Document:

Exhibit 10.5

 

For participants subject to $1 million limit

 

Terms of Performance Retention Award

Four Year Installment Vesting

Granted on                   , 2011

 

The Assured Guaranty Ltd. (the “Company”) Performance Retention Award amounts described in the enclosed letter (the “Award Letter”) dated                   , 2011 (the “Grant Date”) will be payable in accordance with the following Terms of Performance Retention Award (the “Award Terms”).  Under the following Award Terms, the Principal Amount is divided into three installments, and a different Performance Period is established with respect to each Installment, under paragraph 1 below.  The Performance Retention Award (sometimes referred to as the “Award” or “Award Payment”) will be a cash distribution payable with respect to the Installment for each Performance Period, with the amount determined under paragraph 2 below, subject to the vesting restrictions under paragraph 3 below.  Payment of the Award will be due on the Payment Date determined under paragraph 4 below (subject to paragraphs 2(b) and 2(c)).  Paragraph 5 establishes rules for death, disability, and retirement.  Paragraph 7 provides certain definitions that apply to these Award Terms.

 

1.  Performance Period and Installments.  The Principal Amount is divided into three Installments.  The Performance Period for each Installment, and the Principal Portion of each such Installment, is set forth in the following schedule (provided that the determination of the Performance Periods will be subject to paragraph 5):

 

	
Installment 
   Number:
    	
 
    	
First Day of
   Performance
   Period:
    	
 
    	
Last Day of Performance
   Period:
    	
 
    	
Portion of Principal
   Amount Attributable to
   Installment:
    	
 
    
	
1
    	
 
    	
January 1, 2011
    	
 
    	
December 31, 2012
    	
 
    	
25%
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
2
    	
 
    	
January 1, 2011
    	
 
    	
December 31, 2013
    	
 
    	
25%
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
3
    	
 
    	
January 1, 2011
    	
 
    	
December 31, 2014
    	
 
    	
50%
    	
 
    

 

2.  Amount of Payment.  The Award Payments will be subject to paragraph 3 and to the following:

 

(a)           The Award Payment for each Installment will equal the sum of the amounts described in paragraph (i) below and paragraph (ii) below:

 

 

(i)  The product of (A) 50% of the Portion of the Principal Amount attributable to that Installment, multiplied by (B) a fraction, converted to an equivalent percentage, the numerator of which is the Company’s per-share Adjusted Book Value as of the last day of the applicable Performance Period and the denominator of which is the Company’s per-share Adjusted Book Value as of the first day of the applicable Performance Period.

 

(ii)  The product of (A) 50% of the Portion of the Principal Amount attributable to that Installment, multiplied by (B) a percentage equal to 100% plus (or minus if negative) the Company’s Operating Return on Equity for the Performance Period attributable to that Installment.

 

(b)           The amount determined under both paragraph (a)(i) above and paragraph (a)(ii) above will be zero if both of the following are true:

 

(i)  the percentage described in paragraph (a)(i)(B) for the Performance Period to which the Award is attributable is less than 100%; and

 

(ii)  the percentage described in paragraph (a)(ii)(B) above for the Performance Period to which the Award is attributable is less than the sum of: (A) 100% plus (B) the product of 3% multiplied by the number of years and fractional years in the applicable Performance Period.

 

(c)           Notwithstanding the foregoing provisions of this paragraph 2 (but subject to the provisions of paragraph 5), if:

 

(i)  by reason of paragraph (b) above, the Participant receives no payment with respect to the Installment for either the Performance Period ending December 31, 2012 or December 31, 2013 (each, a “Prior Performance Period”);

 

(ii)  in a subsequent Performance Period under this Agreement (the “Subsequent Performance Period”), either or both of paragraph (b)(i) and (b)(ii) above are satisfied; and

 

(iii)  the Participant’s Date of Termination has not occurred during the Subsequent Performance Period;

 

then, as soon as practicable after the end of the Subsequent Performance Period (and notwithstanding the provisions of paragraph 4), the Participant will receive the payment (without interest) he would have received for the Prior Performance Period if paragraph (b) above had not been applicable to him for the Prior Performance Period.

 

3.  Vesting and Forfeitures.  Vesting of the Award Payment is subject to paragraph 5 and to the following:

 

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(a)           If, in accordance with the following provisions of this paragraph 3, the Participant is vested in the Award Payment for any Performance Period, the Award Payment (if any) for that Performance Period will be due on the Payment Date as described in paragraph 4, subject to the terms of the Plan and these Award Terms.  If the Participant is not vested in the Award for a Performance Period, the Participant will forfeit that Award.

 

(b)           If, with respect to any Installment, the Participant’s Date of Termination does not occur before the last day of the Performance Period for that Installment, the Participant will be vested in the Award Payment.  Subject to paragraph 5, if the Participant’s Date of Termination occurs before the last day of the Performance Period for that Installment, the Participant will not be vested in the Award Payment for that Installment.

 

4.  Payment Date.

 

(a)           Except as otherwise provided in this paragraph 4, and subject to paragraphs 2(b), 2(c), and 5, the Participant’s Award Payment attributable to any Installment will be due on the last day of the Performance Period with respect to that Installment (the “Payment Date” with respect to that Installment).

 

(b)           The Award will be paid to the Participant in a cash lump sum.  Payment will be due on the Payment Date, and will be paid no later than the 15th day of the third month following the end of the Participant’s first taxable year in which the right to the payment is no longer subject to a substantial risk of forfeiture (as determined in accordance with Treas. Reg. §1.409A-1(b)(4)).

 

(c)           Notwithstanding the foregoing, except in the case of a Performance Period ending by reason of the Participant’s death or Permanent Disability, no payment will be made unless, on or before the date of payment, the Committee has certified that the performance goals for the Performance Period and any other material provisions of the Award Terms have in fact been satisfied.

 

5.  Death, Disability and Retirement.  This paragraph 5 will apply to the Participant if, before the last day of the final Performance Period, either the Participant incurs a Permanent Disability or the Participant incurs a Date of Termination by reason of death, Disability, or Retirement, subject to the following:

 

(a)           Death.  If the Participant’s Date of Termination occurs by reason of death, the following provisions of this paragraph (a) will apply:

 

(i)  Effect on Performance Periods.  For each Installment for any Performance Period that ends after the Date of Termination, the Participant’s estate will receive, in lieu of any other payment with respect

 

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to such Installment, an amount equal to the portion of the Principal Amount attributable to that Installment (without regard to the actual performance of Adjusted Book Value or Operating Return on Equity).

 

(ii)  Reinstatement Payments.  Solely for purposes of determining eligibility for payment under paragraph 2(c), the Participant will be considered to have remained employed (and not have incurred a Date of Termination) during all of the Performance Periods.

 

(iii)  Vesting.  The Participant will be vested in the amounts payable under paragraph (i) above.

 

(iv)  Payment Date.  Payments under paragraph (i) above will be due on the Payment Date, which, for such payments, will be the Date of Termination.  Payment of amounts, if any, that become payable under paragraph 2(c) will be made at the time specified under paragraph 2(c).

 

(b)           Permanent Disability.  If the Participant incurs a Permanent Disability prior to his Date of Termination, the following provisions of this paragraph (b) will apply:

 

(i)  Effect on Performance Periods.  For each Installment for any Performance Period that ends after the Participant incurs a Permanent Disability, the Participant will receive, in lieu of any other payment with respect to such Installment, an amount equal to the portion of the Principal Amount attributable to that Installment (without regard to the actual performance of Adjusted Book Value or Operating Return on Equity).

 

(ii)  Reinstatement Payments.  Solely for purposes of determining eligibility for payment under paragraph 2(c), the Participant will be considered to have remained employed (and not have incurred a Date of Termination) during all of the Performance Periods.

 

(iii)  Vesting.  The Participant will be vested in the amounts payable under paragraph (i) above.

 

(iv)  Payment Date.  Payments under paragraph (i) above will be due on the Payment Date, which, for such payments, will be the date on which the Participant incurs a Permanent Disability.  Payment of amounts, if any, that become payable under paragraph 2(c) will be made at the time specified under paragraph 2(c).

 

(c)           Disability.  If the Participant’s Date of Termination occurs by reason of Disability (and unless he has previously incurred a Permanent Disability), the following provisions of this paragraph (c) will apply:

 

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(i)  Effect on Performance Periods.  The last day of each of the Performance Periods will be determined in accordance with paragraph 1 without regard to this paragraph (c).

 

(ii)  Reinstatement Payments.  For purposes of applying paragraph 2(c), the Participant will be considered to have remained employed (and not have incurred a Date of Termination) during all of the Performance Periods.

 

(iii)  Vesting.  For purposes of paragraph 3, the Participant will be vested in the Award Payment for any Performance Period ending after the Date of Termination.

 

(iv)  Payment Date.  The Payment Date will be determined in accordance with paragraph 4 without regard to this paragraph (c); provided that for amounts, if any, that become payable under paragraph 2(c), payment will be made at the time specified under paragraph 2(c).

 

(d)           Retirement.  If the Participant’s Date of Termination occurs by reason of Retirement, the following provisions of this paragraph (d) will apply:

 

(i)  Effect on Performance Periods.  The last day of each of the Performance Periods will be determined in accordance with paragraph 1 without regard to this paragraph (d).

 

(ii)  Reinstatement Payments.  For purposes of determining eligibility for payment under paragraph 2(c), the Participant will be considered to have remained employed (and not have incurred a Date of Termination) during all of the Performance Periods.

 

(iii)  Vesting.  For purposes of paragraph 3, the Participant will be vested in the Award Payment for any Performance Period ending after the Date of Termination.

 

(iv)  Payment Date.  The Payment Date will be determined in accordance with paragraph 4 without regard to this paragraph (d); provided that for amounts, if any, that become payable under paragraph 2(c), payment will be made at the time specified under paragraph 2(c).

 

6.  Recoupment and Applicable Plans.

 

(a)           Notwithstanding anything in this Agreement to the contrary, the Participant’s rights with respect to the Award shall be subject to the Assured Guaranty Ltd. Executive Officer Recoupment Policy as in effect on the Grant Date, a copy of which policy is set forth in the Company’s Code of Conduct, and which generally will not apply to Participants who are not Executive Officers for purposes of SEC rules.

 

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(b)           The Award Payments described in the Award Letter are granted under and pursuant to the terms of the Plan and Section 4 (relating to Cash Incentive Awards) of the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan (the “LTIP”) and are intended to constitute performance-based compensation as that term is used in the LTIP and section 162(m) of the Code.  In no event may the amount payable under these Award Terms, when added to any other amounts payable under Section 4 of the LTIP to the Participant that are intended to constitute “performance-based compensation” as that term is used in the LTIP and section 162(m) of the Code, exceed the limit imposed by Section 5.2(e)(v) of the LTIP for the applicable performance period.  Subject to paragraph (a) above, the terms of this Agreement shall be subject to the terms of the LTIP and the Plan, and this Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the LTIP and the Plan.

 

7.  Definitions.  For purposes of these Award Terms, the definitions set forth in this paragraph 7 or elsewhere in these Award Terms shall apply.  Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan or LTIP is similarly used in these Award Terms.

 

(a)           Adjusted Book Value.  The Adjusted Book Value of the Company as of any date shall equal shareholders’ equity attributable to Assured Guaranty Ltd. (which excludes noncontrolling interest in consolidated entities) adjusted for the following:

 

(i)            Elimination of the effects of consolidating certain variable interest entities in order to present all financial guaranty contracts on a more consistent basis of accounting, whether or not accounting principles generally accepted in the United States of America (GAAP) requires consolidation.

 

(ii)           Elimination of the after-tax non-credit impairment unrealized fair value gains (losses) on credit derivatives, which is the amount in excess of the present value of the expected estimated economic credit losses.

 

(iii)          Elimination of the after-tax fair value gains (losses) on the Company’s committed capital securities.

 

(iv)          Elimination of the after-tax unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (excluding foreign exchange revaluation).

 

(v)           Elimination of after-tax deferred acquisition costs.

 

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(vi)          Addition of the after-tax net present value of estimated net future credit derivative revenue.

 

(vii)         Addition of the after-tax value of the unearned premium reserve on financial guaranty contracts in excess of net expected loss to be expensed, net of reinsurance.

 

Notwithstanding the foregoing, the Committee, in its discretion, may adjust the determination of the Company’s Adjusted Book Value as it deems necessary or desirable to achieve the purpose and/or preserve the benefits or potential benefits of the Award (including, without limitation, adjustments to reflect corporate transactions).  However, in no event may the Committee make such adjustments to the extent that the adjustments would result in amounts payable under this Agreement or other compensation payable to the Participant being nondeductible by the Company and its affiliates by reason of section 162(m).

 

(b)           Date of Termination.  A Participant’s “Date of Termination” means the first day on which the Participant is not employed by the Company or any Subsidiary, regardless of the reason for the termination of employment; provided that a termination of employment shall not be deemed to occur by reason of a transfer of the Participant between the Company and a Subsidiary or between two Subsidiaries, nor by reason of a Participant’s termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant continues to be or becomes a Director; and further provided that the Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant’s employer.  If, as a result of a sale or other transaction, the Participant’s employer ceases to be a Subsidiary (and the Participant’s employer is or becomes an entity that is separate from the Company), and the Participant is not, at the end of the 30-day period following the transaction, employed by the Company or an entity that is then a Subsidiary, then the occurrence of such transaction shall be treated as the Date of Termination.

 

(c)           Director.  The term “Director” means a member of the Board, who may or may not be an employee of the Company or a Subsidiary.

 

(d)           Disabled.  The Participant shall be considered to have a “Disability” during the period in which the Participant is unable, by reason of a medically determinable physical or mental impairment, to engage in any substantial gainful activity, which condition, in the opinion of a physician selected by the Committee, is expected to have a duration of not less than 180 days.  The Participant shall be considered to be Permanently Disabled if he would be treated as “disabled” in accordance with the provisions of Treas. Reg. §1.409A-3(i)(4).

 

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(e)           Operating Return on Equity.  Operating Return on Equity equals operating income (as defined below) for the specified period divided by the average of operating shareholders’ equity at the beginning and end of that period.  Operating shareholders’ equity is calculated as shareholders’ equity attributable to Assured Guaranty Ltd. (which excludes noncontrolling interests in consolidated variable interest entities) reported under GAAP, subject to the following adjustments:

 

(i)            Elimination of the effects of consolidating certain variable interest entities in order to present all financial guaranty contracts on a more consistent basis of accounting, whether or not GAAP requires consolidation.

 

(ii)           Elimination of the after-tax non-credit impairment unrealized fair value gains (losses) on credit derivatives, which is the amount in excess of the present value of the expected estimated economic credit losses.

 

(iii)          Elimination of the after-tax fair value gains (losses) on the Company’s committed capital securities.

 

(iv)          Elimination of the after-tax unrealized gains (losses) on the Company’s investments that are recorded as a component of accumulated other comprehensive income (excluding foreign exchange revaluation).

 

Notwithstanding the foregoing, the Committee, in its discretion, may adjust the determination of the Company’s Operating Return on Equity as it deems necessary or desirable to achieve the purpose and/or preserve the benefits or potential benefits of the Award (including, without limitation, adjustments to reflect corporate transactions).  However, in no event may the Committee make such adjustments to the extent that the adjustments would result in amounts payable under this Agreement or other compensation payable to the Participant being nondeductible by the Company and its affiliates by reason of section 162(m).

 

(f)            Operating Income.  Operating income is defined as net income (loss) attributable to Assured Guaranty Ltd. (which excludes noncontrolling interests in consolidated variable interest entities) adjusted for the following:

 

(i)            Elimination of the after-tax realized gains (losses) on the Company’s investments, including other than temporary impairments, and credit and interest rate related gains and losses from sales of securities.

 

(ii)           Elimination of the after-tax non-credit impairment unrealized fair value gains (losses) on credit derivatives, which is the amount in

 

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excess of the present value of the expected estimated economic credit losses

 

(iii)          Elimination of the after-tax fair value gains (losses) on the Company’s committed capital securities.

 

(iv)          Elimination of the after-tax foreign exchange gains (losses) on revaluation of net premium receivables.

 

v)            Elimination of the effects of consolidating certain financial guaranty variable interest entities in order to present all financial guaranty contracts on a more consistent basis of accounting, whether or not GAAP requires consolidation.

 

(vi)          Elimination of goodwill and settlement of pre-existing relationship in order to show the 2009 contribution to operating income of AGMH without the distorting effects of acquisition accounting adjustments recorded on the Acquisition Date.

 

Notwithstanding the foregoing, the Committee, in its discretion, may adjust the determination of the Company’s Operating Income as it deems necessary or desirable to achieve the purpose and/or preserve the benefits or potential benefits of the Award (including, without limitation, adjustments to reflect corporate transactions).  However, in no event may the Committee make such adjustments to the extent that the adjustments would result in amounts payable under this Agreement or other compensation payable to the Participant being nondeductible by the Company and its affiliates by reason of section 162(m).

 

(g)           Performance Period.  The “Performance Period” will be determined in accordance with paragraph 1.

 

(h)           Plan.  “Plan” means the Assured Guaranty Ltd. Performance Retention Plan.

 

(i)            Principal Amount.  The “Principal Amount” with respect to the Participant will be the Principal Amount as stated in the Award Letter.

 

(j)            Retirement.  “Retirement” of a Participant will be determined in accordance with the following:

 

(i)  Retirement shall mean the occurrence of a Participant’s Date of Termination with the consent of the Participant’s employer after the Participant has completed five years of service and attained age 55.

 

(ii)  For purposes of defining “Retirement,” years of service shall be determined in accordance with rules which may be established by the Committee, and shall take into account service with the Company and the

 

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Subsidiaries.  If, on or before the date of the initial public offering of stock of the Company, the Participant was employed by the Company or its Subsidiaries, years of service shall also include service with ACE Limited and its subsidiaries occurring prior to such the initial public offering.

 

(iii)  Notwithstanding that the Participant’s Date of Termination satisfies the requirements of paragraph (i) above, the Participant will not be considered to have retired (or have terminated by reason of Retirement) with respect to any Installment if the Committee determines that the Participant has provided significant commercial or business services to any one or more persons or entities on or before the last day of the Performance Period applicable to that Installment, regardless of whether such entity is owned or controlled by the Participant; provided that the Participant may devote reasonable time to the supervision of his personal investments, and activities involving professional, charitable, community, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other organizations, and similar types of activities, to the extent that the Committee, in its discretion, determines that such activities are consistent with the Participant’s Retirement.

 

(iv)  At the request of the Committee, and as a condition of receiving the Award Payment with respect to a Performance Period, the Participant shall be required to provide a listing of the activities engaged in by the Participant following the Participant’s Date of Termination and prior to the end of the Performance Period and such other information that the Committee determines may be necessary from time to time to establish whether the Participant has acted in a manner that is consistent with the requirements of paragraph (iii) above.  Such listing and information shall be provided promptly by the Participant, but in no event more than 10 days after written request is delivered to the Participant.

 

(v)  At the request of the Participant, the Committee shall determine whether a proposed activity of the Participant will be consistent with the requirements of paragraph (iii) above.  Such request shall be accompanied by a description of the proposed activities, and the Participant shall provide such additional information as the Committee may determine is necessary to make the determination.  Such a determination shall be made promptly, but in no event more than 30 days after the written request, together with any additional information requested of the Participant, is delivered to the Committee.

 

(vi)  If, with respect to any Performance Period,  a Participant engages in one or more activities that the Committee determines to be inconsistent with Retirement, as set forth in paragraph (iii) above, the right to the Award Payment with respect to that Performance Period may be canceled by the Committee.

 

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(vii)  If, after the Participant’s Date of Termination, an Award is otherwise payable in accordance with paragraphs 2(b) and 2(c): (A) the determination of whether the Participant has Retired and is entitled to such payment shall be contingent on the Participant having satisfied the requirements of paragraph (iii) above through the last day of the Subsequent Performance Period in which the performance occurs which gives rise to the payment under paragraphs 2(b) and 2(c); and (B) the requirement to provide information pursuant to paragraph (iv) above shall apply for periods through the last day of such Subsequent Performance Period.

 

11Exhibit 10.6

 

To Be Used With Employment Agreement

 

Restricted Stock Unit Agreement under

Assured Guaranty Ltd. 2004 Long-Term Incentive Plan

 

THIS AGREEMENT is effective as of the Grant Date (as defined in paragraph 1), and is by and between the Participant and Assured Guaranty Ltd. (the “Company”).

 

WHEREAS, the Company maintains the Assured Guaranty Ltd. 2004 Long-Term Incentive Plan (the “Plan”), and the Participant has been selected by the committee administering the Plan (the “Committee”) to receive a Restricted Stock Unit Award under the Plan; and

 

NOW, THEREFORE, IT IS AGREED, by and between the Company and the Participant, as follows:

 

1.  Terms of Award.  The following words and phrases used in this Agreement shall have the meanings set forth in this paragraph 1:

 

(a)                                  The “Participant” is                                                                 .

 

(b)                                 The “Grant Date” is                             .

 

(c)                                  The number of “Covered Units” granted under this Agreement is            Units.  Each “Unit” represents the right to receive one share of Stock on the Delivery Date, to the extent that the Participant is vested in such Units as of the Delivery Date, subject to the terms of this Agreement and the Plan.

 

(d)                                 The “Delivery Date” with respect to each Installment shall be the earliest to occur of:

 

(i)  The date on which the Participant vests in that Installment in accordance with the schedule set forth in paragraph 3 (determined without regard to paragraphs 3(a), 3(b), 3(c), or 3(d)).

 

(ii)  The Participant’s Date of Termination that occurs by reason of the Participant’s death.

 

(iii)  The date on which the Participant becomes Permanently Disabled on or before the Participant’s Date of Termination.

 

(iv)  The date of a Change in Control on or before the Participant’s Date of Termination, but only if the Change in Control also satisfies the definition of “change in control event” as set forth in Treas. Reg. 1.409A-3(i)(5).

 

(v)  If an Installment constitutes nonqualified deferred compensation subject to Code section 457A, the date on which the amount is no longer treated as subject to a substantial risk of forfeiture.

 

 

Other words and phrases used in this Agreement are defined pursuant to paragraph 17, elsewhere in this Agreement or the Plan.

 

2.  Restricted Stock Unit Award.  This Agreement specifies the terms of the “Restricted Stock Unit Award” granted to the Participant.

 

3.  Restricted Period.  If the Date of Termination does not occur during the Restricted Period with respect to any Installment of the Covered Units, then the Participant shall become vested in such Installment at the end of such Restricted Period.  With respect to all Covered Units, the “Restricted Period” for each Installment of Covered Units shall begin on the Grant Date.  The Restricted Period with respect to each Installment shall end as described in the following schedule (but only if the Date of Termination has not occurred before the end of the Restricted Period):

 

	
INSTALLMENT:
    	
 
    	
RESTRICTED PERIOD WILL END ON:
    
	
1⁄4 of Covered Units
    	
 
    	
One year anniversary of the Grant Date
    
	
1⁄4 of Covered Units
    	
 
    	
Two year anniversary of the Grant Date
    
	
1⁄4 of Covered Units
    	
 
    	
Three year anniversary of the Grant Date
    
	
1⁄4 of Covered Units
    	
 
    	
Four year anniversary of the Grant Date
    

 

The Restricted Period shall end prior to the date specified in the foregoing schedule to the extent set forth below:

 

(a)                                  For Installments as to which the Restricted Period has not otherwise ended prior to the Date of Termination, the Restricted Period for such Installments shall end upon the Participant’s Date of Termination, if the Date of Termination occurs by reason of the Participant’s Disability or death.

 

(b)                                 For Installments as to which the Restricted Period has not otherwise ended prior to the date of a Change in Control, the Restricted Period for such Installments shall end upon a Change in Control, provided that such Change in Control occurs on or before the Date of Termination.

 

(c)                                  If the Participant’s employment is Terminated Without Cause, then for Installments as to which the Restricted Period has not otherwise ended prior to the Date of Termination, the Participant shall be vested on the Date of Termination (and the Restricted Period shall end) with respect to the Installments (if any) that would vest on or before the two-year anniversary of the Date of Termination, determined as though the Participant had remained employed through the two-year anniversary of the Date of Termination.  The terms “Cause” and “Terminated Without Cause” shall be defined as set forth in the Employment Agreement.  Notwithstanding the foregoing, if the Executive’s employment is Terminated Without Cause, the provisions of this paragraph (c) shall apply only if the Executive executes and returns to the Company a general release and waiver of all claims

 

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against the Company as required under the Employment Agreement; provided that the Participant shall be eligible for vesting under this paragraph (c) only if the release is returned by such time as is established by the Committee; and further provided that to the extent benefits provided pursuant to this paragraph (c) would constitute deferred compensation subject to section 409A of the Code, such benefits shall be distributed to the Participant only if the release is returned in time to permit the distribution of the benefits to satisfy the requirements of section 409A of the Code with respect to the time of distribution.

 

(d)                                 If the Participant’s Date of Termination occurs because of Retirement, then for Installments as to which the Restricted Period has not otherwise ended prior to the Date of Termination, the Restricted Period shall end on the Participant’s Date of Termination, and the Participant shall be vested in those Installments, subject to paragraph 17(g) (relating to the definition of Retirement).

 

4.  Transfer of Shares and Forfeiture of Units.  On the Delivery Date, the Participant shall receive one share of Stock for each Unit in which the Participant is then vested, and such shares shall be free of restrictions otherwise imposed by this Agreement, subject to the terms of this Agreement applicable after such Delivery Date (including, without limitation, paragraph 9) and the Plan.  If any vested Units attributable to any Installment are allocated to the Participant after the date otherwise specified as the Delivery Date for that Installment (by reason of payment of dividends or otherwise), then, as soon as practicable after the date of allocation of such Units, the Participant will receive one share of Stock with respect to each such Unit.  As of the date of distribution of Shares with respect to any Units, such Units shall be canceled.  If the Restricted Period with respect to any Installments does not end on or before the Participant’s Date of Termination, then as of the Participant’s Date of Termination, the Participant shall forfeit such Installments.  However, the Committee, in its sole discretion, may accelerate the end of the Restricted Period or provide for the vesting of the Covered Units under circumstances that such vesting would not otherwise occur in its sole discretion, based on such factors as the Committee deems appropriate.

 

5.  Withholding.  All deliveries and distributions under this Agreement are subject to withholding of all applicable taxes.  At the election of the Participant, and subject to such rules and limitations as may be established by the Committee from time to time, such withholding obligations may be satisfied through the surrender of shares of Stock which the Participant already owns, or to which the Participant is otherwise entitled under the Plan; provided, however, that such shares 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 taxable income).

 

6.  Transferability.  Except as otherwise provided by the Committee, the Restricted Stock Unit Award may not be sold, assigned, transferred, pledged or otherwise encumbered during the Restricted Period.

 

7.  Dividends.  The Participant will be credited with additional Units to reflect dividends payable with respect to Stock during the period between the Grant Date and the Delivery Date, with the increase in the number of Units equal to the number of shares of Stock which could be

 

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purchased with the dividends (assuming each Unit was a share of Stock), based on the value of such Stock at the time such dividends are paid.  The Units credited on account of the preceding sentence shall be vested and distributed in accordance with the same schedule as the Units to which such dividends are attributable.  No dividends shall be credited to or for the benefit of the Participant for Units with respect to record dates occurring prior to the Grant Date, or with respect to record dates occurring on or after the date, if any, on which the Participant has forfeited those Units.

 

8.  Voting.  The Participant shall not be a shareholder of record with respect to the Units and shall have no voting rights with respect to the Units during the Restricted Period or prior to the Delivery Date.

 

9.  Cancellation and Rescission of Restricted Stock Unit Award.

 

(a)                                  The Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict the Restricted Stock Unit Award at any time if the Participant engages in any “Detrimental Activity.”

 

(b)                                 Immediately prior to the Delivery Date with respect to an Installment and prior to the transfer of the shares of Stock to the Participant, the Participant shall certify, to the extent required by the Committee, in a manner acceptable to the Committee, that the Participant is not engaging and has not engaged in any Detrimental Activity.  In the event a Participant has engaged in any Detrimental Activity prior to, or during the twelve months after, the Delivery Date with respect to any Installment of Covered Units, the right to delivery of shares with respect to such Installment may be rescinded by the Committee within two years thereafter.  In the event of any such rescission, the Participant shall pay to the Company the amount of any gain realized as a result of the prior delivery of shares applicable to the rescinded Installment(s), in such manner and on such terms and conditions as may be required by the Company, and the Company shall be entitled to set-off against the amount of any such gain any amount owed to the Participant by the Company and/or Subsidiary.

 

10.  Heirs and Successors.  This Agreement shall be binding upon, and inure to the benefit of, the Company and its successors and assigns, and upon any person acquiring, whether by merger, consolidation, purchase of assets or otherwise, all or substantially all of the Company’s assets and business.  If any benefits deliverable to the Participant under this Agreement have not been delivered at the time of the Participant’s death, such benefits shall be delivered to the Designated Beneficiary, in accordance with the provisions of this Agreement and the Plan.  The “Designated Beneficiary” shall be the beneficiary or beneficiaries designated by the Participant in a writing filed with the Committee in such form and at such time as the Committee shall require.  If a deceased Participant fails to designate a beneficiary, or if the Designated Beneficiary does not survive the Participant, any rights that would have been exercisable by the Participant and any benefits distributable to the Participant shall be distributed to the legal representative of the estate of the Participant.  If a deceased Participant designates a beneficiary and the Designated Beneficiary survives the Participant but dies before the complete distribution of benefits to the Designated Beneficiary under this Agreement, then any benefits

 

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distributable to the Designated Beneficiary shall be distributed to the legal representative of the estate of the Designated Beneficiary.

 

11.  Administration.  The authority to manage and control the operation and administration of this Agreement shall be vested in the Committee, and the Committee shall have all powers with respect to this Agreement as it has with respect to the Plan.  Any interpretation of this Agreement by the Committee and any decision made by it with respect to this Agreement is final and binding on all persons.  The Committee shall have the authority to obtain such information from the Participant (including tax return information) as it determines may be necessary to confirm that the Participant is in compliance with the requirements applicable to Detrimental Activity, and if the Participant fails to provide such information, the Committee may conclude that the Participant is not in compliance with such requirements.

 

12.  Plan Governs.  Notwithstanding anything in this Agreement to the contrary, this Agreement shall be subject to the terms of the Plan, a copy of which may be obtained by the Participant from the office of the Secretary of the Company; and this Agreement is subject to all interpretations, amendments, rules and regulations promulgated by the Committee from time to time pursuant to the Plan.

 

13.  Not an Employment Contract.  The Restricted Stock Unit Award will not confer on the Participant any right with respect to continuance of employment or other service with the Company or any Related Company, nor will it interfere in any way with any right the Company or any Related Company would otherwise have to terminate or modify the terms of such Participant’s employment or other service at any time.

 

14.  Notices.  Any written notices provided for in this Agreement or the Plan shall be in writing and shall be deemed sufficiently given if either hand delivered or if sent by fax or overnight courier, or by postage paid first class mail.  Notices sent by mail shall be deemed received three business days after mailing but in no event later than the date of actual receipt.  Notices shall be directed, if to the Participant, at the Participant’s address indicated by the Company’s records, or if to the Company, at the Company’s principal executive office.

 

15.  Fractional Shares.  In lieu of issuing a fraction of a share, resulting from an adjustment of the Restricted Stock Unit Award pursuant to the Plan or otherwise, the Company will be entitled to pay to the Participant an amount equal to the fair market value of such fractional share.

 

16.  Amendment.  This Agreement may be amended in accordance with the provisions of the Plan, and may otherwise be amended by written agreement of the Participant and the Company without the consent of any other person.

 

17.  Definitions.  For purposes of this Agreement, words and phrases shall be defined as follows:

 

(a)                                 Change in Control.  The term “Change in Control” shall be defined as set forth in the Plan.

 

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(b)                                 Date of Termination.  A Participant’s “Date of Termination” means, with respect to an employee, the date on which the Participant’s employment with the Company and Subsidiaries terminates for any reason, and with respect to a Director, the date immediately following the last day on which the Participant serves as a Director; provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s transfer of employment between the Company and a Subsidiary or between two Subsidiaries; further provided that a Date of Termination shall not be deemed to occur by reason of a Participant’s cessation of service as a Director if immediately following such cessation of service the Participant becomes or continues to be employed by the Company or a Subsidiary, nor by reason of a Participant’s termination of employment with the Company or a Subsidiary if immediately following such termination of employment the Participant becomes or continues to be a Director; and further provided that a Participant’s employment shall not be considered terminated while the Participant is on a leave of absence from the Company or a Subsidiary approved by the Participant’s employer.

 

(c)                                  Detrimental Activity.  The term “Detrimental Activity” shall mean (i) a violation of paragraph 11 of the Employment Agreement (relating to competition) during the period in which such activity is prohibited under the Employment Agreement; or (ii) a violation of paragraph 12 of the Employment Agreement (relating to confidentiality).

 

(d)                                 Director.  The term “Director” means a member of the Board of Directors of Assured Guaranty, Ltd., who may or may not be an employee of the Company or a Subsidiary.

 

(e)                                  Disability.  The Participant shall be considered to have a “Disability” during the period in which the Participant is unable, by reason of a medically determinable physical or mental impairment, to engage in any substantial gainful activity, which condition, in the opinion of a physician selected by the Committee, is expected to have a duration of not less than 120 days.  The Participant shall be considered to be Permanently Disabled if he would be treated as “disabled” in accordance with the provisions of Treas. Reg. §1.409A-3(i)(4).

 

(f)                                    Employment Agreement.  “Employment Agreement” shall mean the agreement between the Participant and the Company as amended and restated as of January 1, 2009 or any successor agreement thereto.

 

(g)                                 Retirement.  “Retirement” of a Participant will be determined in accordance with the following:

 

(i)  Retirement shall mean the occurrence of a Participant’s Date of Termination with the consent of the Participant’s employer after the Participant has completed three years of service and attained age 55.(1)

 

(ii)  For purposes of defining “Retirement,” years of service shall be determined in accordance with rules which may be established by the Committee, and shall take into

 

(1)                                  “Retirement” for Mr. Bailenson, 55 years of age with 5 years of service and the consent of the Compensation Committee or 60 years of age with 5 years of service.

 

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account service with the Company and the Subsidiaries.  If, on or before the date of the initial public offering of stock of the Company, the Participant was employed by the Company or its Subsidiaries, years of service shall also include service with ACE Limited and its subsidiaries occurring prior to such initial public offering.

 

(iii)  Notwithstanding that the Participant’s Date of Termination satisfies the requirements of paragraph (i) above, the Participant will not be considered to have retired (or have terminated by reason of Retirement) with respect to any Installment if the Committee determines that the Participant has provided significant commercial or business services to any one or more persons or entities on or before the Delivery Date applicable to that Installment, regardless of whether such entity is owned or controlled by the Participant; provided that the Participant may devote reasonable time to the supervision of his personal investments, and activities involving professional, charitable, community, educational, religious and similar types of organizations, speaking engagements, membership on the boards of directors of other organizations, and similar types of activities, to the extent that the Committee, in its discretion, determines that such activities are consistent with the Participant’s Retirement.

 

(iv)  At the request of the Committee, and as a condition of receiving a distribution of Shares in settlement of an Installment, the Participant shall be required to provide a listing of the activities engaged in by the Participant following the Participant’s Date of Termination and prior to the Delivery Date applicable to such Installment and such other information that the Committee determines may be necessary from time to time to establish whether the Participant has acted in a manner that is consistent with the requirements of paragraph (iii).  Such listing and information shall be provided promptly by the Participant, but in no event more than 10 days after written request is delivered to the Participant.

 

(v)  At the request of the Participant, the Committee shall determine whether a proposed activity of the Participant will be consistent with the requirements of paragraph (iii).  Such request shall be accompanied by a description of the proposed activities, and the Participant shall provide such additional information as the Committee may determine is necessary to make the determination.  Such a determination shall be made promptly, but in no event more than 30 days after the written request, together with any additional information requested of the Participant, is delivered to the Committee.

 

(vi)  If, prior to the Delivery Date applicable to any Installment, a Participant engages in one or more activities that the Committee determines to be inconsistent with Retirement, as set forth in paragraph (iii) above, the right to a distribution of Shares with respect to the Installment (including the right to distribution of Shares attributable to dividends) may be canceled by the Committee.

 

(h)                                 Plan Definitions.  Except where the context clearly implies or indicates the contrary, a word, term, or phrase used in the Plan is similarly used in this Agreement.

 

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Agreed Upon:
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Assured   Guaranty Ltd.
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
Participant
    	
 
    

 

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