Document:

Exhibit 10.2

 

EMPLOYMENT AGREEMENT

 

EMPLOYMENT AGREEMENT (“Agreement”),
dated as of October 22, 2008, between Arch Capital Group Ltd., a Bermuda
corporation (the “Company”), and
John C.R. Hele (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:

 

“Accounting Firm” has the meaning set
forth in Section 12.10(b).

 

“Affiliate” means
any Person, directly or indirectly, through one or more intermediaries, Controlling,
Controlled by, or under common Control with the Company. For purposes hereof, (a) ”Control”
means the ownership, directly or indirectly, of (i) in the case of a
corporation, Voting Securities (as defined below) representing 50% or more of
the total voting power or value of all the then outstanding Voting Securities
of such corporation or (ii) in the case of a partnership, limited
liability company, association or other business entity (“Business Entity”),
50% or more of the partnership or other similar ownership interest of such
Business Entity; and (b) ”Voting Security” means any security of a
corporation which carries the right to vote generally in the election of
directors. For purposes of the definition of “Control,” (x) a Person will
be deemed to have a 50% or more ownership interest in a Business Entity if such
Person is allocated 50% or more of Business Entity gains or losses or controls
the managing director or member or general partner of such Business Entity; and
(y) ”Controlling” and “Controlled” have meanings correlative thereto.

 

“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 or its Affiliates;
(b) malfeasance or gross negligence in the performance of the Executive’s
duties; (c) the Executive’s conviction 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; (e) continued and habitual use of alcohol by the
Executive to an extent which materially impairs the Executive’s performance of
his duties; (f) the Executive’s use of illegal drugs; (g) the
Executive’s failure to use his best efforts to obtain, maintain or renew the
work permit described in Section 3.02 below; or (h) the material
breach by the Executive of any of the covenants contained in this Agreement. Cause
shall not exist with respect to items (b), (d), (e), (f), (g) or (h) (other
than, in the case of item (h), a breach of Section 11.01) unless and until
Executive has been given written notice specifying in detail the circumstances
giving rise to the alleged cause, and the Executive shall have failed, within
twenty (20) days after such notice, to remedy (or, if such alleged cause cannot
be remedied within twenty (20) days, diligently 

 

 

commenced to remedy) the
alleged cause.

 

“Code” has the meaning set forth in Section 12.09.

 

“Confidential Information” means
information that is not generally known to the public and that was or is used,
developed or obtained by the Company or its Affiliates in connection with their
business. It shall not include information (a) required to be disclosed by
court or administrative order or called for in a subpoena or discovery request
regular on its face, (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 Company.

 

“Date of Termination” has the meaning
set forth in Section 5.06 and Section 5.02.

 

“Employment Period” has the meaning set
forth in Section 2.01 and Section 5.02.

 

“Good Reason” means, without the
Executive’s written consent and subject to the timely notice requirement and
the Company’s opportunity to cure set forth in Section 5.05 below, (a) the
material diminution of any material duties or responsibilities of the Executive;
(b) a material reduction in the Executive’s Base Salary; or (c) any
material breach by the Company of the provisions contained in this Agreement.

 

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

 

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

 

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

 

“Nonsolicitation Period” has the meaning
set forth in Section 9.02.

 

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

 

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

 

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

 

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

 

2

 

ARTICLE 2

 

EMPLOYMENT

 

SECTION 2.01. Employment. The
Company shall employ the Executive, and the Executive shall accept employment
with the Company, for the period beginning on April 1, 2009 (the “Start Date”) and ending as provided in Section 5.01
(the “Employment Period”). If the Executive
fails to satisfy the condition set forth in the preceding sentence, 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 Executive Vice President and Chief Financial 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
positions 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 Company. 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
Company or its Affiliates, whether for compensation or otherwise, without prior
written consent of the Company.

 

SECTION 3.02. Work Permits.
The Executive shall use his best efforts to obtain, maintain and renew a
suitable (for the purposes of the Executive’s contemplated employment by the
Company) work permit by the Bermuda government authorities and any other
permits required by any Bermuda government authority. The Company shall be
responsible for permit fees, and all other expenses, including legal expenses,
in connection with obtaining and maintaining such work permit.

 

SECTION 3.03. Work Location.
While employed by the Company hereunder, the Executive shall perform his duties
(when not traveling or engaged elsewhere in the performance of his duties) at
the offices of the Company in Bermuda. The Executive shall travel to such
places on the business of the Company in such manner and on such occasions as
the Company may from time to time reasonably require.

 

SECTION 3.04. Relocation. The
Company shall reimburse the Executive for all reasonable expenses incurred by
him (i) in relocating his household items from the Netherlands to the
United States and airfare for the Executive and his family to return to the
United States from the Netherlands, in each case, subject to the Company’s
requirements with respect to reporting and documentation of such expenses; and (ii) in
establishing his residence in Bermuda, including costs of temporary housing,
leasing or brokerage fees and commissions, and

 

3

 

transportation from the Netherlands and within Bermuda; provided,
however, that such reimbursement shall be made to the Executive promptly
following presentation by the Executive to the Company of required
documentation, but in no event later than December 31, 2009. In addition,
the Company shall reimburse the Executive for each of the following:  (i) business class airfare for the
Executive to travel to and from Bermuda and the Netherlands for the period
extending from the Start Date to June 30, 2009 (the “Period”),
which reimbursement may be for up to a maximum of two (2) trips per month,
(ii) the Executive’s net monthly housing allowance through the Period
(currently equal to approximately $12,250 per month) in accordance with the
practices of his previous employer, to the extent not paid or reimbursed by his
previous employer, and (iii) the costs of tuition and all other education
related expenses for the Executive’s children in the Netherlands for the Period
(currently equal to approximately $22,500 for a six-month period) in accordance
with the practices of his previous employer, to the extent not paid or
reimbursed by his previous employer; provided, however, that such reimbursement
shall be made to the Executive promptly following presentation by the Executive
to the Company of required documentation, but in no event later than December 31,
2009. Upon the termination of Executive’s employment for any reason, the
Company shall reimburse the Executive for all reasonable expenses incurred by
him for the cost of relocating all of his household items to the United States
and airfare for Executive and his family to return to the United States, in
each case, subject to the Company’s requirements with respect to reporting and
documentation of such expenses; provided, however, that any such
expenses must be incurred by the Executive not later than the last day of the
calendar year following the calendar year in which the Executive’s “separation
from service” (within the meaning of Treas. Reg. Section 1.409A-1(h)) with
the Company occurs, and any such reimbursement shall be made promptly upon
presentation by the Executive to the Company of the required documentation and,
in all events, no later than the last day of the second calendar year following
the calendar year in which the Executive’s “separation from service” with the
Company occurs.

 

ARTICLE 4

 

BASE SALARY AND BENEFITS

 

SECTION 4.01. Base Salary.
During the Employment Period, the Executive’s base salary will be $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 Period 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. Normal hours of employment are 8:30 a.m. to
5:00 p.m., Monday to Friday. The Executive’s salary has been computed to
reflect that his regular duties are likely, from time to time, to require more
than the normal hours per week and the Executive shall not be entitled to
receive any additional remuneration for work outside normal hours.

 

SECTION 4.02. Bonuses. In
addition to the Base Salary, the Executive shall be eligible to participate in
an annual bonus plan on terms set forth 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 his Base Salary.

 

4

 

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

 

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

 

(d)         payment by the Company of
the reasonable cost of preparation of annual tax returns and associated tax
planning on a basis no less favorable than such arrangements provided to
similarly situated senior executives residing in Bermuda, and the cost paid by
the Company under this Section 4.03(d) for one calendar year shall be
paid by the Company promptly upon presentation by the Executive to the Company
of the required documentation and, in all events, not later than the end of the
following calendar year;

 

(e)          payment by the Company
of an amount equal to the excess, if any, of the amount of income and
employment taxes payable by the Executive for a calendar year to Bermuda, New
York and any other governmental taxing authority on the compensation paid to
the Executive by the Company over the amount that would have been payable by
the Executive on such compensation had he resided in New York for the entire
calendar year, such reimbursement to be made promptly upon determination by the
Company and, in all events, not later than the last day of the calendar year
following the calendar year for which the excess tax was incurred; and

 

(f)            other fringe benefits
customarily provided from time to time during the Employment Period to
similarly situated senior executives residing in Bermuda.

 

5

 

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. In addition, the Company will reimburse the
Executive, on an after-tax basis, for his reasonable expenses incurred in traveling
between Bermuda and the United States during the Employment Period, and such
reimbursement shall be made promptly, but in no event later than the end of the
calendar year following the calendar year during which the expense was incurred
by the Executive.

 

SECTION 4.05. Stock Options and
Restricted Stock. The Executive shall be eligible to participate in
the Company’s Long Term and Incentive Share Award Plans (and any similar plan
adopted by the Company) under which share-based awards may be awarded by the
Board of Directors of the Company in its discretion.

 

SECTION 4.06. Sign-On Share-Based Awards
and Bonus. Subject to approval by the Board of Directors of the
Company (“Board Approval”), on the Start Date,
the Company shall grant to the Executive an option to acquire 40,000 of the
Company’s common shares 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. Subject
to Board Approval, on the Start Date, the Company shall also grant to the
Executive 25,000 restricted common shares of the Company on the terms set forth
in the form of Restricted Stock Agreement attached hereto as Exhibit B.
In addition, the Executive would be entitled to a one-time cash bonus equal to
the cash bonus he would have received from his former employer under such
former employer’s Short Term Incentive Plan for 2008 performance as determined
by the Board of Directors of the Company based upon a review of the level of
bonuses paid to senior executives of the former employer as publicly reported,
which bonus shall be paid to the Executive by the Company within 90 days after
such public announcement so long as the Executive is an employee of the Company
on the date of payment.

 

ARTICLE 5

 

TERM AND TERMINATION

 

SECTION 5.01. Term. The
Employment Period will terminate on the third 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 term until either the Company or the
Executive, at least one hundred eighty (180) 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 12.09,

 

6

 

if the
Employment Period shall be terminated (i) at the end of the Employment
Period due to the Company giving written notice of non-extension pursuant to Section 5.01
above, or (ii) prior to the expiration of the original term (or the
Employment Period as extended pursuant to Section 5.01) by the Executive
for Good Reason or by the Company not for Cause (such terminations under
clauses (i) and (ii) of this Section 5.02 are collectively
referred to as “Unjustified Terminations”), the
Executive shall be paid solely (except as provided in Section 5.04 below
or as specifically provided in the Company’s Incentive Compensation Plan or
successor plan) an amount equal to the greater of (i) eighteen (18) months
of the Base Salary and (ii) the total remaining Base Salary for the
Employment Period which would have been paid to the Executive under this
Agreement if the Employment Period had not been so terminated, provided the
Executive shall be entitled to such payments only if the Executive has not
breached and does not breach in any material respect the provisions of Sections
6.01, 7.01, 8.01, 9.01 or 9.02 and the Executive has entered into a general
release of claims reasonably satisfactory to the Company on or before the date
that is fifty (50) days following the Date of Termination and does not revoke
such release prior to the end of the statutory seven (7) day revocation
period. Subject to Section 12.09 below, such amounts will be paid as
follows:  (A) an amount equal to
twelve (12) months of the Base Salary shall be paid in twelve (12) equal
installments, the first two (2) of which shall be paid on the date that is
two (2) months following the Date of Termination and the next ten (10) of
which will be paid in ten (10) equal monthly installments commencing on
the date that is three (3) months following the Date of Termination and
continuing on each of the next nine (9) monthly anniversaries of the Date
of Termination; and (B) the balance of the total amount payable under this
Section 5.02 will be paid in a lump sum on the first anniversary of the
Date of Termination. In addition, promptly following an Unjustified
Termination, the Executive shall also be reimbursed for all Reimbursable Expenses
incurred by the Executive prior to such Unjustified Termination. Notwithstanding
any provision hereof to the contrary, in order for the Executive to terminate
the Employment Period for Good Reason, such termination of employment must
occur no later than sixty (60) days after the date the Executive gives written
notice in accordance with Section 5.05 below to the Company of the
occurrence of the event or condition that constitutes Good Reason. Notwithstanding
any provision of this Agreement to the contrary, for purposes of this Section 5.02
and the last sentence of Section 5.04, the Executive will be deemed to
have terminated his employment on the date of his “separation from service”
(within the meaning of Treasury Regulation Section 1.409A-1(h)) with the
Company, the Employment Period will be deemed to have ended on the date of his “separation
from service” with the Company, and the Date of Termination will be deemed to
be the date of his “separation from service” with the Company.

 

SECTION 5.03. Justified
Termination. If the Employment Period shall be terminated (i) prior
to the expiration of the original term (or the Employment Period as extended
pursuant to Section 5.01) (a) by the Company for Cause, (b) as a
result of the Executive’s resignation or leaving of his employment, other than
for Good Reason or (c) as a result of the death or Permanent Disability of
the Executive, or (ii) at the end of the Employment Period as a result of
the Executive’s provision of written notice not to extend the Employment Period
under Section 5.01 (such terminations under clauses (i) and (ii) of
this Section 5.03 are collectively referred to as “Justified
Terminations”), the Executive shall be
entitled to receive solely (except as provided in Section 5.04 below or as
specifically provided in the Company’s Incentive Compensation Plan or successor
plan) his Base Salary earned through the date of termination of

 

7

 

employment and reimbursement of all Reimbursable Expenses incurred by
the Executive prior to such Justified Termination. If the termination is by
reason of the death or Permanent Disability of the Executive, the Executive
also shall be entitled to receive a prorated portion of his target annual bonus
based on the number of days elapsed in the calendar year through the Date of
Termination (offset by any life insurance proceeds received or disability
insurance proceeds relating to periods following the date of termination of
employment from any insurance coverages provided by the Company or any of its
Affiliates), and such amount, if any, shall be paid to the Executive by no
later than March 15 of the calendar year following the calendar year of
such termination of employment. For such purposes, the annual bonus shall not
be less than the average annual bonus received for the preceding three years
(if Executive has not yet received bonuses for three years, he shall receive
not less than a prorated portion of the average of the bonuses received).

 

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 equal to the lesser of (i) twelve
(12) months after the Date of Termination, and (ii) until the Executive is
provided by another employer with benefits substantially comparable (with no
pre-existing condition limitations) to the benefits provided by such plan.

 

SECTION 5.05. Notice of Termination and
Opportunity to Cure. 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 date the termination is to take
effect (consistent with the terms of this Agreement), the specific termination
provision in this Agreement relied upon and, for a termination for Permanent
Disability or for Cause or for a resignation for Good Reason, shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of employment under the provision indicated. It shall be a
condition precedent to the Executive’s right to terminate employment for Good
Reason that (i) the Executive shall first have given the Company written
notice that an event or condition constituting Good Reason has occurred within
ninety (90) days after such occurrence, and any failure to give such written
notice within such period will result in a waiver by the Executive of his right
to terminate for Good Reason as a result of such event or condition, and (ii) a
period of thirty (30) days from and after the giving of such written notice
shall have elapsed without the Company having effectively cured or remedied
such occurrence during such 30-day period, unless such occurrence cannot be
cured or remedied within thirty (30) days, in which case the period for remedy
or cure shall be extended for a reasonable time (not to exceed an additional
fifteen (15) days) provided that the Company has made and continues to make a
diligent effort to effect such remedy or cure.

 

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

 

8

 

of
Termination is given, (b) if the Employment Period is terminated by the
Executive for Good Reason, the date specified in the Notice of Termination
consistent with the terms hereof, (c) if the Employment Period terminates
due to expiration of the term of this Agreement, the date the term expires, and
(d) if the Employment Period is terminated for any other reason (including
for Cause), the date designated by the Company in the Notice of Termination,
which date shall be a date on or following the date of such 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 Confidential
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.

 

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 Company 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 Company as now or hereinafter conducted (collectively, “Intellectual Property”), the Executive acknowledges that
such Intellectual Property is the sole and exclusive property of the Company
and hereby assigns all right title and interest in and to such Intellectual
Property to the Company. 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 United States Copyright Act of 1976, as
amended, and the Company 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 Company to protect the Company’s 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 Company, whether such
requests occur prior to or after termination of Executive’s employment
hereunder).

 

9

 

ARTICLE 8

 

DELIVERY OF MATERIALS UPON TERMINATION OF
EMPLOYMENT

 

SECTION 8.01. Delivery of Materials upon
Termination of Employment. As requested by the Company, from time to
time and upon the termination of the Executive’s employment with the Company
for any reason, the Executive will promptly deliver to the Company all property
of the Company in the Executive’s possession or within his control, including,
without limitation, all copies and embodiments, in whatever form or medium, of
all Confidential Information or Intellectual Property (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 property and, if requested by the
Company, will provide the Company with written confirmation that all such
property have been delivered to the Company.

 

ARTICLE 9

 

NONCOMPETITION AND NONSOLICITATION

 

SECTION 9.01.
Noncompetition.  The
Executive acknowledges that during his employment with the Company, he will
become familiar with trade secrets and other Confidential Information
concerning the Company and its Affiliates and their respective predecessors,
and that his services will be of special, unique and extraordinary value to the
Company. In addition, the Executive hereby agrees that at any time during the
Employment Period, and for a period ending one (1) year after the
termination of the Executive’s employment 
(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 Company or its Affiliates as such businesses exist or are in
process as of the date of termination, within any geographical area in which
the Company or its Affiliates engage or plan to engage in such businesses. 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 acknowledges that during his employment with the Company, he will
become familiar with trade secrets and other Confidential Information
concerning the Company, its Affiliates and their respective predecessors, and
that his services will be of special, unique and extraordinary value to the
Company. The Executive hereby agrees that (a) during the Employment Period
and for a period of one (1) year after the date of termination of
employment (the “Nonsolicitation Period”) the
Executive will not, directly or indirectly, induce or attempt to induce any
employee of the Company or its Affiliates to leave the employ of the Company or
its Affiliates, or in any way interfere with the relationship between the
Company or its Affiliates and any employee thereof or otherwise employ or
receive the services of any individual who was an employee of the Company or
its Affiliates at the Date of Termination or within the six-month period prior
thereto,

 

10

 

and (b) during
the Nonsolicitation Period, the Executive will not induce or attempt to induce
any customer, supplier, client, insured, reinsured, reinsurer, broker, licensee
or other business relation of the Company or its Affiliates to cease doing
business with the Company or its Affiliates.

 

SECTION 9.03. Enforcement.
If, at the enforcement of Sections 9.01 or 9.02, a court holds that the
duration or scope stated therein are unreasonable under circumstances then
existing, the parties agree that the maximum duration and scope reasonable
under such circumstances will be substituted for the stated duration or scope
and that the court will be permitted to revise the restrictions contained in
this Article 9 to cover the maximum duration and scope 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
Company contained in Sections 6.01, 7.01, 8.01, 9.01 or 9.02 could cause
irreparable harm to the Company for which it would have no adequate remedy at
law. Accordingly, and in addition to any remedies which the Company 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 Company 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 that affects his right or
ability to perform the duties contemplated by this Agreement, (c) the
Executive did not, while working for any employer other than the Company:  solicit his fellow employees to leave their
employment and work with him at the Company; or solicit clients, or potential
clients, of such employer, for the Company; or take any type of information
that is proprietary information of such employer, and (d) 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.

 

SECTION 11.02. Company
Representations. The Company hereby represents and warrants to the
Executive that (a) all acts required to be taken to authorize, deliver and
perform this Agreement and the obligations of the Company provided for hereunder
have been duly

 

11

 

taken; and (b) upon the execution and delivery of this Agreement
by the Company, this Agreement will be valid and binding obligation of the
Company, enforceable in accordance with its terms.

 

ARTICLE 12

 

MISCELLANEOUS

 

SECTION 12.01. Remedies. The
Company will have all rights and remedies set forth in this Agreement, all
rights and remedies which the Company has been granted at any time under any
other agreement or contract and all of the rights which the Company has under
any law. The Company 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.

 

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 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.

 

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 shall be
delivered personally by hand, by electronic transmission (with a copy following
by hand or by overnight courier), by registered or certified mail, postage
prepaid, return receipt requested, or by overnight courier service (charges
prepaid). Communications delivered personally by hand shall

 

12

 

be deemed
received on the date when delivered personally to the recipient; communications
sent by electronic means shall be deemed received one (1) business
day after the sending thereof; communications sent by registered or certified
mail shall be deemed received four (4) business days after the sending
thereof; and communications delivered by overnight courier shall be deemed
received one (1) business day after the date when sent to the recipient. 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.

  
	
   

  	
   

  
	
  With a Copy to:

  	
  Warshaw Burstein Cohen
  Schlesinger & Kuh, LLP

  
	
   

  	
  555 Fifth Avenue

  
	
   

  	
  New York, NY 10017

  
	
   

  	
  Attention: Frederick R.
  Cummings, Jr., Esq.

  
	
   

  	
  Tel: (212) 984-7807

  
	
   

  	
  Fax: (212) 972-9150

  
	
   

  	
  Email:  fcummings@wbcsk.com

  
	
   

  	
   

  
	
  If to the
  Company:

  	
  Arch Capital
  Group Ltd.

  
	
   

  	
  Wessex
  House, 4th Floor

  
	
   

  	
  45
  Reid Street

  
	
   

  	
  Hamilton
  HM 12, Bermuda

  
	
   

  	
  Attention:
  Secretary

  
	
   

  	
  Tel:
  (441) 278-9250

  
	
   

  	
  Fax:
  441-278-9255

  
	
   

  	
  Email:  Dawna.Ferguson@conyersdillandpearman.com

  

 

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

 

SECTION 12.09. 409A. It is
intended that this Agreement will comply with Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”) (and any
regulations and guidelines issued thereunder), to the extent the Agreement is
subject thereto, and the Agreement shall be interpreted on a basis consistent
with such intent. If an amendment of the Agreement is necessary in order for it
to comply with Section 409A, the parties hereto will negotiate in good
faith to amend the Agreement in a manner that preserves the original intent of
the parties to the extent reasonably possible. No action or failure to act,
pursuant to this Section 12.09 shall subject the Company to any claim,
liability, or expense, and the Company shall not have any obligation to indemnify
or otherwise protect the Executive from the obligation to pay any taxes,
interest or penalties pursuant to Section 409A of the Code.

 

13

 

Notwithstanding any provision to the contrary
in this Agreement, if the Executive is deemed on the date of his “separation
from service” (within the meaning of Treasury Regulation Section 1.409A-1(h))
to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B) of
the Code, then with regard to any payment that is required to be delayed
pursuant to Section 409A(a)(2)(B) of the Code (after taking into
account the applicable provisions of Treasury Regulation Section 1.409A-1(b)(9)(iii)),
the portion, if any, of such payment so required to be delayed shall not be
made prior to the earlier of (i) the expiration of the six (6)-month
period measured from the date of his “separation from service” or (ii) the
date of his death (the “Delay Period”).
Upon the expiration of the Delay Period, all payments and benefits delayed
pursuant to this Section (whether they would have otherwise been payable
in a single sum or in installments in the absence of such delay) shall be paid
or reimbursed to the Executive in a lump sum, and any remaining payments due
under this Agreement shall be paid in accordance with the normal payment dates
specified for them herein. Whenever payments under this Agreement are to be
made in installments, each such installment shall be deemed to be a separate
payment for purposes of Section 409A of the Code. In no case will
compliance with this Section by the Company constitute a breach of the
Company’s obligations under this Agreement.

 

With respect to any reimbursement or in-kind
benefit arrangements of the Company and its subsidiaries provided for herein
that constitute deferred compensation for purposes of Section 409A, except
as otherwise permitted by Section 409A, the following conditions shall be
applicable: (i) the amount eligible for reimbursement, or in-kind benefits
provided, under any such arrangement in one calendar year may not affect the
amount eligible for reimbursement, or in-kind benefits to be provided, under
such arrangement in any other calendar year (except that the health and dental
plans may impose a limit on the amount that may be reimbursed or paid), (ii) any
reimbursement must be made on or before the last day of the calendar year following
the calendar year in which the expense was incurred, and (iii) the right
to reimbursement or in-kind benefits is not subject to liquidation or exchange
for another benefit.

 

SECTION 12.10. Excess
Parachute Payments.

 

(a)                                  Notwithstanding any
other provision of this Agreement, in the event that the amount of payments or
other benefits payable to the Executive under this Agreement (including,
without limitation, the acceleration of any payment or the accelerated vesting
of any payment or other benefit), together with any payments, awards or
benefits payable under any other plan, program, arrangement or agreement
maintained by the Company or one of its Affiliates, would constitute an “excess
parachute payment” (within the meaning of Section 280G of the Code), the
payments under Section 5.02 of this Agreement shall be reduced (by the
minimum possible amounts) until no amount payable to the Executive under this
Agreement constitutes an “excess parachute payment” (within the meaning of Section 280G
of the Code); provided, however, that no such reduction shall be
made if the net after-tax payment (after taking into account federal, state, local
or other income, employment and excise taxes) to which the Executive would
otherwise be entitled without such reduction would be greater than the net
after-tax payment (after taking into account federal, state, local or other
income, employment and excise taxes) to the Executive resulting from the
receipt of such payments with such reduction.

 

14

 

(b)                                 All determinations
required to be made under this Section 12.10, including whether a payment
would result in an “excess parachute payment” and the assumptions to be
utilized in arriving at such determinations, shall be made by an accounting
firm designated by the Company (the “Accounting Firm”)
which shall provide detailed supporting calculations both to the Company and
the Executive as requested by the Company or the Executive. All fees and
expenses of the Accounting Firm shall be borne solely by the Company and shall
be paid by the Company. Absent manifest error, all determinations made by the
Accounting Firm under this Section 12.10 shall be final and binding upon
the Company and the Executive.

 

SECTION 12.11. No Third Party Beneficiary.
This Agreement will not confer any rights or remedies upon any person other
than the Company, the Executive and their respective heirs, executors,
successors and assigns.

 

SECTION 12.12. 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. This Agreement shall
serve as a written statement of employment for purposes of Section 6 of
the Bermuda Employment Act 2000.

 

SECTION 12.13. Construction.
The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent, and no rule of strict
construction will be applied against any party. Any reference to any federal,
state, local or foreign statute or law will be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
use of the word “including” in this Agreement means
including without limitation and is intended by the parties to be by way of
example rather than limitation.

 

SECTION 12.14. Survival.
Sections 3.04, 5.02, 5.03, 5.04, 6.01, 7.01, 8.01 and Articles 9, 10, 11 and 12
will survive and continue in full force in accordance with their terms
notwithstanding any termination of the Employment Period.

 

SECTION 12.15. GOVERNING LAW.
ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND INTERPRETATION OF THIS
AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.

 

SECTION 12.16. Jurisdiction.
The parties agree to the nonexclusive jurisdiction of the federal and state
courts situated in New York County, New York, for the resolution of any dispute
arising under this Agreement or under any share-based award agreements between
the Company and the Executive.

 

15

 

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

 

	
   

  	
  ARCH CAPITAL GROUP LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Constantine Iordanou

  
	
   

  	
  Name: Constantine Iordanou

  
	
   

  	
  Title: President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ John C.R. Hele

  
	
   

  	
  John C.R.
  Hele

  

 

16

 

Exhibit A

 

ARCH
CAPITAL GROUP LTD.

Non-Qualified Stock Option Agreement

 

FOR GOOD AND VALUABLE
CONSIDERATION, receipt of which is hereby acknowledged, Arch Capital Group Ltd.
(the “Company”), a Bermuda company, hereby grants to John C.R. Hele, an
employee of the Company on the date hereof (the “Option Holder”), the option to
purchase common shares, $0.01 par value per share, of the Company (“Shares”),
upon the following terms:

 

WHEREAS, the Option
Holder has been granted the following award under the Company’s 2007 Long Term
Incentive and Share Award Plan (the “Plan”);

 

(a)                                  Grant.
 The Option Holder is hereby granted an
option (the “Option”) to purchase 40,000 Shares (the “Option Shares”) pursuant
to the Plan, the terms of which are incorporated herein by reference.  The Option is granted as of April 1,
2009 (the “Date of Grant”) and such grant is subject to the terms and
conditions herein and the terms and conditions of the applicable provisions of
the Plan.  This Option shall not be
treated as an incentive stock option as defined in Section 422 of the
Internal Revenue Code of 1986, as amended. 
In the event of any conflict between this Agreement and the Plan, the
Plan shall control.

 

(b)                                 Status
of Option Shares.  Upon issue, the
Option Shares shall rank equally in all respects with the other Shares.

 

(c)                                  Option
Price.  The purchase price for the
Option Shares shall be, except as herein provided,
$           per Option Share,
hereinafter sometimes referred to as the “Option Price,” payable immediately in
full upon the exercise of the Option.

 

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

 

(e)                                  No
Rights of Shareholder.  The Option
Holder shall not, by virtue hereof, be entitled to any rights of a shareholder
in the Company, either at law or in equity.

 

(f)                                    Exercisability.  Except as otherwise set forth in paragraph
(j) below, the Option shall become exercisable  in three equal annual installments on the first, second and
third anniversaries of the Date of Grant, in each case subject to paragraph
(j) below.  Subject to paragraph
(j) below, the Option may be exercised at any time or from time to time
during the Option Period in regard to all or any portion of the Option which is
then exercisable, as may be adjusted pursuant to paragraph (g) below.

 

 

(g)                                 Adjustments
for Recapitalization and Dividends. 
In the event that, prior to the expiration of the Option, any dividend
in Shares, recapitalization, Share split, reverse split, reorganization,
merger, consolidation, spin-off, combination, repurchase, or share exchange, or
other such change affects the Shares such that they are increased or decreased
or changed into or exchanged for a different number or kind of shares, other
securities of the Company or of another corporation or other consideration,
then in order to maintain the proportionate interest of the Option Holder and
preserve the value of the Option, (i) there shall automatically be
substituted for each Share subject to the unexercised Option the number and
kind of shares, other securities or other consideration (including cash) into
which each outstanding Share shall be changed or for which each such Share
shall be exchanged, and (ii) the exercise price shall be increased or
decreased proportionately so that the aggregate purchase price for the Shares
subject to the unexercised Option shall remain the same as immediately prior to
such event.

 

(h)                                 Nontransferability.  The Option, or any interest therein, may not
be assigned or otherwise transferred, disposed of or encumbered by the Option
Holder, other than by will or by the laws of descent and distribution.  During the lifetime of the Option Holder, the
Option shall be exercisable only by the Option Holder or by his or her guardian
or legal representative.  Notwithstanding
the foregoing, the Option may be transferred by the Option Holder to members of
his or her “immediate family “ or to a trust or other entity established for the
exclusive benefit of solely one or more members of the Option Holder’s
“immediate family.”  Any Option held by
the transferee will continue to be subject to the same terms and conditions
that were applicable to the Option immediately prior to the transfer, except
that the Option will be transferable by the transferee only by will or the laws
of descent and distribution.  For
purposes hereof, “immediate family” means the Option Holder’s children,
stepchildren, grandchildren, parents, stepparents, grandparents, spouse,
siblings (including half brother and sisters), in laws, and relationships
arising because of legal adoption.

 

(i)                                     Exercise
of Option.  In order to exercise the
Option, the Option Holder shall submit to the Company an instrument specifying
the whole number of Option Shares in respect of which the Option is being
exercised, accompanied by payment, in a manner acceptable to the Company (which
shall include a broker assisted exercise arrangement), of the Option Price for
the Option Shares for which the Option is being exercised.  Payment to the Company in cash or Shares
already owned by the Option Holder (provided that the Option Holder has owned
such Shares for a minimum period of six months or has purchased such Shares on
the open market) and having a total Fair Market Value equal to the exercise
price, or in a combination of cash and such Shares, shall be deemed acceptable
for purposes hereof.  Option Shares will
be issued accordingly by the Company, and a share certificate dispatched to the
Option Holder within 30 days.

 

The Company shall not be
required to issue fractional Shares upon the exercise of the Option. If any
fractional interest in a Share would be deliverable upon the exercise of the
Option in whole or in part but for the provisions of this paragraph, the
Company, in lieu of delivering any such fractional share therefor, shall pay a
cash adjustment therefor in an amount equal to their Fair Market Value
multiplied by the fraction of the fractional share which would otherwise have
been issued hereunder.  Anything to the
contrary herein notwithstanding, the Company shall

 

2

 

not be obligated to issue
any Option Shares hereunder if the issuance of such Option Shares would violate
the provision of any applicable law, in which event the Company shall, as soon
as practicable, take whatever action it reasonably can so that such Option
Shares may be issued without resulting in such violations of law.

 

(j)                                     Termination
of Service.

 

1.                                       In
the event the Option Holder ceases to be an employee of the Company due to his
death or Permanent Disability (as defined in the Employment Agreement, dated as
of October     , 2008, between the Option Holder and
the Company, the “Employment Agreement”), the Option, to the extent not already
exercisable in full, shall become immediately exercisable in full and shall
continue to be exercisable by the Option Holder (or his Beneficiary or estate
in the event of his death) for a period of three years following such
termination of employment (but not beyond the Option Period).

 

2.                                       In
the event of termination of employment (other than by the Company for Cause, as
such term is defined in the Employment Agreement after the attainment of
Retirement Age (as defined in the Company’s Incentive Compensation Plan on the
date hereof), the Option shall continue to become exercisable on the schedule
set forth in paragraph (f) above so long as the Option Holder does not
engage in any activity in competition with any activity of the Company or any
of its Subsidiaries other than serving on the board of directors (or similar
governing body) of another company or as a consultant for no more than 26 weeks
per calendar year (“Competitive Activity”) and shall continue to be exercisable
by the Option Holder (or his Beneficiary or estate in the event of his death)
for the remainder of the Option Period. 
In the event the Option Holder engages in a Competitive Activity,
(A) the Option, to the extent then exercisable, may be exercised for 30
days following the date on which the Option Holder engages in such Competitive
Activity (but not beyond the Option Period) and (B) the Option, to the
extent then not exercisable, shall be immediately forfeited.

 

3.                                       In
the event the Option Holder ceases to be an employee of the Company after a
Change in Control (as defined below) due to termination (A) by the Company
not for Cause or (B) by the Option Holder for Good Reason (as defined in
the Employment Agreement), in either case, on or before the second anniversary
of the occurrence of the Change in Control, the Option, to the extent not
already exercisable in full, shall become immediately exercisable in full and
shall continue to be exercisable by the Option Holder for a period of 90 days
following such termination of employment (but not beyond the Option Period).

 

4.                                       In
the event that the Option Holder ceases to be an employee of the Company for
any other reason, except due to a termination of the Option Holder’s employment
by the Company for Cause, (A) the Option, to the extent then exercisable,
may be exercised for 90 days following termination of employment (but not
beyond the Option Period) and (B) the Option, to the extent then not
exercisable, shall be immediately forfeited; provided that, in the event of a
Redundancy (as defined below), the Committee,

 

3

 

 in its sole discretion, may, in accordance
with its authority under the Plan, determine that the Option, to the extent not
exercisable, shall become exercisable and shall continue to be exercisable by
the Option Holder for a period of 90 days following such termination of
employment (but not beyond the Option Period).

 

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

 

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

 

7.             “Change
in Control” shall mean:

 

(A)    any
person (within the meaning of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), other than a Permitted Person, is or becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of Voting Securities representing 50% or more of the
total voting power or value of all the then outstanding Voting Securities; or

 

(B)     the
individuals who, as of the date hereof, constitute the Board of Directors of
the Company (the “Board”) together with those who become directors subsequent
to such date and whose recommendation, election or nomination for election to
the Board was approved by a vote of at least a majority of the directors then
still in office who either were directors as of such date or whose
recommendation, election or nomination for election was previously so approved,
cease for any reason to constitute a majority of the members of the Board; or

 

(C)     the
consummation of a merger, consolidation, recapitalization, liquidation, sale or
disposition by the Company of all or substantially all of the Company’s assets,
or reorganization of the Company, other than any such transaction which would
(x) result in more than 50% of the total voting power and value
represented by the voting securities of the surviving entity outstanding
immediately after such transaction being beneficially owned by the former
shareholders of the Company and (y) not otherwise be deemed a Change in
Control under subparagraphs (A) or (B) of this paragraph.

 

“Permitted Persons” means
(A) the Company; (B) any Related Party; (C) Warburg Pincus or
any of its subsidiaries or any investment funds managed or controlled by
Warburg Pincus or any of its subsidiaries; or (D) any group (as defined in
Rule 13b-3 under the Exchange Act) comprised of any or all of the foregoing.

 

4

 

“Related Party” means
(A) a majority-owned subsidiary of the Company; (B) a trustee or
other fiduciary holding securities under an employee benefit plan of the
Company or any majority-owned subsidiary of the Company; or (C) any
entity, 50% or more of the voting power of which is owned directly or
indirectly by the shareholders of the Company in substantially the same
proportion as their ownership of Voting Securities immediately prior to the
transaction.

 

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

 

8.                     “Redundancy”
shall mean termination of employment by the Company due to its need to reduce
the size of its workforce, including due to closure of a business or a
particular workplace or change in business process.  Whether a termination
of employment is due to a “redundancy” shall be determined by the Committee in
its sole and absolute discretion, such determination being final and binding on
all parties hereto and all persons claiming through, in the name of or on
behalf of such parties.

 

(k)                                  Obligations
as to Capital.  The Company agrees
that it will at all times maintain authorized and unissued share capital
sufficient to fulfill all of its obligations under the Option.

 

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

 

(m)                               Expenses
of Issuance of Option Shares.  The
issuance of stock certificates upon the exercise of the Option in whole or in
part, shall be without charge to the Option Holder.  The Company shall pay any issuance, stamp or
documentary taxes (other than transfer taxes) or charges imposed by any
governmental body, agency or official (other than income taxes) by reason of
the exercise of the Option in whole or in part or the resulting issuance of the
Option Shares.

 

(n)                                 Withholding.  No later than the date of exercise of the
Option granted hereunder, the Option Holder shall pay to the Company or make
arrangements satisfactory to the Committee regarding payment of any federal,
state or local taxes of any kind required by law to be withheld upon the
exercise of such Option 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 Option Holder, federal, state and local taxes of any kind
required by law to be withheld upon the exercise of such Option.

 

5

 

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

 

(p)                                 Notices.  Any notice required or permitted to be given
under this agreement shall be in writing and shall be deemed to have been given
when delivered personally or by courier, or sent by certified or registered
mail, postage prepaid, return receipt requested, duly addressed to the party
concerned at the address indicated below or to such changed address as such
party may subsequently by similar process give notice of:

 

If to the Company:

 

Arch Capital Group Ltd.:

Wessex House

45 Reid Street

Hamilton HM 12 Bermuda 

Attn:  Secretary

 

If to the Option Holder:

 

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

 

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

 

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

 

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

 

6

 

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

 

	
   

  	
  ARCH CAPITAL GROUP LTD.

  	 

	 
	
   

  	
   

  
	 
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	 

	
   

  	
   

  	
  Name:

  	 

	
   

  	
   

  	
  Title:

  	 

	 
	
   

  	
   

  	
   

  
	
   

  	
   

  	 

	
   

  	
  John C.R. Hele

  	 

							

 

7

 

Exhibit B

 

ARCH CAPITAL GROUP LTD.

Restricted Share Agreement

 

THIS
AGREEMENT, dated as of April 1, 2009, between Arch Capital Group Ltd. (the
“Company”), a Bermuda company, and John C.R. Hele (the “Employee”).

 

WHEREAS,
the Employee has been granted the following award under the Company’s 2007 Long
Term Incentive and Share Award Plan (the “Plan”);

 

NOW,
THEREFORE, in consideration of the premises and mutual covenants contained herein,
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
25,000 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 three equal
annual installments on the first, second and third anniversaries 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).

 

(b)                                 Termination
of Service; Forfeiture of Unvested Shares.

 

(i)             In the
event the Employee ceases to be an employee 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 Employment Agreement, dated as of
October     , 2008, between the Employee and the
Company, the “Employment Agreement”), the Restricted Shares shall become
immediately vested in full upon such termination of employment.

 

(ii)          In the
event of termination of employment (other than by the Company for Cause, as
such term is defined in the Employment Agreement) after the attainment of
Retirement Age (as defined in the Company’s Incentive Compensation Plan on the
date hereof), the Restricted Shares shall continue to vest on the schedule set
forth in Section 2(a) above so long as the 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
(“Competitive Activity”). In the event the Employee engages in a Competitive
Activity, any unvested Restricted Shares shall be forfeited by the Employee and
become the property of the Company.

 

(iii)                               In
the event the Employee ceases to be an employee of the Company due to
termination (A) by the Company not for Cause or (B) by the Employee
for Good Reason (as defined in the Employment Agreement), the Restricted
Shares, to the extent not already vested, shall become immediately vested in
full upon such termination of employment.

 

(iv)                              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; provided that, in the
event of a Redundancy (as defined below), the Committee, in its sole discretion,
may, in accordance with its authority under the Plan, determine that the
Restricted Shares, to the extent not vested, shall become vested upon such
termination of employment.

 

(v)                                 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.

 

(vi)                                                “Redundancy”
shall mean termination of employment by the Company due to its need to reduce
the size of its workforce, including due to closure of a business or a particular
workplace or change in business process.  Whether a termination of
employment is due to a “redundancy” shall be determined by the Committee in its
sole and absolute discretion, such determination being final and binding on all
parties hereto and all persons claiming through, in the name of or on behalf of
such parties.

 

(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 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 Employee.

 

(d)                                 Rights
of a Stockholder.  Prior to the time a Restricted Share is fully
vested hereunder, the Employee shall have no right to transfer, pledge,
hypothecate or

 

2

 

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 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 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.

 

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 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:

 

3

 

If to
the Company:

 

Arch
Capital Group Ltd.

Wessex House, 4th Floor

45 Reid Street

Hamilton HM 12 Bermuda 

Attn.: Secretary

 

If to
the Employee:

 

To the
last address delivered to the Company by the 

Employee 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:

  	
   

  	 

	
   

  	
   

  	
  Name:

  	 

	
   

  	
   

  	
  Title:

  	 

	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	
   

  	
   

  	 

	
   

  	
  John C.R. Hele

  	 

							

 

5EXHIBIT 10(cc)

 

The Dow Chemical Company

Voluntary Deferred Compensation Plan

For Non-Employee Directors

Effective January 1, 2005

 

53

 

ARTICLE I

 

PURPOSE AND EFFECTIVE DATE

 

The
Dow Chemical Company Voluntary Deferred Compensation Plan for Non-Employee Directors
(“Plan”) provides Non-Employee Directors of The Dow Chemical Company with the
opportunity to elect to defer receipt of their compensation from The Dow
Chemical Company, and to have these deferred amounts treated as if invested in
specified Hypothetical Investment Benchmarks. 
The Plan shall be effective for deferrals made hereunder on or after January 1,
2005. The benefits provided under the Plan shall be provided in consideration
for services to be performed after the effective date of the Plan, but prior to
the Non-Employee Director’s Separation from Board Service.  Effective October 11, 2006, the
Hypothetical Investment Benchmarks were changed as reflected in Appendix A.

 

ARTICLE II

 

DEFINITIONS

 

For the purposes of this Plan, the following words and phrases shall
have the meanings indicated, unless the context clearly indicates otherwise:

 

Section 2.01         Administrator.  “Administrator” means the Governance Committee
of The Dow Chemical Company.

 

Section 2.02         Annual Retainer.  “Annual Retainer” means the annual retainers
and fees from the Company.

 

Section 2.03         Beneficiary.  “Beneficiary” means the person, persons or
entity designated by the Participant to receive any benefits payable under the
Plan pursuant to Article VIII.

 

Section 2.04         Board.  “Board” means the Board of Directors of The
Dow Chemical Company.

 

Section 2.05         Change of Control.  For purposes of this Plan, a “Change of
Control” shall be deemed to have occurred upon: 
(i) the dissolution or liquidation of The Dow Chemical Company; (ii) a
reorganization, merger or consolidation of The Dow Chemical Company with one or
more corporations as a result of which The Dow Chemical Company is not a
surviving corporation; (iii) approval by the stockholders of The Dow
Chemical Company of any sale, lease, exchange, or other transfer (in one or
series of transactions) of all or substantially all of the assets of The Dow
Chemical Company; (iv) approval by the stockholders of The Dow Chemical
Company of any merger or consolidation of The Dow Chemical Company in which the
holders of the voting stock of The Dow Chemical Company immediately before the
merger or consolidation will not own fifty percent (50%) or more of the
outstanding voting shares of the continuing or surviving corporation
immediately after such merger or consolidation; or (v) a change of
fifty-one percent (51%) (rounded to the next whole person) in the membership of
the Board of Directors of The Dow Chemical Company within a twenty-four (24) month
period, unless the election or nomination for election by stockholders of each
new director within such period was approved by the vote of eighty-five percent
(85%) (rounded to the next whole person) of the directors still in office who
were in office at the beginning of the twenty-four month period.

 

Section 2.06         Governance Committee.  “Governance Committee” means the general
administrator of the Plan elected by the Board of Directors at its first
meeting following the annual meeting of stockholders.

 

Section 2.07         Common Stock.  “Common Stock” means the common stock of The
Dow Chemical Company.

 

Section 2.08         Company.  “Company” means The Dow Chemical Company,
its successors, any subsidiary or affiliated organizations authorized by the
Board or the  Administrator to
participate in the Plan and any organization into which or with which The Dow
Chemical Company may merge or consolidate or to which all or substantially all
of its assets may be transferred.

 

54

 

Section 2.09         Deferral Account.  “Deferral Account” means the notional account
established for record keeping purposes for each Participant pursuant to Article VI.

 

Section 2.10         Deferral Period.  “Deferral Period” is defined in Section 4.02.

 

Section 2.11         Deferred Amount.   “Deferred
Amount” is defined in Section 4.02.

 

Section 2.12         Designee.  “Designee” shall mean The Dow Chemical
Company Global Compensation & Benefits Department.

 

Section 2.13         Eligible Compensation.  “Eligible Compensation” means any retainer,
fees, and any other monies deemed to be eligible compensation by the
Administrator.

 

Section 2.14         Fair Market Value.  “Fair Market Value” of a share of Common
Stock means the  closing price of The Dow
Chemical Company’s Common Stock on the New York Stock Exchange on the most
recent day on which the Common Stock was so traded that precedes the date the
Fair Market Value is to be determined. The definition of Fair Market Value in
this Section shall be exclusively used to determine the values of a Participant’s
interest in The Dow Chemical Company Stock Index Fund (defined in Section 6.02(b))
for all relevant purposes under the Plan.

 

Section 2.15         Form of Payment.  “Form of Payment” means payment in
annual installments not to exceed 10 years.

 

Section 2.16         Hardship Withdrawal.  “Hardship Withdrawal” means the early
payment of all or part of the balance in a Deferral Account(s) in the
event of an Unforeseeable Emergency.

 

Section 2.17         Hypothetical Investment Benchmark.  “Hypothetical Investment Benchmark” shall
mean the phantom investment benchmarks which are used to measure the return
credited to a Participant’s Deferral Account.

 

Section 2.18         Other Bonus.  “Other Bonus” means the amount awarded to
a Participant for a Board Year under any other incentive plan maintained by any
Company that has been established and authorized as eligible for deferral.

 

Section 2.19         Other Deferral.  “Other Deferral” means the amount of a
Participant’s Other Bonus which the Participant elects to have withheld on a
pre-tax basis credited to his or her account pursuant to Section 4.02.

 

Section 2.20         Participant.  “Participant” means any individual who is
eligible and makes an election to participate in this Plan by filing a
Participation Agreement as provided in Article IV.  Members of the Board of Directors of the
Company who are not employees of the Company or any subsidiary are eligible to
participate.

 

Section 2.21         Participation Agreement.  “Participation Agreement” means an
agreement filed by a Participant in accordance with Article IV.

 

Section 2.22         Phantom Share Units.  “Phantom Share Units” means units of deemed
investment in shares of The Dow Chemical Company Common Stock so determined
under Section 6.02(b).

 

Section 2.23         Plan Year.  “Plan Year” means a twelve-month period
beginning January 1 and ending the following December 31.

 

Section 2.24         Section 16
Participant.  “Section 16
Participant” means an officer or director of The Dow Chemical Company required
to report transactions in The Dow Chemical Company securities to the Securities
and Exchange Commission pursuant to Section 16(a) of the Securities
Exchange Act of 1934.

 

Section 2.25         Separation from Board Service.  “Separation from Board Service” means the
cessation of a Participant’s services as a non-employee director of the Company,
whether voluntary or involuntary, for any reason other than death.

 

55

 

Section 2.26         Unforeseeable Emergency.  “Unforeseeable Emergency” means a severe
financial hardship to the Participant resulting from an illness or  accident of the Participant, the Participant’s
spouse or a dependent of the Participant,  loss of the Participant’s property due to
casualty or other similar extraordinary unforeseeable circumstances arising as
a result of events beyond the control of the Participant as determined by the
Administrator. The amount of the distribution may not exceed the amounts
necessary to satisfy such emergency plus amounts necessary to pay taxes
reasonably anticipated as a result of the distribution, after taking into
account the extent to which such hardship is or may be relieved through
reimbursement or compensation by insurance or otherwise or by liquidation of
the Participant’s assets (to the extent the liquidation of such assets would
not itself cause severe financial hardship).

 

Section 2.27         Valuation Date.  “Valuation Date” means the last day of each
calendar month or such other date as the Administrator in its sole discretion
may determine.

 

ARTICLE III

 

ADMINISTRATION

 

Section 3.01       Administrator Duties.  This Plan shall be administered by the Governance
Committee (“Administrator”). The Administrator shall be responsible for the
administration of this Plan and shall have all powers necessary to administer
this Plan, including discretionary authority to determine eligibility for
benefits and to decide claims under the terms of this Plan, except to the
extent that any such powers that are specially vested in any other person
administering this Plan by the Administrator. 
The Administrator may from time to time establish rules for the
administration of this Plan, and it shall have the exclusive right to interpret
this Plan and to decide any matters arising in connection with the
administration and operation of this Plan. 
All rules, interpretations and decisions of the Administrator shall be
conclusive and binding on any Company, Participants and Beneficiaries.

 

The Designee has the responsibility for performing
certain administrative and ministerial functions under this Plan.  The Designee shall be responsible for
determining in the first instance issues related to eligibility, Hypothetical
Investment Benchmarks, distribution of Deferred Amounts, determination of
account balances, crediting of hypothetical earnings and debiting of
hypothetical losses and of distributions, withdrawals, deferral elections and
any other duties concerning the day-to-day operation of this Plan.  The Administrator shall have discretion to
delegate such additional duties as it may determine.  The Designee may retain and supervise outside
providers, third party administrators, record keepers and professionals
(including in-house professionals) to perform any or all of the duties
delegated to it hereunder.

 

Neither The Dow Chemical Company, a member of the
Board who is employed by the Company, a member of the Governance Committee nor
any Designee shall be liable for any act or action hereunder, whether of
omission or commission, by any other member or employee or by any agent to whom
duties in connection with the administration of this Plan have been delegated
or for anything done or omitted to be done in connection with this Plan.

 

The Dow Chemical Company shall, to the fullest extent
permitted by law, indemnify each director, officer or employee of The Dow
Chemical Company (including the heirs, executors, administrators and other
personal representatives of such person), each member of the Governance Committee
and any Designee against expenses (including attorneys’ fees), judgments,
fines, amounts paid in settlement, actually and reasonably incurred by  such person in connection with any
threatened, pending or actual suit, action or proceeding (whether civil,
criminal, administrative or investigative in nature or otherwise) in which such
person may be involved by reason of the fact that he or she is or was serving
this Plan in any capacity at the request of The Dow Chemical Company, the
Administrator   or Designee.

 

Any expense incurred by The Dow Chemical Company or
the Administrator relative to the administration of this Plan shall be paid by
The Dow Chemical Company and/or may be deducted from the Deferral Accounts of
the Participants as determined by the Administrator or Designee.

 

Section 3.02         Claim Procedure.  If a Participant or Beneficiary makes a
written request alleging a right to receive payments under this Plan or
alleging a right to receive an adjustment in benefits being paid under this
Plan, such actions shall be treated as a claim for benefits.  All claims for benefits under this Plan shall
be sent to the Designee.  If the

 

56

 

Designee determines that any individual who has claimed a right to
receive benefits, or different benefits, under this Plan is not entitled to
receive all or any part of the benefits claimed, the Designee shall inform the
claimant in writing of such determination and the reasons therefor in terms
calculated to be understood by the claimant. 
The notice shall be sent within 60 days of the claim unless the
Designee determines that additional time, not exceeding 60 additional days, is
needed and so notifies the claimant.  The
notice shall make specific reference to the pertinent Plan provisions on which
the denial is based, and shall describe any additional material or information
that is necessary to perfect the claim. 
Such notice shall, in addition, inform the claimant of the procedure
that the claimant should follow to take advantage of the review procedures set
forth below in the event the claimant desires to contest the denial of the
claim.  The claimant may within 60 days
thereafter submit in writing to the Administrator a notice that the claimant
contests the denial of his or her claim and desires a further review by the
Administrator.  The Administrator shall
within 60 days thereafter review the claim and authorize the claimant to review
pertinent documents and submit issues and comments relating to the claim to the
Administrator.  The Administrator will
render a final decision on behalf of The Dow Chemical Company with specific
reasons therefor in writing and will transmit it to the claimant within 60 days
of the written request for review, unless the Administrator determines that
additional time, not exceeding 60 days, is needed, and so notifies the
claimant.  If the Administrator fails to
respond to a claim filed in accordance with the foregoing within 60 days or any
such extended period, the claim shall be deemed to have been denied.  If such determination is favorable to the
claimant, it shall be binding and conclusive. 
If such determination is adverse to the claimant, it shall be binding
and conclusive unless the claimant notifies the Administrator within 90 days
after the mailing or delivery to him or her by the Administrator of its
determination that he or she intends to institute legal proceedings challenging
the determination of the Administrator, and actually institutes such legal
proceeding within 180 days after such mailing or delivery.

 

ARTICLE IV

 

PARTICIPATION

 

Section 4.01         Participation.  Participation
in the Plan shall be limited to Participants who elect to participate in this
Plan by filing a Participation Agreement with the Designee.  A Participation Agreement must be filed on or
prior to the election to the Board, and prior to the right to receive any
compensation for the Plan Year, immediately preceding the Plan Year for which
it is effective.  The Designee shall have
the discretion to establish deadlines regarding the filing of Participation
Agreements for Participants. Notwithstanding the foregoing, the Administrator,
in its sole discretion, may permit a newly eligible Participant to submit a
Participation Agreement within 30 days of that  person becoming eligible, and deferrals shall
commence as soon as practical thereafter. 
An individual shall not be eligible to elect to participate in this Plan
unless the individual is a Participant for the Plan Year for which the election
is made.

 

Section 4.02         Contents of Participation
Agreement.  Subject to Article VII,
each Participation Agreement shall set forth: 
(i) the amount of Eligible Compensation for the Plan Year or
performance period to which the Participation Agreement relates that is to be
deferred under the Plan (the “Deferred Amount”), expressed as a percentage of
the Annual Retainer/Other Bonus for such Plan Year or performance period; provided,
that the minimum Deferred Amount for any Plan Year shall not be less than 10%
(in 10%  increments) of the Annual Retainer/Other
Bonus; (ii) the period after which payment of the Deferred Amount is to be
made or begin to be made (the “Deferral Period”), which shall be during July (A) following
Separation from Board Service (B) following one year after Separation from
Board Service, or (C) following the Participant’s 72nd birthday;
and (iii) the form in which payments are to be made: annual installments
not to exceed 10 years.  Participation
Agreements are to be completed in a format specified by the Designee.

 

Section 4.03         Modification or Revocation of Election
by Participant.  A Participant may
not change the amount of his or her Deferred Amount during a calendar year.  A Participant’s Participation Agreement may
not be made, modified or revoked retroactively.

 

57

 

ARTICLE
V

 

DEFERRED COMPENSATION

 

Section 5.01         Elective Deferred Compensation.  For Section 16 Participants who
elect to direct their Deferred Amount to the Hypothetical Investment Benchmark
of The Dow Chemical Company Stock Index Fund only, the Deferred Amount of that
Participant with respect to each Plan Year of participation shall be credited
to the Participant’s Deferral Account in the Hypothetical Investment Benchmark
of 125% of Ten Year Treasury Notes as and when such Deferred Amount would
otherwise have been paid to the Participant; on a quarterly basis (on the last
business day of the months of March, June, September and December), such
Deferred Amount shall be reallocated to the Hypothetical Investment Benchmark
of The Dow Chemical Company Stock Index Fund. 
The earnings based on a Participant’s investment selection among the
Hypothetical Investment Benchmarks specified in Appendix A hereto, as amended
by the Administrator from time to time, shall be borne by The Dow Chemical
Company.

 

Section 5.02         Vesting of Deferral Account.  A Participant shall be 100% vested in his
or her Deferral Account as of each Valuation Date.

 

ARTICLE VI

 

MAINTENANCE AND INVESTMENT OF ACCOUNTS

 

Section 6.01         Maintenance of
Accounts.  Separate Deferral
Accounts shall be maintained for each Participant.  More than one Deferral Account may be maintained
for a Participant as necessary to reflect (a) various Hypothetical
Investment Benchmarks and/or (b) separate Participation Agreements
specifying different Deferral Periods and/or forms of payment.  A Participant’s Deferral Account(s) shall
be utilized solely as a device for the measurement and determination of the
amounts to be paid to the Participant pursuant to this Plan, and shall not
constitute or be treated as a trust fund of any kind.  The Designee shall determine the balance of
each Deferral Account, as of each Valuation Date, by adjusting the balance of
such Deferral Account as of the immediately preceding Valuation Date to reflect
changes in the value of the deemed investments thereof, credits and debits
pursuant to Section 6.02 and distributions pursuant to Article VII
with respect to such Deferral Account since the preceding Valuation Date.

 

Section 6.02         Hypothetical Investment
Benchmarks.  (a)  Each
Participant shall be entitled to direct the manner in which his or her Deferral
Accounts will be deemed to be invested, selecting among the Hypothetical
Investment Benchmarks specified in Appendix A hereto, as amended by the
Administrator from time to time, and in accordance with such rules, regulations
and procedures as the Administrator may establish from time to time.  Notwithstanding anything to the contrary
herein, earnings and losses based on a Participant’s investment elections shall
begin to accrue as of the date such Participant’s Deferred Amounts are credited
to his or her Deferral Accounts. 
Participants, except for Section 16 Participants, can reallocate
among the Hypothetical Investment Benchmarks on a daily basis.  Section 16 Participants can reallocate
among the Hypothetical Investment Benchmarks in accordance with such rules,
regulations and procedures as the Administrator may establish from time to
time.

 

(b) (i)   The
Hypothetical Investment Benchmarks available for Deferral Accounts will include
“The Dow Chemical Company Stock Index Fund.” 
The Dow Chemical Company Stock Index Fund will consist of deemed
investments in shares of The Dow Chemical Company Common Stock including
reinvestment of dividends, stock splits and without brokerage fees.  Deferred Amounts that are deemed to be
invested in The Dow Chemical Company Stock Index Fund shall be converted into
Phantom Share Units based upon the Fair Market Value of the Common Stock as of
the date(s) the Deferred Amounts are to be credited to a Deferral
Account.  The portion of any Deferral
Account that is invested in The Dow Chemical Company Stock Index Fund shall be
credited, as of each dividend payment date, with additional Phantom Share Units
of Common Stock with respect to cash dividends paid on the Common Stock with
record dates during the period beginning on the day after the most recent
preceding Valuation Date and ending on such Valuation Date.

 

(ii)   When a reallocation or a distribution of all
or a portion of a Deferral Account that is invested in The Dow Chemical Company
Stock Index Fund is to be made, the balance in such a Deferral Account shall be
determined by

 

58

 

multiplying
the Fair Market Value of one share of Common Stock on the most recent Valuation
Date preceding the date of such reallocation or distribution by the number of
Phantom Share Units to be reallocated or distributed.  Upon a distribution, the amounts in The Dow
Chemical Company Stock Index Fund shall be distributed in the form of cash
having a value equal to the Fair Market Value of a comparable number of actual
shares of Common Stock.

 

(iii)   In the event of a
reorganization, recapitalization, stock split, stock dividend, combination of
shares, merger, consolidation, or other change in the corporate structure of
The Dow Chemical Company affecting Common Stock, or a sale by The Dow Chemical
Company of all or part of its assets, or any distribution to stockholders other
than a normal cash dividend, then the Administrator may make appropriate
adjustments to the number of deemed shares credited to any Deferral Account.  The determination of the Administrator as to
such adjustments, if any, to be made shall be conclusive.

 

(iv)   Notwithstanding any
other provision of this Plan,  the
Administrator shall adopt such procedures as it may determine are necessary to
ensure that with respect to any Participant who is actually or potentially
subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, the crediting of deemed shares to his or her Deferral Account is
deemed to be an exempt purchase for purposes of such Section 16(b),
including without limitation requiring that no shares of Common Stock or cash
relating to such deemed shares may be distributed for six months after being
credited to such Deferral Account.

 

Section 6.03         Statement of Accounts.  Each Participant shall be issued quarterly
statements of his or her Deferral Account(s) in such form as the Designee
deems desirable, setting forth the balance to the credit of such Participant in
his or her Deferral Account(s) as of the end of the most recently
completed quarter.

 

ARTICLE VII

 

BENEFITS

 

Section 7.01         Time and Form of Payment.  At the end of the Deferral Period for
each Deferral Account, The Dow Chemical Company shall pay to the Participant
the balance of such Deferral Account at the time or times elected by the
Participant in the applicable Participation Agreement.  The Dow Chemical Company shall make cash only
payments from such Deferral Account, each of which annual amount shall consist
of an amount equal to (i) the balance of such Deferral Account as of the
most recent annual Valuation Date preceding the first annual payment date times
(ii) a fraction, the numerator of which is one and the denominator of
which is the number of remaining installment years (including the installment
being paid).  The first such installment
shall be paid during July following the end of the Deferral Period and
each subsequent installment shall be paid on or about the anniversary of such
first payment.  Each such installment
shall be deemed to be made on a pro rata basis from each of the different
deemed investments of the Deferral Account (if there is more than one such
deemed investment).

 

Section 7.02         Changing Form of Benefit.  Participants may elect an alternative
form of payout as available under Section 7.01 by written election filed
with the Administrator; provided, however, that the Participant files the election
at least twelve (12) months prior to the first day of the month in which
payments are to commence.  If a
Participant changes his form of payout from a lump sum to installments, the
first installment date cannot occur earlier than five years after the date on
which the lump sum was scheduled to be made. 
A Participant cannot reduce the overall length of the installment period
(e.g., from 10 years to 5 years).  A
Participant cannot change his form of election from installments to a lump sum.

 

Section 7.03         Changing Form of Benefit to Delay
Distribution.  Participants may elect
to delay their form of payout as available under Section 7.01 as long as
the first payment with respect to which such election is made must be deferred
for a period of not less than 5 years from the date such payment would
otherwise have been made.

 

Section 7.04         Changing Form of Benefit to
Accelerate Distribution.  Acceleration
of the Distribution timing is only allowed for death, Unforeseeable Emergency,
or limited circumstances in accordance with governmental regulations.

 

Section 7.05         Separation from Board Service.  Subject to Section 7.01 and Section 7.07
hereof, if a Participant has elected to have the balance of his or her Deferral
Account distributed upon Separation from Board Service, or after a specific
future year, the account balance of the Participant (determined as of the most
recent Valuation Date preceding the end

 

59

 

of the Deferral Period) shall be distributed in installments in
accordance with the Plan and as elected in the Participation Agreement.

 

Section 7.06         Post-Termination Survivor Benefit.  If a Participant dies after Separation
from Board Service and prior to receiving full payment of his or her Deferral
Account(s), The Dow Chemical Company shall pay the remaining balance
(determined as of the most recent Valuation Date preceding such event) to the
Participant’s Beneficiary or Beneficiaries (as the case may be) in a lump sum.

 

Section 7.07         Small Benefit Election.  Notwithstanding any of the foregoing, in
the event the sum of all benefits payable to the Participant or Beneficiary(ies)
is less than or equal to ten thousand dollars ($10,000), the Administrator shall
pay such benefits in a single lump sum. 
The Administrator shall also change annual payments so they are at least
three hundred dollars ($300) by reducing the number of annual installments.

 

Section 7.08         Hardship Withdrawals.  Notwithstanding the provisions of Section
7.01 and any Participation Agreement, a Participant’s on-going Deferred Amount
shall cease and a Participant shall be entitled to early payment of all or part
of the balance in his or her Deferral Account(s) in the event of an
Unforeseeable Emergency, in accordance with this Section 7.08.  A distribution pursuant to this Section 7.08
may only be made to the extent reasonably needed to satisfy the Unforeseeable
Emergency need, and may not be made if such need is or may be relieved (i) through
reimbursement or compensation by insurance or otherwise, (ii) by liquidation of
the Participant’s assets to the extent such liquidation would not itself cause
severe financial hardship, or (iii) by cessation of participation in the
Plan.  An application for an early
payment under this Section 7.08 shall be made to the Administrator in such form
and in accordance with such procedures as the Administrator shall determine
from time to time.  The determination of whether
and in what amount and form a distribution will be permitted pursuant to this Section
7.08 shall be made by the Administrator.

 

Section 7.09         Change of Control.  A Participant may, when completing a
Participation Agreement during the enrollment period, elect that, if a Change
of Control occurs, the Participant (or after the Participant’s death the
Participant’s Beneficiary) shall receive a lump sum payment of the balance of
the Deferral Account within thirty (30) days after the Change of Control.  This election is irrevocable and shall apply
to the entire Deferral Account both before and after Separation from Board
Service.  The Deferral Account balance
shall be determined as of the most recent Valuation Date preceding the month in
which Change of Control occurs. All Participation Agreements previously filed
by a Participant who receives a distribution under this Section 7.09 shall
be null and void (including without limitation Participation Agreements with
respect to Plan Years or performance periods that have not yet been completed),
and such a Participant shall not thereafter be entitled to file any
Participation Agreements under the Plan with respect to the first Plan Year
that begins after such distribution is made.

 

ARTICLE VIII

 

BENEFICIARY DESIGNATION

 

Section 8.01         Beneficiary Designation.  Each Participant shall have the right, at
any time, to designate any person, persons or entity as his or her Beneficiary
or Beneficiaries.  A Beneficiary
designation shall be made, and may be amended, by the Participant by filing a
written designation with the Designee, on such form and in accordance with such
procedures as the Designee shall establish from time to time.

 

Section 8.02         No Beneficiary Designation.  If a Participant or Beneficiary fails to
designate a Beneficiary as provided above or if all designated Beneficiaries
predecease the Participant or his or her Beneficiary, then the Participant’s
Beneficiary shall be deemed to be, in the following order:

 

(a)          to the spouse of such
person, if any;

(b)         to the children of such
person, if any; or

(c)          to the deceased person’s
estate.

 

60

 

ARTICLE
IX

 

AMENDMENT AND TERMINATION OF PLAN

 

Section 9.01         Amendment.  The Board may at any time amend this Plan
in whole or in part, provided, however, that no amendment shall be effective to
decrease the balance in any Deferral Account as accrued at the time of such
amendment, nor shall any amendment otherwise have a retroactive effect.

 

Section 9.02         Company’s Right to Terminate.  The Board may at any time terminate the
Plan with respect to future Participation Agreements.  The Board may also terminate the Plan in its
entirety at any time for any reason, including without limitation if, in its
judgment, the continuance of the Plan, the tax, accounting, or other effects
thereof, or potential payments thereunder would not be in the best interests of
The Dow Chemical Company, and upon any such termination, The Dow Chemical
Company shall pay to each Participant 
the benefits such Participant is entitled to receive under the Plan as
monthly installments over a three (3) year period commencing within ninety
(90) days (determined as of the most recent Valuation Date preceding the
termination date).

 

ARTICLE X

 

MISCELLANEOUS

 

Section 10.01       Unfunded Plan.  This Plan is intended to be an unfunded
plan. All payments pursuant to the Plan shall be made from the general assets
of The Dow Chemical Company and no special or separate fund shall be
established or other segregation of assets made to assure payment.  No Participant or other person shall have
under any circumstances any interest in any particular property or assets of
The Dow Chemical Company or any other Company as a result of participating in the
Plan.  Notwithstanding the foregoing, The
Dow Chemical Company may (but shall not be obligated to) create one or more
grantor trusts, the assets of which are subject to the claims of The Dow
Chemical Company’s creditors, to assist it in accumulating funds to pay its
obligations.

 

Section 10.02       Nonassignability.  Except as specifically set forth in the
Plan with respect to the designation of Beneficiaries, neither a Participant
nor any other person shall have any right to commute, sell, assign, transfer,
pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or
convey in advance of actual receipt the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are, expressly declared to
be unassignable and non-transferable.  No
part of the amounts payable shall, prior to actual payment, be subject to
seizure or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant’s or any other
person’s bankruptcy or insolvency.

 

Section 10.03       Validity and Severability.  The invalidity or unenforceability of any
provision of this Plan shall not affect the validity or enforceability of any
other provision of this Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction, shall not invalidate
or render unenforceable such provision in any other jurisdiction.

 

Section 10.04       Governing Law.  The validity, interpretation, construction
and performance of this Plan shall in all respects be governed by the laws of
the State of Delaware, without reference to principles of conflict of law,
except to the extent preempted by federal law.

 

Section 10.05       Status. 
This Plan does not constitute a contract of employment or impose on
the Participant or any Company any obligation for the Participant to remain on
the Board of Directors of such Company.

 

Section 10.06       Successors of the Company.  The rights and obligations of The Dow
Chemical Company shall inure to the benefit of, and shall be binding upon, the
successors and assigns of The Dow Chemical Company.

 

Section 10.07       Waiver of Breach.  The waiver by The Dow Chemical Company of any
breach of any provision of the Plan by the Participant shall not operate or be
construed as a waiver of any subsequent breach by the Participant.

 

61

 

Section 10.08       Notice.  Any notice or filing required or permitted to
be given to The Dow Chemical Company under the Plan shall be sufficient if in
writing and hand-delivered, or sent by first class mail to the principal office
of The Dow Chemical Company, directed to the attention of the Designee.  Such notice shall be deemed given as of the
date of delivery, or, if delivery is made by mail, as of the date shown on the
postmark.

 

62

 

APPENDIX A

 

The Dow Chemical
Company Stock Index Fund

 

125% of Ten Year
Treasury Notes

 

Vanguard Windsor
II Admiral Shared (effective October 11, 2006)

 

Vanguard 500 Index
Fund

 

T.
Rowe Price Mid-Cap Growth Fund

 

Fidelity
Low-Priced Stock Fund

 

Fidelity Diversified
International Trust (effective October 11, 2006)

 

Vanguard Balanced
Index Fund

 

63

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00148-of-00352.parquet"}]]