Document:

Exhibit 10.17

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT is to be effective as of the
Effective Date (as defined below), by and between Assured Guaranty U.S.
Holdings, Inc., a Delaware corporation (the “Company”) and Sean W.
McCarthy (the “Executive”);

 

WHEREAS, Assured Guaranty Ltd., a Bermuda
company (“AGL”), the parent of the Company, has entered into a stock purchase
agreement (the “Stock Purchase Agreement”) with Dexia Holdings, Inc. and
Dexia Credit Local S.A. to purchase Financial Security Assurance Holdings Ltd.
(“FSA”) and all of its subsidiaries (the “Acquisition”), and prior to the
Acquisition, the Executive has been employed by FSA; and

 

WHEREAS, upon the consummation of the
Acquisition (the “Closing”), and contingent upon the occurrence of the Closing,
the Company wishes to employ the Executive, and the Executive wishes to be
employed by the Company under the terms and conditions set forth below,
effective as of the date of such Closing (the “Effective Date”);

 

NOW, THEREFORE, in consideration of the promises
and mutual covenants contained herein and for other good and valuable
consideration, the Company and the Executive (the “Parties”) hereby agree as
follows:

 

1.          Employment

 

The Company hereby employs the Executive, and
the Executive hereby accepts employment with the Company, for the term of this
Agreement as set forth in Section 2 below, in the position and with the
duties and responsibilities set forth in Section 3 below, and upon such
other terms and conditions as are hereinafter stated.  However, the

 

 

effectiveness of this Agreement is contingent on the occurrence of the
Closing, and neither party shall have any rights or obligation under this
Agreement unless such Closing occurs.

 

2. Term and Place of Performance

 

The term of the Agreement shall commence as
of the Effective Date and shall continue through the close of business on third
anniversary of the Effective Date, subject to the terms and conditions of this
Agreement (“Initial Term”).  This
Agreement shall automatically renew for a one-year term after the Initial Term,
and each succeeding twelve months thereafter, unless either party gives notice
in writing at least 30 days prior to the expiration of the Initial Term or
succeeding one year term of its intention not to renew the Agreement.  If non-renewal is at the option of Executive,
it shall be treated as a Voluntary Termination. 
If non-renewal is at the option of Company, it shall be treated as a
Termination Without Cause as that term is defined in Section 9(d) herein.

 

3. Positions, Duties, and Time Devoted to the Company &
the Affiliates.  Other Obligations.

 

(a) During the term of the Agreement,
the Executive shall be employed as the President and Chief Operating Officer of
the Company, with such powers and duties normally attendant to such offices and
such other duties as may be assigned to the Executive by the Chief Executive
Officer of the Company.  The Executive
will be identified as an executive officer in the AGL annual report on Form 10-K.  The following business segments of the
Company will report directly to the Executive: direct fixed income investor
relations and communications, direct segment public finance, structured finance
and surveillance.  Direct segment
communications functions will also report to the Executive, although the
primary

 

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reporting relationship for these functions will be with a person other
than the Executive.  The Executive will
be a member of the direct credit committee(s). 
Executive shall report to the Chief Executive Officer of the Company.

 

(b) The Executive agrees to remain in
the employ of the Company during the term of this Agreement, to devote his full
business time exclusively to the business affairs of the Company, and to
perform his duties faithfully.  Subject
to the demands of his position with the Company, the Executive shall be
permitted to:

 

(i) deliver lectures and fulfill
speaking engagements; and

 

(ii) engage in industry, charitable and
community activities; provided, however, that any expenses, such as for travel,
incurred by the Executive in connection with such activities shall be for the
personal account of the Executive and shall not be reimbursed by the Company,
unless based on managements’ view it is done for the overall benefit of the
Company in forwarding its image, business abilities or quality of staff.

 

(c) The Parties expect that the
Executive’s duties will include providing services for both the Company and
certain of the Affiliates, as determined by the Board of Directors of AGL (the “Board”).

 

4. Salary

 

For services rendered by the Executive to the
Company during the term of this Agreement while he is employed by the Company,
the Executive shall be paid a minimum annual base salary at a rate of
$500,000.  The annual base salary shall
be paid on a semi-monthly basis by the Company. 
The Company and the Affiliates will fund the salary

 

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specified above in proportion to the percentage of time Executive
performs work for each company.

 

5. Annual Performance Incentive Plan

 

Subject to the terms and conditions of this
Agreement, once a year during the Initial Term, with respect to years ending
before the end of the Initial Term, the Compensation Committee of the Board
(the “Compensation Committee”) will annually consider awarding a cash bonus to
the Executive within the range of 300% of his annual salary (a “Target Bonus”).  The Compensation Committee will annually take
into account any factors it deems relevant, including, without limitation, the
Company’s and the Executive’s performance, and grant the Executive a cash bonus
above or below the Target Bonus.  The
Executive’s annual bonus opportunities will, subject to the evaluation of
individual performance, be consistent with other executive officers of the
Company.

 

6. Long-Term Incentive Awards and FSA Equity

 

(a) Sign On Award- The Executive will be
granted an option to purchase 100,000 ordinary shares of AGL stock on the
Effective Date, with a per-share exercise price equal to the per-share closing
price of a AGL ordinary share on the New York Stock Exchange on the Effective
Date (or, if the shares are not traded on that date, the next preceding date on
which the shares are traded); provided that option grants will be subject to
availability of ordinary shares under the AGL 2004 Long-Term Incentive Plan, as
amended or its successor (the “LTIP”).

 

(b) Annual Long-Term Incentive
Awards—The Executive will participate in the LTIP and the Performance Retention
Plan, consistent with the awards granted to other executive

 

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officers of the Company, and subject to the evaluation of the Executive’s
individual performance by the Compensation Committee.  All Long-Term Incentive awards will be
subject to the terms and conditions of the LTIP, and all Performance Retention
awards will be subject to the Performance Retention Plan.  Equity awards granted to Executive under the
LTIP shall not be inconsistent with the terms of this Agreement and to the
extent that such awards include terms that are not addressed in this Agreement
the terms of said awards shall apply in full force and effect.

 

(c) Retirement—If Executive retires at
age 55 or older from the Company and has at least five years of service with
the Company, any restricted ordinary shares of AGL stock and options to
purchase ordinary shares of AGL stock held by Executive upon retirement will
continue to vest in accordance with the schedules set forth in the award
grants, will be exercisable until the expiration of their original term, and
will otherwise be subject to the provisions of the applicable LTIP.

 

(d) FSA Shares - At the time of Closing,
and in accordance with the terms of the Settlement Agreement, the FSA share
units credited to the Executive’s account under the Financial Security
Assurance Holdings Ltd. 1989 Supplemental Executive Retirement Plan (the “SERP”)
will be canceled and the Executive’s account under the SERP will be credited
with AGL share units.  Thereafter, the
Executive’s rights with respect to his SERP account (including, without
limitation, rights to vesting and distribution) will continue to be determined
in accordance with the terms of the SERP.

 

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(e) Other-  Nothing in this Agreement shall be construed
to require the Company or any other person to take steps or not take steps
(including, without limitation, the giving or withholding of consents) that
would result in a Change in Control (as defined below).

 

7.  Employee
Benefits

 

(a) During the term of his employment,
the Executive shall be entitled to participate in the Company’s retirement
plan, supplemental retirement plan, hospitalization plan, major medical plan,
dental plan, group-term life insurance plan, accidental death and dismemberment
plan, and such other employee benefits programs consistent with such benefits
offered currently to other senior executives of the Company, subject to
satisfaction of all eligibility requirements of general applicability and all other
terms and conditions of the plans; except that during a transition period
determined by the Company (but not longer than one year after the Closing), in
the discretion of the Company, the Executive will continue to be covered by one
or more FSA benefit plans in lieu of being covered by the corresponding plan or
plans of the Company.

 

(b) The Executive shall be entitled to
five weeks of vacation in a full calendar year. 
Unused vacation days shall expire as of the last day of each one year
period and may not be accumulated, carried forward or redeemed for other
compensation.

 

(c)  The Company and/or the Affiliates
will fund the benefits specified above in proportion to the percentage of time
Executive performs work for each company.

 

8. Business Expense Reimbursement. Accommodation. Other
Perquisites

 

(a) During the term of his employment,
the Executive shall be entitled to be reimbursed by Company for all reasonable
out-of-pocket travel and entertainment expenses incurred by

 

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him in performing services under this Agreement, provided that the
Executive submits reasonable documentation with respect to such expenses.

 

(b) During the term of his employment,
Executive shall be entitled to reimbursement for the reasonable cost of any tax
preparation service and financial planning.

 

(c) The Executive shall be indemnified
by the Company and AGL in accordance with their respective Articles of
Incorporation.

 

(d) This Agreement includes the Gross—Up
provisions set forth in Exhibit B hereto which are incorporated herein by
reference.

 

(e)  Payment of reimbursement amounts
(including, without limitation, payments under paragraph (c) above
(relating to indemnification)) and the provision of in-kind benefits by the
Company under this Agreement that constitute Deferred Compensation shall be
subject to the following:

 

(i)  Such reimbursements shall be made
promptly after the Executive submits reasonable evidence of having incurred the
amounts subject to reimbursement, provided that the Executive is required to
provide such evidence no later than October 31 of the calendar year
following the year in which such expenses are incurred (or such earlier date
that is generally applicable, or such later date, established by the Company
that is not later than the end of the calendar year following the year in which
such expenses are incurred), and shall be paid by the Company not later than
the last day of the calendar year following the year in which such expenses are
incurred.

 

(ii)  To the extent required to avoid
accelerated recognition of taxable income or imposition of additional tax under
Code section 409A, the amount of expenses eligible for

 

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reimbursement, or in-kind benefits provided, during the Executive’s
taxable year may not affect the expenses eligible for reimbursement, or in-kind
benefits to be provided, in any other taxable year.

 

(iii)  To the extent that the Executive
is eligible for reimbursement of tax liability with respect to taxes paid by
the Executive, such reimbursement shall be made no later than the end of the
calendar year following the calendar year in which the taxes are remitted to
the taxing authority.

 

(iv)  The Executive’s right to
reimbursement or in-kind benefits is not subject to liquidation or exchange for
another benefit.

 

9. Termination of Employment

 

(a) Termination Due to Death.

 

In the event of the Executive’s death during
the term of his employment hereunder, the estate or other legal representative
of the Executive shall be entitled to:

 

(i) continuation of the Executive’s
annual base salary provided in Section 4 above through the last day of the
month in which the Executive dies;

 

(ii) any rights and benefits available
under any employee benefits plans, policies, and practices of the Company,
determined in accordance with the applicable terms and provisions of such
plans, policies, and practices as in effect on the date of the Executive’s
death.

 

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(b) Termination Due to
Disability.

 

In the event the Executive’s employment by
the Company is terminated because he is adjudged by the Compensation Committee
to be disabled within the meaning of the Company’s long-term disability plan,
the Executive shall be entitled to:

 

(i) continuation of the annual base
salary provided in Section 4 above through the last day of the month in
which the Executive’s employment with the Company terminates due to disability;

 

(ii) any rights and benefits available
under any employee benefits plans, policies, and practices of the Company,
determined in accordance with the applicable terms and provisions of such
plans, policies, and practices as in effect on the date of the Executive’s
termination of employment.

 

(c) Termination
by the Company for Cause.

 

(i) The employment of the Executive
under this Agreement may be terminated by the Company for Cause.  For purposes of this Agreement, “Cause” shall
mean;

 

(A) conviction or admission of guilt by
the Executive of a felony involving moral turpitude;

 

(B) violations of Section 10 or 11
of this Agreement; or

 

(C) the Executive, in carrying out his
duties, has been guilty of (1) a willful, serious, and continued failure
to perform his duties, (2) willful and serious misconduct or (3) a
willful and material breach of the Company Code of Conduct; provided, however,
that any act, or failure to act, by the Executive shall not constitute Cause
for purposes of this Section 9(c)(i)(C) if

 

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such act or failure to act, was committed, or omitted, by the Executive
in good faith and in a manner he reasonably believed to be in the best
interests of the Company.

 

(ii) In the event of a termination of
the Executive’s employment for Cause under Section 9(c)(i) above, the
Executive shall be entitled only to:

 

(a) continuation of the annual base
salary provided in Section 4 above through the date on which termination
for Cause occurs; and

 

(b) any other rights and benefits, if
any, available under employee benefit plans, policies, and practices of the
Company, determined in accordance with the applicable terms and provisions of
such plans, policies, and practices, as in effect on the date of his
termination of employment.

 

(d) Termination
Without Cause

 

(i) Anything in this Agreement to the
contrary notwithstanding, the Executive’s employment may be Terminated Without
Cause as provided in this Section 9(d). 
Termination Without Cause shall mean either (1) a termination of
the Executive’s employment by the Company (other than a termination due to
death as described in Section 9(a) above, disability as described in Section 9(b) above,
or a Termination For Cause as described in Section 9(c) above); or (2) a
termination due to Good Reason Resignation as defined as follows: Good Reason
Resignation shall mean termination of employment that is voluntary on the part
of the Executive but is due to:  (i) a
significant reduction of the Executive’s responsibilities, title or status
resulting from a  change in such title or
status, or from the assignment to the Executive of any duties inconsistent with
his title, duties, or responsibilities; (ii) a reduction in the Executive’s
salary, bonus potential, or a material

 

10

 

reduction of benefits, or (iii) relocation of the Executive’s base
of operations from the New York City metropolitan area (provided that this
clause (iii) shall not preclude the Executive from being required to
travel on behalf of the Company or its Affiliates); but only if the conditions
described in clause (i), (ii) or (iii) constitute a material negative
change to the Executive in the service relationship, as that phrase is used in
Treas. Reg. §1.409A-1(n)(2)(i).

 

(ii) In the event there is a Termination
Without Cause of the Executive’s employment, the Executive shall be entitled
to:

 

(A) continuation of the annual base
salary provided in Section 4 above until the date which is twenty-four
months after the last day of the month in which such termination occurs (“Payment
Period”); provided, however, that payments pursuant to this Section 9(d)(ii)(A) are
subject to the provisions of Section 12 and provided, however, that any
payments made with respect to any month by the Company under paragraphs 4, 5,
6, and 7(b) herein after Executive’s termination of employment will reduce
by an equal amount any payments to be made hereunder as salary continuation for
that month;

 

(B) continuation of coverage under the
employee benefit plans of the Company in which the Executive was participating
at the time of his termination of employment for the period of salary
continuation under Section 9(d)(ii)(A) above; provided, however, that
(1) except as required by applicable law, any such continued coverage
shall terminate upon the subsequent full-time employment of the Executive, and (2) if
the Company is unable to continue such coverage, then it shall provide the
Executive with economically equivalent employee benefits to the extent such
benefits are reasonably available.

 

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(iii) At the discretion of the
Compensation Committee, to the extent that amounts payable under Section 9(d)(ii)(A) are
not Deferred Compensation, the present value of any amounts payable under Section 9(d)(ii)(A) to
the Executive above may be paid to the Executive in a lump sum.  The interest rate used in determining the
present value shall be the interest rate on one-year United States Treasury
Bills at the auction of such instruments nearest in time to the date of the
Executive’s termination of employment under this Section 9(d).  Any such lump sum payment by the Company to
the Executive shall not affect the obligation of the Company as otherwise
provided in Section 9(d)(ii)(B) above to provide continuation coverage
under the employee benefit plans.

 

(iv) During the Payment Period,
Executive shall make a good faith effort to seek other employment.  If Executive attains other employment during
the Payment Period, he shall so notify Company and any compensation paid to
Executive by his new employer shall reduce, by an equivalent amount, the
payments required to be made under Section 9(d)(ii)(A).

 

(v) The obligation of the Company to
make or provide the payments and benefits set forth in this Section 9(d) shall
be strictly conditioned on the Executive executing and returning to the Company
a general release and waiver of all claims against the Company in the form as
submitted by the Company in substantially the form set forth as Exhibit C,
and on such release being returned and becoming irrevocable not later than the
15th day of the third calendar month following the Executive’s termination of
employment (or such later time as may be permitted by the Company); provided
that to the extent benefits provided pursuant to this Section 9(d) would
constitute Deferred Compensation, such benefits shall be paid to the Executive
only if the release is returned within 60 days after the Executive’s

 

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termination of employment; and further provided that with respect to
amounts payable under Section 9(d)(ii)(A) that are Deferred
Compensation, any such payment shall be made on the later of (I) the 15th
day of the third calendar month following the Executive’s termination of
employment, and (II) the date payment of such amounts that would otherwise
have been due absent the provisions of clause (I) above; and further
provided that amounts delayed pursuant to clause (I) shall be accumulated
without interest paid on the date determined in accordance with such clause
(I).

 

(vi) If there is a Termination Without
Cause during the first year of the Initial Term, then subject to the provisions
of this Agreement, Executive will receive the amounts payable under Section 9(d)(ii)(A) and
(B) plus any remaining but unpaid salary or contract benefits due him for
the first year of the Initial Term.

 

(vii)  Any ordinary shares of restricted
AGL stock and options to purchase ordinary shares of AGL stock held by
Executive will continue to vest in accordance with the terms of the awards for
the period of time which includes the completion of this Contract and any
subsequent Payment Period as set forth in Section 9(d)(ii)(A).

 

(e) Voluntary Termination by
the Executive

 

The Executive may voluntarily terminate his
employment with the Company at any time prior to the expiration of the term of
this Agreement. Such termination shall constitute a voluntary termination and,
in such event, the Executive shall be limited to the same rights and benefits
as applicable to the termination for Cause, as described in Section 9(c) above.

 

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(f) Change in Control

 

In the event of a Change in Control (as
defined below) all stock based awards in which the Executive is not yet vested
shall become fully vested and stock options shall be exercisable for their
term.  In addition, the Executive may
resign for any reason at any time during the twelve month period following a
Change in Control (as defined below) and receive the same salary continuation,
bonus eligibility and benefits as if the Executive were Terminated Without
Cause pursuant to Section 9(d) of this Agreement.  The term Change in Control shall be as
defined in the LTIP as of the date hereof, a copy of which is attached hereto
as Exhibit A.

 

(g) Resignation Upon
Termination

 

At the time of termination of employment for
any reason, the Executive agrees at the request of the Company to resign from
any position he holds as a Director (or other similar position) of the Company
and any Affiliates, unless other explicit arrangements are agreed upon between
the Executive and the Company.

 

(h) Termination of Employment

 

References in this Agreement to the Executive’s
termination of employment (including references to the Executive’s employment
termination, and to the Executive terminating employment) shall mean the
Executive ceasing to be employed by the Company and the Affiliates, subject to
the following:

 

(i)  The employment relationship will be
deemed to have ended at the time the Executive and his or her employer
reasonably anticipate that a level of bona fide services the Executive would
perform for the Company and the Affiliates after such date (whether as an
employee

 

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or independent contractor, but not as a director) 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 Executive has performed
services for the Company and the Affiliates for less than 36 months).  In the absence of an expectation that the
Executive will perform at the above-described level, the date of termination of
employment will not be delayed solely by reason of the Executive continuing to
be on the Company’s and the Affiliates’ payroll after such date.

 

(ii)  The employment relationship will
be treated as continuing intact while the Executive is on a bona fide leave of
absence (determined in accordance with Treas. Reg. §1.409A-1(h)).

 

(iii)  The determination of the
Executive’s termination of employment 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)  For purposes of this Agreement,
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) of
the Code.

 

(i) Deferred Compensation
Restrictions

 

If the Executive is a Specified Employee at
the time of termination of employment, payments of benefits under this
Agreement that constitute Deferred Compensation may not be paid before the date
that is six months after the date of termination of employment or, if earlier,
the date of death of the Executive.  At
the end of the six-month period described in

 

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the preceding sentence, amounts that could not be paid by reason of the
limitation in this paragraph (i) shall be paid on the first day of the
seventh month following the date of termination of employment.  For purposes of this Agreement, the term “Specified
Employee” shall be defined in accordance with Treas. Reg. §1.409A-1(i) and
such rules as may be established by the Chief Executive Officer of the
Company or his or her delegate from time to time.  For purposes of this Agreement, 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 (and excludes, among other things, certain
amounts not treated as providing for the deferral of compensation pursuant to
Treas. Reg. §1.409A-1(b)(9)(iii), which provides for the exclusion of certain
separation payments which are less than $490,000, subject to certain other
provisions and restrictions).

 

10. Noncompetition

 

During the term of the Executive’s employment
and for a period of 12 months following the termination of his employment for
any reason other than a Termination Without Cause, the Executive shall not,
directly or indirectly, whether as an employee, consultant, partner, principal,
agent, distributor, representative, stockholder (except as a less than one
percent stockholder of a publicly traded company or a less than five percent
stockholder of a privately held company) or otherwise, engage, within the
United States, Bermuda, or the Cayman Islands, if such activities involve
insurance or reinsurance of United States based entities or risks that are
competitive with the financial guaranty insurance business then being conducted
by the Company or a Related Company and which, during the period

 

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covered by the Executive’s employment, were conducted by the Company or
a Related Company.  For as long as the
above described restrictions on competition apply, the Executive shall not hire
any employee or former employee of the Company or a Related Company nor
encourage any employee of the Company or a Related Company to leave the employ
of the Company or a Related Company. 
This section will not be in effect after the Executive’s termination of
employment, subject to the following:

 

(i)  The Company may, at its option, by
notice to the Executive provided to the Executive not later than 10 days after
the termination of employment, agree to continue to pay the Executive’s base
salary and the hospitalization plan, major medical plan, dental plan,
group-term life insurance plan, and accidental death and dismemberment plan
provided to executives actively employed by the Company for the period that
ends at the earlier of (A) the one year anniversary of the Executive’s
termination or resignation from employment for any reason or (B) the last
date on which amounts could be paid and satisfy the short-term deferral
exception to treatment of such payments as Deferred Compensation (as provided
in Treas. Reg. §1.409A-1(b)(4)), and the restrictions of this Section shall
remain in effect during the period as to which those payments are made.  The Company’s election to make the payments
under this paragraph (i) shall apply to not less than the entire period set
forth in the preceding sentence, except with the consent of the Executive.

 

(ii) If the Company elects to make
payments in accordance with paragraph (i) above, and such period ends
earlier than one-year anniversary of the date of termination, then the Company
may, by notice to the Executive during the first 15 days of the taxable year
following the taxable year in which the Executive’s termination of employment
occurs, elect

 

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to continue to make such payments for the remainder of the period
ending on the one-year anniversary of the termination date, and the
restrictions of this Section shall remain in effect during the remainder
of such one-year period.  The Company’s
election to make the payments under this paragraph (ii) shall apply to not
less than the entire period set forth in the preceding sentence, except with
the consent of the Executive.

 

The term “Related Company” means all persons
with whom the Company would be 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) of the Code (including,
without limitation, all persons with whom FSA would be considered to be a
single employer under section 414(b) of the Code and all persons with whom
FSA would be considered a single employer under section 414(c) of the
Code).  For purposes of this definition, (i) a
person will continue to be a “Related Company” if it would constitute a “Related
Company” in accordance with the foregoing definition at any time while the
Executive was employed by the Company or an Affiliate; and (ii) subject to
clause (i) of this sentence, a person will be a Related Company with
respect to FSA if it would constitute a “Related Company” either before or
after the Closing.

 

11. Confidential
Information

 

The Executive covenants that he shall not,
without the prior written consent of the Chief Executive Officer use, or
disclose to any person (other than an employee of either of the Company, or
other person to whom disclosure is necessary to the performance by the
Executive of his duties in the employ of the Company) any confidential or
proprietary information about the Company or a Related Company or their
business, unless and until

 

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such information has become known to the public generally (other than
as a result of unauthorized disclosure by the Executive). The foregoing
covenants by the Executive shall be without limitation as to time and
geographic applications.

 

12. Remedy
for Violation of Noncompetition or Confidential Information Provisions

 

Without intending to limit the remedies
available to the Company for the breach of any of the Executive’s covenants in
Sections 10 and 11, the Executive acknowledges and agrees that damages at law
are an insufficient remedy for the Company and that, accordingly, the Company
shall be entitled to apply for and obtain injunctive relief in any court of
competent jurisdiction to restrain the breach or threatened breach, or
otherwise specifically enforce, any or all of said covenants. The Parties
acknowledge that each of the covenants contained in Sections 10 and 11 is an
essential element of this Agreement. If any covenant or term of Section 10
or 11 or any portion thereof of this Section 12, is determined to be
invalid or unenforceable in any instance, such determination shall not prevent
the reassertion thereof with respect of any other breach or violation. If, in
any proceeding, a court (or other tribunal) refuses to enforce the covenants
contained in Section 10 or 11 or this Section 12 because such
covenants cover too extensive a geographic area or too long a period of time,
any such covenant shall be deemed amended to the extent (but only to the
extent) required by law to permit its enforceability hereunder.

 

Notwithstanding anything contained in this
Agreement to the contrary, in the event that the Executive’s employment is
terminated without Cause (as defined in Section 9(d)(i)) and the Court
determines that the Executive has violated Section 10 or 11 of this
Agreement, then

 

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the Companies shall be entitled to discontinue any payments or benefits
that would otherwise be provided under Section 9(d) and the Executive
shall forfeit his rights to the same.

 

13. Withholding

 

Anything in this Agreement to the contrary
notwithstanding, all payments required to be made by the Company hereunder to
the Executive shall be subject to withholding of such amounts relating to taxes
as the Company may reasonably determine it is required to withhold pursuant to
any applicable law or regulation. In lieu of withholding such amounts, in whole
or in part, the Company may, in its sole discretion, accept other provision for
payment of taxes as required by law, provided it is satisfied that all
requirements of law affecting its responsibilities to withholding such taxes
have been satisfied.

 

14. Arbitration
of All Disputes

 

Subject to the provisions of Section 14,
any controversy or claim arising out of or relating to this Agreement or the
breach thereof shall be settled by arbitration in the City of New York in
accordance with American Arbitration Association’s National Rules for
Resolution of Employment Disputes.

 

15. Entire
Agreement

 

Subject to the following sentence, this
Agreement as in effect as of the Effective Date contains the entire agreement
between the Parties concerning the subject matter hereof and supercedes all
prior agreements, undertakings, discussions, negotiations, and undertakings,
whether written or oral, between the Company and the Executive with respect
thereto; provided that this Agreement shall not supersede the Company’s
recoupment policy or any other provision of its Code of Conduct.  However, the effectiveness of this Agreement
is

 

20

 

contingent on the Executive having executed the Settlement Agreement
(defined below) and contingent on the period during which the Executive may
revoke such execution of the Settlement Agreement having expired prior to the
Effective Date.  The term “Settlement
Agreement” means the settlement agreement between the Executive and FSA
effective as of the Effective Date and providing for the settlement of claims
against FSA and its affiliates.

 

16. Assignability;
Binding Nature

 

This Agreement shall be binding upon and
inure to the benefit of the Parties and their respective successors, heirs, and
assigns. No rights or obligations of the Executive under this Agreement may be
assigned or transferred by the Executive, other than his rights to receive
salary and bonuses hereunder which may be transferred by will or operation of
law subject to the limitations of this Agreement. No rights or obligations of
the Company under this Agreement may be assigned or transferred by the Company
except that such rights or obligations may be assigned or transferred pursuant
to a merger or consolidation in which the Company is not the continuing entity,
or the sale or liquidation of all or substantially all of the assets of the
Company, provided that that assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations, and duties of the Company as contained in
this Agreement, either contractually or as a matter of law.

 

17. Amendment
or Waiver

 

No provision in this Agreement may be amended
or waived unless such amendment or waiver is (1) agreed to in writing, and
(2) the agreement is signed by the Executive and by an authorized officer
of the Company or its successor. No waiver by any party hereto of any

 

21

 

breach by any other party of any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of a
similar or dissimilar condition or provision at the same or any prior or
subsequent time.

 

18. Notices

 

Any notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed to have been given
when delivered personally or sent by certified or registered mail, postage
prepaid, return receipt requested, duly addressed to the party concerned at the
address indicated below to such changed address of which such party may subsequently
by similar process give notice:

 

If
to the Company:

 

Assured
Guaranty U.S. Holdings, Inc.

Attention:
General Counsel

1325
Avenue of the Americas

New
York, NY 10019

 

If
to the Executive:

 

Mr. Sean
W. McCarthy

452
Greenwich Street

New
York, NY 10013

 

19. Severability

 

In the event that any provision or portion of
this Agreement shall be determined to be invalid or unenforceable for any
reason, in whole or in part, the remaining provisions of this Agreement shall
be unaffected thereby and shall remain in full force and effect to the fullest
extent permitted by law.

 

22

 

20. Survivorship

 

The respective rights and obligations of the
parties shall survive any termination of this Agreement to the extent necessary
to the intended preservation of such rights and obligations.

 

21. References

 

In the event of the Executive’s death or a
judicial determination of his incompetence, reference in this Agreement to the
Executive shall be deemed, where appropriate, to refer to his estate or other
legal representative. All statements of or references to dollar amounts in this
Agreement shall mean lawful money of the United States of America.

 

22. Governing-Law

 

This Agreement shall be governed by and
construed and interpreted in accordance with the laws of New York, without
reference to the principles of conflict of laws of any jurisdiction.

 

23. Headings

 

The headings of paragraphs contained in this
Agreement are for convenience only and shall not be deemed to control or affect
the meaning or construction of any provision of this Agreement.

 

24. Counterparts

 

This Agreement may be executed in one or more
counterparts.

 

IN WITNESS WHEREOF, the Executive has signed
this Agreement on the date set forth below and, on behalf of the Company, the
undersigned officer of the Company has

 

23

 

executed this Agreement pursuant to the authority delegated to him by
resolutions of the Compensation Committee of the Board of Directors on
                        ,
2009.

 

 

	
  Assured Guaranty U.S. Holdings, Inc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:
                        ,
  2009

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  James Michener

  
	
   

  	
   

  	
  Its General Counsel

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:
                        ,
  2009

  	
   

  	
   

  
	
   

  	
   

  	
  Sean W. McCarthy

  

 

24

 

EXHIBIT A

Long-Term Incentive Plan

 

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.

 

25

 

(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).

 

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.

 

26

 

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.

 

(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

 

27

 

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 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

 

28

 

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 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

 

29

 

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.

 

30

 

(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 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.

 

31

 

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).

 

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

 

32

 

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.

 

33

 

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.

 

34

 

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.

 

(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.

 

35

 

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.

 

(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.

 

36

 

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 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

 

37

 

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

 

38

 

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.

 

(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.

 

39

 

(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.

 

(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

 

40

 

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.

 

(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

 

41

 

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.

 

42

 

EXHIBIT B

Gross-Up Provisions

 

(a)  Anything in this Agreement to the
contrary notwithstanding, except for paragraph (b) below, in the event it
shall be determined that the Executive shall become entitled to payments and/or
benefits provided by this Agreement or any other amounts in the “nature of
compensation” (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company or any affiliate, any person
whose actions result in a change of ownership or effective control of the
Company covered by Section 280G of the Code or any person affiliated with
the Company or such person) as a result of such change in ownership or
effective control of the Company (a “Payment”) would be subject to the excise
tax imposed by Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax (such excise tax,
together with any such interest and penalties, are hereinafter collectively
referred to as the “Excise Tax”), then the Executive shall be entitled to
receive an additional payment (a “Gross-Up Payment”) in an amount such that
after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.

 

(b)  Notwithstanding the provisions of
paragraph (a) above, if it shall be determined that the Executive would
otherwise be entitled to the Gross-Up Payment, but the value of all Payments do
not exceed 310% of the Executive’s “base amount,” within the meaning of Section 280G
of the Code, then no Gross-Up Payment shall be made to the Executive and the
amounts payable under this Agreement or any other amounts in the “nature of
compensation” (whether pursuant to the terms of this Agreement or any other
plan, arrangement or agreement with the Company) shall be reduced so that the
value of all Payments, in the aggregate, equals the Safe Harbor Amount.  The “Safe Harbor Amount” means 2.99 times the
Executive’s “base amount,” within the meaning of Section 280G of the
Code.  The reduction in accordance with
this paragraph (b) shall be made in the following order:

 

(i)  First, by reducing
the cash amounts of Payments (excluding coverage under a hospitalization plan,
major medical plan, dental plan, group-term life insurance plan, accidental
death and dismemberment plan (“welfare benefits”) that would not constitute
Deferred Compensation (with the Payments subject to such reduction to be
determined by the Company), to the extent necessary to decrease the Payments to
the Base Amount.

 

(ii)  Next, if after
the reduction to zero of the amounts described in paragraph (i) above, the
remaining scheduled Payments are greater than the Base Amount, then by reducing
the cash amounts of Payments (excluding welfare benefits) that constitute
Deferred Compensation, with the reductions to be applied first to the Payments
scheduled for the latest distribution date, and then applied to distributions
scheduled for progressively earlier distribution dates, to the extent necessary
to decrease the Payments to the Base Amount.

 

43

 

As a result of uncertainty in the application
of Section 280G of the Code at the time of any initial determination by
the Accounting Firm (as described in paragraph (c) below), it is possible
that Payments will have been paid or distributed by the Company which should
not be so paid or distributed (“Overpayment”) or that additional Payments which
were not paid or distributed by the Company could have been so paid or
distributed (“Underpayment”), in each case, consistent with the calculation of
the amount due hereunder.  In the event
that the Accounting Firm determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the Executive which
the Executive shall repay to the Company promptly upon receiving notice of such
Overpayment together with interest at the applicable federal rate provided for
in Section 7872(f)(2) of the Code; provided, however, that no amount
shall be payable by the Executive to the Company (or if paid by the Executive
to the Company shall be returned to the Executive) if and to the extent such
payment would not reduce the amount which is nondeductible under Section 280G
of the Code or which is subject to taxation under Section 4999 of the
Code.  In the event that the Accounting
Firm determines that an Underpayment has occurred, any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive together
with interest at the applicable federal rate provided for in Section 7872(f)(2) of
the Code.

 

(c)  Subject to the provisions of
paragraph (d) below, all determinations required to be made under this Exhibit B,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment, or whether a reduction in Payments is required under
paragraph (b) above is required, and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
accounting firm (the “Accounting Firm”) which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. 
The Accounting Firm shall be jointly selected by the Company and the
Executive and shall not, during the two years preceding the date of its
selection, have acted in any way on behalf of the Company or its affiliated
companies.  If the Company and the
Executive cannot agree on the firm to serve as the Accounting Firm, then the
Company and the Executive shall each select a nationally recognized accounting
firm and those two firms shall jointly select a nationally recognized
accounting firm to serve as the Accounting Firm.  All fees and expenses of the Accounting Firm
shall be borne solely by the Company. 
Any Gross-Up Payment, as determined pursuant to this Exhibit B,
shall be paid by the Company to the Executive within five days of the receipt
of the Accounting Firm’s determination. 
If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion that failure
to report the Excise Tax on the Executive’s applicable federal income tax
return would not result in the imposition of a negligence or similar
penalty.  Any determination by the
Accounting Firm shall be binding upon the Company and the Executive.  As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made (a “Gross-Up
Underpayment”), consistent with the calculations required to be made
hereunder.  In the event that the Company
exhausts its remedies pursuant to paragraph (d) below and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Gross-Up Underpayment that has occurred and
any such 

 

44

 

Gross-Up Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.

 

(d)  The Executive shall notify the
Company in writing of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Company of a Gross-Up
Payment.  Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid.  The Executive shall not pay such
claim prior to the expiration of the 30-day period following the date on which
he or she gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due).  If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:

 

(i)            give the Company any information reasonably requested
by the Company relating to such claim,

 

(ii)           take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the Company,

 

(iii)          cooperate with the Company in good faith in order
effectively to contest such claim, and

 

(iv)          permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.

 

Without limitation on the foregoing
provisions of this paragraph (d), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Executive agrees
to prosecute such contest to a determination before any administrative
tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company
directs the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or penalties with respect
thereto) imposed with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided the Executive shall
not be required by the Company to agree to any extension of the statute of
limitations relating to the payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
unless such

 

45

 

extension is limited solely to such contested
amount.  Furthermore, the Company’s
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be entitled
to settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.

 

(e)  If, after the receipt by the
Executive of an amount advanced by the Company pursuant to paragraph (d) above,
the Executive becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company’s complying with the
requirements of paragraph (d) above) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto).  If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to paragraph (d) above, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

 

(f)  If, pursuant to regulations issued
under Section 280G or 4999 of the Code, the Company and the Executive were
required to make a preliminary determination of the amount of an excess
parachute payment and thereafter a redetermination of the Excise Tax is
required under the applicable regulations, the parties shall request the
Accounting Firm to make such redetermination. 
If as a result of such redetermination an additional Gross-Up Payment is
required, the amount thereof shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm’s determination.  If the redetermination of the Excise Tax
results in a reduction of the Excise Tax, the Executive shall take such steps
as the Company may reasonably direct in order to obtain a refund of the excess Excise
Tax paid.  If the Company determines that
any suit or proceeding is necessary or advisable in order to obtain such
refund, the provisions of paragraph (d) above relating to the contesting
of a claim shall apply to the claim for such refund, including, without
limitation, the provisions concerning legal representation, cooperation by the
Executive, participation by the Company in the proceedings and indemnification
by the Company.  Upon receipt of any such
refund, the Executive shall promptly pay the amount of such refund to the Company.  If the amount of the income taxes otherwise
payable by the Executive in respect of the year in which the Executive makes
such payment to the Company is reduced as a result of such payment, the
Executive shall, no later than the filing of his income tax return in respect
of such year, pay the amount of such tax benefit to the Company.  In the event there is a subsequent
redetermination of the Executive’s income taxes resulting in a reduction of
such tax benefit, the Company shall, promptly after receipt of notice of such
reduction, pay to the Executive the amount of such reduction.  If the Company objects to the calculation or
recalculation of the tax benefit, as described in the preceding two sentences,
the Accounting Firm shall make the final determination of the appropriate
amount.  The Executive shall not be
obligated to pay to the Company the amount of any further tax benefits that may
be realized by him or her as a result of paying to the Company the amount of
the initial tax benefit.

 

46

 

EXHIBIT C

Executive Release And Waiver

 

1.  This
document is attached to, is incorporated into, and forms a part of, the
employment agreement dated
                      ,
2009 (the “Agreement”) by and between Sean W. McCarthy (the “Executive”) and
Assured Guaranty U.S. Holdings, Inc. (the “Company”).  The Executive, on behalf of himself and the
other Executive Releasors, knowingly and voluntarily releases and forever
discharges the Company and the other Company Releasees from any and all Claims
which the Executive now has or claims, or might hereafter have or claim (or the
other Executive Releasors may have, to the extent that it is derived from a
Claim which the Executive may have), against the Company Releasees based upon
or arising out of any matter or thing whatsoever, occurring or arising on or
before the date of this Release and Waiver, to the extent that the Claim arises
out of or relates to the Executive’s employment by the Company and its
Affiliates (including his service as a director of the Company and its
Affiliates) and/or the Executive’s termination or resignation therefrom.  However, nothing in this Release and Waiver
shall constitute a release of any Claims of the Executive (or other Executive
Releasors) that may arise under Section 8(c) (relating to
indemnification against certain claims), Section 9(d) (relating to
payments on employment termination), or Exhibit B (relating to certain tax
payments of the Agreement).

 

For purposes of this Release and Waiver, the terms
set forth below shall have the following meanings:

 

(a)           The term “Agreement”
shall include the Agreement and the Exhibits thereto, and including the plans
and arrangements under which the Executive is entitled to benefits in
accordance with the Agreement and the Exhibits.

 

(b)           The term “Claims”
shall include (except for claims for breach of the Agreement) any and all
rights, claims, demands, debts, dues, sums of money, accounts, attorneys’ fees,
complaints, judgments, executions, actions and causes of action of any nature
whatsoever, known or unknown, cognizable at law or equity, and shall include,
without limitation, claims arising under (or alleged to have arisen under) (i) the
Age Discrimination in Employment Act of 1967, as amended; (ii) Title VII
of the Civil Rights Act of 1964, as amended; (iii) The Civil Rights Act of
1991; (iv) Section 1981 through 1988 of Title 42 of the United States
Code, as amended; (v) the Employee Retirement Income Security Act of 1974,
as amended; (vi) The Immigration Reform Control Act, as amended; (vii) The
Americans with Disabilities Act of 1990, as amended; (viii) The National
Labor Relations Act, as amended; (ix) The Fair Labor Standards Act, as
amended; (x) The Occupational Safety and Health Act, as amended; (xi) The
Family and Medical Leave Act of 1993; (xii) the Sarbanes-Oxley Act; (xiii) the
federal Worker Adjustment and Retraining Notification Act and any similar state
laws; (xiv) any state antidiscrimination law; (xv) any state or local wage and
hour law; (xvi) any other local, state or federal law, regulation or ordinance;
(xvii) any whistleblower law; (xviii) any public policy, contract, tort, or
common law; or (xix) any allegation for costs, fees, or other expenses
including attorneys’ fees incurred in

 

47

 

these
matters.  (Executive specifically
releases any claim based on any amendment to the laws referenced, whenever such
amendment was enacted, and specifically releases any claim under the Lily
Ledbetter Fair Pay Act and any new laws enacted after January 1,
2009.  Executive does not, however,
release any claim which the statute provides may not be released under any
circumstances.)

 

(c)           The term “Company
Releasees” shall include the Company and its Affiliates (as defined in the
Agreement), and their officers, directors, trustees, members, representatives,
agents, employees, shareholders, partners, attorneys, assigns, administrators
and fiduciaries under any employee benefit plan of the Company and its Affiliates,
and insurers, and their predecessors and successors.

 

(d)           The term “Executive
Releasors” shall include the Executive, and his family, heirs, executors,
representatives, agents, insurers, administrators, successors, assigns, and any
other person claiming through the Executive.

 

2.  The following provisions are applicable to
and made a part of the Agreement and this Release and Waiver:

 

(a)           This Release
and Waiver shall be executed not earlier than the Executive’s Termination Date
(as defined in the Agreement).  By this
Release and Waiver, the Executive Releasors do not release or waive any right
or claim which they may have under the Age Discrimination in Employment Act, as
amended by the Older Workers Benefit Protection Act, which arises after the date
of execution of this Release and Waiver.

 

(b)           In exchange for
this Release and Waiver, the Executive hereby acknowledges that he has received
separate consideration beyond that to which he is otherwise entitled under the
Company’s policy or applicable law.

 

(c)           The Company
hereby expressly advises the Executive to consult with an attorney of his
choosing prior to executing this Release and Waiver.

 

(d)           The Executive
has twenty-one (21) days from the date of presentment to consider whether or
not to execute this Release and Waiver. 
In the event of such execution, the Executive has a further period of
seven (7) days from the date of said execution in which to revoke said
execution.  This Release and Waiver will
not become effective until expiration of such revocation period.

 

(e)           This Release
and Waiver, and the commitments and obligations of all parties under Section 9(d) of
the Agreement:

 

(i) 
shall become final and binding immediately following the expiration of the
Executive’s right to revoke the execution of this Release and Waiver in
accordance with paragraph 2(d) of this Exhibit C;

 

(ii) 
shall not become final and binding until the expiration of such right to
revoke; and

 

48

 

(iii) 
shall not become final and binding if the Executive revokes such execution.

 

3.  The Executive hereby acknowledges that he has
carefully read and understands the terms of this Release and Waiver and each of
his rights as set forth therein.

 

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Executive

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
   

  	
   

  	
   

  
	
  State of

  	
   

  	
   

  	
   

  
	
  County of

  	
   

  	
   

  	
   

  
	
  Subscribed Before Me This

  	
   

  	
   

  
	
        
  Day of
                    ,
          .

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Notary Public

  	
   

  	
   

  
						

 

49Exhibit
10.16

 

SETTLEMENT
AGREEMENT

 

THIS AGREEMENT, entered into
as of July 1, 2009, by and among Robert Cochran (the “Executive”),
Financial Security Assurance Holdings, Ltd., a New York corporation (the “Company”),
Assured Guaranty Ltd., a Bermuda corporation (“AGL”), Dexia Holdings, Inc.
(“DHI”) and Dexia Crédit Local, S.A. (“DCL” and, together with DHI, “Dexia”).

 

WHEREAS, the Company and the
Executive entered into an employment agreement effective as of February 14,
2008 (the “FSA Employment Agreement”), and the Parties (as defined below) have
been negotiating with respect to a claim by the Executive, disputed by the
Company;

 

WHEREAS, AGL has entered
into a stock purchase agreement, dated as of November 14, 2008 (the “Purchase
Agreement”), with Dexia to purchase the Company and certain of its subsidiaries
(the “Acquisition”), and prior to the Acquisition, the Executive has been
employed by the Company;

 

WHEREAS, upon the
consummation of the Acquisition (the “Closing”), and contingent upon the
occurrence of the Closing, the Parties hereto wish to settle all rights and
claims under the FSA Employment Agreement and certain other arrangements as
provided herein with respect to the Executive’s employment with the Company
(including the Share Purchase Program Agreement (the “SPPA”), dated as of December 15,
2000, and amended as of February 14, 2008, among the Executive, Dexia and
the Company), effective as of the date of such Closing (the “Effective Date”)
unless otherwise required by the provisions of Section 3(a)(ii) of
this Agreement; and

 

 

WHEREAS, AGL is entering
into this Agreement solely with respect to and as provided in Sections 1(a),
2(b), 2(c), 3(a), 3(b), 3(c), 3(d), 3(f), 3(g), 5, 6, 7, 8, 9, 10, 11, 13, 14,
15, 16, and Exhibit A1, Exhibit A2, and Exhibit B;

 

WHEREAS, Dexia is entering
into this Agreement solely with respect to and as provided in Sections 1(a),
3(a), 3(b), 3(c), 3(d), 3(e), 3(f), 3(g), 5, 6, 7, 8, 9, 10, 11, 13, 14, 15,
16, and Exhibit A1, Exhibit A2, Exhibit B, and Exhibit D;

 

NOW, THEREFORE, in
consideration of the promises and mutual covenants contained herein and for
other good and valuable consideration, the Company, AGL, Dexia and the
Executive (the “Parties”) hereby agree as follows:

 

1. General
Effectiveness; Termination Date

 

(a)  The effectiveness
of this Agreement is contingent on the occurrence of the Effective Date, and no
Party shall have any rights or obligations under this Agreement (or the
Executive General Release, the Executive ADEA Release or the AGL/Dexia General
Release (each as defined below)) unless such Closing occurs.  In the event that the Closing does not occur
and the parties to the Acquisition terminate the definitive agreements with
respect thereto, this Agreement (and the Executive General Release, the
Executive ADEA Release and the AGL/Dexia General Release) shall be null and
void ab initio.

 

(b) The effective date
of the Executive’s separation from all positions and employment with the
Company and its subsidiaries will be the Effective Date.

 

2. Payments
and Benefits

 

(a)(i) On the Effective
Date, following the Closing, the Company will pay to the Executive a cash lump
sum of $8,500,000.

 

2

 

(ii) On the first
business day after the Executive ADEA Release Effective Date (as defined in Exhibit A2,
and provided that such Executive ADEA Release Effective Date has occurred), the
Company will pay to the Executive a lump sum cash payment of $1,500,000.

 

(b) On the Effective
Date, AGL will give to the transfer agent of AGL common shares irrevocable
instructions to deliver to the Executive, 305,017 AGL common shares (the “AGL
Shares”) in return for his delivering to AGL 24,611 outstanding shares of
common stock of the Company, which are all of the issued and outstanding shares
of Company common stock held by the Executive. 
The Executive agrees to execute such documents, as reasonably requested
by the Company, to effect the transfer of the 24,611 shares of common stock of
the Company.  It is expected that the
transfer agent will transfer the AGL Shares to the Executive within three
business days after the Effective Date.

 

(c)(i) AGL agrees to
file a prospectus supplement to its registration statement on Form S-3ASR
(Registration Statement No. 333-152890) pursuant to Rule 424(b)(7) of
the Securities Act of 1933 (the “Securities Act”), naming the Executive as a
selling stockholder with respect to the AGL Shares, or to otherwise register
the AGL Shares for resale by the Executive, promptly following the issuance of
the AGL Shares to the Executive and to provide the Executive, without charge,
such reasonable number of such prospectus supplement and prospectus as the
Executive may request.  AGL agrees to
keep any registration statement effective with respect to the AGL Shares until
the Executive may sell the AGL Shares without restriction pursuant to Rule 144
of the Securities Act.

 

(ii) AGL agrees to
notify the Executive at any time when a prospectus relating to such
registration is required to be delivered under the Securities Act, upon
discovery that, or upon the discovery of the happening of any event as a result
of which, the prospectus contains an

 

3

 

untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading in the light
of the circumstances under which they were made, and, as soon as reasonably
practicable, prepare and furnish to the Executive a reasonable number of copies
of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of the AGL Shares, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading in the light of the circumstances
under which they were made.

 

(iii) AGL agrees to
notify the Executive (A) when such prospectus supplement, registration
statement or post-effective amendment has been filed and, with respect to any
such registration statement or any post-effective amendment, when the same has
become effective, (B) of any request by the Securities and Exchange
Commission (“SEC”) for amendments or supplements to such Registration Statement
or to amend or to supplement such prospectus or for additional information, and
(C) of the issuance by the SEC of any stop order suspending the
effectiveness of the applicable 
registration statement or the initiation of any proceedings for any of
such purposes.

 

(iv) AGL will cause the
AGL Shares to be listed on the New York Stock Exchange, subject to official
notice of issuance.

 

(v) The Executive
agrees that, upon receipt of any notice from AGL of the happening of any event
of the kind described in Section 2(c)(ii), the Executive will forthwith
discontinue the disposition of the AGL Shares pursuant to the applicable
registration statement until he receives copies of a supplemented or amended
prospectus as contemplated by such Section 2(c)(ii).

 

4

 

(vi)  The Executive
agrees that he will only sell the AGL Shares in ordinary brokerage transactions
on the New York Stock Exchange.  AGL
agrees that it will deliver copies of the applicable prospectus supplement
and/or prospectus for the AGL Shares to the New York Stock Exchange.

 

3.  Mutual Release and Waiver; Other

 

(a)(i) As part of this
Agreement, and in consideration of the payments provided to the Executive in
accordance with this Agreement, the Executive has, simultaneous with the
execution of this Agreement, executed the General Release and Waiver, in the
form set forth as Exhibit A1 of this Agreement, which is attached to and
forms a part of this Agreement (the “Executive General Release”).  This Agreement (including the Executive
General Release and the AGL/Dexia General Release but excluding the Executive
ADEA Release and the payment in accordance with Section 2(a)(ii)) and the
commitments and obligations of all Parties hereunder:

 

(I) 
shall become final and binding as of the Effective Date; and

 

(II) 
shall not become final and binding until the Effective Date.

 

(ii) As part of this
Agreement, and in consideration of the payment provided to the Executive in
accordance with Section 2(a)(ii), the Executive has, simultaneous with the
execution of this Agreement, executed the Executive ADEA Release and Waiver, in
the form set forth as Exhibit A2 of this Agreement, which is attached to
and forms a part of this Agreement (the “Executive ADEA Release”).  The obligation to make the payment under Section 2(a)(ii):

 

(I) 
shall become final and binding as of the Executive ADEA Release Effective Date;

 

5

 

(II) 
shall not become final and binding until the Executive ADEA Release Effective
Date; and

 

(III) 
shall be null and void ab initio if the Executive revokes the Executive ADEA
Release in accordance with Section 2(d) of the Executive ADEA
Release.

 

(b) Except as provided
below, the amounts described in Section 2 will be in lieu of all rights,
payments, and benefits that may otherwise be due under the FSA Employment
Agreement and all other rights with respect to the Executive’s employment with
(and otherwise providing services to) the Company or any of its
Affiliates.  The payments and benefits
being released by the Executive pursuant to this Agreement include, without
limitation:

 

(i) All rights to any
bonus amounts.

 

(ii) All rights to any
Performance Shares (as that term is used in the FSA Employment Agreement, and
as that term is used in the Performance Share Plan as described in the FSA
Employment Agreement), and the right to cash, other payment or consideration
with respect to Performance Shares.

 

(iii) All rights to any
stock options, restricted stock, and any other awards based on the shares of
the Company.

 

(iv) All rights to
Severance Payments (as defined in the FSA Employment Agreement) or other
payments and benefits under the FSA Employment Agreement or the FSA Severance
Policy for Senior Management.

 

(v) All rights under
the SPPA.

 

6

 

(vi)  All rights the
Executive may have to “Gross-Up Payments” from AGL, the Company or their
respective subsidiaries and affiliates (other than Dexia) in respect of the
Excise Tax (each, as defined in the FSA Employment Agreement), subject to Section 3(e).

 

(vii) Subject to Section 3(c)(v),
all rights the Executive may have under the Dexia Leveraged Employee Share Plan
from AGL, the Company or their respective subsidiaries and affiliates (other
than Dexia), and all rights the Executive may have to shares of Dexia Restricted
Stock granted pursuant to the Financial Security Assurance Holdings Ltd. 2004
Equity Participation Plan from AGL and its respective subsidiaries and
affiliates (other than the Company and Dexia).

 

(viii) All rights the
Executive may have to the 27,087 FSA share units credited to the Executive’s
account under the 1995 DCP and any rights the Executive may have under the
SPPA.

 

(c) Notwithstanding the
foregoing, this Agreement will not adversely affect the Executive’s rights to
the following:

 

(i) Any unpaid salary
for periods prior to the Effective Date.

 

(ii) Any right to
unreimbursed medical expenses for periods prior to the Effective Date in
accordance with the applicable terms of the medical benefit plans of the
Company, and any rights to medical coverage required to be provided in
accordance with the provisions of section 4980B of the Internal Revenue Code
(the “Code”) and section 601 of the Employee Retirement Income Security Act
(sometimes referred to as “COBRA coverage”) or required to be provided under
applicable state law.

 

(iii) Any unreimbursed
travel or other business expenses incurred on behalf of the Company in
accordance with its policies for periods prior to the Effective Date.

 

7

 

(iv) Any rights the
Executive may have under the Financial Security Assurance Inc. Money Purchase
Plan; the Financial Security Assurance Inc. Cash or Deferred Plan; the
Financial Security Assurance Holdings Ltd. 2004 Supplemental Executive
Retirement Plan; the Financial Security Assurance Holdings Ltd. 1989
Supplemental Executive Retirement Plan; the Financial Security Assurance
Holdings Ltd. 2004 Deferred Compensation Plan; and the Financial Security
Assurance Holdings Ltd. 1995 Deferred Compensation Plan (the “1995 DCP”),
except as otherwise provided with respect to the 1995 DCP in Section 3(b)(viii),
which, in each case, shall be payable in accordance with their terms.  The Company and the Executive acknowledge
that the Executive’s accrued benefits under each such plan is set forth on Exhibit C
of this Agreement, which is attached to and forms a part of this Agreement.

 

(v) Dexia agrees to pay
to the Executive his benefits due under the Dexia Leveraged Employee Share Plan
in accordance with its terms.  Dexia and
the Company agree to distribute to the Executive the shares of Dexia Restricted
Stock granted to the Executive pursuant to the Financial Security Assurance
Holdings Ltd. 2004 Equity Participation Plan in accordance with their
respective obligations thereunder as in effect on the Effective Date.  Dexia, the Company and the Executive
acknowledge that the Executive’s accrued rights under such arrangements are set
forth on Exhibit D of this Agreement, which is attached to and forms a
part of this Agreement.

 

(vi) Any amounts that
are due pursuant to the right of the Executive and the Executive’s heirs,
estate, executors and administrators to indemnification from the Company (or
from a third-party insurer for directors and officers liability coverage) with
respect to any costs, losses, claims, suits, proceedings, damages or
liabilities to which the Executive may become

 

8

 

subject which arise out of, are based upon or
relate to the Executive’s employment by the Company or the Executive’s service
as an officer or member of the board of directors of the Company or any of its
Affiliates, to the extent such amounts would have been due from the Company in
accordance with the terms of the FSA Employment Agreement, or the articles of
incorporation or by-laws of the Company as in effect immediately prior to the
Effective Date.  Further, for a period of
six years after the Effective Date, the Company or an Affiliate of the Company
will maintain the XL insurance policy currently maintained by the Company (or a
similar replacement policy) for the benefit of the Executive (and, to the
extent provided under the policy as currently maintained by the Company, or a
similar replacement policy, his survivors and heirs, and other persons eligible
for coverage by reason of liability incurred by the Executive), which policy
provides for reimbursement of certain otherwise non-indemnifiable expenses, not
exceeding $10,000,000 in the aggregate. 
For the avoidance of doubt, it is recited here that nothing in this Section 3
or otherwise in this Agreement shall preserve the Executive’s right to payment
of costs and legal fees pursuant to Section 12 of the FSA Employment
Agreement.

 

(d)  As part of this
Agreement, and in consideration of the benefits provided to each of the
Company, AGL and Dexia hereunder, the Company, AGL and Dexia have each,
simultaneously with the execution of this Agreement, executed the AGL/Dexia
General Release in the form set forth as Exhibit B of this Agreement,
which is attached to and forms a part of this Agreement (the “AGL/Dexia General
Release”).  For the avoidance of doubt,
the FSA Employment Agreement shall expire and have no further force or effect
as of the Effective Date, except as otherwise expressly provided herein.

 

9

 

(e)  To the extent, if
any, that, in the absence of this Agreement, the Executive would have been
entitled to “Gross-Up Payments” in respect of the “Excise Tax” (each, as
defined in the FSA Employment Agreement) pursuant to the FSA Employment
Agreement, Dexia shall provide such Gross-Up Payments to the Executive in
respect of the Excise Tax on the same terms and conditions as provided in the
FSA Employment Agreement.

 

(f)  The term “Affiliates”
with respect to any person means any other person directly or indirectly
controlling, controlled by, or under common control with such person.

 

(g)  The Executive
agrees that he will cooperate reasonably with the Company, AGL, Dexia, and
their Affiliates in the defense of any investigations of the Company, AGL, and
Dexia and their Affiliates or any third-party claims that may be made against
any of the Company, AGL, and Dexia and their Affiliates, to the extent that
such claims may relate to the period during which the Executive performed
services for the Company or Dexia; which shall include, without limitation, any
alleged bid-rigging, anti-competitive activity, or violations of securities
law.  (Such investigations and
third-party claims with respect to alleged bid-rigging, anti-competitive
activity, or violations of securities law are collectively referred to as the “Actions.”)  In furtherance (but not in limitation) of the
foregoing, Executive agrees to provide the Company, AGL, Dexia and their
Affiliates and their counsel reasonable access to all relevant business records
and other documents in Executive’s possession and to give testimony and provide
affidavits or declarations as required by the Company, AGL, and Dexia and their
Affiliates with respect to the matters as to which he is cooperating pursuant
to this Section 3(g).  The Company,
AGL, and Dexia (as applicable depending on which entity requested assistance
under this Section 3(g)) will promptly reimburse the Executive for his
reasonable out-of-pocket expenses incurred in connection 

 

10

 

with the foregoing assistance, cooperation,
and access.  If any of the Company, AGL,
Dexia or their Affiliates determine to resolve, in whole or in part, any Action
by settlement, they shall use commercially reasonable efforts to include the
Executive as a party covered by and released from further claims pursuant to
such settlement; provided, however, that nothing in this sentence shall be
construed to in any way limit the discretion of any such company as to whether
to enter into a settlement or to determine the terms of such settlement; and
further provided that nothing in this sentence shall be construed to prejudice
the rights the Company, AGL, Dexia and their Affiliates to pursue claims
against the Executive to the extent they could do so in the absence of this
sentence.

 

4. Withholding

 

Anything in this Agreement
to the contrary notwithstanding, all payments required to be made by the
Company hereunder to the Executive shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it is
required to withhold pursuant to any applicable law or regulation. In lieu of
withholding such amounts, in whole or in part, the Company may, in its sole
discretion, accept other provision for payment of taxes as required by law,
provided it is satisfied that all requirements of law affecting its
responsibilities to withholding such taxes have been satisfied.

 

5. Certain
Agreements between AGL, the Company and Dexia

 

(a)  Each of AGL and
Dexia agrees that at the Closing (i) 305,017 AGL Common Shares (as defined
in the Purchase Agreement) shall be deducted from the Share Consideration (as
defined in the Purchase Agreement) otherwise payable to Dexia pursuant to the
terms of the Purchase Agreement and (ii) the cash consideration payable by
AGL to Dexia pursuant to the Purchase Agreement shall be increased by
$1,119,262 (representing $21.65 for each of the 

 

11

 

(x) 27,087 FSA share
units and (y) the 24,611 FSA common shares forfeited and delivered,
respectively, by Executive pursuant to the terms of this Agreement).  Each of AGL and Dexia hereby agrees that the
foregoing shall act as an amendment to the terms of the Purchase Agreement
pursuant to Section 10.1 thereof.

 

(b) Pursuant to Section 10.1
of the Purchase Agreement, AGL waives any right to any Director Share Price
Differential (as defined in the Purchase Agreement) relating to the 27,087 FSA
share units and the 24,611 FSA common shares forfeited and delivered,
respectively, by Executive pursuant to this Agreement.

 

(c) Pursuant to Section 4,
the Company shall withhold taxes with respect to payments and distributions of
cash and AGL Common Shares in accordance with Section 2, and with respect
to distributions it makes under Section 3(c)(v), and will hold Dexia
harmless for any tax liabilities asserted against Dexia with respect to such
payments and distributions.  Nothing in
paragraph 2 of this Agreement shall supersede the provisions of Section 5.2
of the Purchase Agreement.

 

(d) Except as otherwise
provided in this Agreement, Dexia shall have no liability for payment of
compensation or benefits to the Executive.

 

6.   Arbitration of All Disputes

 

Except as otherwise provided
in the Executive General Release, the Executive ADEA Release or the AGL/Dexia
General Release, any controversy or claim arising out of or relating
to this Agreement or the breach thereof shall be settled by arbitration in the
City of New York in accordance with American Arbitration Association’s National
Rules for Resolution of Employment Disputes.

 

12

 

7.  Entire Agreement

 

This Agreement as in effect
as of the Effective Date contains the entire agreement among the Parties
concerning the subject matter hereof and supercedes all prior agreements,
discussions, negotiations, and undertakings, whether written or oral, among the
Parties with respect thereto, including, without limitation, the FSA Employment
Agreement, the SPPA and any settlement agreements prior to the date of this
Agreement with respect to the subject matter hereof.

 

8. Assignability;
Binding Nature

 

This Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors, heirs, and assigns.  No
rights or obligations of the Executive under this Agreement may be assigned or
transferred by the Executive, other than by will or operation of law subject to
the limitations of this Agreement.  No
rights or obligations of the Company, AGL, or Dexia under this Agreement may be
assigned or transferred by the Company, AGL, or Dexia except that such rights
or obligations may be assigned or transferred pursuant to a merger or
consolidation in which the Company, AGL, or Dexia, as applicable, is not the continuing
entity, or the sale or liquidation of all or substantially all of the assets of
the Company, AGL, or Dexia, as applicable, provided that that assignee or
transferee is the successor to all or substantially all of the assets of the
Company, AGL, or Dexia, as applicable, and such assignee or transferee assumes
the liabilities, obligations, and duties of the Company, AGL, or Dexia, as
applicable, as contained in this Agreement, either contractually or as a matter
of law.

 

13

 

9. Amendment
or Waiver

 

No provision in this
Agreement may be amended or waived unless such amendment or waiver is (a) agreed
to in writing, and (b) the amendment or waiver is signed by the Executive
and by an authorized officer of the Company, and, to the extent AGL or Dexia
may be adversely affected by such amendment or waiver, signed by an authorized
officer of AGL and Dexia, respectively, or their respective successors.  No waiver by any Party hereto of any breach
by any other Party of any condition or provision of this Agreement to be
performed by such other Party shall be deemed a waiver of a similar or
dissimilar condition or provision at the same or any prior or subsequent time.

 

10.  Notices

 

Any notice required or
permitted to be given under this Agreement shall be in writing and shall be
deemed to have been given when delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, duly addressed to
the Party concerned at the address indicated below to such changed address of
which such Party may subsequently by similar process give notice:

 

If to the Company:

 

Financial Security Assurance
Holdings, Ltd.

Attention: General Counsel

31 West 52nd Street

New York, NY  10019

 

With a copy to:

 

Assured Guaranty Ltd.

Attention: General Counsel

30 Woodbourne Ave

Hamilton, Bermuda

 

14

 

If to the Executive:

 

Mr. Robert Cochran

c/o Cravath, Swaine &
Moore LLP

Worldwide Plaza

825 8th Avenue

New York, NY  10019

Attn:  Eric Hilfers

 

With a copy to:

 

Cravath, Swaine &
Moore LLP

Worldwide Plaza

825 8th Avenue

New York, NY  10019

Attn:  Eric Hilfers

 

If to Dexia:

 

Dexia SA/NV

Place Rogier 11

1210 Brussels, Belgium

Attention: Secretary General

Facsimile:  +32 2 213 58 90

Email:  secretarygeneral@dexia.com

 

With a copy to:

 

Gibson, Dunn &
Crutcher LLP

200 Park Avenue

New York, New York 10166

Attention:  Michael Rosenthal

Facsimile:  (214) 571-2951

 

11. Survivorship

 

The respective rights and
obligations of the Parties shall survive any termination of this Agreement to
the extent necessary to the intended preservation of such rights and
obligations.

 

15

 

12. References

 

In the event of the
Executive’s death or a judicial determination of his incompetence, reference in
this Agreement to the Executive shall be deemed, where appropriate, to refer to
his estate or other legal representative. 
All statements of or references to dollar amounts in this Agreement
shall mean lawful money of the United States of America.

 

13. Compliance
with Section 409A

 

It is the intention of the
Parties that the payments and benefits to which the Executive could become
entitled under this Agreement not be subject to accelerated recognition of income
or imposition of additional tax under Code section 409A, and that the payments
under this Agreement will satisfy the requirements of Treas. Reg.
§1.409A-1(b)(11) (relating to legal settlements) and Treas. Reg. §1.409A-3(g) (relating
to disputed payments), and this Agreement shall be construed in a manner that
is consistent with this intent.  Any
reimbursement or in-kind benefits provided for under this Agreement in any
calendar year shall not affect the reimbursements or benefits to be provided in
any other calendar year, any such reimbursements shall be made no later than
the end of the calendar year following the year in which the underlying expense
was incurred and the right to such reimbursements and benefits shall not be
liquidated or exchanged for any other benefit or amount.

 

14. Governing-Law

 

This Agreement shall be
governed by and construed and interpreted in accordance with the laws of New
York, without reference to the principles of conflict of laws of any
jurisdiction.

 

16

 

15. Headings

 

The headings of paragraphs
contained in this Agreement are for convenience only and shall not be deemed to
control or affect the meaning or construction of any provision of this
Agreement.

 

16. Counterparts

 

This Agreement may be
executed in one or more counterparts.

 

IN WITNESS WHEREOF, the
Executive has signed this Agreement on the date set forth below and, on behalf
of the Company, AGL and Dexia, the undersigned officers of the Company, AGL and
Dexia, respectively, have executed this Agreement pursuant to the authority
delegated to them by such companies.

 

	
  Date: July 1, 2009

  	
   

  
	
   

  	
   

  
	
   

  	
  Robert Cochran

  
	
   

  	
   

  
	
  Financial Security
  Assurance Holdings, Ltd.

  	
   

  
	
   

  	
   

  
	
  Date: July 1, 2009

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Assured Guaranty Ltd.
  (solely with respect to 1(a), 2(b), 2(c), 3(a), 3(b), 3(c), 3(d),
  3(f), 3(g), 5, 6, 7, 8, 9, 10, 11, 13, 14, 15, 16, and Exhibit A1,
  Exhibit A2, and Exhibit B)

  
	
   

  	
   

  	
   

  
	
  Date: July 1, 2009

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Dexia Holdings, Inc.
  (solely with respect to Sections 1(a), 3(a), 3(b), 3(c),
  3(d), 3(e), 3(f), 3(g), 5, 6, 7, 8, 9, 10, 11, 13, 14, 15, 16, and
  Exhibit A1, Exhibit A2, Exhibit B, and Exhibit D)

  
	
   

  	
   

  	
   

  
	
  Date: July 1, 2009

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  
	
  Dexia Crédit Local, S.A.
  (solely with respect to Sections 1(a), 3(a), 3(b), 3(c),
  3(d), 3(e), 3(f), 3(g), 5, 6, 7, 8, 9, 10, 11, 13, 14, 15, 16, and
  Exhibit A1, Exhibit A2, Exhibit B, and Exhibit D)

  
	
   

  	
   

  	
   

  
	
  Date: July 1, 2009

  	
  By:

  	
   

  

 

17

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