EXHIBIT 10.1


 


ASSURED GUARANTY LTD.


2004 LONG-TERM INCENTIVE PLAN


 


(As Amended and Restated as of May 7, 2009)


 

















 


ASSURED GUARANTY LTD.


2004 LONG-TERM INCENTIVE PLAN


 


(As Amended and Restated as of May 7, 2009)


 


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. The Plan was
amended and restated on August 5, 2008, to conform to the requirements of
section 409A of the Code. The Plan as so amended and restated was amended
and restated as of May 7, 2009 in the form set forth herein, to be
effective with respect to Awards granted after December 31, 2008, subject
to shareholder approval.


 


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 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).


 


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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 (including shares otherwise
distributable pursuant to the exercise of the Option), and valued at Fair
Market Value as of the day of exercise, or in any combination thereof, as
determined by the Committee.


 


(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 or SAR may not be decreased after the date of grant
nor may an outstanding Option or SAR granted under the Plan be surrendered to
the Company as consideration for the grant of a replacement Option or SAR 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
(in either case, regardless of whether the original award was granted under
this Plan or another plan or arrangement). 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.


 


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.


 


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(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). However, the Committee may grant Full
Value Awards that do not condition vesting on achievement of performance
objectives, and such Awards shall not be subject to the limits of foregoing
provisions of this paragraph (b), provided that the aggregate number of
shares subject to Full Value Awards granted pursuant to this paragraph (b)
(excluding any such Awards to the extent that they have been forfeited or
cancelled) may not exceed 5% of the limit imposed by paragraph 5.2(b)
(relating to the limit on Shares granted under the Plan).


 


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 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). Except as otherwise provided in the applicable plan or
arrangement, distribution of any bonus awards by the Company or its
Subsidiaries (whether granted this Plan or otherwise), for a performance period
ending in a calendar year, shall be made to the participant not later than
March 15 of the following calendar year; provided, however, that for
purposes of determining compliance with Code section 409A, a payment will
be considered to satisfy the requirement of this sentence if 


 


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distribution is made no later than the end of the
calendar year following the end of the applicable performance period.


 


SECTION 5


OPERATION AND ADMINISTRATION


 


5.1           History.  The Plan was amended and restated as of
August 5, 2008, to conform to the requirements of section 409A of the
Code. The Plan as so amended and restated was amended and restated as of
May 7, 2009 in the form set forth herein, to be effective with respect to
Awards granted after December 31, 2008, contingent on shareholder approval
of such restatement by the Company’s shareholders at the 2009 annual meeting,
to increase the shares reserved under the Plan and to make certain other
revisions. To the extent not prohibited by applicable law or the applicable
rules of any stock exchange, Awards which are to use Shares reserved under the
Plan that are contingent on the approval by the Company’s shareholders may be
granted prior to that meeting contingent on such approval. 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
May 7, 2009, which is the date on which the shareholders approved the Plan
as amended and restated to increase the reserved Shares.


 


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 10,970,000 Shares (which number includes all shares available for
delivery under this paragraph (b) since the establishment of the Plan in
2004, determined in accordance with the terms of the Plan).


 


(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 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 


 


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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 10,970,000
Shares (which number includes all Shares available for delivery under this
paragraph (e)(i) since the establishment of the Plan in 2004, determined
in accordance with the terms of the Plan); 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 may be delivered pursuant to such Awards granted to any one
Participant during any one-calendar-year period (regardless of whether
settlement of the Award is to occur prior to, at the time of, or after the time
of vesting); 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.


 


(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.


 


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(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 reflect the transactions. 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). However, in
no event shall this paragraph (f) be construed to permit a modification
(including a replacement) of an Option or SAR if such modification either:
(i) would result in accelerated recognition of income or imposition of
additional tax under Code section 409A; or (ii) would cause the
Option or SAR subject to the modification (or cause a replacement Option or
SAR) to be subject to Code section 409A, provided that the restriction of
this clause (ii) shall not apply to any Option or SAR that, at the time it
is granted or otherwise, is designated as being deferred compensation subject
to Code section 409A.


 


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.


 


(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).


 


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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. Subject to subsection 2.6 (relating to repricing), 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. The provisions of
this subsection shall be subject to the provisions of subsection 5.15.


 


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. The provisions of this subsection shall be subject to the
provisions of subsection 5.15.


 


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 or distribution, 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. Except for Options and SARs designated at the time
of grant or otherwise as intended to be subject to Code section 409A, this
subsection 5.7 shall not be construed to permit the deferred settlement of
Options or SARs, if such settlement would result in deferral of compensation
under Treas. Reg. §1.409A-1(b)(5)(i)(A)(3) (except as permitted in
paragraphs (i) and (ii) of that section). 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. The provisions
of this subsection shall be subject to the provisions of subsection 5.15.


 


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.


 


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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 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.


 


5.15         Limitations under Section 409A.  The provisions of the Plan shall be subject
to the following:


 


(a)           Neither
subsection 5.5 nor any other provision of the Plan shall be construed to
permit the grant of an Option or SAR if such action would cause the Option or
SAR being granted or the option or stock appreciation right being replaced to
be subject to Code section 409A, provided that this paragraph (a)
shall not apply to any Option or SAR (or option or stock appreciation right
granted under another plan) being replaced that, at the time it is granted or
otherwise, is designated as being deferred compensation subject to Code
section 409A.


 


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(b)           Except with respect to
an Option or SAR that, at the time it is granted or otherwise, is designated as
being deferred compensation subject to Code section 409A, no Option or SAR
shall condition the receipt of dividends with respect to an Option or SAR on
the exercise of such Award, or otherwise provide for payment of such dividends
in a manner that would cause the payment to be treated as an offset to or
reduction of the exercise price of the Option or SAR pursuant Treas. Reg. §1.409A-1(b)(5)(i)(E).


 


(c)           The Plan shall not be
construed to permit a modification of an Award, or to permit the payment of a
dividend or dividend equivalent, if such actions would result in accelerated
recognition of taxable income or imposition of additional tax under Code
section 409A.


 


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:


 


(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.


 


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(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.


 


(f)            Notwithstanding any
other provision of the Plan, no benefit shall be distributed under the Plan to
any person unless the Committee, in its sole discretion, determines that such
person is entitled to benefits under the Plan.


 


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 the Board or the Committee 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 (or the Committee if
applicable); and further 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 and SAR repricing) cannot be amended unless the amendment
is approved by the Company’s shareholders. No amendment or termination shall be
adopted or effective if it would result in accelerated recognition of income or
imposition of additional tax under Code section 409A or, except as
otherwise provided in the amendment, would cause amounts that were not
otherwise subject to Code section 409A to become subject to
section 409A.


 


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 


 


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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.


 


(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 date
immediately prior to the date of the initial public offering of the shares of
the Company and shall also mean any individual becoming a director after that
date whose election, or nomination for election by the Company 


 


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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.


 


(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.


 


(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.


 


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(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; return on equity; 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 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.


 


13

















 


(l)            Termination of Service.  With respect to Awards that constitute
Deferred Compensation, references to the Participant’s termination of
employment (including references to the Participant’s employment termination,
and to the Participant terminating employment, a Participant’s separation from
service, and other similar reference) and references to a Participant’s
termination as a director (including separation from service and other similar
references) shall mean, respectively, the Participant ceasing to be employed
by, or ceasing to perform director services for, the Company and the
Affiliates, subject to the following:


 


(i)            The employment
relationship or director relationship will be deemed to have ended at the time
the Participant and the applicable company reasonably anticipate that a level
of bona fide services the Participant would perform for the Company and the
Affiliates after such date would permanently decrease to no more than 20% of
the average level of bona fide services performed over the immediately
preceding 36 month period (or the full period of service to the Company
and the Affiliates if the Participant has performed services for the Company
and the Affiliates for less than 36 months). In the absence of an
expectation that the Participant will perform at the above-described
level, the date of termination of employment or termination as a director will
not be delayed solely by reason of the Participant continuing to be on the
Company’s and the Affiliates’ payroll after such date.


 


(ii)           The employment or
director relationship will be treated as continuing intact while the
Participant is on a bona fide leave of absence (determined in accordance with
Treas. Reg. §409A-1(h)).


 


(iii)          The determination of a
Participant’s termination of employment or termination as a director by reason
of a sale of assets, sale of stock, spin-off, or other similar transaction of
the Company or an Affiliate will be made in accordance with Treas. Reg. §1.409A-1(h).


 


(iv)          If a Participant
performs services both as an employee of the Company or an Affiliate, and a
member of the board of directors of the Company or an Affiliate, the
determination of whether termination of employment or termination of service as
a director shall be made in accordance with Treas. Reg. §1.409A-1(h)(5)
(relating to dual status service providers).


 


(v)           The term “Affiliates”
means all persons with whom the Company is considered to be a single employer
under section 414(b) of the Code and all persons with whom the Company
would be considered a single employer under section 414(c) thereof.


 


(vi)          The term “Deferred
Compensation” means payments or benefits that would be considered to be
provided under a nonqualified deferred compensation plan as that term is
defined in Treas. Reg. §1.409A-1.


 


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