Document:

AGL-33113-10Q Exhibit 10.4

EXHIBIT 10.4

For participants subject to $1 million limit

Terms of Performance Retention Award
Four Year Installment Vesting
Granted on February 7, 2013

The Assured Guaranty Ltd. (the “Company”) Performance Retention Award amounts described in the enclosed letter (the “Award Letter”) dated February 7, 2013 (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 9 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, 2013
	December 31, 2014
	25% of Principal Amount

	2
	January 1, 2013
	December 31, 2015
	25% of Principal Amount

	3
	January 1, 2013
	December 31, 2016
	50% of Principal Amount

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, 2014 or December 31, 2015 (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:
		
	(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 

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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 in US dollars.  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 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 

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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:

(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.

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(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 amended from time to time.  

		
	(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 

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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.      Cancellation and Rescission of Performance Retention Award.
		
	(a)
	The Committee may cancel, rescind, suspend, withhold or otherwise limit or restrict the Performance Retention Award at any time if the Participant engages in any "Competitive Activity" or, in the case of a Participant whose Date of Termination has occurred due to Retirement, if the Participant engages in any Post-Retirement Activity.

		
	(b)
	Immediately prior to the Payment Date with respect to an Installment and prior to the payment of the Award Payment attributable to such Installment 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 Competitive Activity and, in the case of a Participant whose Date of Termination has occurred due to Retirement, that the Participant is not engaging and has not engaged in any Post-Retirement Activity.  In the event a Participant has engaged in any Competitive Activity or, if applicable, any Post-Retirement Activity, prior to, or during the twelve months after, the Payment Date with respect to any Installment (the “Restrictive Covenant Period”), the right to payment of the Award Payment attributable to such Installment may be rescinded by the Committee within two years of the end of the Restricted Covenant Period.  In the event of any such rescission, the Participant shall pay to the Company the amount Award Payment attributable to such Installment, 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. 

8.      Deemed Acceptance.  If the Participant wishes to decline this Award, the Participant must reject this Agreement prior to one-year anniversary of the Grant Date (the “Acceptance Date”).  If the Agreement has not been rejected prior to the Acceptance Date, the Participant will be deemed to have automatically accepted this Award and the terms and conditions set forth in this Agreement.
9.    Definitions.  For purposes of these Award Terms, the definitions set forth in this paragraph 9 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), as reported under 

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accounting principles generally accepted in the United States of America (GAAP), adjusted for the following:
(i)     Elimination of the effects of consolidating financial guaranty variable interest entities; 
(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 and non-economic payments;
(iii)      Elimination of the after-tax unrealized 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 remeasurement);
(v)     Elimination of after-tax deferred acquisition costs, net;
(vi)     Addition of the after-tax net present value of estimated net future revenue from the Company’s credit derivative in-force book of business, net of reinsurance, ceding commissions and premium taxes for contracts without expected economic losses, discounted at 6%; and
(vii)     Addition of the after-tax value of the net unearned premium reserve on financial guaranty contracts in excess of 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)
	Competitive Activity.  The term “Competitive Activity” shall mean (i) the Participant’s engaging in an activity, 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, 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 

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conducted by the Company or any affiliate and which, during the period covered by the Participant's employment, were conducted by the Company or any affiliate; or (ii) the Participant’s engaging in any activity, directly or indirectly, whether on behalf of himself or herself or any other person or entity (x) to solicit any client and/or customer of the Company or any affiliate or (y) to hire any employee or former employee of the Company or any present or former affiliate of the Company or encourage any employee of the Company or affiliate to leave the employ of the Company or affiliate; or (iii) the Participant’s use or disclosure, without the prior written consent of the Company, to any person (other than an employee of either of the Company or a Subsidiary, or other person, to whom disclosure is necessary to the performance by the Participant of his or her duties in the employ of the Company or Subsidiary) of any confidential or proprietary information about the Company or any affiliate or their business, unless and until such information has become known to the public generally (other than as a result of unauthorized disclosure by the Participant).
		
	(c)
	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.

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

		
	(e)
	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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	(f)
	Operating Return on Equity.  Operating Return on Equity represents operating income (as defined below) for the specified period divided by the average of operating shareholders' equity at the beginning and the end of that period.  Operating shareholders’ equity is a non-GAAP financial measure calculated as shareholders’ equity attributable to Assured Guaranty Ltd. as reported under GAAP, adjusted for the following:  

(i)     Elimination of the effects of consolidating 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;
(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 and non-economic payments;
(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 remeasurement).
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).

		
	(g)
	Operating Income.  Operating income is a non-GAAP financial measure defined as net income (loss) attributable to Assured Guaranty Ltd., as reported under GAAP, adjusted for the following:

(i)     Elimination of the after-tax realized gains (losses) on the Company’s investments except for gains and losses on securities classified as trading;
(ii)     Elimination of the after-tax non-credit impairment fair value gains (losses) on credit derivatives, which is the amount in excess of the present value of the expected estimated economic credit losses and non-economic payments;
(iii)     Elimination of the after-tax fair value gains (losses) on the Company’s committed capital securities; 

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(iv)     Elimination of the after-tax foreign exchange gains (losses) on remeasurement of net premium receivables and loss and loss adjusted expense reserves; and
(v)    Elimination of the effects of consolidating 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.
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).

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

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

		
	(j)
	Post-Retirement Activity.  The term “Post-Retirement Activity” shall mean the Participant’s provision of significant commercial or business services to any one or more persons or entities such that the Participant will not be considered to have retired (or have terminated by reason of Retirement) pursuant to paragraph 9(l)(iii) below.

		
	(k)
	Principal Amount.  The "Principal Amount" with respect to the Participant will be the Principal Amount as stated in the Award Letter.

		
	(l)
	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 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.  

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(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.

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IN WITNESS WHEREOF, the Participant has executed the Agreement, and the Company has caused this Agreement to be executed in its name and on its behalf, all as of the Grant Date.
                            
_________________________ 
Assured Guaranty Ltd.

I hereby agree to all the terms, restrictions and conditions set forth in the Agreement:
                
_________________________ 
Participant 

12AGL-33113-10Q Exhibit 10.5

EXHIBIT 10.5

ASSURED GUARANTY LTD.
EMPLOYEE STOCK PURCHASE PLAN
(Effective as of November 4, 2004 and as amended through the Second Amendment)

i

ASSURED GUARANTY LTD.
EMPLOYEE STOCK PURCHASE PLAN
(Effective as of November 4, 2004 and as amended through the Second Amendment)
SECTION 1
GENERAL
1.1.  Purpose.  The Assured Guaranty Ltd. Employee Stock Purchase Plan (the “Plan”) has been established by Assured Guaranty Ltd.  (the “Company”) to provide eligible employees of the Company and the Related Companies with an opportunity to acquire a proprietary interest in the Company through the purchase of common shares of the Company (“Stock”).  The Plan is intended to qualify as an employee stock purchase plan under section 423 of the Code, and the provisions of the Plan are to be construed in a manner consistent with the requirements of that section.
1.2.  Operation and Administration.  The operation and administration of the Plan shall be subject to the provisions of Section 3.  Capitalized terms in the Plan shall be defined as set forth in Section 6 or elsewhere in the Plan.
SECTION 2
METHOD OF PURCHASE
2.1.  Eligibility.  Plan participation shall be available to (and shall be limited to) all persons who are employees of the Employers, except that the following persons shall not be eligible to participate in the Plan:
		
	(a)
	An employee who has been employed less than 500 hours and less than six months.

		
	(b)
	An employee whose customary employment is 20 hours or less per week.

		
	(c)
	An employee whose customary employment is for not more than five months in any calendar year.

		
	(d)
	An employee who owns, or who would own upon the exercise of any rights extended under the Plan and the exercise of any other option held by the employee (whether qualified or non-qualified), shares possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or of any parent or subsidiary corporation.

	
			
	 
	 
	 

Notwithstanding the foregoing provisions of this subsection 2.1, an individual may participate in the Plan for any Subscription Period only if he is employed by an Employer on the first day of that period.
2.2.  Participation Election.  The Committee shall establish “Subscription Periods” of not longer than one year for the accumulation of funds necessary for payment of the Purchase Price (as defined in subsection 2.3) of Stock under the Plan.  For any Subscription Period, an eligible employee shall become a Plan ‘Participant’ by filing, with the Committee, a written payroll deduction authorization with respect to Compensation otherwise payable to the Participant during the period.  Such payroll deductions shall be any full percentage of the Compensation of the Participant, or any specified whole dollar amount, up to but not more than 10% of his Compensation in either case.  After the beginning of the Subscription Period, and except as otherwise provided in subsection 2.4, a Participant may not alter the rate of his payroll deductions for that period.  Subject to the limitations of subsection 2.3, each eligible employee who has elected to become a Participant for a Subscription Period in accordance with the foregoing provisions of this subsection 2.2 shall be granted on the first day of such Subscription Period an option to purchase (at the applicable Purchase Price) on the Exercise Date (as defined in subsection 2.3) for such Subscription Period up to a number of whole shares of Stock determined by dividing such Participant’s accumulated payroll deductions as of such Exercise Date by the applicable Purchase Price, subject to such limits on the number of shares that may be purchased with respect to any Subscription Period as may be imposed by the Committee.  Exercise of the option shall occur as provided in subsection 2.3, unless the Participant has terminated participation in the Plan prior to the Exercise Date as provided in subsection 2.4 or the Participant elects not to exercise the option as provided in subsection 2.3(b).  The option shall expire on the last day of the Subscription Period.
2.3.  Purchase of Stock.  On the last day of each Subscription Period (the “Exercise Date”), a Participant shall become eligible to exercise his option to purchase the number of whole shares of Stock as his accumulated payroll deductions for the Subscription Period will purchase, subject to the following:
		
	(a)
	The “Purchase Price” per share shall be equal to 85% of the lesser of (i) the fair market value of Stock on the first day of the Subscription Period; or (ii) the fair market value of Stock on the Exercise Date (or such higher price as may be determined by the Committee from time to time).  In no event shall the Purchase Price be less than the par value of the Stock.

		
	(b)
	A Participant shall be deemed to have elected to purchase the shares of Stock which he became entitled to purchase on the Exercise Date unless he shall notify the Company prior to the Exercise Date, or such other time as the Committee may establish, that the Participant he elects not to make such purchase.

		
	(c)
	Any accumulated payroll deductions that are not used to purchase full shares of Stock under the Plan shall be paid to the Participant without interest.

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	(d)
	No employee shall have the right to purchase more than $25,000 in value of Stock under the Plan (and any other employee stock purchase plan described in Code section 423 and maintained by the Company or any Related Company) in any calendar year, such value being based on the fair market value of Stock as of the date on which the option to purchase the Stock is granted, as determined in accordance with subsection 2.2 of the Plan.

2.4.  Termination of Participation.  A Participant may discontinue his participation in the Plan for any Subscription Period, whereupon all of the Participant’s payroll deductions for the Subscription Period will be promptly paid to him without interest, and no further payroll deductions will be made from his pay for that period.  If a Participant’s employment with the Employers terminates during a Subscription Period for any reason, all payroll deductions accumulated by the Participant under the Plan for the period shall be paid to the Participant without interest.
SECTION 3
OPERATION AND ADMINISTRATION
3.1.  Effective Date.  Subject to the approval of the shareholders of the Company at the Company’s 2005 annual meeting of its shareholders, the Plan shall be effective as of the date on which it is adopted by the Board; provided, however, that to the extent that rights are granted under the Plan prior to its approval by shareholders, they shall be contingent on approval of the Plan by the shareholders of the Company.  The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any rights granted under the Plan are outstanding.
3.2.  Shares Subject to Plan.  Shares of Stock to be purchased under the Plan shall be subject to the following:
		
	(a)
	The shares of Stock which may be purchased under the Plan shall be currently authorized but unissued shares, or shares purchased in the open market by a direct or indirect wholly owned subsidiary of the Company (as determined by the President, Chief Financial Officer or General Counsel of the Company).  The Company may contribute to the subsidiary an amount sufficient to accomplish the purchase in the open market of the shares of Stock to be so acquired (as determined by the Chairman or any Executive Vice President of the Company).

		
	(b)
	Subject to the provisions of subsection 3.3 and the following provisions of this paragraph (b), the number of shares of Stock which may be purchased under the Plan shall not exceed 350,000 shares of Stock; provided that, contingent on approval by the Company’s shareholders at the Company’s 2013 annual meeting of the increase in the number of shares reserved for purchase as set forth below, the number of shares of Stock that may be purchased under the Plan shall not exceed 600,000 shares of Stock (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).  To the extent 

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not prohibited by applicable law or the applicable rules of any stock exchange, the Committee may permit participation for Subscription Periods beginning on or after January 1, 2013 and prior to the 2013 annual shareholders meeting, provided that such participation is contingent on the approval of the increase in reserved shares by the Company’s shareholders at the Company’s 2013 annual shareholders meeting.
		
	(c)
	A Participant will have no interest in shares of Stock covered by his Subscription Agreement until the shares are delivered to him.

3.3.  Adjustments to Shares.
		
	(a)
	If the Company shall effect any subdivision or consolidation of shares of Stock or other capital readjustment, payment of stock dividend, stock split, combination of shares or recapitalization or other increase or reduction of the number of shares of Stock outstanding without receiving compensation therefor in money, services or property, then, subject to the requirements of Code section 423, the Committee shall adjust the number of shares of Stock available under the Plan.

		
	(b)
	If the Company is reorganized, merged or consolidated or is party to a plan of exchange with another corporation, pursuant to which reorganization, merger, consolidation or plan of exchange the shareholders of the Company receive any shares of stock or other securities or property, or the Company shall distribute securities of another corporation to its shareholders, then, subject to the requirements of Code section 423, there shall be substituted for the shares subject to outstanding rights to purchase Stock under the Plan an appropriate number of shares of each class of stock or amount of other securities or property which were distributed to the shareholders of the Company in respect of such shares.

3.4.  Limit on Distribution.  Distribution of shares of Stock 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 liability to issue any shares of Stock under the Plan unless such delivery or distribution would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity.

		
	(b)
	In the case of a Participant who is subject to Section 16(a) and 16(b) of the Securities Exchange Act of 1934, the Committee may, at any time, add such conditions and limitations with respect to such Participant as the Committee, in its sole discretion, deems necessary or desirable to comply with Section 16(a) or 16(b) and the rules and regulations thereunder or to obtain any exemption therefrom.

		
	(c)
	To the extent that the Plan provides for issuance of certificates to reflect the transfer of shares of Stock, the transfer of such shares may, at the direction of the Committee, be effected on a non-certificated basis, to the extent not prohibited by the provisions of Rule 

4
	
			
	 
	 
	 

16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules.
3.5.  Withholding.  All benefits under the Plan are subject to withholding of all applicable taxes.
3.6.  Transferability.  Except as otherwise permitted under Code section 424 and SEC Rule 16b-3, neither the amount of any payroll deductions made with respect to a Participant’s compensation nor any Participant’s rights to purchase shares of Stock under the Plan may be pledged or hypothecated, nor may they be assigned or transferred other than by will and the laws of descent and distribution.  During the lifetime of the Participant, the rights provided to the Participant under the Plan may be exercised only by him.
3.7.  Limitation of Implied Rights.
		
	(a)
	Neither a Participant nor any other person shall, by reason of the Plan, acquire any right in or title to any assets, funds or property of the Employers whatsoever, including, without limitation, any specific funds, assets, or other property which the Employers, in their sole discretion, may set aside in anticipation of a liability under the Plan.  A Participant shall have only a contractual right to the amounts, if any, payable under the Plan, unsecured by any assets of the Employers.  Nothing contained in the Plan shall constitute a guarantee by any of the Employers that the assets of the Employers shall be sufficient to pay any benefits to any person.

		
	(b)
	The Plan does not constitute a contract of employment, and participation in the Plan will not give any employee the right to be retained in the employ of an Employer or any Related Company, 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 right to purchase shares under the Plan shall confer upon the holder thereof any right as a shareholder of the Company prior to the date on which he fulfills all service requirements and other conditions for receipt of such rights.

3.8.  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.
3.9.  Action by Employers.  Any action required or permitted to be taken by any Employer 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 the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules) by a duly authorized officer of the Employer.
3.10. 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.

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SECTION 4
COMMITTEE
4.1.  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 4.
4.2.  Selection of Committee.  The Committee shall be selected by the Board, and shall consist of not less than two members of the Board, or such greater number as may be required for compliance with SEC Rule 16b-3.
4.3.  Powers of Committee.  The authority to manage and control the operation and administration of the Plan shall be vested in the Committee, subject to the following:
		
	(a)
	Subject to the provisions of the Plan, the Committee will have the authority and discretion to establish the terms, conditions, restrictions, and other provisions applicable to the right to purchase shares of Stock under the Plan.

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

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

4.4.  Delegation by Committee.  Except to the extent prohibited by the provisions of Rule 16b-3, applicable local law, the applicable rules of any stock exchange, or any other applicable rules, 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.
4.5.  Information to be Furnished to Committee.  The Employers and Related Companies shall furnish the Committee with such data and information as may be required for it to discharge its duties.  The records of the Employers and Related Companies as to an employee’s or Participant’s employment, termination of employment, 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.
4.6.  Liability and Indemnification of Committee.  No member or authorized delegate of the Committee shall be liable to any person for any action taken or omitted in connection with the administration of the Plan unless attributable to his own fraud or willful misconduct; nor shall the Employers be liable to any person for any such action unless attributable to fraud or 

6
	
			
	 
	 
	 

willful misconduct on the part of a director or employee of the Employers.  The Committee, the individual members thereof, and persons acting as the authorized delegates of the Committee under the Plan, shall be indemnified by the Employers, to the fullest extent permitted by law, against any and all liabilities, losses, costs and expenses (including legal fees and expenses) of whatsoever kind and nature which may be imposed on, incurred by or asserted against the Committee or its members or authorized delegates by reason of the performance of a Committee function if the Committee or its members or authorized delegates did not act dishonestly or in willful violation of the law or regulation under which such liability, loss, cost or expense arises.  This indemnification shall not duplicate but may supplement any coverage available under any applicable insurance.
SECTION 5
AMENDMENT AND TERMINATION
The Board may, at any time, amend or terminate the Plan, provided that, subject to subsection 3.3 (relating to certain adjustments to shares), no amendment or termination may adversely affect the rights of any Participant or beneficiary with respect to shares that have been purchased prior to the date such amendment is adopted by the Board.  No amendment of the Plan may be made without approval of the Company’s shareholders to the extent that such approval is required to maintain compliance with the requirements of Code section 423.
SECTION 6
DEFINED TERMS
For purposes of the Plan, the terms listed below shall be defined as follows:
		
	(a)
	Board.  The term “Board” shall mean the Board of Directors of the Company.

		
	(b)
	Code.  The term “Code” means the 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.

		
	(c)
	Compensation.  The term “Compensation” means total compensation paid by the Employers for the applicable period specified in Section 2.2, exclusive of any bonus payment, payment in cash or kind under any stock option plan, deferred compensation plan, or other employee benefit plan or program of the Employers.

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

		
	(e)
	Effective Date.  The “Effective Date” shall be the date on which the Plan is adopted by the Board.

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	(f)
	Employer.  The Company and each Related Company which, with the consent of the Company, adopts the Plan for the benefit of its eligible employees are referred to collectively as the “Employers” and individually as an “Employer”.

		
	(g)
	Fair Market Value.  The “Fair Market Value” of a share of Stock of the Company as of any date shall be the closing market composite price for such Stock as reported for the New York Stock Exchange - Composite Transactions on that date or, if Stock is not traded on that date, on the next preceding date on which Stock was traded.

		
	(h)
	Participant.  The term “Participant” means any employee of the Company who is eligible and elects to participate pursuant to the provisions of Section 2.

		
	(i)
	Related Companies.  The term “Related Company” means any company during any period in which it is a “subsidiary corporation” (as that term is defined in Code section 424(f)) with respect to the Company.

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