Document:

Exhibit
10.3

 

DEFERRED SHARE AWARD

( [date] Award
For
              
Deferred Shares)

 

This
Deferred Share Award is made to [CANADA OFFICER/ASSOCIATE]
this          day of
                        ,
20        , by THE HOME DEPOT, INC., a
Delaware corporation.

 

W I T N E S S E T H:

 

WHEREAS, the Company has adopted The Home
Depot, Inc. 2005 Omnibus Stock Incentive Plan which is administered by the
Committee; and

 

WHEREAS, Executive is an employee of a
subsidiary of the Company eligible to receive an award of Deferred Shares under
the Plan; and

 

WHEREAS,  the Committee conducted its review of Executive’s
performance and compensation and approved equity awards for the Executive at
its
                    
meeting,

 

NOW, THEREFORE, the Committee makes an award
of Deferred Shares under the Plan to Executive pursuant to the following terms
and conditions:

 

1.             Definitions.  As used herein, the following terms shall be
defined as set forth below:

 

(a)           “Award”  means
the Deferred Share Award to Executive, as set forth herein, and as may be
amended as provided herein.

 

(b)           “Board”  means
the Company’s Board of Directors.

 

(c)           “Company”  means
The Home Depot, Inc., a Delaware corporation, with offices at 2455 Paces
Ferry Road, Atlanta, Georgia  30339.

 

(d)           “Change in Control” means the
occurrence of a change in control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A under
the Securities Exchange Act of 1934 (“1934 Act”) as in effect at the time of
such change in control, provided that such a change in control shall be deemed
to have occurred at such time as (i) any “person” (as that term is used in
Sections 13(d) and 14(d) (2) of the 1934 Act), is or becomes the
“beneficial owner,” directly or indirectly, of securities representing 50% or
more of the combined voting power for election of directors of the then
outstanding securities of the Company or any successor of the Company; (ii) during
any period of two (2) consecutive years or less, individuals who at the
beginning of such period constituted the Board cease, for any reason, to
constitute at least a majority of the Board, unless the election or nomination
for election of each new director was approved by a vote of at least two-thirds
of the directors then still in office who were directors at the beginning of
the period or whose election or nomination for election was so approved; (iii) the
consummation of any merger or consolidation, approved by the stockholders of
the Company, as a result of which the common stock of the Company shall be
changed, converted or exchanged (other than a merger with a wholly owned
subsidiary 

 

 

 

 

 

 

 

of
the Company) or of any sale or other disposition in one or a series of related
transactions of 50% or more of the assets or earning power of the Company, or
the approval by stockholders of any liquidation of the Company; or (iv) the
consummation of any merger or consolidation, approved by the stockholders of
the Company, to which the Company is a party as a result of which the persons
who were stockholders of the Company immediately prior to the effective date of
the merger or consolidation shall have beneficial ownership of less than 50% of
the combined voting power for election of directors of the surviving
corporation following the effective date of such merger or consolidation.

 

(e)           “Committee”  means the Leadership Development and Compensation Committee
of the Board.

 

(f)            “Competitor” means any
company or entity in the home improvement industry engaged in any way in a
business that competes directly or indirectly with the Company, its parents,
subsidiaries, affiliates or related entities, in the United States, Canada,
Puerto Rico, Mexico, China or any other location in which the Company currently
conducts business or may conduct business. 
Businesses that compete with the Company in the home improvement
industry specifically include, but are not limited to, the following entities
and each of their subsidiaries, affiliates, assigns, franchisees or successors
in interest: Lowe’s Companies, Inc. (including, but not limited to, Eagle
Hardware and Garden); Sears  Holding
Corp. (including, but not limited to, Orchard Supply and Hardware Company);
Wal-Mart; Rona Inc.; Castorama/B&Q; Ace Hardware; True Value Company;
Menard, Inc., Construrama, Todo Fácil, Cómex, Kingfisher PLC, Leroy
Merlin, Hornbach, La Maison, OBI, Home Mart, Orient Home, Home First, and No. 9.

 

(g)           “Deferred Shares”  means the award of the Company’s common stock to Executive
set forth in Section 2.

 

(h)           “Disability” means Executive’s
inability to substantially perform Executive’s duties for the Company and its
subsidiaries, with reasonable accommodation, as evidenced by a certificate
signed either by a physician mutually acceptable to the Company and Executive
or, if the Company and Executive cannot agree upon a physician, by a physician
selected by agreement of a physician designated by the Company and a physician
designated by Executive; provided, however, that if such physicians cannot
agree upon a third physician within thirty (30) days, such third physician
shall be designated by the American Arbitration Association.

 

(i)            “Executive” means [INSERT CANADA OFFICER/ASSOCIATE NAME AND TITLE]

 

(j)            “Grant Date” means [INSERT GRANT DATE]

 

(k)           “Plan”  means
The Home Depot, Inc. 2005 Omnibus Stock Incentive Plan, as amended from
time to time.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

(l)            “Retirement” means
termination of employment with the Company and its subsidiaries on or after
Executive’s attainment of age sixty (60) and having at least five (5) years
of continuous service with the Company and its subsidiaries.

 

2.             Deferred Shares Award.
Company hereby grants to Executive an award of Deferred Shares under the Plan
for
                                          
(            )
shares of the $.05 par value common stock of the Company, subject to the
conditions set forth herein.

 

(a)           Vesting.  The Deferred Shares shall vest and become
payable to Executive [OPTION 1: upon
Executive’s retirement from the Company and its subsidiaries and affiliates on
or after the earlier of attainment of age 60 or the tenth (10th)
anniversary of the Grant Date.] [OPTION 2: as
follows; one hundred percent (100%) of the shares granted shall vest and become
payable upon the [select: first (1st) or second (2nd)]
anniversary of the Grant Date provided that, except as provided in Section 2(c),
Executive is employed by the Company or a subsidiary or other affiliate on the
applicable vesting date.]  [OPTION 3
(FOR OFFICERS): as follows; one hundred percent (100%) of the shares
granted shall vest and become payable upon the third (3rd)
anniversary of the Grant Date provided that, except as provided in Section 2(c),
Executive is employed by the Company or a subsidiary or other affiliate on the
applicable vesting date.]  [OPTION 4
(FOR NON-OFFICERS):  as
follows; fifty percent (50%) of the shares granted shall vest and become
payable upon the second (2nd) anniversary of the Grant Date, and the
remaining fifty percent (50%) of the shares granted shall vest and become
payable upon the third (3rd) anniversary of the Grant Date.]

 

(b)           Delivery of Shares.  The Company shall
cause a stock certificate representing the vested Deferred Shares to be
transferred to Executive as soon as practicable after the vesting date.  The Company may satisfy its payment
obligation, net of applicable taxes and other source deductions required to be
withheld by the Company, by having an independent broker acquire shares on the
open market on behalf of Executive.

 

(c)           Termination of Employment; Change
in Control.  Upon termination of
Executive’s employment for any reason other than Retirement before the Deferred
Shares have vested, all unvested shares shall be forfeited. Notwithstanding the
foregoing, if (i) Executive’s employment terminates due to death or
Disability, or (ii) Executive’s employment is terminated by the Company in
connection with a Change in Control that occurs while Executive is employed by
the Company, any Deferred Shares that have not yet vested shall immediately
vest. The Company shall issue such Deferred Shares to Executive within ten (10) days
after the termination of Executive’s employment or such later time as may be
required by insider trading or other applicable securities laws. Upon
employment termination due to Retirement before the vesting date specified in Section 2(a),
all Deferred Shares that have not lapsed as of the date of Executive’s
Retirement shall continue to vest according to the vesting schedule set forth
in Section 2(a) and the Company shall issue such Deferred Shares to
Executive as soon as practicable after the Deferred Shares vest; provided,
however, that if after reaching Retirement, Executive becomes, either directly
or indirectly, employed with a Competitor, all unvested Deferred Shares shall
be immediately forfeited.

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

3.             Adjustments for Dividends.  Upon the payment of any cash dividend on
shares of common stock of the Company before the issuance of a stock
certificate representing the Deferred Shares, the number of Deferred Shares
shall be increased by the number obtained by dividing (x) the aggregate
amount of the dividend that would be payable if each Deferred Share were issued
and outstanding and entitled to dividends on the dividend payment date, by (y) the
Fair Market Value of the common stock on the dividend payment date. The number
of Deferred Shares shall also be entitled to such adjustments as are determined
by the Committee under Section 11 of the Plan.

 

4.             Stockholder Rights. The
Deferred Shares shall not be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner, whether by the operation of law or otherwise
prior to vesting.  Upon vesting and the
issuance of a stock certificate representing the Deferred Shares, Executive
shall have all of the rights of a stockholder with respect to the Deferred
Shares, including the right to vote the shares and to receive all dividends or
other distributions paid or made available with respect to such shares.  Before the delivery of such stock
certificate, Executive shall have none of the rights of a stockholder with
respect to the Deferred Shares.

 

5.             Adjustments.   The number of shares covered by the Deferred
Shares and, if applicable, the kind of shares covered by the Deferred Shares
shall be adjusted to reflect any stock dividend, stock split, or combination of
shares of the Company’s Common Stock.  In
addition, the Committee may make or provide for such adjustment in the number
of shares covered by the Deferred Shares, and the kind of shares covered by the
Deferred Shares, as the Committee in its sole discretion may in good faith
determine to be equitably required in order to prevent dilution or enlargement
of Executive’s rights that otherwise would result from (a) any exchange of
shares of the Company’s Common Stock, recapitalization or other change in the
capital structure of the Company, (b) any merger, consolidation, spin-off,
spin-out, split-off, split-up, reorganization, partial or complete liquidation
or other distribution of assets (other than a normal cash dividend), issuance
of rights or warrants to purchase securities, or (c) any other corporate
transaction or event having an effect similar to any of the foregoing.  No amount shall  be paid to, and no units shall be granted to
Executive to compensate Executive for a downward fluctuation in the price of
the common shares, nor will any benefit be conferred upon, or in respect of,
Executive for such purpose.

 

6.             Fractional Shares.  The Company shall not be required to issue
any fractional shares pursuant to this Award, and the Committee may round
fractions down.

 

7.             Withholding.  Executive shall pay all applicable federal,
state and local income and employment taxes (including taxes of any foreign jurisdiction)
which the Company is required to withhold at any time with respect to the
Deferred Shares. Such payment shall be made in full, at Executive’s election,
in cash or check, by withholding from the Executive’s next normal payroll
check, or by the tender of Deferred Shares payable under this Award. Deferred
Shares tendered as payment of required withholding shall be valued at the
closing price per share of the Company’s common stock on the date such
withholding obligation arises.

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

8.             No Impact on Other Benefits and
Employment.  This Award shall not
confer upon Executive any right with respect to continuance of employment or
other service with the Company and shall not interfere in any way with any
right that the Company would otherwise have to terminate Executive’s employment
at any time, subject to the terms of any employment agreement.  Nothing herein contained shall affect
Executive’s right to participate in and receive benefits under and in
accordance with the then current provisions of any pension, insurance or other
employment plan or program of the Company or any of its subsidiaries nor
constitute an obligation for continued employment.

 

9.             Plan Provisions.  In addition to the terms and conditions set
forth herein, this award of Deferred Shares is subject to and governed by the
terms and conditions set forth in the Plan, which is hereby incorporated by
reference.  Unless the context otherwise
requires, capitalized terms used in this Award and not otherwise defined herein
shall have the meanings set forth in the Plan. 
In the event of any conflict between the provisions of the Award and the
Plan, the Plan shall control.

 

10.           Notice.  Any written notice
required or permitted by this Award shall be mailed, certified mail (return
receipt requested) or hand-delivered, addressed to Company’s Executive Vice
President — Human Resources at Company’s corporate headquarters in Atlanta,
Georgia as set forth in Section 1(c), or to Executive at Executive’s most
recent home address on record with the Company. 
Notices are effective upon receipt.

 

11.           Miscellaneous.

 

(a)           Limitation of Rights.  The granting of the award of Deferred Shares
shall not give Executive any right to similar grants in future years or any
right to be retained in the employ or service of the Company or to interfere in
any way with the right of the Company to terminate Executive’s services at any
time or the right of Executive to terminate his or her services at any time.

 

(b)           Claim and Review Procedures.   The claim and review procedures set forth in
the Home Depot U.S.A., Inc. Deferred Compensation Plan For Officers are
incorporated herein by reference.

 

(c)           Rights Unsecured.  The Company shall remain the owner of all
amounts deferred pursuant to this Agreement, and Executive shall have only
Company’s unfunded, unsecured promise to pay. 
The rights of Executive hereunder shall be that of an unsecured general
creditor of the Company, and Executive shall not have any security interest in
any assets of the Company.

 

(d)           Limitation of Actions.  Any lawsuit with respect to any matter
arising out of or relating to this Award must be filed no later than the
earlier of the date that the Company denies the claim made by Executive or any
earlier date that the claim otherwise accrues.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5

 

(e)           Offset.  The Company shall have the right to
deduct from amounts otherwise payable under this Award all amounts owed by
Executive to Company and its affiliates to the maximum extent permitted by
applicable law.

 

(f)            Controlling Law. Executive
and the Company agree that in light of the Executive being employed in two
different jurisdictions, for purposes of certainty, it is the parties desire
that this Award shall be construed, interpreted and applied in accordance with
the law of the State of Delaware, without giving effect to the choice of law
provisions thereof.  Executive and the
Company hereby irrevocably submit to the exclusive jurisdiction of the courts
of Delaware.  Executive and the Company
also both irrevocably waive, to the fullest extent permitted by applicable law,
any objection either may now or hereafter have to the laying of venue of any
such dispute brought in such court or any defense of inconvenient forum for the
maintenance of such dispute, and both parties agree to accept service of legal
process in Delaware. Executive
agrees that the Company may seek enforcement in a Canadian court of any United
States judgement obtained pursuant to this Award and Executive agrees not to
raise any objection to the Company seeking enforcement of said judgement in a
Canadian court.

 

(g)           Severability.  If any term, provision, covenant or
restriction contained in the Award is held by a court or a federal regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions contained in the
Award shall remain in full force and effect, and shall in no way be affected,
impaired or invalidated.

 

(h)           Construction.  The Award contains the entire understanding
between the parties and supersedes any prior understanding and agreements
between them representing the subject matter hereof, except that this Award
shall be subject to the terms and conditions set forth in any employment
agreement and non-competition/non-solicitation agreement between Executive and
Company.  There are no representations,
agreements, arrangements or understandings, oral or written, between and among
the parties hereto relating to the subject matter hereof which are not fully
expressed herein.

 

(i)            Headings.  Section and other headings contained in
the Award are for reference purposes only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of the Award
or any provision hereof.

 

****************************************

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6OneBeacon Insurance Group,
Ltd.

Long-Term Incentive Plan

2008-2010 Performance Share Grant

 

THIS
GRANT (this “Grant”) is made, effective as of February 26, 2008, between
OneBeacon Insurance Group, Ltd., a Bermuda company limited by shares (the
“Company”) and
                            
(the “Participant”).

 

RECITALS:

 

WHEREAS,
the Company has adopted the Long-Term Incentive Plan (“Plan”), which Plan is
incorporated herein by reference and made part of this Grant; and

 

WHEREAS,
the Board has determined that it would be in the best interest of the Company
and its owners to grant the award provided for herein to the Participant
pursuant to the Plan and the terms set forth herein.

 

NOW
THEREFORE, for good and valuable consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:

 

1.             Grant:  Subject to the terms and conditions of the
Plan and the additional terms and conditions set forth in this Grant, the
Company hereby grants to the Participant a Performance Share Award of
            
shares.

 

2.             Award Period:  The Award Period shall be January 1,
2008 through December 31, 2010.

 

3.             Performance Objective:  The Performance Objective shall be annual 11%
growth in intrinsic business value per share for the Company (“GIBVPS”), which
shall be measured by blending the following metrics during the Award Period, in
the referenced percentages: (a) Underwriting Return on Equity including an
adjustment to normalize catastrophe losses across years (50%), and (b) Growth
in Adjusted Book Value per Common Share including an adjustment for dividends
paid (50%).

 

4.             Performance Percentage:  The Performance Percentage shall be dependent
on the extent to which the Performance Objective is attained, and shall be
determined as follows:

 

	
  GIBVPS

  	
   

  	
  Performance Percentage

  	
   

  
	
  4%
  or lower

  	
   

  	
  0%

  	
   

  
	
  11%

  	
   

  	
  100%

  	
   

  
	
  18%
  or higher

  	
   

  	
  200%

  	
   

  

 

For
GIBVPS between 4% and 18%, the Performance Percentage will be determined on the
basis of straight line interpolation.

 

 

1

 

 

5.             Award Payment:  Subject to all terms and conditions of the
Plan, the Participant’s actual value at the end of the Award Period will be
settled in cash, in shares of the Company’s common stock (“Shares”), or partly
in cash and partly in Shares, as determined by the Committee.  If settled entirely or partially in cash, the
cash value will be (a) the number of Performance Shares granted, times (b) the
Performance Percentage, times (c) the market value of the Shares on the
date that the Compensation Committee certifies the Performance Percentage times
(d) the percentage of the Award settled in cash; and the number of Shares
issued will be (a) the number of Performance Shares granted times (b) the
Performance Percentage times (c) the percentage of the Award settled in
Shares.  If settled entirely in Shares,
the number of Shares issued will be (a) the number of Performance Shares
granted, times (b) the Performance Percentage.

 

6.             Termination of Employment:  Except as provided in Section 7 of the
Plan, this Award shall be canceled, and no payment shall be payable hereunder,
if the Participant’s continuous employment or Related Employment with the
Company shall terminate for any reason prior to the end of the Award Period.

 

7.             Successors and Assigns:  This Grant shall inure to the benefit of and
be binding upon the Company and its successors and assigns.  The Company shall request any purchaser of a
business unit in which the Participant is employed (a “Purchaser”), to fully
assume the obligations of the Company under this Grant.  If a Purchaser declines to assume such
obligations, the Company shall remain obligated under the terms of this Grant.

 

8.             Definitions:  All terms not otherwise defined herein shall
have the same meaning as in the Plan.

 

9.             Withholding:  The Participant agrees to make appropriate
arrangements with the Company for satisfaction of any applicable income tax
withholding  requirements, including the
payment to the Company, at the termination of the Award Period (or such earlier
or later date as may be applicable under the Code), of all such taxes and other
amounts, and the Company shall be authorized to take such action as may be
necessary, in the opinion of the Company’s counsel (including, without
limitation, withholding amounts from any compensation or other amount owing
from the Company to the Participant), to satisfy all obligations for the
payment of such taxes and other amounts.

 

10.           Reduction of the Award:  Notwithstanding anything to the contrary
herein, the Board, in its sole discretion (but subject to applicable law), may
reduce any amounts payable to the Participant in order to satisfy any
liabilities owed to the Company by the Participant.

 

11.           No Right to Continued Employment:  Neither the Plan nor this Grant shall be
construed as giving the Participant the right to be retained in the employ of,
or in any consulting relationship to, the Company or any of its
subsidiaries.  Further, the Company may
at any time dismiss the Participant or discontinue any consulting relationship,
free from any liability or any claim under the Plan or this Grant, except as
otherwise expressly 

 

 

2

 

 

provided
in the Plan and in this Grant.  In
addition, nothing herein shall obligate the Company to make future Grants to
the Participant.

 

12.           Award Subject to Plan:  By entering in this Grant the Participant
agrees and acknowledges that the Participant has received and read a copy of
the Plan, understands the terms of the Plan and this Award and that this Award
is subject to all of the terms and provisions set forth in the Plan and in this
Grant and accepts this Performance Share Award subject to all such terms and
conditions which are incorporated herein by reference.  In the event of a conflict between any term
or provision contained in this Grant and a terms or provision of the Plan, the
applicable terms and provisions of the Plan will govern and prevail.

 

13.           Designation of Beneficiary by
Participant:  A Participant may name
a beneficiary to receive any payment to which he/she may be entitled in respect
of this Award in the event of his/her death, by notifying the Company.  A Participant may change his/her beneficiary
from time to time in the same manner.  If
the Participant has not designated a beneficiary or if no designated
beneficiary is living on the date on which any amount becomes payable to a
Participant’s beneficiary, that amount shall be paid to the Participant’s
estate.

 

14.           No Rights as
Shareholder: You will not be considered a
shareholder of the Company for any purpose with respect to this Award unless
and until shares of Stock are issued to you in settlement of this Award.

 

15.           Compliance with Section 409A
of the Internal Revenue Code: 
Notwithstanding anything in this Agreement to the contrary, to the
extent that this Agreement constitutes a nonqualified deferred compensation
plan to which Internal Revenue Code Section 409A applies, the
administration of this Award (including time and manner of payments under it)
shall comply with Section 409A.

 

16.           Notices:  Any notice necessary under this Grant shall
be addressed to the Company and to the Participant at the address appearing in
the personnel records of the Company for such Participant or to either party at
such other address as such party hereto may hereafter designate in writing to
the other. Any such notice shall be deemed effective upon receipt thereof by
the addressee.

 

17.           Governing Law:  This Agreement shall be governed by and
construed in accordance with the laws of Bermuda.

 

18.           Signature in Counterparts:  This Grant may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.

 

 

3

 

 

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

 

	
  PARTICIPANT
  

  	
  ONEBEACON
  INSURANCE GROUP, LTD.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
    

  
	
   

  	
  Name:

  	
   

  	
  Name: Mike Miller

  
	
   

  	
   

  	
   

  	
  Title:
  President & CEO

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Award Details:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2008—2010 Performance
  Share Plan

  	
   

  	
   

  
	
   

  	
  <XX> Shares Granted

  	
   

  	
   

  

 

 

4

 

Annex

 

Key Definitions

 

Terms
used in this Grant shall have the following meanings:

 

Growth
in Adjusted Book Value per Common Share shall mean:

 

i)                                         (a) the
Company’s GAAP Shareholders’ Equity at the end of the period (measured on an as
converted/as diluted basis) minus any remaining accretion to face value
related to the Company’s defeased preferred stock at the end of the period, plus
(b) compounded dividends paid on the Company’s common shares during the
period, divided by  (c) the
number of as converted / as diluted common shares of the Company outstanding at
the end of the period, divided by

 

ii)                                      (a) the
Company’s GAAP Shareholders’ Equity at the beginning of the period (measured on
an as converted/as diluted basis) minus any remaining accretion to face
value related to the Company’s defeased preferred stock at the beginning of the
period, divided by (b) the number of as converted / as diluted
common shares of the Company outstanding at the beginning of the period, minus

 

iii)                                   one

 

Performance
Percentage shall mean:

 

a
percentage of no less than 0% and no more than 200%, which percentage was
determined by the Committee, as outlined in paragraph four (4) of this
Performance Share Grant.

 

Performance
Share shall mean:

 

a
unit granted to participant under the Company’s Long-Term Incentive Plan having
the financial equivalence of a share of common stock of the Company, conditioned
upon the attainment of a specified Performance Objective(s) over a
specified Award Period.

 

 

5

 

 

Underwriting
Return on Equity shall mean:

 

i)                                         (a) the
actual GAAP net income of the Company, plus (b) the dividends and
accretion recorded in the period for the Company’s defeased preferred stock
instruments, minus (c) actual investment income and realized gains,
each after taxes, plus (d) after-tax standard investment income plus
(e) actual losses associated with catastrophic events (Actual CAT Losses)
times 65% to convert to an after-tax amount, minus (f) a charge to
cover catastrophic events (CAT Charge), divided by

 

ii)                                      (a) the
average of (b) GAAP Shareholders’ equity of the Company at the beginning
of the period minus any remaining accretion to face value related to the
Company’s defeased preferred stock at the beginning of the period, and (c) GAAP
Shareholders’ equity of the Company at the end of the period, minus any
remaining accretion to face value related to the Company’s defeased preferred
stock at the end of the period

 

For
the purpose of this definition, i) after-tax standard investment income will
equal (a) the yield on the 10-year Treasury note at the beginning of the
period, to be reset annually, plus 100 basis points multiplied  by
(b) the Company’s average invested assets for the period, multiplied
by (c) one minus the Company’s actual tax rate on investment
income, realized gains, and unrealized gains for the period, and (ii) average
invested assets will exclude investment assets in trust accounts related to the
Company’s defeased preferred stock.

 

CAT
Charge shall mean:

 

i)                                         (a) one-half
of the annual plan CAT losses represented as a percentage of plan net earned
premium, times (b) actual net earned premium, plus

 

ii)                                      (a) an
insurance charge of 0.2%, times (b) actual net earned premium, plus

 

iii)                                   one-half of
actual CAT losses, subject to

 

iv)                                  an overall
maximum of 7.1% of actual net earned premium, times

 

v)                                     65% to convert
the total to an after-tax amount

 

For
2008, plan CAT losses are 2.7% of plan earned premium.  Consequently, for 2008, the CAT charge
calculation will equal 1.6% of actual net earned premium, plus one half of
actual CAT losses, times 65%.

 

The
insurance charge is calculated so that the expected cat charge will be equal to
the plan cat losses.

 

 

6

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