Exhibit 10.40

 

ASSURED GUARANTY LTD.

EMPLOYEE STOCK PURCHASE PLAN

SECTION 1

GENERAL

1.1.  Purpose.  The Assured Guaranty Ltd. Employee Stock Purchase Plan (the
“Plan”) has been established by Assured Guaranty Ltd.  (the “Company”) to
provide eligible employees of the Company and the Related Companies with an
opportunity to acquire a proprietary interest in the Company through the
purchase of common shares of the Company (“Stock”).  The Plan is intended to
qualify as an employee stock purchase plan under section 423 of the Code, and
the provisions of the Plan are to be construed in a manner consistent with the
requirements of that section.

1.2.  Operation and Administration.  The operation and administration of the
Plan shall be subject to the provisions of Section 3.  Capitalized terms in the
Plan shall be defined as set forth in Section 6 or elsewhere in the Plan.

SECTION 2

METHOD OF PURCHASE

2.1.  Eligibility.  Plan participation shall be available to (and shall be
limited to) all persons who are employees of the Employers, except that the
following persons shall not be eligible to participate in the Plan:

(a)                                  An employee who has been employed less than
500 hours and less than six months.

(b)                                 An employee whose customary employment is 20
hours or less per week.

(c)                                  An employee whose customary employment is
for not more than five months in any calendar year.

(d)                                 An employee who owns, or who would own upon
the exercise of any rights extended under the Plan and the exercise of any other
option held by the employee (whether qualified or non-qualified), shares
possessing 5% or more of the total combined voting power or value of all classes
of stock of the Company or of any parent or subsidiary corporation.

Notwithstanding the foregoing provisions of this subsection 2.1, an individual
may participate in the Plan for any Subscription Period only if he is employed
by an Employer on the first day of that period.

 

2.2.  Participation Election.  The Committee shall establish “Subscription
Periods” of not longer than one year for the accumulation of funds necessary for
payment of the Purchase Price (as defined in subsection 2.3) of Stock under the
Plan.  For any Subscription Period, an eligible employee shall become a Plan
“Participant” by filing, with the Committee, a written payroll deduction
authorization with respect to Compensation otherwise payable to the Participant
during the period.  Such payroll deductions shall be any full percentage of the
Compensation of the Participant, or any specified whole dollar amount, up to but
not more than 10% of his Compensation in either case.  After the beginning of
the Subscription Period, and except as otherwise provided in subsection 2.4, a
Participant may not alter the rate of his payroll deductions for that period. 
Subject to the limitations of subsection 2.3, each eligible employee who has
elected to become a Participant for a Subscription Period in accordance with the
foregoing provisions of this subsection 2.2 shall be granted on the first day of
such Subscription Period an option to purchase (at the applicable Purchase
Price) on the Exercise Date (as defined in subsection 2.3) for such Subscription
Period up to a number of whole shares of Stock determined by dividing such
Participant’s accumulated payroll deductions as of such Exercise Date by the
applicable Purchase Price.  Exercise of the option shall occur as provided in
subsection 2.3, unless the Participant has terminated participation in the Plan
prior to the Exercise Date as provided in subsection 2.4 or the Participant
elects not to exercise the option as provided in subsection 2.3(b).  The option
shall expire on the last day of the Subscription Period.

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2.3.  Purchase of Stock.  On the last day of each Subscription Period (the
“Exercise Date”), a Participant shall become eligible to exercise his option to
purchase the number of whole shares of Stock as his accumulated payroll
deductions for the Subscription Period will purchase, subject to the following:

(a)                                  The “Purchase Price” per share shall be
equal to 85% of the lesser of (i) the fair market value of Stock on the first
day of the Subscription Period; or (ii) the fair market value of Stock on the
Exercise Date (or such higher price as may be determined by the Committee from
time to time).  In no event shall the Purchase Price be less than the par value
of the Stock.

(b)                                 A Participant shall be deemed to have
elected to purchase the shares of Stock which he became entitled to purchase on
the Exercise Date unless he shall notify the Company prior to the Exercise Date,
or such other time as the Committee may establish, that the Participant he
elects not to make such purchase.

(c)                                  Any accumulated payroll deductions that are
not used to purchase full shares of Stock under the Plan shall be paid to the
Participant without interest.

(d)                                 No employee shall have the right to purchase
more than $25,000 in value of Stock under the Plan (and any other employee stock
purchase plan described in Code section 423 and maintained by the Company or any
Related Company) in any calendar year, such value being based on the fair market
value of Stock as of the date on which the option to purchase the Stock is
granted, as determined in accordance with subsection 2.2 of the Plan.

2.4.  Termination of Participation.  A Participant may discontinue his
participation in the Plan for any Subscription Period, whereupon all of the
Participant’s payroll deductions for the Subscription Period will be promptly
paid to him without interest, and no further payroll deductions will be made
from his pay for that period.  If a Participant’s employment with the Employers
terminates during a Subscription Period for any reason, all payroll deductions
accumulated by the Participant under the Plan for the period shall be paid to
the Participant without interest.

SECTION 3

OPERATION AND ADMINISTRATION

3.1.  Effective Date.  Subject to the approval of the shareholders of the
Company at the Company’s 2005 annual meeting of its shareholders, the Plan shall
be effective as of the date on which it is adopted by the Board; provided,
however, that to the extent that rights are granted under the Plan prior to its
approval by shareholders, they shall be contingent on approval of the Plan by
the shareholders of the Company.  The Plan shall be unlimited in duration and,
in the event of Plan termination, shall remain in effect as long as any rights
granted under the Plan are outstanding.

3.2.  Shares Subject to Plan.  Shares of Stock to be purchased under the Plan
shall be subject to the following:

(a)                                  The shares of Stock which may be purchased
under the Plan shall be currently authorized but unissued shares, or shares
purchased in the open market by a direct or indirect wholly owned subsidiary of
the Company (as determined by the President, Chief Financial Officer or General
Counsel of the Company).  The Company may contribute to the subsidiary an amount
sufficient to accomplish the purchase in the open market of the shares of Stock
to be so acquired (as determined by the Chairman or any Executive Vice President
of the Company).

(b)                                 Subject to the provisions of subsection 3.3,
the number of shares of Stock which may be purchased under the Plan shall not
exceed 100,000 shares in the aggregate.

(c)                                  A Participant will have no interest in
shares of Stock covered by his Subscription Agreement until the shares are
delivered to him.

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3.3.  Adjustments to Shares.

(a)                                  If the Company shall effect any subdivision
or consolidation of shares of Stock or other capital readjustment, payment of
stock dividend, stock split, combination of shares or recapitalization or other
increase or reduction of the number of shares of Stock outstanding without
receiving compensation therefor in money, services or property, then, subject to
the requirements of Code section 423, the Committee shall adjust the number of
shares of Stock available under the Plan.

(b)                                 If the Company is reorganized, merged or
consolidated or is party to a plan of exchange with another corporation,
pursuant to which reorganization, merger, consolidation or plan of exchange the
shareholders of the Company receive any shares of stock or other securities or
property, or the Company shall distribute securities of another corporation to
its shareholders, then, subject to the requirements of Code section 423, there
shall be substituted for the shares subject to outstanding rights to purchase
Stock under the Plan an appropriate number of shares of each class of stock or
amount of other securities or property which were distributed to the
shareholders of the Company in respect of such shares.

3.4.  Limit on Distribution.  Distribution of shares of Stock or other amounts
under the Plan shall be subject to the following:

(a)                                  Notwithstanding any other provision of the
Plan, the Company shall have no liability to issue any shares of Stock under the
Plan unless such delivery or distribution would comply with all applicable laws
and the applicable requirements of any securities exchange or similar entity.

(b)                                 In the case of a Participant who is subject
to Section 16(a) and 16(b) of the Securities Exchange Act of 1934, the Committee
may, at any time, add such conditions and limitations with respect to such
Participant as the Committee, in its sole discretion, deems necessary or
desirable to comply with Section 16(a) or 16(b) and the rules and regulations
thereunder or to obtain any exemption therefrom.

(c)                                  To the extent that the Plan provides for
issuance of certificates to reflect the transfer of shares of Stock, the
transfer of such shares may, at the direction of the Committee, be effected on a
non-certificated basis, to the extent not prohibited by the provisions of Rule
16b-3, applicable local law, the applicable rules of any stock exchange, or any
other applicable rules.

3.5.  Withholding.  All benefits under the Plan are subject to withholding of
all applicable taxes.

3.6.  Transferability.  Except as otherwise permitted under Code section 424 and
SEC Rule 16b-3, neither the amount of any payroll deductions made with respect
to a Participant’s compensation nor any Participant’s rights to purchase shares
of Stock under the Plan may be pledged or hypothecated, nor may they be assigned
or transferred other than by will and the laws of descent and distribution. 
During the lifetime of the Participant, the rights provided to the Participant
under the Plan may be exercised only by him.

3.7.  Limitation of Implied Rights.

(a)                                  Neither a Participant nor any other person
shall, by reason of the Plan, acquire any right in or title to any assets, funds
or property of the Employers whatsoever, including, without limitation, any
specific funds, assets, or other property which the Employers, in their sole
discretion, may set aside in anticipation of a liability under the Plan.  A
Participant shall have only a contractual right to the amounts, if any, payable
under the Plan, unsecured by any assets of the Employers.  Nothing contained in
the Plan shall constitute a guarantee by any of the Employers that the assets of
the Employers shall be sufficient to pay any benefits to any person.

(b)                                 The Plan does not constitute a contract of
employment, and participation in the Plan will not give any employee the right
to be retained in the employ of an Employer or any Related Company, nor any
right or claim to any benefit under the Plan, unless such right or claim has
specifically accrued under the terms of the Plan.  Except as otherwise provided
in the Plan, no right to purchase shares under the Plan shall confer upon the
holder thereof any right as a shareholder of the Company prior to the date on
which he fulfills all service requirements and other conditions for receipt of
such rights.

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3.8.  Evidence.  Evidence required of anyone under the Plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.

3.9.  Action by Employers.  Any action required or permitted to be taken by any
Employer shall be by resolution of its board of directors, or by action of one
or more members of the board (including a committee of the board) who are duly
authorized to act for the board, or (except to the extent prohibited by the
provisions of Rule 16b-3, applicable local law, the applicable rules of any
stock exchange, or any other applicable rules) by a duly authorized officer of
the Employer.

3.10. Gender and Number.  Where the context admits, words in any gender shall
include any other gender, words in the singular shall include the plural and the
plural shall include the singular.

SECTION 4

COMMITTEE

4.1.  Administration.  The authority to control and manage the operation and
administration of the Plan shall be vested in a committee (the “Committee”) in
accordance with this Section 4.

4.2.  Selection of Committee.  The Committee shall be selected by the Board, and
shall consist of not less than two members of the Board, or such greater number
as may be required for compliance with SEC Rule 16b-3.

4.3.  Powers of Committee.  The authority to manage and control the operation
and administration of the Plan shall be vested in the Committee, subject to the
following:

(a)                                  Subject to the provisions of the Plan, the
Committee will have the authority and discretion to establish the terms,
conditions, restrictions, and other provisions applicable to the right to
purchase shares of Stock under the Plan.

(b)                                 The Committee will have the authority and
discretion to interpret the Plan, to establish, amend, and rescind any rules and
regulations relating to the Plan, to determine the terms and provisions of any
agreements made pursuant to the Plan, and to make all other determinations that
may be necessary or advisable for the administration of the Plan.

(c)                                  Any interpretation of the Plan by the
Committee and any decision made by it under the Plan is final and binding on all
persons.

4.4.  Delegation by Committee.  Except to the extent prohibited by the
provisions of Rule 16b-3, applicable local law, the applicable rules of any
stock exchange, or any other applicable rules, the Committee may allocate all or
any portion of its responsibilities and powers to any one or more of its members
and may delegate all or any part of its responsibilities and powers to any
person or persons selected by it.  Any such allocation or delegation may be
revoked by the Committee at any time.

4.5.  Information to be Furnished to Committee.  The Employers and Related
Companies shall furnish the Committee with such data and information as may be
required for it to discharge its duties.  The records of the Employers and
Related Companies as to an employee’s or Participant’s employment, termination
of employment, leave of absence, reemployment and compensation shall be
conclusive on all persons unless determined to be incorrect.  Participants and
other persons entitled to benefits under the Plan must furnish the Committee
such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.

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4.6.  Liability and Indemnification of Committee.  No member or authorized
delegate of the Committee shall be liable to any person for any action taken or
omitted in connection with the administration of the Plan unless attributable to
his own fraud or willful misconduct; nor shall the Employers be liable to any
person for any such action unless attributable to fraud or willful misconduct on
the part of a director or employee of the Employers.  The Committee, the
individual members thereof, and persons acting as the authorized delegates of
the Committee under the Plan, shall be indemnified by the Employers, to the
fullest extent permitted by law, against any and all liabilities, losses, costs
and expenses (including legal fees and expenses) of whatsoever kind and nature
which may be imposed on, incurred by or asserted against the Committee or its
members or authorized delegates by reason of the performance of a Committee
function if the Committee or its members or authorized delegates did not act
dishonestly or in willful violation of the law or regulation under which such
liability, loss, cost or expense arises.  This indemnification shall not
duplicate but may supplement any coverage available under any applicable
insurance.

SECTION 5

AMENDMENT AND TERMINATION

The Board may, at any time, amend or terminate the Plan, provided that, subject
to subsection 3.3 (relating to certain adjustments to shares), no amendment or
termination may adversely affect the rights of any Participant or beneficiary
with respect to shares that have been purchased prior to the date such amendment
is adopted by the Board.  No amendment of the Plan may be made without approval
of the Company’s shareholders to the extent that such approval is required to
maintain compliance with the requirements of Code section 423.

SECTION 6

DEFINED TERMS

For purposes of the Plan, the terms listed below shall be defined as follows:

(a)                                  Board.  The term “Board” shall mean the
Board of Directors of the Company.

(b)                                 Code.  The term “Code” means the Internal
Revenue Code of 1986, as amended.  A reference to any provision of the Code
shall include reference to any successor provision of the Code.

(c)                                  Compensation.  The term “Compensation”
means salary, except that if a Participant does not receive salary, Compensation
shall be based on such other amount of basic compensation as determined by the
Committee.

(d)                                 Dollars.  As used in the Plan, the term
“dollars” or numbers preceded by the symbol “$” shall mean amounts in United
States Dollars.

(e)                                  Effective Date.  The “Effective Date” shall
be the date on which the Plan is adopted by the Board.

(f)                                    Employer.  The Company and each Related
Company which, with the consent of the Company, adopts the Plan for the benefit
of its eligible employees are referred to collectively as the “Employers” and
individually as an “Employer”.

(g)                                 Fair Market Value.  The “Fair Market Value”
of a share of Stock of the Company as of any date shall be the closing market
composite price for such Stock as reported for the New York Stock Exchange -
Composite Transactions on that date or, if Stock is not traded on that date, on
the next preceding date on which Stock was traded.

(h)                                 Participant.  The term “Participant” means
any employee of the Company who is eligible and elects to participate pursuant
to the provisions of Section 2.

(i)                                     Related Companies.  The term “Related
Company” means any company during any period in which it is a “subsidiary
corporation” (as that term is defined in Code section 424(f)) with respect to
the Company.

 

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