Document:

Exhibit
10.2

FIRST AMENDMENT TO

ARCH CAPITAL GROUP LTD. INCENTIVE COMPENSATION PLAN

                The Arch Capital Group Ltd. Incentive Compensation
Plan is hereby amended as follows, effective February 26, 2004:

1.             The following is hereby added at the end of Section 2 of
the Plan:

“2.36  ‘Retirement Age’ means the later of
an Eligible Employee’s 55th birthday or the fifth anniversary of the
first day of the Plan Year in which such Eligible Employee’s participation in
the Plan commenced.”

2.                                       Section 5.3 of
the Plan is hereby amended and restated as follows:

“5.3         Vesting.  Each Eligible Employee must be employed by
the Company at the time of each payment of an Award unless terminated (i) by
the Company not for Cause, (ii) with respect to an Eligible Employee
designated by the Committee, by the Eligible Employee for Good Reason (as
defined within such Eligible Employee’s employment agreement, unless otherwise
determined by the Committee), (iii) as a result of death or, subject to the
immediately following paragraph, Permanent Disability or (iv) subject to the
immediately following paragraph, due to termination of employment (other than
by the Company for Cause) after attainment of Retirement Age.

In
the event an Eligible Employee ceases to be an employee of the Company prior to
the date an Award is paid (i) due to termination (A) by the Company not for
Cause or (B) with respect to an Eligible Employee designated by the Committee,
by the Eligible Employee for Good Reason (as defined within such Eligible
Employee’s employment agreement, unless otherwise determined by the
Committee), or (ii) as a result of death of the Eligible
Employee, the Award shall become vested in full at the time of such termination
of service and shall be paid when such Award is regularly paid hereunder following
such termination of employment in the form determined by the Committee.  In the event an Eligible Employee ceases to
be an employee of the Company prior to the date an Award is paid (i) due
to termination as a result of Permanent Disability or (ii) due
to termination of employment (other than by the Company for Cause) after the
attainment of Retirement Age, such Award shall continue to vest on its
normal vesting schedule and be paid when the Award is normally paid hereunder
in the form determined by the Committee so long as, prior to the
applicable vesting date, such Eligible Employee does
not engage in any activity in competition with any activity of the Company
or any of its Subsidiaries other than serving on the board of directors (or
similar governing body) of another company or as a consultant for no more than
26 weeks per calendar year; provided that if the Eligible Employee
does engage in such activity after termination for such reasons, any
unvested portion of  the Award shall be forfeited by the Eligible Employee
and become the property of the Company. 
For purposes hereof, 

 

 

 

service
with any of the Company’s Subsidiaries shall be considered to be service with
the Company.

If the Eligible Employee
ceases to be an employee of the Company for any other reason prior to the date
that an Award is paid, the Award shall be forfeited by the Eligible Employee
and become the property of the Company. 
For purposes hereof, service with any of the Subsidiaries shall be considered
to be service with the Company.  Vested
amounts shall reflect applicable carryforwards and Deficits, and terminated
employees unvested amounts shall be removed from the applicable bonus pool.”

3.             The following is hereby added after Section 8.8 the
Plan:

“8.9         The Committee may require deferral of
payments under this Plan if, in the sole judgment of the Committee, it may be
necessary in order to avoid nondeductibility of the payments under Section
162(m) of the Code.”

 

*
* * * *

 

2Exhibit 10.3

 

RESTRICTED SHARE AGREEMENTS – NON EMPLOYEE DIRECTORS

(2003 ANNUAL GRANTS)

 

Each
of the non-employee directors of Arch Capital Group Ltd. (“ACGL”)  listed
below has entered into Restricted Share Agreements with ACGL that are  substantially
identical in all material respects to the agreement, dated as of  October 1,
2003, between ACGL and Robert F. Works, a copy of which is  included
as part of this Exhibit 10.3 (except for John M. Pasquesi, dated as of
October 23, 2003).

 

Peter
A. Appel

Wolfe
“Bill” H. Bragin

John
L. Bunce, Jr.

Sean
D. Carney

Kewsong
Lee

James
J. Meenaghan

David
R. Tunnell

 

ARCH
CAPITAL GROUP LTD.

Restricted Share Agreement

 

THIS AGREEMENT, dated as
of October 1, 2003, between Arch Capital Group Ltd. (the “Company”), a
Bermuda company, and Robert F. Works (the “Director”).

 

WHEREAS, 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
Director is hereby awarded 607 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 on August 31, 2004.  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 and
the Director ceases to be a director of the Company for any

 

 

reason, then the
Restricted Shares shall become immediately vested in full upon such termination
of service.

 

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 Director ceases to be a director of
the Company prior to the date the Restricted Shares otherwise become vested due
to his or her death or Permanent Disability (as defined in the Company’s
Incentive Compensation Plan), the Restricted Shares shall become immediately
vested in full upon such termination of service.  If the Director ceases to be a director of the Company for any
other reason prior to the date the Restricted Shares become vested, the Award
shall be forfeited by the Director and become the property of 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 Director, 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 pursuant to
Section 5 hereof, the certificates evidencing such vested Shares, not
bearing the Restrictive Legend, shall be delivered to the Director.

 

(d)                                 Rights of a Stockholder.  Prior to the time a
Restricted Share is fully vested hereunder, the Director shall have no right to
transfer, pledge, hypothecate or otherwise encumber such Restricted
Shares.  During such period, the
Director shall have all

 

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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 Services. 
This Award shall not confer upon the Director any right with respect to
continuance of services with the Company nor shall this Award interfere with
the right of the Company to terminate the Director’s services 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 Director.  The Company shall pay,
and indemnify the Director 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
Director under Section 83(b) of the Code with respect to) the Award
granted hereunder, the Director shall 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 Director, 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 Director shall apply, where appropriate, to the Director’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 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, 4rd Floor

45 Reid Street

Hamilton HM 12 Bermuda 

Attn.: Secretary

 

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If to the Director:

 

To the last address
delivered to the Company by the 

Director 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.

 

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

 

	
   

  	
  ARCH CAPITAL GROUP LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Dawna Ferguson

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Robert F. Works

  	
   

  
	
   

  	
  Robert F. Works

  
					

 

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