only as of the date of actual delivery of the same.  Any
party may from time to time by notice in writing change its address for the
purposes of this Paragraph 13.1.

14.  GENERAL TERMS AND CONDITIONS

14.1 The  parties  hereto hereby covenant and agree that they will  execute
     such further agreements, conveyances and assurances as may be requisite, or
     which counsel for the parties may deem necessary to effectually carry out
     the intent of this Agreement.

14.2 This  Agreement  shall  constitute the entire  agreement  between  the
     parties with respect to the Property.  No representations or inducements
     have  been made save as herein set forth.  No changes, alterations  or
     modifications of this Agreement shall be binding upon either party until
     and unless a memorandum in writing to such effect shall have been signed by
     all parties hereto.  This Agreement shall supersede all previous written,
     oral or implied understandings between the parties with respect to the
     matters covered hereby.

14.3 Time shall be of the essence of this Agreement.

14.4 The  titles to the sections in this Agreement shall not be  deemed  to
     form part of this Agreement but shall be regarded as having been used for
     convenience of reference only.

14.5 Unless  otherwise  noted, all currency references  contained  in  this
     Agreement shall be deemed to be references to United States funds.

14.6 Wherever   possible,  each  provision  of  this  Agreement  shall   be
     interpreted in such manner as to be effective and valid under applicable
     law,  but if any provision shall be prohibited by or be invalid  under
     applicable law, such provision shall be ineffective only to the extent of
     such prohibition or invalidity, without invalidating the remainder of such
     provision or the remaining provisions of this Agreement.

14.7 The  Schedules  to this Agreement shall be construed with  and  as  an
     integral part of this Agreement to the same extent as if they were set
     forth verbatim herein.

14.8 Defined terms contained in this Agreement shall have the same meanings
     where used in the Schedules.

           [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

14.9 This Agreement shall be governed by and interpreted in accordance with
     the laws of British Columbia and the laws of Canada applicable therein.

14.10      This Agreement shall enure to the benefit of and be binding upon
     the parties hereto and their respective heirs, executors, administrators,
     successors and assigns.

WITNESS  WHEREOF this Agreement has been executed by the parties hereto  as
of the day and year first above written.

TERRY LONEY

______________________________
Signature of Authorised Signatory

______________________________
Name of Authorised Signatory

______________________________
Position of Authorised Signatory

MANCHESTER INC.
by its authorised signatory:

______________________________
Signature of Authorised Signatory

______________________________
Name of Authorised Signatory

______________________________
Position of Authorised Signatory

                               SCHEDULE "A"

PROPERTY DESCRIPTION

                G.P.S. CO-ORDINATES:  5166000N and 522000E
                          SUDBURY MINING DISTRICT
                                  ONTARIO
                                  CANADA

List of Claims

     CLAIM NUMBERS            TOWNSHIP/AREA          CURRENT EXPIRY DATE

    3004260 - 9 UNITS           MACLENNAN          AUGUST 24, 2004
    3004261 - 2 UNITS           MACLENNAN          AUGUST 24, 2004

                         SCHEDULE "B"

                    JOINT VENTURE AGREEMENT

                               SCHEDULE "C"

                            NET SMELTER RETURNS

For the purposes of this agreement, the term "Net Smelter Returns" shall
mean the net proceeds actually paid to Manchester from the sale by
Manchester of minerals mined and removed from the Property, after deduction
of the following:

     (a)  smelting costs, treatment charges and penalties including, but not
       being limited to, metal losses, penalties for impurities and charges for
       refining, selling and handling by the smelter, refinery or other
       purchaser;
       provided, however, in the case of leaching operations or other solution
       mining or beneficiation techniques, where the metal being treated is
       precipitated or otherwise directly derived from such leach solution, all
       processing and recovery costs incurred by Manchester, beyond the point at
       which the metal being treated is in solution, shall be considered as
       treatment charges;

     (b)  costs of handling, transporting and insuring ores, minerals and other
       materials or concentrates from the Property or from a concentrator,
       whether situated on or off the Property, to a smelter, refinery or other
       place of treatment; and

     (c)  ad valorem taxes and taxes based upon production, but not income
       taxes.

In the event Manchester commingles minerals from the Property with minerals
from other properties, Manchester shall establish procedures, in accordance
with sound mining and metallurgical techniques, for determining the
proportional amount of the total recoverable metal content in the
commingled minerals attributable to the input from each of the properties
by calculating the same on a metallurgical basis, in accordance with
sampling schedules and mining efficiency experience, so that production
royalties applicable to minerals produced from the Property may reasonably
be determined.Exhibit
10.1

 

AGREEMENT

 

This Agreement (the “Agreement”) is entered into on this 4th day of
August, 2003, between Arch Capital Group Ltd. and its affiliates (collectively,
the “Company”) and Peter Appel (the “Executive”).

 

The Executive and the Company agree as follows:

 

1.                                  The employment
relationship between the Executive and the Company terminated on July 31, 2003
(the “Termination Date”).  Effective on
the Termination Date, the Executive has resigned all officer and employee
positions with the Company and its subsidiaries.

 

2.                                  The Executive will
continue to serve on the Board of Directors of Arch Capital Group Ltd. (the
“Board”); provided, however, that the Executive’s continued service on
the Board shall not be a condition to any payments provided for in this
Agreement or in the Non-Core Business Payment Agreement between the Company and
the Executive of even date herewith (the “Non-Core Business Payment
Agreement”).  The Executive hereby
acknowledges that, if he becomes employed by, or otherwise related to, an
insurance business in competition with the Company, conflicts with his position
on the Board may arise.  In the event
the Board determines that such a conflict has arisen, the Executive will enter
into discussions with the Board in order to resolve the conflict.

 

3.                                  Following the
completion of the 7-day revocation period referred to in paragraph 22 below,
the Executive will receive a payment from the Company in the amount

 

 

of $2,263,166, less required tax withholding.  The Executive will also receive an aggregate of $16,000 (less
required tax withholding) from the Company, payable over the two year period
following the Termination Date in equal semimonthly installments.

 

4.                                  The Compensation
Committee of the Board (the “Compensation Committee”) shall determine a
prorated annual bonus for the Executive for the period from January 1, 2003
through the Termination Date.  The
amount of any such bonus shall be determined by the Compensation Committee in
accordance with past practice and paid (less required tax withholding) in cash
in a single lump sum as soon as practicable following the next regularly
scheduled Compensation Committee meeting after the Termination Date.

 

5.                                  Medical, dental, and
vision benefits will remain in effect for the Executive and his covered
dependents until the earlier of (i) the second anniversary of the
Termination Date or (ii) the date the Executive obtains other employment
or engagement, whether as a proprietor, partner or otherwise, in which he is
eligible for such insurance coverage. 
The insurance coverage shall be provided on the same basis as provided
to active U.S.-based employees of the Company in accordance with the terms and
provisions of each applicable plan as in effect from time to time, including
any contribution required to be made by the Executive toward such coverage in
excess of $145 per month.

 

6.                                  For the avoidance of
doubt, (i) all options to purchase common stock of Arch Capital Group Ltd.
(“ACGL”) held by the Executive (all of which are listed on Annex I hereto and
are referred to herein as the “Stock Option Agreements”) shall continue to be

 

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exercisable for their respective full option terms, notwithstanding the
Executive’s termination of employment, and (ii) the restricted shares of
common stock of ACGL set forth in the Restricted Share Agreement between the
Executive and ACGL dated February 20, 2003 shall vest in full on the
Termination Date.

 

7.                                  Except as set forth
in paragraph 5 above, the Executive will cease participation in all
employee benefit plans and arrangements of the Company as of the Termination
Date.  The Executive’s rights with
respect to his accrued benefits as of the Termination Date under the Company’s
Savings Plan, the Company’s Pension Plan, the Company’s Executive Supplemental
Non-Qualified Savings and Retirement Plan and the Company’s 1995 Employee Stock
Purchase Plan are as set forth in the applicable plan documents.  Other than as expressly set forth in this
Agreement, the Executive will have no continuing rights under any employee
benefit plan or arrangement of the Company following the Termination Date.

 

8.                                  In consideration of
the above, the sufficiency of which the Executive hereby acknowledges, the
Executive, on behalf of the Executive and the Executive’s heirs, executors and
assigns hereby releases and forever discharges the Company and its members,
shareholders, parents, affiliates, subsidiaries, divisions, any and all current
and former directors, officers, employees, agents, and contractors and their
heirs and assigns, and any and all employee pension benefit or welfare benefit
plans of the Company, including current and former trustees and administrators
of such employee pension benefit and welfare benefit

 

3

 

plans, from all claims, charges, or demands, in law or in equity,
whether known or unknown, which may have existed or which may now exist from
the beginning of time to the date of this Agreement, including, without
limitation, any claims the Executive may have arising from or relating to the
Executive’s employment or termination from employment with the Company,
including a release of any rights or claims the Executive may have under Title
VII of the Civil Rights Act of 1964, as amended, and the Civil Rights Act of
1991 (which prohibit discrimination in employment based upon race, color, sex,
religion and national origin); the Americans with Disabilities Act of 1990, as
amended, and the Rehabilitation Act of 1973 (which prohibit discrimination
based upon disability); the Family and Medical Leave Act of 1993 (which prohibits
discrimination based on requesting or taking a family or medical leave); the
Equal Pay Act, as amended, 29 U.S.C. §206(d)(1); the Fair Labor Standards Act of
1938, as amended; Section 1981 of the Civil Rights Act of 1866 (which prohibits
discrimination based upon race); Section 1985(3) of the Civil Rights Act of
1871 (which prohibits conspiracies to discriminate); the Employee Retirement
Income Security Act of 1974, as amended; any other federal, state or local laws
against discrimination; or any other federal, state, or local statute, or
common law relating to employment, wages, hours, or any other terms and
conditions of employment.  This includes
a release by the Executive of any claims for wrongful discharge, breach of
contract, torts or any other claims in any way related to the Executive’s
employment with or termination from the Company.  This release also includes a release of any claims for age
discrimination under the Age Discrimination in Employment Act, as amended
(“ADEA”).  The ADEA requires that the
Executive be advised

 

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to consult with an attorney before the Executive waives any claim under
ADEA.  In addition, the ADEA provides
the Executive with at least 21 days to decide whether to waive claims under
ADEA and seven days after the Executive signs the Agreement to revoke that
waiver.  This release does not release
the Company from any obligations due to the Executive (i) under this
Agreement, (ii) under the Non-Core Business Payment Agreement,
(iii) under the Executive’s Stock Option Agreements, or (iv) for
indemnification in accordance with the Company’s By-Laws.

 

9.                                  In consideration of
the above, the sufficiency of which the Company hereby acknowledges, the
Company hereby releases and forever discharges the Executive and his heirs,
executors and assigns, from all claims, charges or demands, in law or in
equity, whether known or unknown, which may have existed or which may now exist
from the beginning of time to the date of this Agreement, including, but not
limited to, any claims, related to the Executive’s employment with the
Company.  This release does not release
the Executive from any obligations due to the Company under this Agreement, the
Non-Core Business Payment Agreement or the Executive’s Stock Option
Agreements.  The Executive acknowledges,
and hereby confirms, that his agreements relating to noncompetition and
nonsolicitation set forth in the Non-Qualified Stock Option Agreement between
ACGL and the Executive dated as of October 23, 2001 shall continue in effect in
accordance with their terms and shall survive the exercise of the option set
forth in such Non-Qualified Stock Option Agreement and continue through the
second anniversary of the Termination Date.

 

5

 

10.                            This Agreement is not an
admission by either the Executive or the Company of any wrongdoing or
liability.

 

11.                            The Executive understands
and agrees that the consideration provided for herein is more than the
Executive would otherwise be entitled to under the Company’s existing plans.

 

12.                            The Executive waives any
right to reinstatement or future employment with the Company following the
Executive’s separation from the Company on the Termination Date.

 

13.                            (a)  The Executive recognizes and acknowledges
that the Company’s and its subsidiaries’ and their affiliates’ trade secrets
and confidential or proprietary information, are valuable, special and unique
assets of the Company’s business.  For
purposes of this Agreement, a trade secret or confidential or proprietary
information shall mean and include information treated as confidential or as a
trade secret by the Company, any of its subsidiaries or their affiliates,
including but not limited to information regarding contemplated products,
models, compilations, business and financial methods or practices, marketing,
merchandising and selling techniques, customers, vendors, suppliers, trade
secrets, training programs, manuals or materials, technical information,
contracts, systems, procedures, mailing lists, know-how, trade names, improvements,
pricing, price lists, financial or other data (including the revenues, costs or
profits associated with any of the Company’s or its subsidiaries, products or
services), business plans, strategy, code books, invoices and other

 

6

 

financial statements, computer programs, software systems, databases,
discs and printouts, other plans (technical or otherwise), customer and
industry lists, supplier lists, correspondence, internal reports, personnel
files, sales and advertising material, telephone numbers, names, addresses, or
any other compilation of information, written or unwritten, which is or was
used in the business of the Company, any of its subsidiaries or their affiliates.  In addition, without in any way limiting the
foregoing, confidential or proprietary information includes any and all
information in the Executive’s possession or of which the Executive has
knowledge relating to or arising out of any actual or threatened regulatory
investigation or proceeding or settlement or any other litigation, claim,
investigation, suit, action or other proceeding involving or relating to the
Company or any of its subsidiaries or affiliates, so long as such
investigation, proceeding, settlement, claim, litigation, suit, action or other
proceeding or the Executive’s knowledge thereof occurred or was obtained during
or prior to the term of the Executive’s employment by the Company or his
directorship with the Company.

 

(b)  Except as may be required
by the lawful order of a court or agency of competent jurisdiction or required
by applicable law, the Executive will not, at any time during or after the
termination of his employment by the Company, in whole or in part, disclose
such trade secrets or confidential or proprietary information to any person,
firm, corporation, association or other entity for any reason or purpose
whatsoever, or make use of any such property for his own purposes or for the
benefit of any person, firm, corporation or other entity (except the Company)
under any circumstances.  The
Executive’s obligation under this paragraph 13 shall not apply to any
information which is generally available to the public or

 

7

 

hereafter becomes available to the public without the fault of the
Executive.  The Executive agrees and
acknowledges that all of such information, in any form, and copies and extracts
thereof, are and shall remain the sole and exclusive property of the Company
and the Executive shall return to the Company the originals and all copies of
any such information provided to or acquired by the Executive in connection
with the performance of his duties for the Company, and shall return to the
Company all files, correspondence and/or other communications received,
maintained and/or originated by the Executive during the course of his
employment, and no copy of any such information shall be retained by him.

 

(c)  It is the desire and intent
of the parties that the provisions of this paragraph 13 shall be enforced to
the fullest extent permissible under the laws and public policies applied in
each jurisdiction in which enforcement is sought.  Accordingly, if any particular portion of this paragraph 13 shall
be adjudicated to be invalid or unenforceable, this paragraph 13 shall be
deemed amended to delete therefrom the portion thus adjudicated to be invalid
or unenforceable, such deletion to apply only with respect to the operation of
this paragraph 13 in the particular jurisdiction in which such adjudication is
made.

 

(d)  If there is a breach or
threatened breach of the provisions of paragraph 13 of this Agreement, the
Company or its affiliates shall be entitled to an injunction restraining the
Executive from such breach.  Nothing
herein shall be construed as prohibiting the Company from pursuing any other
remedies for such breach or threatened breach.

 

14.                 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

 

8

 

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 liability, loss and reasonable costs
and expenses incurred or suffered by the Executive in connection therewith,
including, without limitation, judgments and reasonable attorney’s fees and
disbursements, 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 directors and executive officers.

 

15.                 Except
as otherwise provided in paragraph 5 of the Non-Core Business Payment
Agreement, the Executive shall promptly return all the Company’s property in
the Executive’s possession, including, but not limited to, the Company’s keys,
credit cards, cellular phones, computer equipment, software and peripherals and
originals or copies of books, records, or other information pertaining to the
Company’s business.

 

9

 

16.                 The
Executive shall, at the request of the Company, assist the Company in effecting
the transition in management of the Company.

 

17.                 The
Executive shall, at the reasonable request of the Company, reasonably assist
and cooperate with the Company in the defense and/or investigation of any third
party claim or any investigation or proceeding, whether actual or threatened,
including, without limitation, participating as a witness in any litigation,
arbitration, hearing or other proceeding between the Company and a third party
or any government body.  The Company
shall reimburse the Executive for all reasonable out-of-pocket expenses
incurred by him in connection with such assistance, including, without
limitation, travel and lodging expenses.

 

18.                 This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without reference to the principles of conflict of laws
thereof.

 

19.                 All
payments to be made hereunder shall be net of all applicable income,
employment, social security or other taxes required to be withheld therefrom.

 

20.                 This
Agreement and the Non-Core Business Payment Agreement represent the complete
agreement between the Executive and the Company concerning the subject matter
in this Agreement and the Non-Core Business Payment Agreement, and they
supersede all prior agreements or understandings, written or oral.  This Agreement may not be amended or
modified otherwise than by a written agreement executed by the parties hereto
or their respective successors and legal representatives.

 

10

 

21.                 Each
of the paragraphs contained in this Agreement shall be enforceable
independently of every other paragraph in this Agreement, and the invalidity or
unenforceability of any paragraph shall not invalidate or render unenforceable
any other paragraph contained in this Agreement.

 

22.                 It
is further understood that, for a period of 7 days following the execution of
this Agreement, the Executive may revoke this Agreement.  Any such revocation must be effected by
delivery of a written notification of revocation of the Agreement to the Chief
Financial Officer of ACGL prior to the end of such 7 day revocation
period.  In the event that the Agreement
is revoked by the Executive, the Company shall have no obligations under the
Agreement or under the Non-Core Business Payment Agreement, no amounts will be
payable under either agreement, and this Agreement and the Non-Core Business
Payment Agreement shall each be deemed to be void ab  initio and
of no force or effect.

 

23.                 This
Agreement has been entered into voluntarily and not as a result of coercion,
duress, or undue influence.  The
Executive acknowledges that the Executive has read and fully understands the
terms of this Agreement and has been advised to consult with an attorney before
executing this Agreement.  Additionally,
the Executive acknowledges that the Executive has been afforded the opportunity
of at least 21 days to consider this Agreement.

 

24.                 The
Company will require any successor or assignee, whether direct or indirect, by
purchase, merger, consolidation or otherwise, of all, or substantially all, of
the

 

11

 

business and/or assets of the Company to assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if such succession or assignment had not taken place.

 

25.                 This
Agreement shall inure to the benefit of and be enforceable by the Executive’s
personal and legal representatives, executors, administrators, heirs, distributees,
devisees and legatees.  If the Executive
dies while any amounts are still payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to the Executive’s devisee, legatee, or other designee or, if
there be no such designee, to the Executive’s estate.

 

The parties to this Agreement have executed this Agreement on the day
and year first written above.

 

	
   

  	
  ARCH CAPITAL GROUP LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
       /s/ Robert Clements

  	
   

  
	
   

  	
  Name:

  	
  Robert Clements

  
	
   

  	
  Title:

  	
  Chairman

  
	
   

  	
   

  
	
   

  	
  PETER APPEL

  
	
   

  	
   

  
	
   

  	
       /s/ Peter Appel

  	
   

  
					

 

12

 

ANNEX I

 

Schedule
of the Executive’s Stock Options

 

	
  Grant Date

  	
   

  	
  Options

  	
   

  	
  Expiration

  Date

  	
   

  	
  Exercise

  Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11/13/1995

  	
   

  	
  25,000

  	
   

  	
  5/5/2007

  	
   

  	
  $

  	
  21.00

  	
   

  
	
  11/19/1996

  	
   

  	
  39,500

  	
   

  	
  5/5/2007

  	
   

  	
  $

  	
  17.63

  	
   

  
	
  11/18/1997

  	
   

  	
  34,153

  	
   

  	
  5/5/2007

  	
   

  	
  $

  	
  23.00

  	
   

  
	
  11/18/1997 (ISO)

  	
   

  	
  4,347

  	
   

  	
  11/18/2007

  	
   

  	
  $

  	
  23.00

  	
   

  
	
  11/17/1998

  	
   

  	
  60,124

  	
  (1)

  	
  5/5/2007

  	
   

  	
  $

  	
  22.44

  	
   

  
	
  11/17/1998 (ISO)

  	
   

  	
  2,676

  	
   

  	
  11/17/2008

  	
   

  	
  $

  	
  22.44

  	
   

  
	
  4/24/2000

  	
   

  	
  100,000

  	
   

  	
  4/24/2010

  	
   

  	
  $

  	
  15.13

  	
   

  
	
  10/23/2001

  	
   

  	
  422,407

  	
   

  	
  10/23/2011

  	
   

  	
  $

  	
  20.00

  	
   

  
	
   

  	
   

  	
  688,207

  	
   

  	
   

  	
   

  	
   

  	
   

  

 

(1)                                  Includes
1,780 stock options with an expiration date of November 17, 2008.

 

13

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