Document:

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                                                                    Exhibit 10.9

                          RAM REINSURANCE COMPANY LTD.
                   STOCK OPTION PLAN FOR MANAGEMENT EMPLOYEES
                AS AMENDED AND RESTATED EFFECTIVE AUGUST 10, 2005

                               Section 1. Purpose

     The purpose of this RAM Reinsurance Company Ltd. Stock Option Plan for
Management Employees is to foster and promote the long-term financial success of
the Company and to increase materially stockholder value by (a) motivating
superior performance by Participants, (b) providing Participants with an
ownership interest in Holding, (c) enabling the Company to attract and retain
the services of outstanding directors and an outstanding management team and (d)
increasing the Participants' proprietary interest in the Company by providing
them with incentive awards through both Nonqualified and Incentive Stock
Options.

                             Section 2. Definitions

     2.1. Definitions. Whenever used herein, the following terms shall have the
respective meanings set forth below:

               (a) "Board" means the Board of Directors of RAM Reinsurance
          Company Ltd.

               (b) "Cause" shall have the same meaning as set forth in any
          employment agreement between the Company and a Participant which is in
          effect or, if no employment agreement exists, Cause shall mean (i)
          Participant's conviction of a felony or the entering by Participant of
          a plea of nolo contendere, (ii) Participant's gross negligence,
          dishonesty, willful malfeasance or gross misconduct in connection with
          Participant's employment or (iii) a substantial and continual refusal
          by Participant to perform the duties, responsibilities or obligations
          assigned to Participant. A determination of Cause under the Plan shall
          be made by the Board after a Board meeting at which the Participant
          has an opportunity to address the Board.

               (c) "Code" means the Internal Revenue Code of 1986, as amended.

               (d) "Committee" means the Compensation Committee of the Board.
          The Compensation Committee shall consist of at least two directors
          appointed from time to time by the Board, having the duties and
          authority set forth herein in addition to any other authority granted
          by the Board. If at any time no Committee shall be in office, the
          Board shall perform the functions of the Committee.

               (e) "Common Stock" means the Class A common shares, par value
          $1.00 per share, of RAM Holdings II Ltd.

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               (f) "Company" means RAM Reinsurance Company Ltd., a Bermuda
          company, RAM Holdings Ltd., RAM Holdings II Ltd., and any successors
          thereto.

               (g) "Director" shall mean a member of the Board of Directors of
          Holding.

               (h) "Effective Date" means March 13, 2001.

               (i) "Employee" means a full-time employee of the Company.

               (j) "Exchange Act" means the Securities Exchange Act of 1934, as
          amended.

               (k) "Exercisable Option" means an Option with respect to which a
          Participant has earned a fully vested right to exercise such Option
          pursuant to the vesting schedule set forth in the Participant's Option
          Agreement.

               (l) "Exercised Shares" means Shares a Participant has received in
          connection with the exercise of an Option or Shares which a
          Participant has become entitled to receive through exercise of an
          Option but which have not yet been delivered.

               (m) "Extraordinary Termination" means a termination of a
          Participant's employment with the Company by reason of the
          Participant's death, Permanent Disability or Retirement.

               (n) "Fair Value" means on, or with respect to, any given date:

                    (i) If the Shares are listed on a national stock exchange,
               the closing market price of such Shares as reported on the
               composite tape for issues listed on such exchange on such date
               or, if no trade shall have been reported for such date, on the
               next preceding date on which there were trades reported;
               provided, however, that if no such quotation shall have been made
               within the ten business days preceding such date, Fair Value
               shall be determined under (iii) below.

                    (ii) If the Shares are not listed on a national stock
               exchange but are traded on the over-the-counter market, the mean
               between the closing dealer bid and asked price of such Shares as
               reported by the National Association of Securities Dealers
               through their Automated Quotation System for such date, or if no
               quotations shall have been made on such date, on the next
               preceding date on which there were quotations; provided, that, if
               no such quotations shall have been made within the ten business

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               days preceding such date, Fair Value shall be determined under
               (iii) below.

                    (iii) If (i) and (ii) do not apply, the Fair Value of a
               Share shall be determined by the Board or Committee in good faith
               based upon the best information available in a manner consistent
               with valuation techniques commonly used by financial guaranty
               companies. The Board or Committee may rely upon the most recent
               valuation and there shall be no requirement to cause a more
               recent valuation to be made.

               (o) "Good Reason" shall have the same meaning as such term is
          defined in the Participant's employment agreement with the Company,
          except to the extent provided otherwise in the Option Agreement
          entered into between the Company and the Participant.

               (p) "Grant Date" means, with respect to any Option, the date on
          which such Option is granted pursuant to the Plan.

               (q) "Holding" means collectively RAM Holdings Ltd. and RAM
          Holdings II Ltd., each a Bermuda company, and their respective
          successors.

               (r) "Holding Common Stock" means the Class A common shares, par
          value $1.00 per share, of RAM Holdings Ltd.

               (s) "Holding Share" means one share of Holding Common Stock.

               (t) "Incentive Stock Option" shall have the same meaning as given
          to that term by Code Section 422 and any regulations or rulings
          promulgated thereunder.

               (u) "Nonqualified Stock Option" means any Option granted under
          the Plan which is not considered an Incentive Stock Option.

               (v) "Option" means the right granted pursuant to the Plan to
          purchase one share of Common Stock at a price determined in accordance
          with Section 6.2, subject to the conditions set forth herein and in
          the Option Agreement evidencing the grant of such Option.

               (w) "Option Agreement" means an agreement between the Company and
          the Participant embodying the terms of any Options granted hereunder.

               (x) "Option Price" means the amount for which one Share may be
          purchased upon exercise of an Option, as specified in the applicable
          Stock Option Agreement.

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               (y) "Participant" means any Employee designated by the Board to
          participate in the Plan.

               (z) "Permanent Disability" shall have the same meaning as set
          forth in any employment agreement between the Company and a
          Participant in effect, or, if no employment agreement is in effect,
          Permanent Disability means a physical or mental disability or
          infirmity that prevents the performance of a Participant's
          employment-related duties lasting (or likely to last, based upon
          competent medical evidence presented to the Board) for a period of six
          months or longer, provided that within 30 days following written
          notification by the Company to the Participant that it intends to
          replace Participant, that the Participant shall not have returned to
          the performance of his employment-related duties on a full-time basis.
          The Board's reasoned and good faith judgment of Permanent Disability
          shall be final, binding and conclusive and shall be based upon such
          competent medical evidence as shall be presented to it by such
          Participant or by any physician or group of physicians or other
          competent medical expert employed by the Participant or the Company to
          advise the Board. Provided further, with respect to any Participant
          who is party to an employment agreement with the Company, "Permanent
          Disability," shall have the meaning, if any, assigned in the
          employment agreement to such term or to a similar term such as
          "Disability" or "Disabled".

               (aa) "Plan" means this RAM Reinsurance Company Ltd. Stock Option
          Plan for Management Employees and Addendum A hereto, as the same may
          be amended from time to time.

               (bb) "Public Offering" means the first day as of which sales of
          Common Stock are made to the public in the United States pursuant to
          an underwritten public offering of the Common Stock led by one or more
          underwriters at least one of which is an underwriter of nationally
          recognized standing.

               (cc) "Retirement" means a Participant's termination of employment
          with the Company as defined in the Participant's Stock Option
          Agreement.

               (dd) "Section 16 Insider" means any person who is subject to the
          provisions of Section 16 of the Exchange Act, as provided in Rule
          16a-2 promulgated pursuant to the Exchange Act.

               (ee) "Share" means one share of Common Stock.

     2.2. Gender and Number. Except when otherwise indicated by the context,
words in the masculine gender used in the Plan shall include the feminine
gender, the singular shall include the plural, and the plural shall include the
singular.

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                    Section 3. Eligibility and Participation

     Participants in the Plan shall be those Employees and Directors selected by
the Board to participate in the Plan. The selection of a Director or Employee as
a Participant shall neither entitle such Director or Employee to, nor disqualify
such Director or Employee from, participation in any other award or incentive
plan.

                         Section 4. Powers of the Board

     4.1. Power to Grant. The Board or the Committee (upon delegation by the
Board) shall determine the Participants to whom Options shall be granted and the
terms and conditions of any and all Options granted to Participants and
determine whether such Option is an Incentive Stock Option or Nonqualified Stock
Option.

     4.2. Administration.

     (a) The Plan shall be administered by the Committee. At any time that the
Company is a reporting company for purposes of the Exchange Act, with respect to
any Option granted to an individual who is a Section 16 Insider, the Committee
shall consist of at least two directors (who need not be the same members of the
Committee with respect to Options granted to any other individuals who are not
Section 16 Insiders) who are both "non-employee directors," within the meaning
of Rule 16b-3 of the Exchange Act, and "outside directors," within the meaning
of Code Section 162(m), and all authority and discretion shall be exercised by
such directors. References herein to the Committee shall mean such directors
insofar as any actions or determination of the Committee shall relate to or
affect an Option made to or held by any Section 16 Insider. The Board may from
time to time remove members from or add members to the Committee. Vacancies in
the Committee, howsoever caused, shall be filled by the Board. If at any time
there are no members of the Committee, the Board shall serve as the Committee.

     (b) The action of a majority of the Committee at which a quorum is present,
or acts reduced to or so approved in writing by a majority of the Committee,
shall be the valid acts of the Committee. The Committee shall have the power to
meet telephonically.

     (c) The interpretation and construction by the Committee of any provisions
of the Plan or of any Option granted under it, and all actions of the Committee,
shall be final and binding on all interested parties. No member of the Board or
the Committee shall be liable for any action, inaction or determination made in
good faith with respect to the Plan or any Option granted under it.

     4.3. Delegation by the Board. All of the powers, duties and
responsibilities of the Board specified in this Plan may, to the fullest extent
permitted by applicable law, be exercised and performed by the Committee to the
extent authorized by the Board to exercise and perform such powers, duties and
responsibilities.

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                       Section 5. Options Subject to Plan

     5.1. Number. Subject to the provisions of Sections 5.2 and 5.3, the maximum
number of Options (and the maximum number of shares of Common Stock subject to
Options) granted under the Plan may not exceed 122,503 in the aggregate. The
shares of Common Stock to be delivered upon the exercise of Options granted
under the Plan may consist, in whole or in part, of authorized but unissued
shares, not reserved for any other purpose. Any or all shares subject to the
Plan may be issued in any combination of Incentive Stock Options or Nonqualified
Stock Options.

     5.2. Cancelled, Terminated or Forfeited Options. Any Option which for any
reason is cancelled, terminated or otherwise forfeited, in whole or in part,
without having been exercised (and any share of Common Stock subject to such
Option), shall again be available for grant under the Plan, subject to the
maximum limitation specified in Section 5.1.

     5.3. Adjustment in Capitalization. The number and class of Options (and the
number of shares of Common Stock available for issuance upon exercise of such
Options) granted under the Plan, and the number, class and exercise price of any
outstanding Options (and the number of shares of Common Stock subject to
outstanding Options), shall be adjusted by the Board to reflect any Common Stock
dividend, stock split or share combination or any recapitalization, merger,
amalgamation, consolidation, exchange of shares, change in equity, liquidation
or dissolution of the Company. Notwithstanding the foregoing, in no event shall
an adjustment by the Board pursuant to this Section 5.3 adversely affect any
outstanding Options without the prior written consent of the Participant.

     5.4. Per-Participant Limitation. Subject to any adjustment pursuant to
section 5.3 above, the maximum number of shares in any combination of Incentive
Stock Options or Nonqualified Stock Options that may be issued hereunder to any
Participant in any given calendar year shall be 39,643.

                          Section 6. Terms of Options

     6.1. Grant of Options. Options may be granted to Participants at such time
or times as shall be determined by the Board. Each Option granted to a
Participant shall be evidenced by an Option Agreement that shall specify the
exercise price at which a share of Common Stock may be purchased pursuant to
such Option, the duration of such Option and such other terms consistent with
the Plan as the Board shall determine, including customary representations,
warranties and covenants with respect to securities law matters.

     6.2. Exercise Price. The exercise price per share of Common Stock to be
purchased upon exercise of an Option shall be determined by the Board.

     6.3. Exercise of Options. The Board or the Committee shall determine the
vesting schedule and exercise period for all Options granted. Each individual
Option Agreement shall specify the vesting schedule and exercise period
attributable to such

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Option. Unless otherwise provided in the Option Agreement, each Option shall
terminate and shall not be exercisable on or after the tenth anniversary of the
Effective Date.

     6.4. Payment. The Board shall establish procedures governing the exercise
of Exercisable Options, which procedures shall generally require that written
notice of the exercise thereof be given as provided below at the time of
exercise. Both the payment of the exercise price and the timing of any elections
to exercise options are subject to such rules and procedures as may be adopted
by the Board and, if the Board deems it necessary or appropriate, such rules or
procedures may be subject to shareholder approval. As soon as practicable after
receipt of a written exercise notice, all other documents or agreements required
under the procedures established by the Board and payment in full of the
exercise price of any Exercisable Options, the Company shall deliver to the
Participant a certificate or certificates representing the shares of Common
Stock acquired upon the exercise thereof, bearing appropriate legends, if
applicable. Notwithstanding any provision hereof, a Participant who has not
executed the shareholder agreement in effect at the time of exercise of the
Options, must execute such shareholder agreement before any shares are
transferred to the Participant.

     6.5. Designation of Option. The Committee in its sole discretion shall
designate in a Participant's Option Agreement whether an Option is to be
considered an Incentive Stock Option or a Nonqualified Stock Option. The
Committee may grant both an Incentive Stock Option and a Nonqualified Stock
Option to the same individual. Where both an Incentive Stock Option and a
Nonqualified Stock Option are awarded at one time, however, such Options shall
be deemed to have been awarded in separate grants, shall be clearly identified,
and in no event will the exercise of one such Option affect the right to
exercise the other such Option, except to the extent the Committee determines in
writing otherwise.

     6.6. Incentive Stock Options. Any Option designated by the Committee as an
Incentive Stock Option shall be subject to the general provisions applicable to
all Options granted under the Plan. In addition, each Incentive Stock Option
shall be subject to the following specific provisions:

               (a) Incentive Stock Options may only be granted to Employees. At
          the time the Incentive Stock Option is granted, if the Employee owns,
          directly or indirectly, stock representing more than 10% of the total
          combined voting power of all classes of stock of the Company then

                    (i) The Option Price must equal at least 110% of the Fair
               Value of the Common Stock on the Grant Date; and

                    (ii) The term of the Option shall not be greater than five
               years from the Grant Date.

               (b) The aggregate fair market value of the Common Stock
          (determined at the Grant Date) with respect to which Incentive Stock

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          Options can be exercised by a Participant for the first time in any
          one calendar year shall not exceed $100,000.

               (c) No Incentive Stock Option may be granted more than ten years
          after the earlier of the effective date of the Plan or the date the
          Plan is approved by shareholders.

               (d) If any Option is not granted, exercised, or held pursuant to
          the provisions noted immediately above, it will be considered to be a
          Nonqualified Stock Option to the extent that any or all of the grant
          is in conflict with these restrictions.

     6.7. Annual Director Option Grants. Sections 6.1, 6.2, 6.3, 6.5, and 6.6
shall not be applicable to Options granted pursuant to Addendum A.

                      Section 7. Termination of Employment

     7.1. Extraordinary Termination. Unless otherwise provided in the Option
Agreement or otherwise determined by the Board at the Grant Date, in the event
that a Participant's employment with the Company terminates by reason of an
Extraordinary Termination, any Exercisable Options held by such Participant as
of the date of such Extraordinary Termination shall, subject to Section 6.3,
remain exercisable solely until the first to occur of (i) the six month
anniversary of the date of the Participant's termination of employment or (ii)
the expiration of the term of the Exercisable Option. Any Options held by the
Participant that are not Exercisable Options at the date of the Extraordinary
Termination shall terminate and be cancelled immediately upon such Extraordinary
Termination, and any Exercisable Options that are not exercised within the
period described in the preceding sentence shall terminate and be cancelled upon
the expiration of such period.

     7.2. Termination for Cause or by Participant for other than Good Reason.
Unless otherwise provided in the Option Agreement or otherwise determined by the
Board at or after the Grant Date, in the event that a Participant's employment
with the Company is terminated by the Company for Cause or by the Participant
for other than Good Reason (other than by reason of the expiration of the term
of a Participant's employment agreement), any Options held by such Participant
(whether or not then Exercisable) shall terminate and be cancelled immediately
upon such termination of employment.

     7.3. Other Termination of Employment. Unless otherwise provided in the
Option Agreement or otherwise determined by the Board at or after the Grant
Date, in the event that a Participant's employment with the Company terminates
for any reason other than (i) an Extraordinary Termination or (ii) for Cause or
other than Good Reason, any Exercisable Options held by such Participant as of
the date of such termination shall remain exercisable until the first to occur
of (x) the 60th day after the expiration of the period, if any, specified in
such Participant's Option Agreement during which the Company or Holding has a
right to purchase such Exercisable Options from the

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Participant or (y) the expiration of the term of the Exercisable Options. Any
Options held by the Participant that are not Exercisable Options as of the date
of the Participant's termination of employment shall terminate and be cancelled
immediately upon such termination, and any Exercisable Options that are not
exercised within the period described in the preceding sentence shall terminate
and be cancelled upon the expiration of such period.

     7.4. Directors Options. Section 7.1 through 7.3 shall not be applicable to
Options granted to Directors who are not Employees. Provisions regarding
termination of service as a Director shall be set forth in the Participant's
Option Agreement or, with respect to options granted pursuant to Addendum A, in
Addendum A.

                     Section 8. Amendment, Modification, and
                             Termination of the Plan

     The Board at any time may terminate or suspend the Plan, and from time to
time may amend or modify the Plan. No amendment, modification, termination or
suspension of the Plan shall in any manner adversely affect any Option
theretofore granted under the Plan, without the consent of the Participant
holding such Option. Shareholder approval of any such amendment, modification,
termination or suspension shall be obtained to the extent mandated by applicable
law, or if otherwise deemed appropriate by the Board.

                      Section 9. Miscellaneous Provisions

     9.1. Transferability of Awards. The Board, at its sole discretion, may
grant Nonqualified Stock Options which may be transferred by the Participant
during his or her lifetime to any member of his or her immediate family or a
trust established for the exclusive benefit of one or more members of his or her
immediate family. For purposes of this Section, the term "immediate family" is
defined as a Participant's spouse, children, stepchildren, grandchildren
(including relationships arising from legal adoption), and parents. Any
Nonqualified Stock Options not deemed by the Board to be transferable in the
Option Agreement and any Incentive Stock Options granted pursuant to this Plan
are not transferable by the Participant other than by will or the laws of
descent and distribution, and are exercisable during the Participant's lifetime
only by the Participant.

     9.2. Beneficiary Designation. Each Participant under the Plan may from time
to time name any beneficiary or beneficiaries (who may be named contingently or
successively) by whom any right under the Plan is to be exercised in case of his
death. Each designation will revoke all prior designations by the same
Participant, shall be in a form reasonably prescribed by the Board, and will be
effective only when filed by the Participant in writing with the Board during
his lifetime.

     9.3. No Guarantee of Employment or Participation. Nothing in the Plan or in
any Option Agreement shall interfere with or limit in any way the right of the
Company to terminate any Participant's employment at any time, or confer upon
any Participant

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any right to continue in the employ of the Company. No Employee shall have a
right to be selected as a Participant or, having been so selected, to receive
any Options.

     9.4. Tax Withholdinq. The Company shall have the power to withhold, or to
require a Participant to remit to the Company subject to such other arrangements
as the Board may set forth in the Option Agreement to which such Participant is
a party, an amount sufficient to satisfy all federal, state, local and foreign
withholding tax requirements in respect of any Option granted under the Plan.

     9.5. Indemnification. Each person who is or shall have been a member of the
Committee, the Board or any other committee of the Board shall be indemnified
and held harmless by the Company to the fullest extent permitted by law from and
against any and all losses, costs, liabilities and expenses (including any
related attorneys' fees and advances thereof) in connection with, based upon or
arising or resulting from any claim, action, suit or proceeding to which he may
be made a party or in which he may be involved by reason of any action taken or
failure to act under or in connection with the Plan and from and against any and
all amounts paid by him in settlement thereof, with the Company's approval, or
paid by him in satisfaction of any judgment in any such action, suit or
proceeding against him, provided that he shall give the Company an opportunity,
at its own expense, to defend the same before he undertakes to defend it on his
own behalf. The foregoing right of indemnification shall not be exclusive and
shall be independent of any other rights of indemnification to which such
persons may be entitled under the Companies' Bye-laws, by contract, as a matter
of law, or otherwise.

     9.6. No Limitation on Compensation. Nothing in the Plan shall be construed
to limit the right of the Company to establish other plans or to pay
compensation to its employees, in cash or property, in a manner that is not
expressly authorized under the Plan.

     9.7. Requirements of Law. The granting of Options and the issuance of
shares of Common Stock pursuant to such Options shall be subject to all
applicable laws, rules and regulations, and to such approvals by any
governmental agencies or national securities exchanges as may be required.
Notwithstanding any other provision of the Plan or any Option Agreement, no
Options shall be granted under the Plan, and no shares of Common Stock shall be
issued upon exercise of any Options granted under the Plan, if such grant or
exercise would result in a violation of applicable law, including the federal
securities laws and any applicable state securities laws.

     9.8. Freedom of Action. Subject to Section 8, nothing in the Plan or any
Option Agreement shall be construed as limiting or preventing the Company from
taking any action that it deems appropriate or in its best interest.

     9.9. Term of Plan. The Plan shall be effective as of the Effective Date.
The Plan shall continue in effect, unless sooner terminated pursuant to Section
8, until the tenth anniversary of the Effective Date. The provisions of the
Plan, however, shall continue thereafter to govern all outstanding Options
theretofore granted.

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     9.10. No Rights as Stockholder. No Participant shall have any voting or
other rights as a stockholder of the Company with respect to any Common Stock
covered by any Option until the exercise of the Option and the issuance of a
certificate or certificates to the Participant for such Common Stock. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the issuance of such certificate or certificates.

     9.11. Governing Law. The Plan, and all agreements hereunder, shall be
construed in accordance with and governed by the laws of the State of New York,
without giving effect to the conflicts of laws rules thereof to the extent such
rules would require or permit the application of the laws of another
jurisdiction.

     9.12. Financial Information. Any Participant who wishes to review and
requests financial information of the Company shall be provided the most recent
audited financial statements of the Company within a reasonable time, but in no
event later than 30 days following such request.

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                                   Addendum A

                       Independent Director Annual Grants

          This Addendum A (the "Addendum") to the Plan, effective as of August
10, 2005, governs the annual grant of Options to the independent Directors
listed below (the "Independent Directors"). The first annual Option grants to be
made pursuant to this Addendum shall be effective August 10, 2005. This Addendum
shall constitute part of the Plan. Capitalized terms used herein without
definition have the meanings set forth elsewhere in the Plan.

          1. Annual Grant of Options. Notwithstanding anything contained herein
to the contrary, annually, for so long as an Independent Director is a Director
(or, if earlier, until such time as the Committee determines that such annual
Option grants shall no longer be made or that the Director no longer meets the
criteria necessary for eligibility to receive an annual Option grant pursuant to
this Addendum), the Committee will grant to each of the Independent Directors,
not in lieu of any other compensation, a Nonqualified Stock Option to purchase
200 Shares (subject to adjustment pursuant to Section 5.3 of the Plan) with an
Option Price equal to the Fair Value of a Share on the Grant Date (subject to
adjustement pursuant to Section 5.3 of the Plan). Each such Option grant made as
described in this Section 1 is hereinafter referred to as an "Annual Option."
The Grant Date of the Annual Options shall be the date the Annual Options are
approved by the Committee (or such later date as the Committee may prescribe);
provided, however, that it is expected that the Annual Options will be made
during the third quarter of the applicable calendar year, commencing in the year
following the Independent Director's election to the Board. At, or as soon as
practicable after, the Grant Date of any Annual Options, the Independent
Directors shall be notified of the Grant Date of his or her Annual Option and
the Option Price.

          2. Annual Option Term. Each Annual Option awarded pursuant to Section
1 of this Addendum shall terminate on the earliest of: (a) the date such Annual
Option is fully exercised, (b) the tenth anniversary of the applicable Grant
Date, or (c) the applicable date set forth in Section 5 or 6 of this Addendum.
Notwithstanding anything contained herein to the contrary, the provisions
contained in Sections 7 through 9 of this Addendum shall survive the exercise of
an Annual Option.

          3. Vesting and Exercise of the Annual Option.

               (a) No portion of an Annual Option may be exercised prior to the
date on which it becomes vested. Except as otherwise provided in Sections 5 and
6 of this Addendum, each Annual Option shall vest quarterly over a three-year
period beginning on the applicable Grant Date. Specifically, for each Annual
Option (subject to adjustment in the event the number of Shares subject to the
Annual Option is adjusted), 17 of the Shares subject to such Annual Option will
vest on the last day of each of the 11 consecutive calendar quarters commencing
in the quarter in which such Annual Option is awarded and during which the
Independent Director remains a Director, and the

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remaining 13 Shares subject to such Annual Option will vest on the last day of
the 12th succeeding calendar quarter if the Independent Director remains a
Director until such date.

               (b) Unless the Committee provides otherwise, Shares purchased
pursuant to an Annual Option must be paid for in full at the time of such
purchase in the form of: (i) cash, (ii) Shares previously owned by the
Independent Director for at least six (6) months, which have not been acquired
pursuant to the Annual Option, or (iii) part in cash and part in Shares. Shares
transferred in payment of the Option Price shall be valued at the Fair Value of
such Shares, subject to such rules and procedures as may be adopted by the
Board. The Committee may restrict the use of Shares as payment upon exercise.

          4. Option Non-Transferable. The Option may not be transferred by the
Independent Director other than by will or the laws of descent and distribution.
The Option shall be exercisable during the Independent Director's lifetime only
by the Independent Director or on the Independent Director's behalf by the
Independent Director's guardian or legal representative.

          5. Termination and Expiration of the Option.

               (a) If the Independent Director's service as a Director is
terminated due to the Independent Director's death, the Annual Option shall
immediately become vested and exercisable in full, and shall remain exercisable
until the tenth anniversary of the Grant Date.

               (b) If the Independent Director's service as a Director is
terminated for any reason other than death, the portion of the Annual Option
that is vested on the date of such termination of service shall remain
exercisable for one year (or, if earlier, until the tenth anniversary of the
Grant Date). Any portion of the Annual Option that is not vested as of the date
of such termination of service shall terminate and be cancelled immediately.

               (c) Notwithstanding anything contained herein to the contrary, if
the Independent Director is prohibited (whether by applicable law, rule,
regulation, order or consent decree of any regulatory authority (including,
without limitation, the Securities and Exchange Commission), or by the Company)
from exercising the vested portion of the Annual Option during any period that
ends within the last five business days (for purposes of this Addendum, a day is
a business day only if considered such in both Bermuda and New York City) of the
exercise period prescribed by Section 5(b) hereof, then such exercise period
shall automatically be extended by the number of business days equal to the
number of business days the Independent Director was prohibited from exercising
the vested portion of the Annual Option (but in no event less than 5 business
days); provided, however, in no event shall the Annual Option remain exercisable
beyond the tenth anniversary of the Grant Date, and in no event shall the
exercise period be extended by a number of business days that is greater than
the number

                                       13

<PAGE>

of business days between the date the portion of the Annual Option that is
subject to the extension became vested and the first date of the extension.

          6. Change in Control.

               (a) The term "Change in Control" shall mean the first to occur of
the following events after the Grant Date:

                    (i) the acquisition by any person, entity or "group" (as
defined in Section 13(d) of the Securities Exchange Act of 1934, as amended) of
50% or more of the combined voting power of the then outstanding voting
securities of RAM Reinsurance Company Ltd. ("RAM") or Holding;

                    (ii) the merger, amalgamation, reorganization, or
consolidation of, or share exchange involving, RAM or Holding, as a result of
which the shareholders of RAM or Holding immediately before such transaction do
not, immediately thereafter, own, directly or indirectly, more than 50% of the
combined voting power entitled to vote generally in the election of directors of
the merged or consolidated company;

                    (iii) a sale of all or substantially all of RAM's or
Holding's assets; and

                    (iv) approval by RAM or Holding of the liquidation or
dissolution of RAM or Holding other than a liquidation of RAM into Holding.

For purposes of clarity, an amalgamation or similar combination of RAM Holdings
Ltd. and RAM Holdings II Ltd. shall not constitute a Change in Control.

               (b) The term "Change in Control Price" means the price per share
of Common Stock paid in conjunction with any transaction resulting in a Change
in Control (as determined in good faith by the board of directors of RAM
Holdings Ltd. (the "Holdings Board") if any part of such price is payable other
than in cash and other than in marketable securities). If all or a portion of
the Change in Control Price is paid in marketable securities, then the
marketable securities shall be valued at the closing sale price on the principal
exchange on which the securities are traded on the day of closing of the Change
in Control transaction.

               (c) In the event of a Change in Control, each Option then held by
an Independent Director shall be deemed to be fully vested and shall be
cancelled in exchange for either: (i) a payment in cash of an amount equal to
the excess, if any, of the Change in Control Price over the Option Price or (ii)
if any part of the consideration paid in the transaction resulting in a Change
in Control is paid in freely marketable securities, and the Holdings Board so
determines, a payment in such freely marketable securities with a value equal to
the excess, if any, of the Change in Control Price over the Option Price. The
payment described in this Section 6(c) shall be made to the Independent

                                       14

<PAGE>

Director as soon as reasonably practicable following the consummation of the
Change in Control.

               (d) Put Option/Call Rights. For the period beginning on the date
of a Change in Control and ending 45 days thereafter, the Company and Holding or
the successor in interest, upon written notice from the Independent Director,
shall, within 30 days of the date of the notice, repurchase from the Independent
Director all or a portion (as designated in the notice) of the Exercised Shares
held by the Independent Director for an amount per share equivalent to the
Change in Control Price (the "Put Option"). In the event the Independent
Director fails to exercise the Put Option with respect to any Exercised Shares
during the 45 day period following the date of a Change in Control, the Company
and Holding or the successor in interest shall have 45 days to purchase all or a
portion of the Exercised Shares held by the Independent Director for an amount
per Share equivalent to the Change in Control Price (the "Call Right"). The
Company and Holding or the successor in interest shall exercise its Call Right
by providing written notice to the Independent Director of its intent to
purchase all or a portion of Independent Director's Exercised Shares. The
Independent Director shall, within 30 days of the date of the notice, sell to
the Company or Holding or the successor in interest the requested number of
Exercised Shares at the Change in Control Price.

          7. Compliance with Regulatory Matters. The Independent Director
acknowledges that the issuance of Shares is subject to limitations imposed by
federal and state laws, and, by acceptance of an Annual Option, the Independent
Director acknowledges and agrees that the Company shall not be obligated to
issue any Shares upon exercise of the Option if such issuance would cause RAM or
Holding to violate any law, rule, regulation, order or consent decree of any
regulatory authority (including, without limitation, the Securities and Exchange
Commission and the Bermuda Monetary Authority) having jurisdiction over the
affairs and/or the share capital of the Company. The Independent Director agrees
that he will provide the Company with such information as is reasonably
requested by the Company or its counsel to determine whether the issuance of the
Shares complies with the provisions of this Section 7.

          8. Rights as Director. Nothing in the Plan, the Annual Option, or this
Addendum shall interfere with or limit in any way the right of RAM or Holding to
terminate the Independent Director's service as a Director at any time, or
confer upon the Independent Director the right to continue as a Director.

          9. Miscellaneous.

               (a) The terms of this Addendum shall be binding upon the parties
hereto and their representatives, successors and assigns.

               (b) In the event that any one or more provisions of this Addendum
shall be held invalid, illegal or otherwise unenforceable in any respect, the
invalid, illegal or unenforceable provision or provisions shall be, to the
extent possible, modified in order for it or them to be valid, legal or
enforceable, and the validity, legality

                                       15

<PAGE>

and enforceability of the remaining provisions hereof shall not in any way be
affected or impaired thereby.

               (c) By acceptance of an Annual Option, the Independent Directors
shall be deemed to have acknowledged and agreed that the Annual Option shall be
governed by and subject to the terms and conditions of the Plan, including this
Addendum. To the extent any term or provision of this Addendum is inconsistent
with a term or provision of the Plan, the term or provision of this Addendum
shall control.

          10. List of Independent Directors. As required by the Bye-laws of the
Company, the shareholders of each Company approved an annual grant of options to
the following Independent Directors in accordance with and subject to the terms
of the Plan, including this Addendum:

               Edward F. Bader

               David L. Boyle

               Dirk A. Stuurop

                                       16<PAGE>
                                                                   Exhibit 10.12

                                PAYMENT AGREEMENT

            This PAYMENT AGREEMENT (the "Agreement"), dated as of June 28,
2005 (the "Effective Date"), is entered into by and between RAM Reinsurance
Company Ltd. (the "Company"), RAM Holdings Ltd. and RAM Holdings II Ltd.
(collectively referred to as "Holding") and James P. Gerry (the "Participant"
and, together with the Company and Holding, the "Parties").

                             W I T N E S S E T H:
                             - - - - - - - - - -

            WHEREAS, the Participant was granted a stock option pursuant to a
stock option agreement entered into by the Parties, effective March 13, 2001
(the "Option"), which is attached hereto as Annex A; and

            WHEREAS, the Parties previously entered into the Contingent Share
Agreement and the First Amendment to the Contingent Share Agreement
(collectively referred to as the "Contingent Share Agreement"), each of which
are attached hereto as Annex B; and

            WHEREAS, the Parties wish to terminate the Option and the Contingent
Share Agreement and to enter into this Agreement.

            NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and intending to be
legally bound, the Parties hereby agree as follows:

            1.    Definitions.
                  -----------

                  (a) "Assumed Share Price" means the product of (i) the GAAP
book value of one Share (excluding the mark to market effect of FAS 133 and SFAS
115) as of the last day of the most recent fiscal quarter that ended prior to
the Payment Date or, if the Payment Date is the last day of a fiscal quarter, as
of the last day of the fiscal quarter that ends on the Payment Date (in either
case, as reported in the financial statements for such quarter), and (ii) 1.15.

                  (b) "Business Days" means any day except a Saturday, Sunday or
other day on which banks in Hamilton, Bermuda or the City of New York, United
States, are authorized or obligated by law or executive order to close.

                  (c) "Cash Payment" means a lump sum cash payment equal to the
product of (i) 9,911 and (ii) the excess, if any, of (A) the Assumed Share Price
over (B) $126.15.

                  (d) "Change in Control" means the first to occur of any of the
following events; provided that such event also constitutes a "change in the
ownership or effective control of the corporation, or in the ownership of a
substantial portion of the
<PAGE>

assets of the corporation" as those terms are used in Section 409A of the
Internal Revenue Code of 1986, as amended:

                        (i) the acquisition by any person, entity or "group" (as
                  defined in Section 13(d) of the Securities Exchange Act of
                  1934, as amended) of 50% or more of the combined voting power
                  of the Company's or Holding's then outstanding voting
                  securities;

                        (ii) the merger, reorganization, or consolidation of, or
                  share exchange involving, the Company or Holding, as a result
                  of which the shareholders of the Company or Holding
                  immediately before such transaction do not, immediately
                  thereafter, own, directly or indirectly, more than 50% of the
                  combined voting power entitled to vote generally in the
                  election of directors of the merged or consolidated company;

                        (iii) a sale of all or substantially all of the
                  Company's assets; and

                        (iv) approval by the Company or Holding of the
                  liquidation or dissolution of the Company or Holding other
                  than a liquidation of the Company into Holding.

                  (e) "Hypothetical Payment" means an amount equal to what the
Cash Payment would be if, in calculating the Cash Payment in accordance with
Section 1(c), the Assumed Share Price is an amount equal to the product of (i)
the GAAP book value of one Share (excluding the mark to market effect of FAS 133
and SFAS 115) as reported in the financial statements issued for the most recent
fiscal quarter that ended prior to the Payment Date and (ii) 1.15.

                  (f) "Payment Date" means the earlier to occur of (i) June 30,
2006 or (ii) the date of a Change in Control.

                  (g) "Preliminary Payment" means a lump sum cash payment equal
to seventy-five percent (75%) of the Hypothetical Payment.

                  (h) "Share" means a share of Class A Common Stock, par value
$1.00 per share, of RAM Holdings II Ltd.

                  (i) "True-Up Payment" means a lump sum cash payment equal to
the difference between the Cash Payment and the Preliminary Payment, which is
paid (i) by the Company to the Participant if the Cash Payment is greater than
the Preliminary Payment and (ii) by the Participant to the Company if the
Preliminary Payment is greater than the Cash Payment.

            2. Termination of Option and Contingent Share Agreement. In
consideration of the execution and delivery of this Agreement, effective as of
the

                                       2
<PAGE>

Effective Date, the Option and the Contingent Share Agreement (and the
Participant's rights with respect to each) shall terminate and be of no further
force or effect.

            3. Payment of Cash Payment. Subject to the terms hereof and provided
the Participant's employment is not terminated on or before the Payment Date
either by the Company or Holding pursuant to a "Termination for Cause" (as that
term is defined in the Participant's Second Amended and Restated Employment
Agreement) or by the Participant pursuant to a termination that is not a
"Termination for Good Reason" (as that term is defined in the Participant's
Second Amended and Restated Employment Agreement), the Participant (and, if
applicable, the Company) shall receive the following:

            (a)   if the financial statements for the fiscal quarter used to
                  determine the Assumed Share Price have been issued as of the
                  Payment Date, the Cash Payment, which shall be paid to the
                  Participant in full, in cash, on (or within three (3) Business
                  Days after) the Payment Date; or

            (b)   if the financial statements for the fiscal quarter used to
                  determine the Assumed Share Price have not been issued as of
                  the Payment Date, (i) the Preliminary Payment, which shall be
                  paid to the Participant on (or within three (3) Business Days
                  after) the Payment Date and (ii) the True-Up Payment, which
                  shall be paid to the Participant or to the Company, as the
                  case may be, on (or within five (5) Business Days after) the
                  date the financial statements for the fiscal quarter used to
                  determine the Assumed Share Price are issued; provided,
                  however, that, notwithstanding anything herein to the
                  contrary, the Participant shall not be required to make a
                  True-Up Payment to the Company if the financial statements for
                  the fiscal quarter used to determine the Assumed Share Price
                  are not issued at least ten (10) Business Days before the end
                  of the fiscal year in which the Preliminary Payment is made.

            4. Termination for Cause and Termination Without Good Reason. If the
Participant's employment is terminated on or before the Payment Date either by
the Company or Holding pursuant to a "Termination for Cause" (as that term is
defined in the Participant's Second Amended and Restated Employment Agreement)
or by the Participant pursuant to a termination that is not a "Termination for
Good Reason" (as that term is defined in the Participant's Second Amended and
Restated Employment Agreement), this Agreement shall terminate immediately and
the Participant shall forfeit all rights to receive any payments pursuant to
this Agreement. For avoidance of doubt, (a) a termination of the Participant's
employment resulting from the expiration of the term of his Second Amended and
Restated Employment Agreement shall not constitute a "Termination for Cause" or
a termination that is not a "Termination for Good Reason" for purposes of this
Agreement and (b) notwithstanding any forfeiture of rights by the Participant to
receive any payments pursuant to this Agreement, the Participant's Option and
Contingent Share Agreement shall remain terminated.

                                       3
<PAGE>

            5. Withholding. The Participant hereby acknowledges that payments
made pursuant to this Agreement may be subject to income, employment and/or
other tax withholding and that the Company and/or an affiliate of the Company
shall have the power to withhold, or to require the Participant to remit to the
Company or one of its affiliates, an amount sufficient to satisfy all federal,
state, local and foreign withholding tax requirements in respect of any payment
made pursuant to this Agreement.

            6. Financial Statements. Until such time as the True-Up Payment
shall be due and payable, the Company shall furnish to Participant its quarterly
financial statements not later than five (5) Business Days following the date
upon which they are issued.

            7. Governing Law. This Agreement shall be governed by the laws of
the State of New York, without reference to principles of conflicts or choice of
law under which the law of any other jurisdiction might otherwise apply.

            8. Rights Unsecured and Nontransferable. Any obligation of the
Company to make a payment hereunder shall constitute a general unsecured
obligation of the Company to the Participant. The Company shall not be required
to establish or maintain any special or separate fund, or otherwise to segregate
assets to assure that such payment shall be made, and the Participant shall have
no interest in any particular asset of the Company by reason of the Company's
obligation hereunder. To the extent the Participant acquires a right to receive
a payment from the Company hereunder, such right shall be no greater than the
right of an unsecured creditor of the Company. The rights of the Participant
under this Agreement shall be nontransferable other than by will or the laws of
descent and distribution.

            9. Successors. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company) to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.

            10. Miscellaneous.

                (a) This Agreement may be executed in counterparts, which may be
delivered by facsimile transmission. Each counterpart when so executed and
delivered shall be deemed an original, and all such counterparts taken together
shall constitute one and the same instrument.

                (b) Nothing in this Agreement shall interfere with or limit in
any way the right of the Company or Holding to terminate the Participant's
employment at any time, or confer upon any Participant the right to continue in
the employ of the Company or Holding.

                                       4
<PAGE>

            IN WITNESS WHEREOF, the Company and Holding have caused this
Agreement to be executed by their duly authorized officers and Participant has
hereunto set his hand as of June 28, 2005.

RAM REINSURANCE COMPANY LTD.

By:
      -------------------------------------
      Vernon M. Endo
      President and Chief Executive Officer

RAM HOLDINGS LTD.

By:
      -------------------------------------
      Vernon M. Endo
      President and Chief Executive Officer

RAM HOLDINGS II LTD.

By:
      -------------------------------------
      Vernon M. Endo
      President and Chief Executive Officer

PARTICIPANT

By:
      -------------------------------------
      James P. Gerry

                                       5
<PAGE>

                                     ANNEX A

<PAGE>

                                     ANNEX B

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