Exhibit 10.6

 

ASSURED GUARANTY LTD. 2004
LONG-TERM INCENTIVE PLAN

 

SECTION 1
GENERAL

 

1.1.  Purpose.  The Assured Guaranty Ltd. 2004 Long-Term Incentive Plan (the
“Plan”) has been established by Assured Guaranty Ltd. (the “Company”) to (i)
attract and retain persons eligible to participate in the Plan; (ii) motivate
Participants, by means of appropriate incentives, to achieve long-range goals;
(iii) provide incentive compensation opportunities that are competitive with
those of other similar companies; and (iv) further identify Participants’
interests with those of the Company’s other shareholders through compensation
that is based on the Company’s common shares; and thereby promote the long-term
financial interest of the Company and the Subsidiaries, including the growth in
value of the Company’s equity and enhancement of long-term shareholder return.

 

1.2.  Participation.  Subject to the terms and conditions of the Plan, the
Committee shall determine and designate, from time to time, from among the
Eligible Individuals, those persons who will be granted one or more Awards under
the Plan, and thereby become “Participants” in the Plan.

 

1.3.  Operation, Administration, and Definitions.  The operation and
administration of the Plan, including the Awards made under the Plan, shall be
subject to the provisions of Section 5 (relating to operation and
administration).  Capitalized terms in the Plan shall be defined as set forth in
the Plan (including the definition provisions of Section 9).

 

SECTION 2
OPTIONS AND SARS

 

2.1.  Definitions.

 

(a)                                  The grant of an “Option” entitles the
Participant to purchase Shares at an Exercise Price established by the
Committee.  Any Option granted under this Section 2 may be either an incentive
stock option (an “ISO”) or a non-qualified option (an “NQO”), as determined in
the discretion of the Committee.  An “ISO” is an Option that is intended to
satisfy the requirements applicable to an “incentive stock option” described in
section 422(b) of the Code.  An “NQO” is an Option that is not intended to be an
“incentive stock option” as that term is described in section 422(b) of the
Code.

 

(b)                                 A stock appreciation right (an “SAR”)
entitles the Participant to receive, in cash or Shares (as determined in
accordance with subsection 2.5), value equal to (or otherwise based on) the
excess of: (a) the Fair Market Value of a specified number of Shares at the time
of exercise; over (b) an Exercise Price established by the Committee.

 

2.2.  Exercise Price.  The “Exercise Price” of each Option and SAR granted under
this Section 2 shall be established by the Committee or shall be determined by a
method established by the Committee at the time the Option or SAR is granted. 
The Exercise Price shall not be less

 

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than 100% of the Fair Market Value of a Share on the date of grant (or, if
greater, the par value, if any, of a Share).

 

2.3.  Exercise.  An Option and an SAR shall be exercisable in accordance with
such terms and conditions and during such periods as may be established by the
Committee.  In no event, however, shall an Option or SAR expire later than ten
years after the date of its grant.

 

2.4.  Payment of Option Exercise Price.  The payment of the Exercise Price of an
Option granted under this Section 2 shall be subject to the following:

 

(a)                                  Subject to the following provisions of this
subsection 2.4, the full Exercise Price for Shares purchased upon the exercise
of any Option shall be paid at the time of such exercise (except that, in the
case of an exercise arrangement approved by the Committee and described in
paragraph 2.4(c), payment may be made as soon as practicable after the
exercise).

 

(b)                                 Subject to applicable law, the full Exercise
Price shall be payable in cash, by promissory note, or by tendering, by either
actual delivery of shares or by attestation, Shares acceptable to the Committee,
and valued at Fair Market Value as of the day of exercise, or in any combination
thereof, as determined by the Committee; provided that, except as otherwise
provided by the Committee, payments made with Shares in accordance with this
paragraph (b) shall be limited to Shares held by the Participant for not less
than six months prior to the payment date.

 

(c)                                  Subject to applicable law, the Committee
may permit a Participant to elect to pay the Exercise Price upon the exercise of
an Option by irrevocably authorizing a third party to sell Shares (or a
sufficient portion of the Shares) acquired upon exercise of the Option and remit
to the Company a sufficient portion of the sale proceeds to pay the entire
Exercise Price and any tax withholding resulting from such exercise.

 

2.5.  Settlement of Award.  Settlement of Options and SARs is subject to
subsection 5.7.

 

2.6.  No Repricing.  Except for either adjustments pursuant to paragraph 5.2(f)
(relating to the adjustment of Shares), or reductions of the Exercise Price
approved by the Company’s shareholders, the Exercise Price for any outstanding
Option may not be decreased after the date of grant nor may an outstanding
Option granted under the Plan be surrendered to the Company as consideration for
the grant of a replacement Option with a lower Exercise Price.

 

2.7.  Grants of Options and SARs.  An Option may but need not be in tandem with
an SAR, and an SAR may but need not be in tandem with an Option.  If an Option
is in tandem with an SAR, the Exercise Price of both the Option and SAR shall be
the same, and the exercise of the Option or SAR with respect to a Share shall
cancel the corresponding tandem SAR or Option right with respect to such Share. 
If an SAR is in tandem with an Option but is granted after the grant of the
Option, or if an Option is in tandem with an SAR but is granted after the grant
of the SAR, the later granted tandem Award shall have the same Exercise Price as
the earlier granted Award, but the Exercise Price for the later granted Award
may be less than the Fair Market Value of the Share at the time of such grant.

 

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SECTION 3
FULL VALUE AWARDS

 

3.1.  Definition.  A “Full Value Award” is a grant of one or more Shares or a
right to receive one or more Shares in the future, with such grant subject to
one or more of the following, as determined by the Committee:

 

(a)                                  The grant shall be in consideration of a
Participant’s previously performed services, or surrender of other compensation
that may be due.

 

(b)                                 The grant shall be contingent on the
achievement of performance or other objectives during a specified period.

 

(c)                                  The grant shall be subject to a risk of
forfeiture or other restrictions that will lapse upon the achievement of one or
more goals relating to completion of service by the Participant, or achievement
of performance or other objectives.

 

The grant of Full Value Awards may also be subject to such other conditions,
restrictions and contingencies, as determined by the Committee.

 

3.2.  Restrictions on Awards.

 

(a)                                  The Committee may designate a Full Value
Award granted to any Participant as “performance-based compensation” as that
term is used in section 162(m) of the Code.  To the extent required by Code
section 162(m), any Full Value Award so designated shall be conditioned on the
achievement of one or more performance objectives.  The performance objectives
shall be based on Performance Measures selected by the Committee.  For Awards
under this Section 3 intended to be “performance-based compensation,” the grant
of the Awards and the establishment of the performance objectives shall be made
during the period required under Code section 162(m).

 

(b)                                 If the right to become vested in a Full
Value Award is conditioned on the completion of a specified period of service
with the Company or the Subsidiaries, without achievement of Performance
Measures or other performance objectives (whether or not related to the
Performance Measures) being required as a condition of vesting, and without it
being granted in lieu of other compensation, then the required period of service
for full vesting shall be not less than three years (subject to acceleration of
vesting, to the extent permitted by the Committee, in the event of the
Participant’s death, disability, retirement, change in control or involuntary
termination).

 

SECTION 4
CASH INCENTIVE AWARDS

 

A Cash Incentive Award is the grant of a right to receive a payment of cash (or
in the discretion of the Committee, Shares having value equivalent to the cash
otherwise payable) that is contingent on achievement of performance or other
objectives over a specified period established by the Committee.  The grant of
Cash Incentive Awards may also be subject to such other conditions, restrictions
and contingencies, as determined by the Committee.  The

 

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Committee may designate a Cash Incentive Award granted to any Participant as
“performance-based compensation” as that term is used in section 162(m) of the
Code.  To the extent required by Code section 162(m), any such Award so
designated shall be conditioned on the achievement of one or more performance
objectives.  The performance objectives shall be based on Performance Measures
as selected by the Committee.  For Awards under this Section 4 intended to be
“performance-based compensation,” the grant of the Awards and the establishment
of the performance objectives shall be made during the period required under
Code section 162(m).

 

SECTION 5
OPERATION AND ADMINISTRATION

 

5.1.  Effective Date.  The Plan shall be effective on the date immediately prior
to the date of the initial public offering of the shares of the Company (the
“Effective Date”).  The Plan shall be unlimited in duration and, in the event of
Plan termination, shall remain in effect as long as any Awards under it are
outstanding; provided, however, that no Awards may be granted under the Plan
after the ten-year anniversary of the Effective Date.

 

5.2.  Shares and Other Amounts Subject to Plan.  The Shares for which Awards may
be granted under the Plan shall be subject to the following:

 

(a)                                  The Shares with respect to which Awards may
be made under the Plan shall be: (i) shares currently authorized but unissued;
(ii) to the extent permitted by applicable law, currently held or acquired by
the Company as treasury shares, including shares purchased in the open market or
in private transactions (it being recognized that at the time of adoption of the
Plan the Company is not permitted to have treasury shares); or (iii) shares
purchased in the open market by a direct or indirect wholly-owned subsidiary of
the Company (as determined by the Chief Executive Officer or the Chief Financial
Officer of the Company).  The Company may contribute to the subsidiary or trust
an amount sufficient to accomplish the purchase in the open market of the Shares
to be so acquired (as determined by the Chief Executive Officer or the Chief
Financial Officer of the Company).

 

(b)                                 Subject to the following provisions of this
subsection 5.2, the maximum number of Shares that may be delivered to
Participants and their beneficiaries under the Plan shall be 7,500,000 Shares.

 

(c)                                  To the extent provided by the Committee,
any Award may be settled in cash rather than Shares.

 

(d)                                 Only Shares, if any, actually delivered to
the Participant or beneficiary on an unrestricted basis with respect to an Award
shall be treated as delivered for purposes of the determination under paragraph
(b) above, regardless of whether the Award is denominated in Shares or cash. 
Consistent with the foregoing:

 

(i)                                     To the extent any Shares covered by an
Award are not delivered to a Participant or beneficiary because the Award is
forfeited or canceled, or the Shares are not delivered on an unrestricted basis
(including, without limitation, by reason of the Award being settled in cash or
used to satisfy the applicable tax withholding

 

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obligation), such Shares shall not be deemed to have been delivered for purposes
of the determination under paragraph (b) above.

 

(ii)                                  If the exercise price of any Option
granted under the Plan or the tax withholding obligation with respect to any
Award granted under the Plan is satisfied by tendering Shares to the Company (by
either actual delivery or by attestation), only the number of Shares issued net
of the Shares tendered shall be deemed delivered for purposes of determining the
number of Shares available for delivery under the Plan.

 

(e)                                  Subject to paragraph 5.2(f), the following
additional maximums are imposed under the Plan:

 

(i)                                     The maximum number of Shares that may be
delivered to Participants and their beneficiaries with respect to ISOs granted
under the Plan shall be 7,500,000 Shares; provided, however, that to the extent
that Shares not delivered must be counted against this limit as a condition of
satisfying the rules applicable to ISOs, such rules shall apply to the limit on
ISOs granted under the Plan.

 

(ii)                                  The maximum number of Shares that may be
covered by Awards granted to any one Participant during any one-calendar-year
period pursuant to Section 2 (relating to Options and SARs) shall be 2,500,000
Shares.  For purposes of this paragraph (ii), if an Option is in tandem with an
SAR, such that the exercise of the Option or SAR with respect to a Share cancels
the tandem SAR or Option right, respectively, with respect to such Share, the
tandem Option and SAR rights with respect to each Share shall be counted as
covering but one Share for purposes of applying the limitations of this
paragraph (ii).

 

(iii)                               The maximum number of Shares that may be
issued in conjunction with Awards granted pursuant to Section 3 (relating to
Full Value Awards) shall be 2,500,000 Shares.

 

(iv)                              For Full Value Awards that are intended to be
“performance-based compensation” (as that term is used for purposes of Code
section 162(m)), no more than 1,250,000 Shares ay be delivered pursuant to such
Awards granted to any one Participant during any one-calendar-year period;
provided that Awards described in this paragraph (iv) that are intended to be
performance-based compensation shall be subject to the following:

 

(A)                              If the Awards are denominated in Shares but an
equivalent amount of cash is delivered in lieu of delivery of Shares, the
foregoing limit shall be applied based on the methodology used by the Committee
to convert the number of Shares into cash.

 

(B)                                If delivery of Shares or cash is deferred
until after Shares have been earned, any adjustment in the amount delivered to
reflect actual or deemed investment experience after the date the Shares are
earned shall be disregarded.

 

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(v)                                 For Cash Incentive Value Awards that are
intended to be “performance-based compensation” (as that term is used for
purposes of Code section 162(m)), the maximum amount payable to any Participant
with respect to any performance period shall equal $500,000 multiplied by the
number of calendar months included in that performance period; provided that
Awards described in this paragraph (v), that are intended to be
performance-based compensation, shall be subject to the following:

 

(A)                              If the Awards are denominated in cash but an
equivalent amount of Shares is delivered in lieu of delivery of cash, the
foregoing limit shall be applied to the cash based on the methodology used by
the Committee to convert the cash into Shares.

 

(B)                                If delivery of Shares or cash is deferred
until after cash has been earned, any adjustment in the amount delivered to
reflect actual or deemed investment experience after the date the cash is earned
shall be disregarded.

 

(f)                                    In the event of a corporate transaction
involving the Company (including, without limitation, any share dividend, share
split, extraordinary cash dividend, recapitalization, reorganization, merger,
amalgamation, consolidation, split-up, spin-off, sale of assets or subsidiaries,
combination or exchange of shares), the Committee may adjust Awards to preserve
the benefits or potential benefits of the Awards.  Action by the Committee may
include: (i) adjustment of the number and kind of shares which may be delivered
under the Plan; (ii) adjustment of the number and kind of shares subject to
outstanding Awards; (iii) adjustment of the Exercise Price of outstanding
Options and SARs; and (iv) any other adjustments that the Committee determines
to be equitable (which may include, without limitation, (A) replacement of
Awards with other Awards which the Committee determines have comparable value
and which are based on shares of a company resulting from the transaction, and
(B) cancellation of the Award in return for cash payment of the current value of
the Award, determined as though the Award is fully vested at the time of
payment, provided that in the case of an Option, the amount of such payment may
be the excess of value of the Shares subject to the Option at the time of the
transaction over the exercise price).

 

5.3.  General Restrictions.  Delivery of Shares 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 obligation to recognize an exercise of an Option
or SAR or deliver any Shares or make any other distribution of benefits under
the Plan unless such exercise, delivery or distribution complies with all
applicable laws (including, without limitation, the requirements of the United
States Securities Act of 1933), and the applicable requirements of any
securities exchange or similar entity or other regulatory authority with respect
to the issue of shares and securities by the Company.

 

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(b)                                 To the extent that the Plan provides for
issuance of share certificates to reflect the issuance of Shares, the issuance
may be effected on a non-certificated basis, to the extent not prohibited by or
may be made in compliance with applicable law, the Bye-laws of the Company, or
the applicable rules of any stock exchange.

 

5.4.  Tax Withholding.  All distributions under the Plan are subject to
withholding of all applicable taxes, and the Committee may condition the
delivery of any Shares or other benefits under the Plan on satisfaction of the
applicable withholding obligations.  Except as otherwise provided by the
Committee and subject to applicable law, such withholding obligations may be
satisfied (i) through cash payment by the Participant; (ii) through the
surrender of Shares which the Participant already owns (provided, however, that
to the extent Shares described in this clause (ii) are used to satisfy more than
the minimum statutory withholding obligation, as described below, then, except
as otherwise provided by the Committee, payments made with Shares in accordance
with this clause (ii) shall be limited to Shares held by the Participant for not
less than six months prior to the payment date); or (iii) through the surrender
of Shares to which the Participant is otherwise entitled under the Plan;
provided, however, that such Shares under this clause (iii) may be used to
satisfy not more than the Company’s minimum statutory withholding obligation
(based on minimum statutory withholding rates for Federal and state tax
purposes, including payroll taxes, that are applicable to such supplemental
taxable income).

 

5.5.  Grant and Use of Awards.  In the discretion of the Committee, a
Participant may be granted any Award permitted under the provisions of the Plan,
and more than one Award may be granted to a Participant.  Awards may be granted
as alternatives to or replacement of awards granted or outstanding under the
Plan, or any other plan or arrangement of the Company or a Subsidiary (including
a plan or arrangement of a business or entity, all or a portion of which is
acquired by the Company or a Subsidiary).  Subject to the overall limitation on
the number of Shares that may be delivered under the Plan, the Committee may use
available Shares as the form of payment for compensation, grants or rights
earned or due under any other compensation plans or arrangements of the Company
or a Subsidiary, including the plans and arrangements of the Company or a
Subsidiary assumed in business combinations.  Notwithstanding the provisions of
subsection 2.2, Options and SARs granted under the Plan in replacement for
awards under plans and arrangements of the Company or a Subsidiary assumed in
business combinations may provide for Exercise Prices that are less than the
Fair Market Value of the Shares at the time of the replacement grants, if the
Committee determines that such Exercise Price is appropriate to preserve the
economic benefit of the award.

 

5.6.  Dividends and Dividend Equivalents.  An Award (including without
limitation an Option or SAR Award) may provide the Participant with the right to
receive dividend or dividend equivalent payments with respect to Shares subject
to the Award (both before and after the Shares subject to the Award is earned,
vested, or acquired), which payments may be either made currently or credited to
an account for the Participant, and may be settled in cash or Shares as
determined by the Committee.  Any such settlements, and any such crediting of
dividends or dividend equivalents or reinvestment in Shares, will be subject to
the Company’s Bye-laws as well as applicable law and further may be subject to
such conditions, restrictions and contingencies as the Committee shall
establish, including the reinvestment of such credited amounts in Share
equivalents.

 

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5.7.  Settlement of Awards.  The obligation to make payments and distributions
with respect to Awards may be satisfied through cash payments, the delivery of
Shares, the granting of replacement Awards, or combination thereof as the
Committee shall determine.  Satisfaction of any such obligations under an Award,
which is sometimes referred to as “settlement” of the Award, may be subject to
such conditions, restrictions and contingencies as the Committee shall
determine.  The Committee may permit or require the deferral of any Award
payment, subject to such rules and procedures as it may establish, which may
include provisions for the payment or crediting of interest or dividend
equivalents, and may include converting such credits into deferred Share
equivalents.  Each Subsidiary shall be liable for payment of cash due under the
Plan with respect to any Participant to the extent that such benefits are
attributable to the services rendered for that Subsidiary by the Participant. 
Any disputes relating to liability of a Subsidiary for cash payments shall be
resolved by the Committee.

 

5.8.  Transferability.  Except as otherwise provided by the Committee, Awards
under the Plan are not transferable except as designated by the Participant by
will or by the laws of descent and distribution.

 

5.9.  Form and Time of Elections.  Unless otherwise specified herein, each
election required or permitted to be made by any Participant or other person
entitled to benefits under the Plan, and any permitted modification, or
revocation thereof, shall be in writing filed with the Committee at such times,
in such form, and subject to such restrictions and limitations, not inconsistent
with the terms of the Plan, as the Committee shall require.

 

5.10.  Agreement With Company.  An Award under the Plan shall be subject to such
terms and conditions, not inconsistent with the Plan, as the Committee shall, in
its sole discretion, prescribe.  The terms and conditions of any Award to any
Participant shall be reflected in such form of written (including electronic)
document as is determined by the Committee.  A copy of such document shall be
provided to the Participant, and the Committee may, but need not require that
the Participant sign a copy of such document.  Such document is referred to in
the Plan as an “Award Agreement” regardless of whether any Participant signature
is required.

 

5.11.  Action by Company or Subsidiary.  Any action required or permitted to be
taken by the Company or any Subsidiary 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 applicable law or applicable rules of any stock
exchange) by a duly authorized officer of such company.

 

5.12.  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.

 

5.13.  Limitation of Implied Rights.

 

(a)                                  Neither a Participant nor any other person
shall, by reason of participation in the Plan, acquire any right in or title to
any assets, funds or property of the Company or any Subsidiary whatsoever,
including, without limitation, any specific funds, assets, or other

 

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property which the Company or any Subsidiary, in its sole discretion, may set
aside in anticipation of a liability under the Plan.  A Participant shall have
only a contractual right to the Shares or amounts, if any, payable under the
Plan, unsecured by any assets of the Company or any Subsidiary, and nothing
contained in the Plan shall constitute a guarantee that the assets of the
Company or any Subsidiary shall be sufficient to pay any benefits to any person.

 

(b)                                 The Plan does not constitute a contract of
employment, and selection as a Participant will not give any participating
employee or other individual the right to be retained in the employ of the
Company or any Subsidiary or the right to continue to provide services to the
Company or any Subsidiary, 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 Award under the Plan shall
confer upon the holder thereof any rights as a shareholder of the Company prior
to the date on which the individual fulfills all conditions for receipt of such
rights and is registered in the Company’s Register of Shareholders.

 

(c)                                  All Stock and shares issued under any Award
or otherwise are to be held subject to the provisions of the Company’s Bye-laws
and each Participant is deemed to agree to be bound by the terms of the
Company’s Bye-laws as they stand at the time of issue of any Shares under the
Plan.

 

5.14.  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.

 

SECTION 6
CHANGE IN CONTROL

 

Subject to the provisions of paragraph 5.2(f) (relating to the adjustment of
shares), the occurrence of a Change in Control shall have the effect, if any,
with respect to any Award as set forth in the Award Agreement or, to the extent
not prohibited by the Plan or the Award Agreement, as provided by the Committee.

 

SECTION 7
COMMITTEE

 

7.1.  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 7.  The Committee shall be selected by the Board,
and shall consist solely of two or more members of the Board.  As a committee of
the Board, the Committee is subject to the overview of the Board.  If the
Committee does not exist, or for any other reason determined by the Board, and
to the extent not prohibited by applicable law or the applicable rules of any
stock exchange, the Board may take any action under the Plan that would
otherwise be the responsibility of the Committee.

 

7.2.  Powers of Committee.  The Committee’s administration of the Plan shall be
subject to the following:

 

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(a)                                  Subject to the provisions of the Plan, the
Committee will have the authority and discretion to select from among the
Eligible Individuals those persons who shall receive Awards, to determine the
time or times of receipt, to determine the types of Awards and the number of
Shares covered by the Awards, to establish the terms, conditions, performance
criteria, restrictions, and other provisions of such Awards, and (subject to the
restrictions imposed by Section 8) to cancel or suspend Awards.

 

(b)                                 To the extent that the Committee determines
that the restrictions imposed by the Plan preclude the achievement of the
material purposes of the Awards in jurisdictions outside the United States and
Bermuda, the Committee will have the authority and discretion to modify those
restrictions as the Committee determines to be necessary or appropriate to
conform to applicable requirements or practices of jurisdictions outside of the
United States and Bermuda.

 

(c)                                  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
Award Agreement made pursuant to the Plan, and to make all other determinations
that may be necessary or advisable for the administration of the Plan.

 

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

 

(e)                                  In controlling and managing the operation
and administration of the Plan, the Committee shall take action in a manner that
conforms to applicable corporate law.

 

7.3.  Delegation by Committee.  Except to the extent prohibited by applicable
law or the applicable rules of a stock exchange, 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.

 

7.4.  Information to be Furnished to Committee.  The Company and Subsidiaries
shall furnish the Committee with such data and information as it determines may
be required for it to discharge its duties.  The records of the Company and
Subsidiaries as to an employee’s or Participant’s employment (or other provision
of services), termination of employment (or cessation of the provision of
services), 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.

 

SECTION 8
AMENDMENT AND TERMINATION

 

The Board may, at any time, amend or terminate the Plan, and may amend any Award
Agreement, provided that no amendment or termination may, in the absence of
written consent to the change by the affected Participant (or, if the
Participant is not then living, the affected beneficiary), adversely affect the
rights of any Participant or beneficiary under any Award granted under the Plan
prior to the date such amendment is adopted by the Board; and further

 

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provided that adjustments pursuant to paragraph 5.2(f) shall not be subject to
the foregoing limitations of this Section 8; and further provided that the
provisions of subsection 2.6 (relating to Option repricing) cannot be amended
unless the amendment is approved by the Company’s shareholders.

 

SECTION 9
DEFINED TERMS

 

In addition to the other definitions contained herein, the following definitions
shall apply:

 

(a)                                  Award.  The term “Award” means any award or
benefit granted under the Plan, including, without limitation, the grant of
Options, SARs, and Full Value Awards.

 

(b)                                 Board.  The term “Board” means the Board of
Directors of the Company.

 

(c)                                  Change in Control.  The term “Change in
Control” means the occurrence of the events described in any of paragraphs (i),
(ii), (iii) or (iv) below:

 

(i)                                     Acquisition of Securities.  The
acquisition (disregarding any Excluded Acquisitions) by any Person of ownership
of any Voting Securities if, immediately after such acquisition, such Person has
ownership of more than twenty-five percent (25%) of either the Outstanding
Company Common Shares, or the combined voting power of the Outstanding Company
Voting Securities.  In no event shall a Change in Control occur by reason of
ownership of Shares, Voting Securities, Outstanding Company Common Shares, or
Outstanding Company Voting Securities by ACE Limited and/or any successor or
Affiliate of ACE Limited.

 

(ii)                                  Change in Board.  Individuals who
constitute the Incumbent Board cease for any reason to represent greater than
50% of the voting power of members of the Board.

 

(iii)                               Corporate Transaction.  Consummation of (A)
a Corporate Transaction or (B) the sale or other disposition of more than fifty
percent (50%) of the operating assets of the Company (determined on a
consolidated basis), but not including an Internal Reorganization.

 

(iv)                              Liquidation.  Approval by the shareholders of
the Company of a plan of complete liquidation or dissolution of the Company.

 

(v)                                 Definitions.  The terms used in the
definition of “Change in Control” shall have the following meanings:

 

(A)                              An “Affiliate” of a person or other entity
shall mean a person or other entity that directly or indirectly controls, is
controlled by, or is under common control with the person or other entity
specified.

 

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(B)                                The term “Company Plan” means an employee
benefit plan (or related trust) sponsored or maintained by the Company or any
Affiliate of the Company.

 

(C)                                The term “Corporate Transaction” means any
reorganization, merger, amalgamation, consolidation, or other business
combination involving the Company.

 

(D)                               The following shall constitute “Excluded
Acquisitions” of Shares or Voting Securities (whichever is applicable):

 

(I)                                    Any acquisition of Shares or Voting
Securities (whichever is applicable) by a Company Plan.

 

(II)                                Any acquisition of Shares or Voting
Securities (whichever is applicable) by an underwriter temporarily holding
securities pursuant to an offering of such securities.

 

(III)                            Any acquisition of Shares or Voting Securities
(whichever is applicable) by any Person pursuant to an Internal Reorganization.

 

(IV)                            Any acquisition of Shares or Voting Securities
(whichever is applicable) directly from the Company (excluding any acquisition
resulting from the exercise of an exercise, conversion or exchange privilege
unless the security being so exercised, converted or exchanged was acquired
directly from the Company).

 

(V)                                Any acquisition of Shares or Voting
Securities (whichever is applicable) by the Company.

 

(VI)                            Any acquisition of Shares or Voting Securities
(whichever is applicable) by ACE Limited and/or any successor or Affiliate of
ACE Limited or any employee benefit plan (or related trust) maintained by any
such entity.

 

(E)                                 The members of the “Incumbent Board” shall
mean the members of the Board of Directors as of the Effective Date and shall
also mean any individual becoming a director after that date whose election, or
nomination for election by the Company shareholders, was approved by a vote of a
least a majority of the directors then comprising the Incumbent Board; provided,
however, that there shall be excluded for this purpose any such individual whose
initial assumption of office occurs as a result of an actual or publicly
threatened election contest (as such terms are used in Rule 14a-11 promulgated
under the Securities Exchange Act of 1934) or other actual or publicly
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board.

 

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(F)                                 The term “Internal Reorganization” means a
sale-leaseback or other arrangement resulting in the continued utilization of
the assets being sold or otherwise transferred (or the operating products of
such assets) by the Company.  The term “Internal Reorganization” also means a
Corporate Transaction to which all of paragraphs (I), (II), and (III) below are
applicable:

 

(I)                                    All or substantially all of the
individuals and entities who have ownership, respectively, of the Outstanding
Company Common Shares and Outstanding Company Voting Securities immediately
prior to such Corporate Transaction have ownership of more than fifty percent
(50%) of, respectively, the then outstanding shares of common equity securities
and the combined voting power of the then outstanding Voting Securities entitled
to vote generally in the election of directors, as the case may be, of the
ultimate parent entity resulting from such Corporate Transaction (including,
without limitation, an entity which, as a result of such transaction, has
ownership of the Company or all or substantially all of the assets of the
Company either directly or through one or more subsidiaries) in substantially
the same relative proportions as their ownership, immediately prior to such
Corporate Transaction, of the Outstanding Company Common Shares and Outstanding
Company Voting Securities, as the case may be.

 

(II)                                No Person (other than the Company, any
Company Plan or related trust, the corporation resulting from such Corporate
Transaction, and any Person having ownership, immediately prior to such
Corporate Transaction, directly or indirectly, of more than twenty-five percent
(25%) of the Outstanding Company Common Shares or the Outstanding Company Voting
Securities, as the case may be) will have ownership of more than twenty-five
percent (25%) of, respectively, the then outstanding common shares of the
ultimate parent entity resulting from such Corporate Transaction or the combined
voting power of the then outstanding Voting Securities of such entity.

 

(III)                            Individuals who were members of the Incumbent
Board immediately prior to the Corporate Transaction will constitute at least a
majority of the members of the board of directors of the ultimate parent entity
resulting from such Corporate Transaction.

 

(G)                                The term “Outstanding Company Common Shares”
as of any date means the then outstanding common shares, of whatever subclass or
series, of the Company.

 

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(H)                               The term “Outstanding Company Voting
Securities” as of any date means the then outstanding Voting Securities (which
shall be counted based on the number of votes that may be cast per share).

 

(I)                                    The term “ownership” means beneficial
ownership within the meaning of Rule 13d-3 promulgated under the Securities
Exchange Act of 1934.

 

(J)                                   The term “Person” means an individual,
entity or group as that term is used in Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934.

 

(K)                               The term “Voting Securities” as of any date
means any of the outstanding securities of the Company entitled to vote
generally in the election of the Company’s Board of Directors.

 

(d)                                 Code.  The term “Code” means the United
States 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.

 

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

 

(f)                                    Eligible Individual.  For purposes of the
Plan, the term “Eligible Individual” means any employee of the Company or a
Subsidiary, and any consultant, director, or other person providing services to
the Company or a Subsidiary; provided, however, that to the extent required by
the Code, an ISO may only be granted to an employee of the Company or a
subsidiary corporation of the Company (as that term is used in section 424(f) of
the Code).  An Award may be granted to an employee or other individual providing
services, in connection with hiring, retention or otherwise, prior to the date
the employee or service provider first performs services for the Company or the
Subsidiaries, provided that such Awards shall not become vested prior to the
date the employee or service provider first performs such services.

 

(g)                                 Fair Market Value.  Except as otherwise
provided by the Committee, the “Fair Market Value” of a Share as of any date
shall be the closing market composite price for such Share as reported for the
New York Stock Exchange - Composite Transactions on that date or, if the Shares
are not traded on that date, on the next preceding date on which the Shares were
traded.

 

(h)                                 Performance Measures.  The “Performance
Measures” shall be based on any one or more of the following Company,
Subsidiary, operating unit or division performance measures: gross premiums
written; net premiums written; net premiums earned; net investment income;
losses and loss expenses; underwriting and administrative expenses; operating
expenses; cash flow(s); operating income; profits, earnings before interest and
taxes; net income; stock price; dividends; strategic business objectives,
consisting of one or more objectives based on meeting specified cost targets,
business expansion goals, and goals relating to acquisitions or divestitures; or
any combination thereof.  Each goal may be expressed on an absolute and/or
relative basis, may be based on or otherwise employ

 

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comparisons based on internal targets, the past performance of the Company
and/or the past or current performance of other companies, and in the case of
earnings-based measures, may use or employ comparisons relating to capital,
shareholders’ equity and/or shares outstanding, investments or to assets or net
assets.

 

(i)                                     Shares.  The term “Shares” means common
shares of the Company.

 

(j)                                     Subsidiaries.  For purposes of the Plan,
the term “Subsidiary” means any corporation, partnership, joint venture or other
entity during any period in which at least a fifty percent voting or profits
interest is owned, directly or indirectly, by the Company (or by any entity that
is a successor to the Company), and any other business venture designated by the
Committee in which the Company (or any entity that is a successor to the
Company) has a significant interest, as determined in the discretion of the
Committee.

 

(k)                                  Stock.  The term “Stock” is sometimes used
to refer to common shares of the Company.

 

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