Document:

Exhibit

Exhibit 10.4

For Awards for Named Executive Officers and
certain Executive Officers of ACGL and subsidiaries

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 
[insert name], an employee of the Company on the date hereof (the “Option Holder”), the option to purchase common shares, $0.0011 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 [insert year of Plan] Long Term Incentive and Share Award Plan (the “Plan”);
(a)Grant. The Option Holder is hereby granted an option (the “Option”) to purchase [insert number of option shares] Shares (the “Option Shares”) pursuant to the Plan, the terms of which are incorporated herein by reference. The Option is granted as of [insert award date] (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, $[insert price] 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 

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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)    Anti-dilution Adjustment. For the avoidance of doubt, the terms of Section 4(c) of the Plan, relating to anti-dilution adjustments, will apply to the Option.
(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 brothers 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, in the manner directed by the Company, specify 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. In addition, in lieu of making payment of the exercise price of the Option and receiving the number of Shares for which the Option is being exercised as described above, the Option Holder may instead elect to exercise the Option by making no cash exercise price payment but having the Company issue to the Option Holder the number of Shares (rounded down to the nearest whole number) equal to the net result obtained by (A) subtracting the exercise price per Share from the Fair Market Value per Share on the date of exercise, (B) multiplying the difference by the number of Shares for which the Option is being exercised, and (C) dividing the product by the Fair Market Value per Share on the date of exercise. For the avoidance of doubt, if the calculation in the immediately preceding sentence results in a negative number, no Shares will be issued upon exercise. Option Shares will be issued accordingly by the Company, and a share certificate dispatched or electronic delivery of such Option Shares 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 not be obligated to issue any Option Shares hereunder if the issuance of such Option Shares would violate the provision of any applicable law, 

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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 the Option Holder’s death or Permanent Disability (as defined in the Company’s Incentive Compensation Plan on the date hereof), 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 the Option Holder’s Beneficiary or estate in the event of the Option Holder’s 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 Company’s Incentive Compensation Plan on the date hereof and other than as set forth in paragraphs (j)(1) or (j)(3) hereof) 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, without the written consent of the Company, engage in any activity in competition with any activity of the Company or any of its Subsidiaries other than (i) serving on the board of directors (or similar governing body) of another company or (ii) serving as a consultant for no more than 26 weeks per calendar year providing services that do not, in whole or in part, relate to the business or operations of an insurance or reinsurance company (“Competitive Activity”) and shall continue to be exercisable by the Option Holder (or the Option Holder’s Beneficiary or estate in the event of the Option Holder’s 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 of a Change in Control (as defined in the Plan) in connection with which the Option is assumed by the surviving entity or otherwise equitably converted or substituted in connection therewith in a manner approved by the Committee or the Board and after which the Option Holder ceases to be an employee of the Company due to termination (A) by the Company not for Cause or (B) by the Option Holder for Good Reason (as defined below), 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).  “Good Reason” shall have the meaning given to such term in any existing employment agreement between the Option Holder and the Company or Subsidiary as in effect on the date of grant of this Option or, in the absence of such an existing employment agreement in effect on the date of grant defining such term, it shall mean, without the Option Holder’s written consent, (a) the material diminution of any material duties or responsibilities of the Option Holder without the same being corrected within thirty (30) days after being given written notice thereof; or (b) a material reduction in the Option Holder’s base salary without the same being corrected within thirty (30) days after being given written notice thereof.

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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. 
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.
(k)    Change in Control; Option Not Assumed. Notwithstanding any provision of this Agreement to the contrary, upon the occurrence of a Change in Control in connection with which the Option is not assumed by the surviving entity or otherwise equitably converted or substituted in connection therewith in a manner approved by the Committee or the Board, the Option shall vest in full on the effective date of the Change in Control. 
(l)    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.
(m)    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.
(n)    Expenses of Issuance of Option Shares. The issuance of stock certificates or the electronic delivery of Option Shares 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.
(o)    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.
(p)    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.

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(q)    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.:
Waterloo House, Ground Floor 
100 Pitts Bay Road 
Pembroke HM 08 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.
(r)    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.
(s)    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.
(t)    Counterparts. This agreement may be executed in two counterparts, each of which shall constitute one and the same instrument.
    

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

	
			
	 
	ARCH CAPITAL GROUP LTD.

	 
	  By:
	 

	 
	  Name:
	 

	 
	  Title:
	 

	 
	 
	 

	 
	 
	 

By accepting this grant on-line, I hereby acknowledge that I have read and agree to the terms and conditions of the grant and of the [insert year of Plan] Long Term Incentive and Share Award Plan (“Plan”) and that this shall constitute the same as my written signature. I also acknowledge that I have received a copy of the Plan and Plan Prospectus which can be found in the “My Company Info/Documents” link on the “At a Glance” tab. 

6Exhibit

Exhibit 10.5

For Awards for Named Executive Officers and
certain Executive Officers of ACGL and subsidiaries

ARCH CAPITAL GROUP LTD. 
Performance Restricted Share Agreement

THIS AGREEMENT, dated as of [insert date], between Arch Capital Group Ltd. (the “Company”), a Bermuda company, and [insert name] (the “Employee”).  
WHEREAS, the Employee has been granted the following award under the Company’s [insert year of Plan] 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 the following number of Restricted Shares (the “Award”):  
Maximum Performance:  [insert number equal to 200% of Target Restricted Shares] Restricted Shares;
Target Performance:  [insert number of Target Restricted Shares] Restricted Shares (“Target Restricted Shares”); and
Threshold Performance:  [insert number equal to 50% of Target Restricted Shares] Restricted Shares.
The Award is subject to the terms and conditions herein set forth, and 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, Exhibit A hereto and the other terms and conditions of this Agreement, this Award shall become vested on the Vesting Date (as defined below) in the number of Restricted Shares earned based on the level of achievement of the performance goals as set forth in Exhibit A for the Performance Period (as defined in Exhibit A).  The Vesting Date shall be the March 10 next following the end of the Performance Period.  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 of the Employee’s termination of employment due to his or her death or Permanent Disability (as defined in the Company’s Incentive Compensation Plan on the date hereof) prior to the date the Restricted Shares otherwise become vested pursuant to Section 2(a) hereof, the Target 

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Restricted Shares shall become immediately vested in full upon such termination of employment, and the Restricted Shares subject to the Award in excess of the Target Restricted Shares shall be immediately forfeited. 
(ii)    In the event of the Employee’s termination of employment (other than by the Company for Cause, as such term is defined in the Company’s Incentive Compensation Plan on the date hereof, and other than as set forth in Section 2(b)(i) or (iii) hereof) after the attainment of Retirement Age (as defined in the Company’s Incentive Compensation Plan on the date hereof) but prior to the date the Restricted Shares otherwise become vested pursuant to Section 2(a) hereof, the Employee shall continue to be eligible to vest on the Vesting Date in accordance with Section 2(a) above so long as the Employee does not, without the written consent of the Company, engage in any activity in competition with any activity of the Company or any of its Subsidiaries other than (i) serving on the board of directors (or similar governing body) of another company or (ii) serving as a consultant for no more than 26 weeks per calendar year providing services that do not, in whole or in part, relate to the business or operations of an insurance or reinsurance company (“Competitive Activity”).  In the event the Employee engages in a Competitive Activity, the unvested Restricted Shares shall be forfeited by the Employee and become the property of the Company.
(iii)    In the event of a Change in Control (as defined in the Plan) in connection with which the Award is assumed by the surviving entity or otherwise equitably converted or substituted in connection therewith in a manner approved by the Committee or the Board and after which 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 below), in either case, on or before the second anniversary of the occurrence of the Change in Control, (i) if the Performance Period has not ended, the Award shall vest upon such termination of employment based upon the greater of: (x) target performance pro-rated based upon the number of days within the Performance Period that have elapsed prior to the date of the Employee’s termination of employment in relation to the total number of days within the Performance Period, or (y) the actual level of achievement of all relevant performance goals (measured as of the latest date immediately preceding the date of the Employee’s termination of employment for which performance can, as a practical matter, be determined), and (ii) if the Performance Period has ended but the termination date is prior to the Vesting Date, the number of Restricted Shares earned for the Performance Period in accordance with Exhibit A will immediately become vested upon such termination of employment.  “Good Reason” shall have the meaning given to such term in any existing employment agreement between the Employee and the Company or Subsidiary as in effect on the date of grant of this Award or, in the absence of such an existing employment agreement in effect on the date of grant defining such term, it shall mean, without the Employee’s written consent, (a) the material diminution of any material duties or responsibilities of the Employee without the same being corrected within thirty (30) days after being given written notice thereof; or (b) a material reduction in the Employee’s base salary without the same being corrected within thirty (30) days after being given written notice thereof.
(iv)    In the event of the Employee’s termination of employment for any reason, other than those reasons specified in Section 2(b)(i), (ii) and (iii) hereof, prior to the Vesting Date, the Award shall be forfeited by the Employee and become the property of the Company.
(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.
(c)    Change in Control; Award Not Assumed.  Notwithstanding any provision of this Agreement to the contrary, upon the occurrence of a Change in Control in connection with which the 

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Award is not assumed by the surviving entity or otherwise equitably converted or substituted in connection therewith in a manner approved by the Committee or the Board, (i) if the Performance Period has not ended, the Award shall vest on the effective date of the Change in Control based upon the greater of: (A) target performance pro-rated based upon the number of days within the Performance Period that have elapsed prior to the Change in Control in relation to the total number of days within the Performance Period, or (B) the actual level of achievement of all relevant performance goals (measured as of the latest date immediately preceding the Change in Control for which performance can, as a practical matter, be determined), and (ii) if the Performance Period has ended but the Employee’s termination of employee occurs prior to the Vesting Date, the number of Restricted Shares earned for the Performance Period in accordance with Exhibit A will immediately become vested.  
(d)    Certificates.  Each certificate issued in respect of Restricted Shares awarded hereunder shall be issued in book entry format with the Company’s transfer agent 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, such vested Shares, not bearing the Restrictive Legend, shall be delivered to the Employee.
(e)    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 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.
(f)    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 at such time with respect to such Award and the Company shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to the Employee, federal, state and local taxes of any kind required by law to be withheld at such time.
6.    References.  References herein to rights and obligations of the Employee shall apply, where appropriate, to the Employee’s legal representative or estate without regard to whether specific reference to such legal representative or estate is contained in a particular provision of this Agreement.

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7.    Notices.  Any notice required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given when delivered personally or by courier, or sent by certified or registered mail, postage prepaid, return receipt requested, duly addressed to the party concerned at the address indicated below or to such changed address as such party may subsequently by similar process give notice of:
If to the Company:
Arch Capital Group Ltd. 
Waterloo House, Ground Floor 
100 Pitts Bay Road 
Pembroke HM 08 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 (including Exhibit A hereto) 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.    Section 409A.  It is intended that the Award will be exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) and any regulations and guidelines promulgated thereunder (collectively, “Section 409A”), and this Agreement shall be interpreted on a basis consistent with such intent.  
11.    Counterparts.  This Agreement may be executed in two counterparts, each of which shall constitute one and the same instrument.

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

	 
	By:
	 

	 
	    Name:
	 

	 
	    Title:
	 

	 
	 
	 

	 
	Name:
	 

By accepting this grant on-line, I hereby acknowledge that I have read and agree to the terms and conditions of the grant and of the [insert Plan year] Long Term Incentive and Share Award Plan (“Plan”) and that this shall constitute the same as my written signature.  I also acknowledge that I have received a copy of the Plan Prospectus and a copy of the supplemental summary and prospectus for the country where I’m based (“Supplemental Prospectus”), if applicable.  Copies of the Plan, Plan Prospectus and Supplemental Prospectus can be found in the “My Company Info/Documents” link on the “At a Glance” tab.  

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Exhibit A

The Restricted Shares will vest contingent upon (i) the level of achievement of Absolute Growth in Tangible Book Value Per Share over the Performance Period, as modified by Relative TSR Performance, all as set forth below, and (ii) except as otherwise set forth in the Agreement, continued employment by the Employee through the Vesting Date set forth in the Agreement.

Absolute Growth in Tangible Book Value Per Share

	
			
	Level of Performance
	Growth in TVBPS
	Shares Earned as % of Target

	Threshold
	__%
	50%

	Target
	__%
	100%

	Maximum
	__%
	200%

Results that are between the levels set forth above will be calculated by linear interpolation. 

Relative TSR Modifier

The number of Restricted Shares earned based on Absolute Growth in Tangible Book Value Per Share during the Performance Period as determined above will be increased (or decreased) by the percentage set forth below based on the Company’s Relative TSR Performance percentile ranking over the Performance Period; provided, however, that (i) no such modification will occur if the Company’s Relative TSR Performance percentile ranking is between the 35th and 65th percentile rankings, (ii) if the Company’s TSR for the Performance Period is less than zero, then the number of earned Restricted Shares will not be adjusted upward, and (iii) not more than 200% of the Target Restricted Shares (i.e., an amount equal to the Maximum Restricted Shares set forth in the Agreement) may be earned.

	
			
	Relative TSR Percentile    
	 
	Percentage Modification

	Greater than or equal to 80th
	 
	plus 25%

	35th to 65th
	 
	no change

	Less than or equal to 20th
	 
	minus 25%

                            
The Percentage Modification for Percentage Rankings that are between the Percentile Ranking values set forth above will be calculated by linear interpolation.

Fractional Shares Rounded

In the event the overall calculation results in fractional shares, the amount of such resulting shares will be rounded to the nearest whole share (or down if exactly half way between).

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Definitions:

“Absolute Growth in Tangible Book Value Per Share” means the excess of tangible book value per common share outstanding of the Company at the end of the Performance Period as reported by the Company over tangible book value per common share outstanding at the beginning of the Performance Period as reported by the Company.  Tangible Book Value Per Share calculations may be modified by the Compensation Committee to reflect transactions not in the ordinary course of business which may affect tangible book value per share including, but not limited to, share issuances or conversions, share repurchases, extraordinary distributions, and capital adjustments or other transactions affecting tangible book value per share. The determination of Absolute Growth in Tangible Book Value Per Share by the Compensation Committee shall be final and binding on the Company and the Employee.

“Performance Period” means the three year period beginning on [insert first day of performance period] and ending on [insert last day of performance period].

“TSR” means the total return to a shareholder over the prescribed period, including dividends (assuming reinvestment in the shares at the month end closing price for the month of the ex-dividend date for the dividend) and share price appreciation (or decline).  

“Relative TSR Performance” will be calculated as follows for each applicable Performance Period:

		
	(i)
	TSR for the Company and each company (“Peer Company”) in the “Peer Group” (as defined below) will be calculated as a straight ratio of ending value to beginning value over the applicable Performance Period.  In order to reduce volatility, each periodic TSR measurement will start and end with the average closing stock price for the first and last months in the applicable Performance Period, respectively.

		
	(ii)
	The Company’s percentile ranking will be determined as follows:

Percentile Ranking = [(n-r)/(n-1)] x 100

Where n equals the number of Peer Companies within the Peer Group, including the Company, and r equals the Company’s ranking within the list of Peer Group companies, including the Company.

For example, if the Company ranks seventh and there are sixteen companies in the peer group (including the Company), the Company’s Percentile Ranking will be 60, which is equal to [(16-7)/(16-1)] x 100.  

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The Peer Group shall be comprised of the following Peer Companies for which TSR computations can be made from publicly available information for the entire Performance Period, subject to the exceptions noted below.  Any member of the Peer Group that files for bankruptcy during the Performance Period will be treated as having a negative one hundred percent (-100%) TSR for the Performance Period. 

Alleghany Corporation
AmTrust Financial Services, Inc.
American Financial Group, Inc. 
Argo Group International Holdings, Ltd.
Aspen Insurance Holdings Limited
Assurant, Inc.
AXIS Capital Holdings Ltd.
Berkley (W.R.) Corporation
Cincinnati Financial Corporation
CNA Financial Corporation
Essent Group Ltd.
Everest Re Group Ltd.
First American Financial Corporation
Hartford Financial Services Group Inc.
Hanover Insurance Group, Inc.
Markel Corporation
Old Republic International Corporation
Radian Group Inc. 
RenaissanceRe Holdings Ltd.
Selective Insurance Group, Inc.
Validus Holdings, Ltd.
XL Group Ltd.

A Peer Company shall be eliminated from the Peer Group for the entire Performance Period under the following circumstances:

(i)    the Peer Company consummates a corporate transaction of any type such that it is not the surviving entity (including a corporate transaction under which it sells all or substantially all of its assets),

(ii)    the Peer Company is acquired by the Company or any of its Subsidiaries or
(iii)    The Peer Company is delisted from the securities exchange on which it was listed at the beginning of the Performance Period (other than due to bankruptcy of the Peer Company) and following such delisting the Peer Company is not immediately relisted on a U.S. national securities exchange and remains listed on such exchange for the remainder of the Performance Period.

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