Exhibit 10.3


 


FINANCIAL
SECURITY ASSURANCE HOLDINGS LTD.


 


2004 Supplemental
Executive Retirement Plan


 


 


as
of December 17, 2004


 





















 


CONTENTS


 


	
  ARTICLE
  1

  	
  Purposes
  of Plan

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  2

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  3

  	
  Participation

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  4

  	
  Restoration
  of Benefits

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  5

  	
  Administration
  and General Provisions

  	
   

  



 





















 


FINANCIAL SECURITY
ASSURANCE HOLDINGS LTD.


2004 Supplemental
Executive Retirement Plan


 





ARTICLE 1.                                Purposes of Plan.


 


1.1                                 Financial
Security Assurance Inc. adopted the Financial Security Assurance Inc.
Supplemental Executive Retirement Plan (as heretofore amended and restated, the
“1989 Plan”), effective January 1, 1989, in order to restore the pension benefits
of selected current and future key employees whose benefits under the Financial
Security Assurance Inc. Money Purchase Plan are limited by reason of certain
limitations imposed by Section 401(a)(17), Section 415 and other provisions of
the Internal Revenue Code of 1986, as amended from time to time (the “Code”).  The 1989 Plan was amended and restated in its
entirety, and adopted by Financial Security Assurance Holdings Ltd. effective
as of January 1, 1995, and subsequently amended on February 12, 1997, and
amended and restated as of February 25, 1999, as of July 10, 2000, as of
November 14, 2002 and as of December 17, 2004. 
The Company seeks to discontinue contributions under the 1989 Plan, and
to establish a new supplemental executive retirement plan, serving the same
purposes as the 1989 Plan.  This new plan,
as amended from time to time, is known as the Financial Security Assurance
Holdings Ltd. 2004 Supplemental Executive Retirement Plan, and is referred to
herein as the “Plan”.  The terms of the
Plan shall govern credits for contributions made commencing January 1, 2006, in
respect of limited pension benefits payable in respect of calendar year 2005,
and amounts transferred to the Plan from the 1989 Plan as described herein.


 


ARTICLE 2.                                Definitions.


 


For purposes of the Plan, the following terms shall
have the meanings set forth below:


 


2.1                                 “Account”
shall mean the account established for a Participant under the Plan to which
contributions and earnings are credited.


 


2.2                                 “Basic
Plan” shall mean the Financial Security Assurance Inc. Money Purchase Plan
as adopted and amended from time to time.


 


2.3                                 “Beneficiary”
shall mean the person or persons designated by the Participant to receive
benefits under the Plan in the event of the Participant’s death.  If there is no Beneficiary surviving the
Participant, any death benefit payable hereunder shall be paid to the
Participant’s estate.


 


2.4                                 “Board”
shall mean the Board of Directors of the Company.


 


2.5                                 “Code”
shall mean the Internal Revenue Code of 1986, as amended from time to time.  Any references herein to a specific section
of the Code shall be deemed to refer to the rules and regulations under the
Code in respect of such section, and to the corresponding provisions of any
future internal revenue law and the rules and regulations thereunder.


 


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2.7                                 “Committee”
shall mean the Human Resources Committee of the Board acting on the majority
vote of such Committee.


 


2.6                                 “Company”
shall mean Financial Security Assurance Holdings Ltd., a New York corporation.


 


2.7                                 “Compensation”
shall mean, with respect to each Plan Year, the Participant’s annual base
salary, cash bonus and any amount deferred pursuant to the Company’s 1995 Deferred
Compensation Plan or 2004 Deferred Compensation Plan (other than deferrals
related to “Performance Share” awards); provided, however, that in no case
shall such Compensation exceed $1 million in any Plan Year.


 


2.8                                 “Disability”
shall mean, in the case of a Participant, that, as determined by the Committee,
the Participant is (i) unable to engage in any substantial gainful activity by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or can be expected to last for a continuous period of
not less than 12 months or (ii) by reason of any medically determinable
physical or mental impairment which can be expected to result in death or can
be expected to last for a continuous period of not less than 12 months,
receiving income replacement benefits for a period of not less than 3 months
under an accident and health plan covering employees of the Company.


 


2.9                                 “Discharge
for Cause” shall mean an Employee’s termination of employment by a
Participating Company due to such Employee’s willful misconduct or gross
negligence in respect of his or her duties of employment with the Participating
Company including, but not limited to, conviction for a felony or perpetration
of a common law fraud, which has resulted in or is likely to result in material
economic damage to a Participating Company.


 


2.10                           “Employee”
shall mean any individual employed by a Participating Company on or after
January 1, 2004 to whom benefits are payable under the Basic Plan.


 


2.11                           “Participant”
shall mean an Employee who is a member of a select group of management or
highly compensated employees and who has been designated by the Committee for
participation in the Plan pursuant to Section 3.1.


 


2.12                           “Participating
Company” shall mean the Company or any subsidiary or affiliate of the Company
employing a Participant.


 


2.13                           “Plan”
shall mean the 2004 Financial Security Assurance Holdings Ltd. Supplemental
Executive Retirement Plan as set forth herein, and as amended from time to time..


 


2.14                           “Plan
Year” shall mean each calendar year beginning after December 31, 2003.


 


2.15                                 “SERP
Election Change Form” shall mean the form prescribed or accepted by the
Committee by which a Participant may change a previous distribution election.


 


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2.16                           “Specified
Employee” shall mean a key employee (as defined in Section 416(i) of the
Code, without regard to paragraph (5) thereof) of a corporation any stock in
which is publicly traded on an established securities market or otherwise.  At December 2004, Section 416(i) of the Code
provides that a company’s key employees are (i) officers (but no more than 50
officers) with annual compensation over $135,000 (for 2005, adjusted
thereafter); (ii) employees who are 5% owners of the employer; and (iii)
employees who are 1% owners of the employer with annual compensation over
$150,000.


 


2.17                           “Years
of Service” shall mean “Years of Service for Vesting” as defined under the
Basic Plan.


 


Where used herein, the
masculine gender shall be deemed, where applicable, to include the feminine
gender, and references to the singular shall be deemed, where applicable, to
include the plural.


 


ARTICLE 3.                                Participation.


 


3.1                                 At
any time during the Plan Year, the Chief Executive Officer may recommend an
Employee to the Committee for participation in the Plan.  Upon receiving such recommendation, the
Committee shall timely act upon it and shall notify the Employee in the event
he or she is designated a Participant and the date as of which such participation
commences.  Unless otherwise determined
by the Chief Executive Officer or the Committee, each Employee attaining the
rank of Director, Managing Director, Associate General Counsel, General
Counsel, Executive Vice President, President or Chairman shall be deemed to
have been designated as a Participant by the Committee for all purposes of the
Plan.  Unless otherwise determined by the
Committee, once an Employee has been approved by the Committee as a Participant
in the Plan, such Employee shall remain a Participant until all of his or her
benefits with respect to the Plan have been paid or forfeited.


 


ARTICLE 4.                                Restoration of Benefits.


 


4.1                                 Amount
of Restoration of Benefits.  Subject
to Sections 4.3(b), 4.5 and 5.2 of the Plan, the Account of a Participant who
is in service with a Participating Company on the last day of the Plan Year,
and whose pension benefits under the Basic Plan for such Plan Year are limited
by the application of Section 401(a)(17) of the Code, Section 415 of the Code
and other limits under the Code on the inclusion of deferred amounts for
contribution purposes, shall be credited with an amount equal to the difference
between:


 


(a)                                  the
amount of contribution related to Compensation which would have been payable to
or in respect of the Participant under the Basic Plan without regard to the
maximum annual pension limitation in Section 415 of the Code or the pensionable
compensation limitation in Section 401(a)(17) of the Code or the exclusion of
certain deferred amounts, and


 


(b)                                 the amount of contribution related to Compensation actually
payable to or in respect of the Participant under the Basic Plan.


 


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In
addition to the foregoing amounts, the Account of a Participant shall be
credited with such amounts in the Participant’s account under the 1989 Plan
that are not vested on or before December 31, 2004 and that are deemed
transferred to the Plan pursuant to the terms of the 1989 Plan.   Such amounts shall be subject to the terms
and conditions of the Plan.


 


4.2                                 Vesting.  A Participant shall be 100% vested in his or
her Account upon attaining age 55, upon his or her death or Disability while in
the employ of a Participating Company or upon the termination of the Plan
pursuant to Section 5.2.  Except as
provided in Section 5.4, if a Participant terminates employment prior to an
event specified in the preceding sentence, such Participant shall be vested in
his or her Account in accordance with the following schedule:


 


	
  Completed Years of Service

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Less than  2

  	
   

  	
  0

  	
   

  
	
  2

  	
   

  	
  20

  	
   

  
	
  3

  	
   

  	
  40

  	
   

  
	
  4

  	
   

  	
  60

  	
   

  
	
  5

  	
   

  	
  80

  	
   

  
	
  6 or more

  	
   

  	
  100

  	
   

  



 


4.3                                 Crediting
of Investment Gain/Loss.


 


(a)                                  The
balance of each Participant’s Account shall be credited with earnings and
investment gains and losses as provided below. 
The Committee may establish procedures permitting Participants to
designate one or more investment benchmarks specified by the Chief Executive
Officer or the Committee for the purpose of determining the earnings or
investment gains and losses to be credited or debited to a Participant’s
Account.  Investment benchmarks so
specified may be made available to all Participants or selected Participants as
the Chief Executive Officer or the Committee may designate. The Committee shall
have the sole discretion to make such rules as it deems desirable with respect
to the administration of any such investment benchmark procedures, including
rules permitting the Participant to change the designation of investment
benchmarks to be used to measure the value of the Account.  The Committee, however, retains the
discretion at any time to change the investment benchmarks available to
Participants, including any investment benchmarks previously specified by the
Chief Executive Officer, or to discontinue the benchmark procedure.  If the Committee fails to implement an
investment benchmark procedure or discontinues such procedure, or if the
Participant fails to designate properly an investment benchmark, the
Participant’s Account shall be credited with earnings at a rate determined by
the Committee in its sole discretion, utilizing whatever factors or indicia it
deems appropriate; provided, however, that the rate of return on a Participant’s
Account in such circumstances shall not be less than the Chase Bank prime rate
plus one percent.


 


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(b)                                 Nothing
in this Section 4.3 or in the Committee’s rules shall give a Participant the
right to require the Company or a Participating Company to acquire any asset
for the Account of the Participant, and if the Company or a Participating
Company acquires any asset, or causes a trustee on its behalf to acquire any
asset, to permit it to satisfy its obligations to pay the balance of the
Participant’s Account, the Participant shall have no right or interest in any
such asset, which shall be held by the Company or the Participating Company
subject to the rights of all unsecured creditors of the Company or the
Participating Company.  The rights of the
Participant with respect to any designation of one or more investment
benchmarks for measuring the value of any Account hereunder shall be expressly
subject to the provisions of Section 5.6 of the Plan.


 


4.4                                 Form
and Timing of Election.


 


(a)                                  Except as
otherwise provided herein, payment of the Participant’s vested Account balance shall
be made as soon as administratively practicable following the Participant’s
death, Disability or other separation from service (a “Distribution Event”).  Before the taxable year for which the amounts
described in Section 4.1 are credited to a Participant’s Account, the
Participant may make an election with respect to the timing of the payment of
such amounts pursuant to which the Participant may elect a date subsequent to
the Participant’s death, Disability or other separation from servcie on which
all or any portion of such amounts shall be distributed.  A
Participant who becomes eligible to participate in the Plan for the first time
after the beginning of a taxable year may make such an election with respect to
the timing of the amounts credited to his or her account in such taxable year
at any time within thirty days after the date the Participant becomes eligible
to participate in the Plan. 
Notwithstanding the foregoing, amounts that are transferred to the Plan
from the 1989 Plan shall be subject to any election with respect to the timing
of the payment of such amounts as shall be in effect under the 1989 Plan as of
December 31, 2004.  A Participant
may elect to extend, but not accelerate, a previously elected distribution date
at any time at least 12 months before the date of the first scheduled payment by
the execution of a SERP Election Change Form, timely filed with the Company,
provided that a SERP Election Change Form (i) shall only be effective in
respect of amounts that would not otherwise have been distributed at least 12
months after the filing of such Form; and (ii) must provide for an extension of
distribution of at least 5 years from the previously established distribution
date to the extent necessary or
desirable to comply with the requirements of Section 409A of the Code as
interpreted by the Committee in its sole discretion for exclusion from gross
income of amounts deferred under the Plan.  Notwithstanding the foregoing or any other
provision of the Plan, payment of the Participant’s vested Account balance for
a Specified Employee on account of separation from service shall in no event be
made earlier than the date which is six months after the date of separation from
service (or, if earlier, the date of death of the 


 


5





















 


employee).  Section 409A of the Code, as interpreted by
the Committee in its sole discretion for exclusion from gross income of amounts
credited to Accounts under the Plan, shall govern applicability of the
foregoing provisions to participants who become Specified Employees or cease to
be Specified Employees while Participants in the Plan.


 


(b)                                 The
Participant may elect that his or her vested Account Balance be distributed in
a lump sum or in installments payable over a specified number of years, not
longer than 15 years; provided, however, that in no event may installment
payments be elected over a number of years that is more than the Participant’s
life expectancy or the life expectancy of the designated primary Beneficiary,
whichever is greater, at the time the Participant elects a form of
distribution.  If a Participant elects
the installment option, the Participant must also elect whether installments
should be made annually, quarterly or, if the Committee (or the Chief Executive
Officer of the Company in respect of all Participants) shall direct to offer
such alternative, monthly.  A Participant
may specify different payment options (i) for different percentages or dollar
amounts of a Participant’s vested Account balance; or (ii) in the event of the
death or Disability of the Participant. 
Distributions will be in the form of a lump sum (i) if the Participant
did not choose a different distribution option or (ii) in the event of death or
Disability, if the Participant did not expressly choose a different
distribution option in the event of death or Disability.


 


(c)                                        A
Participant shall make an election with respect to the form of distribution of amounts credited to his or her Account at
the time and in the manner described in Section 4.4(a) for making elections
with respect to the timing of the distribution of such amount.  An election with respect to the form of
distribution of any amounts credited to a Participant’s Account shall be
irrevocable.  Amounts that are
transferred to the Plan from the 1989 Plan shall be subject to any election
with respect to the form of distribution of such amounts as shall be in effect
under the 1989 Plan as of December 31, 2004.


 


(d)                                 A
form-of-distribution election shall be effective upon submission to the
Committee or its designee and compliance with all applicable requirements
established by the Committee, provided that the Committee retains the right, at
its election, to make payments in a lump sum if it elects, in its sole
discretion, to do so notwithstanding any form-of-distribution election
requesting an installment option to the
extent permitted by Section 409A of the Code as interpreted by the Committee in
its sole discretion for exclusion from gross income of amounts deferred under
the Plan.  Notwithstanding any
contrary provision in the Plan, the Committee, in its sole discretion, retains
the right, but shall have no obligation, to distribute all or any portion of a
Participant’s vested Account balance in the form of any security or other investment
chosen by the Participant as an investment benchmark for measuring the value of
his or her Account pursuant to Section 4.3(a) of the Plan.  Further, 


 


6





















 


notwithstanding
any contrary provision in the Plan, any distribution to a Participant otherwise
payable hereunder shall be deferred until no later than January 2 in the year
following termination of the Participant’s employment with the Company (and its
subsidiaries) to the extent that such distribution, if not so deferred, would
be disallowed as a tax deduction by the Company pursuant to Section 162(m) of
the Code (or any successor provision).


 


4.5                                 Benefit
Restoration With Respect to Certain Bonus Payments.  In the event that a Participating Company accelerates
the payment of bonuses for any Plan Year by paying bonuses which would
otherwise be payable in the following Plan Year, and such payment causes a
Participant to be credited with a lower total contribution under the Basic Plan
and the Plan by virtue of the limitations provided in the Basic Plan and the
limitations on the amount of Compensation provided in Section 2.9 of the Plan,
then, notwithstanding any such limitations, the Committee may, in its
discretion, credit an additional supplemental pension contribution under the
Plan for the Plan Year in which the bonuses were paid on an accelerated basis
up to the amount which would otherwise be lost to the Participant by virtue of
the application of the limitations in the Basic Plan and in the Plan.  The aggregate amounts credited under the Plan, and the contributions actually payable to or in
respect of the Participant under the Basic Plan, over a two Plan Year period
consisting of the Plan Year into which the bonus was accelerated and the
following Plan Year, shall not be increased by virtue of the application of
this Section 4.5.


 


ARTICLE 5.                                Administration and General Provisions.


 


5.1                                 Administration.


 


(a)                                  The
Plan shall be administered by the Committee in accordance with the
administrative provisions of the Basic Plan. 
The Committee shall have full power and authority to interpret, construe
and administer the Plan, and review claims for benefits under the Plan, and the
Committee’s interpretations and constructions of the Plan and actions
thereunder shall be binding and conclusive on all persons and for all purposes.


 


(b)                                 The
Committee shall establish and maintain Plan records and may arrange for the
engagement of such certified public accountants, actuarial consultants or legal
counsel, and make use of such agents and clerical or other personnel, as they
shall require or may deem advisable for purposes of the Plan.  The Committee may rely upon the written
opinion of such counsel and the consultants or accountants engaged by the
Committee and may delegate to any agent or to any sub-committee or member of
the Committee its authority to perform any act hereunder, including, without
limitation, those matters involving the exercise of discretion, provided that
such delegation shall be subject to revocation at any time by the Committee.


 


(c)                                  To
the maximum extent permitted by applicable law, no member of the Committee
shall be personally liable by reason of any contract or other instrument
executed by him or her in his or her capacity as a member of the 


 


7





















 


Committee, nor for
any mistakes of judgment made in good faith, and the Company shall indemnify
and hold harmless, directly from its own assets (including the proceeds of any
insurance policy the premiums of which are paid from the Company’s own assets),
each member of the Committee and each officer, employee or director of the
Company to whom any duty or power relating to the administration or
interpretation of the Plan or to the engagement or control of the assets of the
Plan may be delegated or allocated, against any cost or expense (including
counsel fees) or liability including any sum paid in settlement of a claim with
the approval of the Company arising out of any act or omission to act in
connection with the Plan.


 


5.2                                 Amendment
and Termination.  The Plan may be
amended, suspended or terminated, in whole or in part, by the Board, but no
such action shall retroactively impair or otherwise adversely affect the rights
of any person to receive benefits under the Plan which have accrued prior to
the date of such action, as determined by the Committee, except to the extent necessary or desirable to comply with the
requirements of Section 409A of the Code as interpreted by the Committee in its
sole discretion for exclusion from gross income of amounts deferred under the
Plan; provided, however, that the amount of any future contribution
payable to or in respect of a Participant may be reduced by the amount of any
increase in the amount of pension actually payable to the Participant or
Beneficiary under the Basic Plan due to any increases in benefits payable under
the Basic Plan (whether due to changes in Code Sections 401(a)(17) and 415
limitations or otherwise) subsequent to the Participant’s retirement.  Anything in Section 4.4 to the contrary
notwithstanding, in the event of the termination of the Plan, the Committee may
direct that all Account balances be distributed in the form of a lump sum
distribution to the extent permitted by Section 409A of the Code as interpreted
by the Committee in its sole discretion for exclusion from gross income of
amounts deferred under the Plan.


 


5.3                                 Company’s
Right to Discharge Employees. 
Nothing contained herein will confer upon any Participant or other
employee the right to be retained in the employ of any Participating Company,
nor will it interfere with the right of any Participating Company to discharge
or otherwise administer the employment and termination of Participants and
other employees without regard to the existence of the Plan.


 


5.4                                 Discharge for Cause.  Notwithstanding any other provisions
contained in the Plan, in the event of a Participant’s Discharge for Cause,
such Participant and his or her Beneficiary shall forfeit all rights to any
payments under the Plan.


 


5.5                                 Sale
of Company.  Nothing in the Plan
shall preclude the Company from consolidating with or merging into or with, or
transferring all or substantially all its assets to, another corporation which
assumes the Plan and all obligations of the Company hereunder.  Under such a consolidation, merger, or
transfer of assets and assumption, the term “Company” shall refer to such other
corporation and the Plan shall continue in full force and effect.


 


5.6                                 Source
of Payments.  Participants have the
status of general unsecured creditors of the Company and the Plan constitutes a
mere promise by the Company to make benefit payments in the future from its
general assets; provided, however, that such payments
shall 


 


8





















 


be reduced by the amount
of any payments made to the Participant or his or her Beneficiary from any
trust or special or separate fund established by the Company to assure such
payments, and if the Company shall make any investments to aid it in meeting
its obligations hereunder, the Participant and his or her Beneficiary shall
have no right, title or interest whatever in or to any such investments except
as may otherwise be expressly provided in a separate written instrument
relating to such investments.  Nothing
contained in the Plan, and no action taken pursuant to its provisions, shall
create or be construed to create a trust of any kind between the Company and
any Participant or Beneficiary.  By
action of its Board of Directors, any Participating Company may assume joint
and several liability with the Company with respect to
any obligations under the Plan for Participants employed by the Participating
Company.


 


5.7                                 Withholding.  The Company may withhold from any benefits
payable under the Plan all Federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.


 


5.8                                 Expenses.  All expenses incurred in administering the
Plan will be paid by the Company and none will be paid by the Participant.


 


5.9                                 Assignment.
 No interest of any Participant or
Beneficiary hereunder shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or
garnishment by creditors of the Participant or the Participant’s Beneficiary.  The Plan shall be binding upon and inure to
the benefit of the Company and its successors and assigns and the Participant,
his or her Beneficiary and estate. 
Notwithstanding the foregoing, pursuant to rules comparable to those
applicable to qualified domestic relations orders, as determined by the
Committee, the Committee may direct a distribution prior to any distribution
date otherwise described in the Plan, to an alternate payee (as defined under
the rules applicable to qualified domestic relations orders) to the extent permitted by Section 409A of
the Code as interpreted by the Committee in its sole discretion for exclusion
from gross income of amounts deferred under the Plan.


 


5.10                           ERISA
Status of Plan.  The Plan is intended
to constitute an “unfunded plan for management or other highly compensated
individuals” as defined in the Employee Retirement Income Security Act of 1974,
as amended from time to time (“ERISA”), and is subject to certain provisions of
ERISA, including certain requirements relating to reporting, disclosure,
enforcement and claims.


 


5.11                           Applicable
Law.  The Plan shall be construed,
regulated and administered according to ERISA (to the extent applicable), the
Code and the laws of the State of New York.


 


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