Document:

Exhibit 10.5

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT, made
and entered into as of the 28th day of April, 2004 by and between Assured
Guaranty Ltd., a Bermuda corporation, Assured Guaranty U.S. Holdings, Inc., a
Delaware corporation,  Assured Guaranty
Corp., a Maryland corporation (collectively referred to as the “Company”), and
Robert Mills (the “Executive”).

 

WHEREAS, the Company desires to
offer employment to the Executive under the terms and
conditions set forth below; and

 

WHEREAS,
the Executive wishes to accept such employment under
such terms and conditions.

 

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

 

1. Employment

 

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

 

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2. Term and Place of Performance

 

(a).  The term of the Agreement shall commence as of the date of the
closing of the initial public offering of Assured Guaranty Ltd. common shares
registered under the Securities Act of 1933, as amended (the “Commencement
Date”) and shall continue through the close of business on third anniversary of
the Commencement Date, subject to the terms and conditions of this Agreement
(“Initial Term”).  This Agreement shall
automatically renew for a one-year term after the Initial Term, and each
succeeding twelve months thereafter, unless either party gives notice in
writing at least 30 days prior to the expiration of the Initial Term or
succeeding one year term of its intention not to renew the Agreement.  If non-renewal is at the option of
Executive, it shall be treated as a Voluntary Termination.  If non-renewal is at the option of Company, it
shall be treated as a Termination Without Cause as that term is defined in
Section 10(d) herein.

 

(b). The obligations of the
Company under this Agreement shall be contingent upon the issuance of a work
permit by the Government of Bermuda and any other permits required by the
Government of Bermuda. Failure to obtain said permits shall void this
Agreement, unless the Company decides Executive may perform his duties at some
other location. In the event the agreement is voided under this section,
Executive shall be entitled to the benefits provided for Termination Without
Cause under Section 10(d).

 

Once obtained, the maintenance
of such permits throughout the term of this Agreement shall be a continuing
condition to the Company’s obligations under this Agreement. However, if
despite the Executive’s best efforts to maintain the permits, they are
terminated or revoked by the Government of Bermuda through no fault of the
Executive, then the Executive shall be entitled to the benefits provided for
Termination Without Cause under Section 10(d).

 

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

 

(a) During the term of the
Agreement, the Executive shall be employed as the Chief Financial Officer of
the Company, with such powers and duties normally attendant to such offices and
such other duties as may be assigned to the Executive.  Executive shall answer to and be subject to
the direction of the Chief Executive Officer.

 

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

 

(i) deliver lectures and fulfill speaking engagements; and

 

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

 

4. Salary

 

For services rendered by the Executive to the
Company during the term of this Agreement while he is employed by the Company,
the Executive shall be paid a minimum annual base salary at a rate of
$500,000.  The annual base salary shall
be paid on a monthly basis by the Company. 
The companies which comprise the Company as defined herein will fund the
salary specified above in proportion to the percentage of time executive
performs work for each company.

 

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5.  Sign-on Bonus and Moving Allowance

 

On or before January 30th, 2004, the Company
shall pay to the Executive the sum of $750,000 (less applicable withholding) in
a lump sum payment by way of sign-on bonus which shall be made only once during
the term of this Agreement. If during the first 12 months of this Agreement
Executive’s employment terminates either for Cause, as defined herein, or
voluntarily by Executive, Executive must refund a portion of the bonus by
offset of last check and direct payment of remaining balance.  The amount of bonus refund by Executive
shall be in an amount prorated to the portion of the first 12 months of this
Agreement that Executive does not serve the Company.

 

The Company will reimburse the Executive for
reasonable moving expenses for household goods in relocating to Bermuda.  Subject to termination pursuant to section
10(a), 10(b) and 10(c), the Company will reimburse the Executive for reasonable
moving expenses for household goods returning to the Executive’s original port
of departure or an allowance equal to this sum applied to another destination.

 

6. Annual Performance Incentive Plan

 

Subject to the terms and
conditions of this Agreement, once a year during the Initial Term, Executive
shall receive an annual performance incentive bonus award equal to no less than
100% of his annual base salary, plus up to an additional 40% of his annual base
salary (the amount of which shall be the “Target Amount”), such amount to be
determined by Company based upon Company results and performance of Executive.
After the Initial Term, annual performance incentive bonus awards will be in an
amount determined by the Compensation Committee of the Board of Directors and
based on the performance of the Company and the Executive.

 

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Notwithstanding
the foregoing, for as long as the Company continues to participate in the ACE
Group short-term incentive program, Executive will be eligible to participate
in such plan, pursuant to its terms, as may be in effect from time to time .

 

7. Long-Term Incentive Awards

 

(a) Sign-on Equity Award—  When Assured Guaranty Limited issues shares of publicly traded
stock, Executive will be granted an award of 120,000 restricted ordinary shares
of AGL stock that will vest 25% annually over a four year period with the first
quarter vesting starting one year after the date of the award .  When AGL issues shares of publicly traded
stock, Executive will also be granted an award of an option to purchase at the
IPO price 240,000 shares of AGL stock. 
These shares and options will be subject the terms and conditions that
will be set forth in the AGL Long-Term Incentive Plan (“LTIP”).  The current projected target share value for
the IPO AGL shares is $20.  Upon vesting
or exercise of stock options, the shares will be registered in the United
States with the SEC and appropriate states and will be freely tradable.

 

(b) Annual Long-Term Incentive Awards—After AGL issues shares of
publicly traded stock, Executive will participate in the LTIP.  If the Company determines that it has made a
profit during any year of the Initial Term, the value of any Long-Term
Incentive award made to Executive for that year will be no less than the amount
of his annual base salary.  The “target
award” for the first year of the Initial Term will be 40,000 restricted shares
of AGL stock and an option to purchase 80,000 shares of AGL stock.  Subsequent to the Initial Term, the amount
of any award made to Executive under Long-Term Incentive Plan will be based on
the profitability of the AGL and Executive’s performance and will be subject to
the discretion of the

 

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Compensation Committee of the AGL’s Board of Directors.  All Long-Term Incentive awards will be
subject to the terms and conditions of the LTIP.

 

If the AGL IPO does not occur or is delayed, and as a result the AGL
cannot make the Annual Long-Term Incentive Awards referenced in this subsection
(b),  then the Company will instead give
the Executive cash, restricted ordinary shares of ACE Limited stock, a
restricted option to purchase shares of ACE Limited stock, or any combination
thereof, the aggregate of which equals Executive’s annual base salary as of the
time the award is to be made.  The
Company will decide the components of the substitute award.

 

Moreover, for as long as the Company remains majority owned subsidiary of ACE
Limited and the Company continues to participate in the ACE Limited Long –Term
Incentive Plan, Executive will be eligible to participate in the ACE Limited
Long-Term Incentive Plan, pursuant to its terms, as may be in effect from time
to time .

 

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

 

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(d) Other-  Nothing in this Agreement shall be construed to require
the Company or any other person to take steps or not take steps (including,
without limitation, the giving or withholding of consents) that would result in
a Change in Control or an initial public offering of Company’s securities.  In addition, restricted stock grant awards
and stock option agreements presented to Executive under the LTIP shall not be
inconsistent with the terms of this agreement and to the extent that such
awards or grants include terms that are not addressed in this agreement the terms
of said awards and grants shall apply in full force and effect.

 

8.  Employee Benefits 

 

(a) During the term of his employment, the
Executive shall be entitled to participate in the Company’s retirement plan,
supplemental retirement plan, hospitalization plan, major medical plan, dental
plan, group-term life insurance plan, accidental death and dismemberment plan,
and such other employee benefits programs consistent with such benefits offered
currently to senior executives of ACE , subject to satisfaction of all
eligibility requirements of general applicability and all other terms and
conditions of the plans.

 

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

 

(c)  Notwithstanding the
foregoing, for as long as the Company continues to participate in the existing
employee benefit plans,  Executive shall
continue to be able to participate in such plans, pursuant to their terms, as
may be in effect from time to time .

 

(d)  The companies
which comprise the Company as defined herein will fund the benefits

 

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

 

9. Business Expense Reimbursement.
Accommodation. Other Perquisites

 

(a) During the term his employment, the
Executive shall be entitled to be reimbursed by Company for all reasonable
out-of-pocket travel and entertainment expenses incurred by him in performing
services under this Agreement, provided that the Executive submits reasonable
documentation with respect to such expenses.

 

(b) During the term of the Executive’s employment,
the Company will reimburse the Executive up to a maximum of an amount to be
established by the AGL Compensation Committee in respect of the cost of
suitable living accommodation in Bermuda. In the event that the Executive
chooses to purchase a residence in Bermuda, the Company will reimburse him only
for the fair market rental value of said residence to a maximum an amount to be
established by the AGL Compensation Committee, which amount shall be reviewed
from time to time in accordance with authorization from the Compensation
Committee of the Board of Directors.

 

(c) During the term of the Executive’s
employment, the Company will reimburse the Executive and/or his immediate
family for up to a total of sixteen round trip tourist class airfares per year
between Bermuda and an East Coast port of entry to the United States of America
upon submission of reasonable documentation that the fares were incurred.

 

(d) The Executive shall be entitled to
reimbursement for initiation fees and annual dues at a club of his selection in
Bermuda.

 

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

 

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(f) The Executive shall be indemnified by the
Company in accordance with its Articles of Incorporation,

 

(g) The Executive shall be entitled to
reimbursement for any tax consequences arising specifically by his relocation
to Bermuda for employment purposes, any travel to and from company offices, and
any subsequent relocation to the U.S. or elsewhere as mentioned in Paragraph 5.

 

(h) 
Executive will be eligible to participate in the Executive automobile
program.

 

(i) 
This agreement includes the Gross –Up provisions set forth in attachment
A hereto which are incorporated herein by reference.

 

10. Termination of Employment

 

(a) Termination
Due to Death.

 

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

 

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

 

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

 

(b) Termination
Due to Disability.

 

In the event the Executive’s employment by
the Company is terminated because he is

 

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adjudged by
the Compensation Committee to be disabled within the meaning of the Company’s
long-term disability plan, the Executive shall be entitled to:

 

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

 

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

 

(c) Termination
by the Company for Cause.

 

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

 

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

 

turpitude;

 

(B) violations of Section 11 or 12 of this Agreement; or

 

(C) the Executive, in carrying out his duties, has been guilty of (1) a
willful, serious, and continued failure to perform his duties,  (2) willful and serious misconduct or (3) a
willful and material breach of the Company Code of Conduct; provided, however,
that any act, or failure to act, by the Executive shall not constitute Cause
for purposes of this Section 10(c)(i)(c) if such act or failure to act, was
committed, or omitted, by the Executive in good faith and in a manner he
reasonably believed to be in the best interests of the Company.

 

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(ii) In the event of a termination of the Executive’s employment for
Cause under Section 10(c)(i) above, the Executive shall be entitled only to:

 

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

 

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

 

(d) Termination
Without Cause

 

(i) Anything in this Agreement to the
contrary notwithstanding, the Executive’s employment may be Terminated Without
Cause as provided in this Section 10(d). 
Termination Without Cause shall mean either (1) a termination of the
Executive’s employment by the Company, (other than a termination due to death
as described in Section 10(a) above, disability as described in Section 10(b)
above, or a Termination For Cause as described in Section 10(c) above); or (2)
a termination due to Good Reason Resignation as defined as follows:. Good
Reason Resignation shall mean termination of employment that is voluntary on
the part of the Executive but is due to: 
(i) a significant reduction of the Executive’s responsibilities, title
or status resulting from a change in such title or status, or from the
assignment to the Executive of any duties inconsistent with his title, duties,
or responsibilities; or (ii) a reduction in the Executive’s salary, bonus
potential, or a material reduction of benefits.

 

(ii) In the event there is a Termination Without Cause of the
Executive’s

 

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employment,
the Executive shall be entitled to:

 

(A) continuation of the annual base salary provided in Section 4 above
until the date which is twenty-four months after the last day of the month in
which such termination occurs (“Payment Period”); provided, however, that
payments pursuant to this Section 10(d)(ii)(A) are subject to the provisions of
Section 13 and provided, however, that any payments made by the Company under
paragraphs 4, 6, 7, 8 herein after Executive’s termination of employment will
reduce by an equal amount any payments to be made hereunder as salary
continuation;

 

(B) continuation of coverage
under the employee benefit plans of the Company in which the Executive was
participating at the time of his termination of employment for the period of
salary continuation under Section 10(d)(A) above; provided, however, that (1)
except as required by applicable law, any such continued coverage shall
terminate upon the subsequent full-time employment of the Executive, and (2) if
the company is unable to continue such coverage, then they shall provide the
Executive with economically equivalent employee benefits to the extent such
benefits are reasonably available.

 

(iii) At the discretion of the Compensation Committee, the present
value of any amounts payable to the Executive in accordance with Section
10(d)(ii)(A) above may be paid to the Executive in a lump sum.  The interest rate used in determining the present value
shall be the interest rate on one-year United States Treasury Bills at the
auction of such instruments nearest in time to the date of the Executive’s
termination of employment under this Section 10(d). Any such lump sum payment
by the Company to the Executive shall not affect the obligation of the Company
as otherwise provided in Section 10(d)(ii)(B) above to provide continuation
coverage under the employee benefit plans.

 

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

 

(v) The obligation of the Company to make or provide the payments and
benefits set forth in this Section 10(d) shall be strictly conditioned on the
Executive executing and returning to the Company a general release and waiver
of all claims against the Company in the form as submitted by the Company.

 

(vi) If there is a Termination Without Cause during the first year of
the Initial Term, the subject to the provisions of this agreement, Executive
will receive the amounts payable under Section 10(d)(ii)(A) and (B) plus any
remaining but unpaid salary or contract benefits due him for the first year of
the Initial Term.

 

(vii)  Any shares of restricted
Company stock and options to purchase ordinary shares of Company stock held by
Executive will continue to vest in accordance with the terms of the awards for
the period of time which includes the completion of this Contract and any
subsequent Payment Period as set forth in Section 10(d)(ii)(A).

 

(e) Voluntary Termination by the Executive

 

The Executive
may voluntarily terminate his employment with the Company at any time prior to
the expiration of the term of this Agreement. Such termination shall constitute
a voluntary termination and, in such event, the Executive shall be limited to
the same rights and benefits as applicable to the termination for Cause, as
described in Section 10(c) above.

 

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(f) Change in Control

 

In the event of a Change in
Control (as defined below) all stock based awards in which the Executive is not
yet vested shall become fully vested and stock options shall be exercisable for
their term.  In addition, the Executive
may resign for any reason at any time during the twelve month period following
a Change in Control (as defined below) and receive the same salary
continuation, bonus eligibility and benefits as if the Executive were
Terminated Without Cause pursuant to Section 10(d) of this Agreement.  The term Change in Control shall be as
defined in the Company’s long-term incentive plan as of the date hereof, a copy
of which is attached hereto as Exhibit A.  The following shall not
constitute a Change in Control for purposes of the equity awards provided for
under Section 7 of this Agreement:  (i) an initial public offering of the
Company’s securities pursuant to an effectively filed registration statement,
nor (ii) the first acquisition of the voting securities of the Company, which
occurs prior to an IPO of the Company’s securities and which, absent this
provision, would constitute a Change in Control pursuant to the Company’s
Long-term incentive plan (defining a Change in Control with respect to the
acquisition of voting securities of the Company) (a “Sale”).

 

(g) Resignation Upon Termination

 

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

 

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11. Noncompetition

 

During the term of the Executive’s employment
and for a period of 12 months following the termination of his employment for
any reason other than a Termination Without Cause, the Executive shall not,
directly or indirectly, whether as an employee, consultant, partner, principal,
agent, distributor, representative, stockholder (except as a less than one
percent stockholder of a publicly traded company or a less than five percent
stockholder of a privately held company) or otherwise, engage, within the
United States, Bermuda, or the Cayman Islands, if such activities involve
insurance or reinsurance of United States based entities or risks that are
competitive with the financial guaranty insurance business then being conducted
by the Company and which, during the period covered by the Executive’s
employment, were either (1) conducted by the Company,  by the Company. For as long as the above described restrictions
on competition apply, the Executive shall not hire any employee or former
employee of the Company or any present or former affiliate company of the
Company nor encourage any employee of the Company to leave the employ of the
Company.  This section will not be in
effect after the Executive’s termination of employment, unless, at the option
of Company, Company continues to pay Executive’s base salary during the 12
month period after Executive’s termination or resignation from employment for
any reason.

 

12. Confidential Information

 

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

 

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

 

13. Remedy for Violation of Noncompetition
or Confidential Information Provisions

 

Without intending to limit the remedies
available to the Company for the breach of any of the Executive’s covenants in
Sections 11 and 12, the Executive acknowledges and agrees that damages at law
are an insufficient remedy for the Company and that, accordingly, the Company
shall be entitled to apply for and obtain injunctive relief in any court of
competent jurisdiction to restrain the breach or threatened breach, or
otherwise specifically enforce, any or all of said covenants. The Parties
acknowledge that each of the covenants contained in Sections 11 and 12 is an
essential element of this Agreement. If any covenant or term of Section 11 or
12 or any portion thereof of this Section 13, is determined to be invalid or
unenforceable in any instance, such determination shall not prevent the
reassertion thereof with respect of any other breach or violation. If, in any
proceeding, a court (or other tribunal) refuses to enforce the covenants
contained in Section 11 or 12 or this Section 13 because such covenants cover
too extensive a geographic area or too long a period of time, any such covenant
shall be deemed amended to the extent (but only to the extent) required by law
to permit its enforceability hereunder.

 

Notwithstanding anything contained in this
Agreement to the contrary, in the event that the Executive’s employment is
terminated without Cause (as defined in Section 10(d)(i)) and the Court
determines that the Executive has violated Section 11 or 12 of this Agreement,
then the Companies shall be entitled to discontinue any payments or benefits
that would otherwise be provided under Section 10(d) and the Executive shall
forfeit his rights to the same.

 

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14. Withholding

 

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

 

15. Arbitration of All Disputes

 

Subject to the provisions of Section 15, any
controversy or claim arising out of or relating to this Agreement or the breach
thereof shall be settled by arbitration in the City of Hamilton in accordance
with the law of Bermuda by three arbitrators appointed by the Parties. If the
Parties cannot agree on the appointment of the arbitrators, one shall be
appointed by the Company and one by the Executive and the third shall be appointed by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a third
arbitrator, then the third arbitrator shall be appointed by the Chief Justice
of the Supreme Court of Bermuda. The arbitration shall be conducted in
accordance with the rules of the Arbitration Act, 1986, as amended, except with respect to the
selection of the arbitrators which shall be as provided in this Section 15.
Judgment upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. The arbitrators’ fees and any expenses relating to
the arbitration (other than the Parties’ own legal fees and expenses) shall be
shared equally by the parties.

 

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16. Entire Agreement

 

This Agreement contains the entire agreement
between the Parties concerning the subject matter hereof and supercedes all
prior agreements, undertakings, discussions, negotiations, and undertakings,
whether written or oral, between the Company and the Executive with respect
thereto.

 

17. Assignability; Binding Nature

 

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

 

18. Amendment or Waiver

 

No provision in this Agreement may be amended
or waived unless such amendment or waiver is (1) agreed to in writing, and (2)
the agreement is signed by the Executive and by

 

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authorized
officers. No waiver by any party hereto of any breach by any other party of any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same or any prior or subsequent time.

 

19. Notices

 

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

 

 

	
  If to the
  Company:

  	
   

  	
  Attention
  CEO

  
	
   

  	
   

  	
  Assured
  Guaranty Ltd.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  30
  Woodbourne Ave

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Hamilton,
  Bermuda

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  If to the
  Executive:

  	
   

  	
  Mr. Robert
  Mills

  
	
   

  	
   

  	
  17 Great
  Hills Road

  
	
   

  	
   

  	
  New Hope,
  Pa  18930

  

 

20. Severability

 

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

 

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extent
permitted by law.

 

21. Survivorship

 

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

 

22. References

 

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

 

23. Governing-Law

 

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

 

24. Headings

 

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

 

25. Counterparts

 

This Agreement may be executed in one or more
counterparts.

 

IN WITNESS WHEREOF, the undersigned have
executed this Agreement as of the date

 

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first written above.

 

	
   

  	
  Assured Guaranty Ltd., Assured Guaranty Corp.,

  
	
   

  	
   

  
	
   

  	
  Assured Guaranty U.S. Holdings, Inc,

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  April 28, 2004

  	
   

  	
  By:

  	
  /s/ Dominic J. Frederico

  	
   

  
	
   

  	
   

  	
  Dominic J. Frederico

  	
   

  
	
   

  	
   

  
	
   

  	
  Their President and Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date:

  	
  April 28, 2004

  	
   

  	
  /s/ Robert Mills

  	
   

  
	
   

  	
   

  	
   

  	
  Robert Mills

  
							

 

 

EXHIBIT A

Gross-Up Provisions

 

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

 

(b)  Notwithstanding the provisions of paragraph
(a) above, if it shall be determined that the Executive would otherwise be
entitled to the Gross-Up Payment, but the value of all Payments do not exceed
310% of the Executive’s “base amount,” within the meaning of Section 280G of
the Code, then no Gross-Up Payment shall be made to the Executive and the
amounts payable under this Agreement or any other amounts in the “nature of
compensation” (whether pursuant to the terms of this

 

21

 

Agreement or any other plan, arrangement or agreement with the Company)
shall be reduced so that the value of all Payments, in the aggregate, equals
the Safe Harbor Amount.  The “Safe
Harbor Amount” means 2.99 times the Executive’s “base amount,” within the
meaning of Section 280G of the Code. 
The Executive shall be entitled to select the order in which payments
are to be reduced in accordance with the foregoing provisions of this paragraph
(b).  As a result of uncertainty in the
application of Section 280G of the Code at the time of any initial
determination by the Accounting Firm (as described in paragraph (c) below), it
is possible that Payments will have been paid or distributed by the Company
which should not be so paid or distributed (“Overpayment”) or that additional
Payments which were not paid or distributed by the Company could have been so
paid or distributed (“Underpayment”), in each case, consistent with the
calculation of the amount due hereunder. 
In the event that the Accounting Firm determines that an Overpayment has
been made, any such Overpayment shall be treated for all purposes as a loan to
the Executive which the Executive shall repay to the Company promptly upon
receiving notice of such Overpayment together with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code; provided, however,
that no amount shall be payable by the Executive to the Company (or if paid by
the Executive to the Company shall be returned to the Executive) if and to the
extent such payment would not reduce the amount which is nondeductible under Section
280G of the Code or which is subject to taxation under Section 4999 of the
Code.  In the event that the Accounting
Firm determines that an Underpayment has occurred, any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive together
with interest at the applicable federal rate provided for in Section 7872(f)(2)
of the Code.

 

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

 

22

 

Company exhausts its remedies pursuant to paragraph (d) below and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Gross-Up Underpayment that
has occurred and any such Gross-Up Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.

 

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

 

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

 

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

 

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

 

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

 

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

 

23

 

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

 

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

 

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

 

24Exhibit 10.8

 

MASTER SEPARATION AGREEMENT

 

THIS MASTER SEPARATION AGREEMENT (this “Agreement”) is
made and entered into as of April 27, 2004, among ACE Limited, a Cayman Islands
corporation (“ACE”), ACE Financial Services Inc., a Delaware corporation (“ACE
Financial Services”), ACE Bermuda Insurance Ltd., a Bermuda company (“ACE
Bermuda”), and Assured Guaranty Ltd., a Bermuda company (the “Company”).

 

RECITALS

 

ACE has sponsored the formation of the Company and in
connection therewith:

 

A.            ACE
Financial Services has formed Assured Guaranty US Holdings Inc., a Delaware
corporation (“Assured Guaranty US Holdings”), has transferred to Assured
Guaranty US Holdings all of the issued and outstanding shares of capital stock
of each of Assured Guaranty Corp., a Maryland corporation (“Assured Guaranty”)
and AGR Financial Products Inc., a Delaware corporation (“Assured Guaranty
Financial Products”), in exchange for all issued and outstanding shares of
capital stock of Assured Guaranty US Holdings and a note payable from Assured
Guaranty US Holdings to ACE Financial Services in the amount of $200.0 million
and in the form attached hereto as Exhibit A (the “Assured Guaranty US Holdings
Note”).

 

B.            Assured
Guaranty Re Overseas Ltd., a Bermuda company (“Assured Guaranty Re Overseas”),
has transferred to ACE Bermuda all of the issued and outstanding shares of
capital stock of ACE Capital Title Reinsurance Company, a New York corporation
(“ACE Title”).

 

C.            The
Company has filed a registration statement under the Securities Act (as defined
below) for the purpose of registering the sale (the “Public Offering”) of a
portion of the common shares, each having a par value of US$0.01, of the
Company (the “Common Shares”) to be issued to ACE Financial Services and ACE
Bermuda in connection with the formation of the Company; and, on or after the
effective date of the registration statement under the Securities Act, the
Company, ACE Financial Services and ACE Bermuda shall enter into an
underwriting agreement (the “Underwriting Agreement”) with the underwriters of
the Public Offering providing for the public offering of the Common Shares.

 

D.            After
the execution and delivery of the Underwriting Agreement (the date of such
execution and delivery is referred to herein as the “Effective Date”) and prior
to the Closing Time (as defined below), (i) ACE shall transfer to ACE Bermuda
all of the issued and outstanding shares of the Company owned by ACE and (ii)
ACE Financial Services will transfer to the Company (a) all of the issued and
outstanding shares of capital stock of Assured Guaranty US Holdings in exchange
for 35,140,889 Common Shares and a note payable from the Company to ACE
Financial Services in the amount of $900,000 and in the form attached hereto as
Exhibit B (the “Company Note A”) and (b) all of the issued and outstanding
shares of capital stock of Assured Guaranty Finance Overseas Ltd., a company
organized under the laws of England (“Assured Guaranty Finance Overseas”), in
exchange for 30,111 Common Shares and a note payable from the Company to ACE
Financial Services in the amount of $100,000 and in the form attached hereto as
Exhibit C (the “Company Note B”).

 

1

 

E.             In
addition, after the Effective Date and prior to the Closing Time, ACE Bermuda
will transfer to the Company all of the issued and outstanding shares of
capital stock of Assured Guaranty Re International Ltd., a Bermuda company
(“Assured Guaranty Re International”), in exchange for 38,629,000 Common Shares
and a note payable from the Company to ACE Bermuda in the amount of $1.0
million and in the form attached hereto as Exhibit D (the “Company Note C”).

 

F.             The
parties hereto wish to provide for certain other transactions to be entered
into in connection with the formation of the Company and the Public Offering
and to set forth herein certain arrangements that will govern the relationship
between ACE, the Company and their respective Affiliates (as defined below)
following the Closing Time.

 

NOW, THEREFORE, in consideration of the mutual
promises, covenants and agreements set forth herein, the sufficiency of which
is acknowledged, the parties hereby agree as follows:

 

ARTICLE
I

DEFINITIONS

 

Section
1.1             Definitions.  As used in this Agreement, the following
terms have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):

 

“ACE” has the meaning specified in the preamble to
this Agreement.

 

“ACE Bermuda” has the meaning specified in the
preamble to this Agreement.

 

“ACE Business” means the business conducted by any
member of the ACE Group (whether conducted before or after the Closing Time).

 

“ACE Confidential Information” has the meaning
specified in Section 9.3.

 

“ACE Financial Services” has the meaning specified in
the preamble to this Agreement.

 

“ACE Group” means ACE and each Post-Closing Subsidiary
of ACE.

 

“ACE Indemnified Party” has the meaning specified in
Section 8.1.

 

“ACE Liabilities” means collectively, except as otherwise
provided for in this Agreement or the Ancillary Agreements, any and all
Liabilities that arise out of any act, omission, event or condition occurring
or arising out of or relating to (i) the ownership, operation or use of the ACE
Business or (ii) the Transferred Business.

 

“ACE Title” has the meaning
specified in the recitals to this Agreement.

 

“Action” means any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any governmental or other
regulatory or administrative agency or commission or any arbitration tribunal.

 

2

 

“Affiliate” of any Person means any Person that,
directly or indirectly, controls, is under common control with, or is
controlled by, such Person.

 

“AFS Tax Sharing Agreement” means the Amended and
Restated Agreement Concerning Filing of Consolidated Federal Income Tax
Returns, dated November 13, 1995, with respect to the ACE Financial Services
subgroup included within the ACE Prime Holdings Inc. consolidated group.

 

“AGR Tax Sharing Agreement” means the Agreement
Concerning Filing of Consolidated Federal Income Tax Returns, dated August 1,
2000, among ACE Capital Re USA Holdings Incorporated, Assured Guaranty Re
Overseas, ACE Capital Mortgage Reinsurance Company, ACE Title and ACE Capital
Re Inc.

 

“Ancillary Agreements” means the agreements set forth
in Section 3.1.

 

“Arbitrator” has the meaning specified in Section
10.3.

 

“Assured Guaranty” has the meaning specified in the
recitals of this Agreement.

 

“Assured Guaranty Finance Overseas” has the meaning
specified in the recitals of this Agreement.

 

“Assured Guaranty Finance Overseas Shares” has the
meaning specified in Section 2.3(a).

 

“Assured Guaranty Financial Products” has the meaning
specified in the recitals of this Agreement.

 

“Assured Guaranty Financial Products Shares” has the
meaning specified in Section 2.1(a).

 

“Assured Guaranty Re International” has the meaning
specified in the recitals of this Agreement.

 

“Assured Guaranty Re International Shares” has the
meaning specified in Section 2.4(a).

 

“Assured Guaranty Re Overseas” has the meaning
specified in the recitals of this Agreement.

 

“Assured Guaranty Shares” has the meaning specified in
Section 2.1(a).

 

“Assured Guaranty US Holdings” has the meaning
specified in the recitals of this Agreement.

 

“Assured Guaranty US Holdings Note” has the meaning
specified in the recitals of this Agreement.

 

“Assured Guaranty US Holdings Shares” has the meaning
specified in Section 2.1(b).

 

3

 

“Business Day” means any day excluding Saturday,
Sunday and any day on which banks in New York, New York or Hamilton, Bermuda
have the option by law or other governmental action to close.

 

“Closing” has the meaning specified in Section 3.4.

 

“Closing Time” has the meaning specified in Section
3.4.

 

“Code” means the U.S. Internal Revenue Code of 1986,
as amended.

 

“Commission” means the U.S. Securities and Exchange
Commission.

 

“Common Shares” has the meaning specified in the
recitals of this Agreement.

 

“Company” has the meaning specified in the preamble to
this Agreement.

 

“Company Business” means the business conducted by any
member of the Company Group (whether conducted before or after the Closing
Time).

 

“Company Confidential Information” has the meaning
specified in Section 9.3.

 

“Company Group” means the Company and each
Post-Closing Subsidiary of the Company.

 

“Company Indemnified Parties” has the meaning
specified in Section 8.1.

 

“Company Liabilities” means collectively, except as otherwise provided
for in this Agreement or the Ancillary Agreements, any and all Liabilities that
arise out of any act, omission, event or condition occurring or arising out of
or relating to the ownership, operation or use of the Company Business, but
excluding any Liabilities arising out of or relating to the Transferred
Business.

 

“Company Note A” has the meaning specified in the
recitals of this Agreement.

 

“Company Note B” has the meaning specified in the
recitals of this Agreement.

 

“Company Note C” has the meaning specified in the
recitals of this Agreement.

 

“Confidential Information” has the meaning specified
in Section 9.3.

 

“Dispute” has the meaning specified in Section 10.3.

 

“Effective Date” has the meaning specified in the
recitals of this Agreement.

 

“Employment Agreement” means the Employment Agreement,
dated February 2, 1999, between ACE Financial Services and Joseph W. Swain.

 

“Encumbrance” means any security interest, pledge,
hypothecation, mortgage, lien (including, without limitation, environmental and
tax liens), violation, charge, lease, license,

 

4

 

encumbrance, servient easement, adverse claim, reversion, reverter,
preferential arrangement, restrictive covenant or restriction of any kind,
including, without limitation, any restriction on the use, voting, transfer,
receipt of income or other exercise of any attributes of ownership.

 

 “Governmental
Order” means any order, writ, judgment, injunction, decree, stipulation,
determination or award entered by or with any self-regulatory organization
having jurisdiction over the parties hereto or any of the parties to any of the
Ancillary Agreements, any United States or non-United States federal, national,
supranational, state, provincial, local or similar government, governmental,
regulatory (including, without limitation, insurance regulatory) or
administrative authority, legislative body, agency or commission or any court,
tribunal or judicial or arbitral body.

 

“Indemnified Party” has the meaning specified in
Section 8.2.

 

“Indemnifying Party” has the meaning specified in
Section 8.2.

 

“Information” has the meaning specified in Section
9.1.

 

“Insurance Proceeds” means
those monies (i) received by an insured from an insurance carrier or (ii) paid
by an insurance carrier on behalf of the insured, in either case net of any
applicable premium adjustments, retrospectively rated premium adjustments,
deductibles, retentions or costs paid by such insured.

 

“JAMS” has the meaning
specified in Section 10.3.

 

“Keepwell Amendment” means an amendment to the Amended and Restated
Guaranty, dated February 15, 2000, by Assured Guaranty Re Overseas in favor of
ACE Title that permanently eliminates any liability of Assured Guaranty Re
Overseas thereunder in respect of (x) all insurance and reinsurance business
written by ACE Title subsequent to the date of such amendment and (y) all other
payment obligations incurred by ACE Title subsequent to the date of such
amendment.

 

“Liabilities” means any and all debts, liabilities and
obligations, payments, costs and expenses, whether accrued or unaccrued,
absolute or contingent, matured or unmatured, disclosed or undisclosed, known
or unknown, liquidated or unliquidated or determined or determinable,
including, without limitation, those arising under any law or regulation
(including, without limitation, any insurance law but excluding any tax law),
Action or Governmental Order and those arising under any contract, agreement,
arrangement, commitment or undertaking.

 

“Losses” means any and all losses, liabilities,
claims, damages, obligations, payments, interest, penalties, fines, costs and
expenses, matured or unmatured, absolute or contingent, disclosed or
undisclosed, determined or determinable, accrued or unaccrued, liquidated or
unliquidated, known or unknown (including, without limitation, the costs and
expenses of any Action, threatened Action, demand, assessment, judgment,
settlement and compromise relating thereto and attorneys’ fees and any and all
expenses whatsoever reasonably incurred in investigating, preparing or
defending against, or settling any such Action or threatened Action).

 

“Misstatement” has the meaning specified in Section
8.1.

 

5

 

“New York Property” means Unit No. 35D in The Museum
Tower Condominium located at 15 West 53rd Street, New York, NY.

 

“Person” includes an individual, a partnership, a
joint venture, a limited liability company, a corporation, a trust, a body
corporate, an unincorporated organization, a group and a government or other
department or agency thereof.

 

“Post-Closing Subsidiaries” with respect to either ACE
or the Company means collectively all of the Persons that will, immediately
following the Closing Time, be Subsidiaries of such entity.

 

“Pre-Closing Periods” means any taxable period ending before or on the
date of the Closing.

 

“Public Offering” has the meaning specified in the
recitals of this Agreement.

 

“Registration Statement” means the Registration
Statement on Form S-1, as amended and supplemented from time to time, filed
with the Commission under the Securities Act relating to the Public Offering.

 

“Representatives” has the meaning specified in Section
9.1.

 

“Return” shall have the meaning given to such term in
the Tax Allocation Agreement.

 

“Securities Act” means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission promulgated
thereunder.

 

“Subsidiary” means, as to any Person, (i) any
corporation, partnership or other entity of which at the time of determination
more than 50% of the outstanding Voting Stock is owned, directly or indirectly,
by such Person and/or one or more Subsidiaries of such Person.

 

“Tax Allocation Agreement” means the Tax Allocation
Agreement specified in Section 3.1(xi).

 

“Tax Authority” shall have the meaning given to such
term in the Tax Allocation Agreement.

 

“Taxes” means any federal, state, county, local or
foreign taxes, charges, fees, levies or other assessments, including all net
income, gross income, sales, use, ad valorem, transfer, gains, profits, excise,
value added, franchise, real and personal property, gross receipt, capital
stock, business, disability employment, payroll, license, estimated, stamp,
custom or withholding taxes or charges imposed by any governmental entity, and
includes any interest and penalties on or additions to any such taxes and any
such expenses incurred in connection with the determination, settlement or
litigation of any Tax liability.

 

“Transferred Business” means the obligations of
members of the Company Group that have been retroceeded to or otherwise assumed
by members of the ACE Group pursuant to the Ancillary Agreements specified in
Section 3.1(i) through (ix).

 

6

 

“Underwriting Agreement” has the meaning specified in
the recitals of this Agreement.

 

“Voting Stock” means stock of any class or classes or
other ownership interest having general voting power under ordinary
circumstances to elect a majority of the board of directors, managers, trustees
or persons with similar functions of the entity in question; provided that, for
the purposes of this definition, stock which carries only the right to vote
conditionally on the happening of an event will not be considered Voting Stock,
whether or not that event has happened.

 

Section
1.2             Other Definitional
Provisions.  The words “hereof,”
“hereto,” “herein,” “hereunder” and words of similar import when used in this
Agreement refer to this Agreement as a whole and not to any particular
provision of this Agreement, and references to any Article, Section, Exhibit or
Schedule are references to Articles, Sections, Exhibits or Schedules in or to
this Agreement unless otherwise specified.

 

ARTICLE
II

TRANSFER OF SUBSIDIARIES AND ASSETS

 

Section
2.1             Formation of Assured
Guaranty US Holdings and Transfer of Certain Subsidiaries.

 

(a)           Prior to the execution of the
Underwriting Agreement, ACE Financial Services transferred and delivered to
Assured Guaranty US Holdings 20,834 shares of capital stock of Assured
Guaranty, constituting all of the issued and outstanding shares of capital
stock of Assured Guaranty (the “Assured Guaranty Shares”), and 1,000 shares of
capital stock of Assured Guaranty Financial Products, constituting all of the
issued and outstanding shares of capital stock of Assured Guaranty Financial
Products (the “Assured Guaranty Financial Products Shares”), in each case free
of any Encumbrance (except as required by the insurance regulations of certain
states), and delivered or caused to be delivered to Assured Guaranty US
Holdings the Assured Guaranty Shares and Assured Guaranty Financial Products
Shares.

 

(b)           In exchange for the contribution of
the Assured Guaranty Shares and Assured Guaranty Financial Products Shares
provided for in Section 2.1(a), Assured Guaranty US Holdings (i) issued to ACE
Financial Services 1,000 shares of common stock, par value $0.01 per share, of
Assured Guaranty US Holdings, representing all of its outstanding capital stock
(the “Assured Guaranty US Holdings Shares”) and (ii) issued and delivered to
ACE Financial Services the Assured Guaranty US Holdings Note.

 

Section
2.2             Transfer of Company
Shares.  On or after the Effective
Date and prior to the transfers set forth in Section 2.3, ACE shall transfer
and deliver to ACE Bermuda 1,200,000 Common Shares, representing all of the
outstanding Common Shares as of the time of such transfer.

 

Section
2.3             Transfer of Assured
Guaranty US Holdings and Assured Guaranty Finance Overseas.

 

(a)           On or after the Effective Date and on
or prior to the Closing Time, and subject to the receipt of any required third
party approvals, consents and the satisfaction of any conditions

 

7

 

precedent set forth herein, ACE Financial Services
shall transfer and deliver to the Company (i) the Assured Guaranty US Holdings
Shares and (ii) 200,000 shares of Assured Guaranty Finance Overseas,
representing all of the issued and outstanding shares of Assured Guaranty
Finance Overseas (the “Assured Guaranty Finance Overseas Shares”), in each case
free of any Encumbrance (except as may be required by applicable insurance
regulations).

 

(b)           In exchange for the contribution of
the Assured Guaranty US Holdings Shares provided for in Section 2.3(a)(i), the
Company shall (i) issue to ACE Financial Services 35,140,889 Common Shares and
(ii) issue and deliver to ACE Financial Services the Company Note A.

 

(c)           In exchange for the contribution of
the Assured Guaranty Finance Overseas Shares provided for in Section
2.3(a)(ii), the Company shall (i) issue to ACE Financial Services 30,111 Common
Shares and (ii) issue and deliver to ACE Financial Services the Company Note B.

 

Section
2.4             Transfer of Assured
Guaranty Re International.

 

(a)           On or after the Effective Date and on
or prior to the Closing Time, and subject to the receipt of any required third
party approvals, consents and the satisfaction of any conditions precedent set
forth herein, ACE Bermuda shall transfer and deliver to the Company 1,377,587
shares of Assured Guaranty Re International owned by ACE Bermuda, which
constitute all of the issued and outstanding shares of Assured Guaranty Re
International (the “Assured Guaranty Re International Shares”), free of any
Encumbrance of any kind.

 

(b)           In exchange for the contribution of
the Assured Guaranty Re International Shares provided for in Section 2.4(a),
the Company shall (i) issue to ACE Bermuda 38,629,000 Common Shares and (ii)
issue and deliver to ACE Bermuda the Company Note C.

 

Section
2.5             Transfer of Certain
Other Assets.

 

(a)           On or prior to the Closing Time,
Assured Guaranty shall purchase the New York Property from ACE Financial
Services for a purchase price of $2.0 million (less any accrued and unpaid
property taxes and assessments and any accrued and unpaid common charges).

 

Section
2.6             Use of ACE Name;
Non-Disparagement.

 

(a)           The transfer to the Company of
Subsidiaries that have the word “ACE” in their name shall not bestow on the
Company any rights to, or license to use, any marks, designs, logos, names,
words or letters that include the word “ACE” or those that are suggestive or
derivative thereof, and the Company shall promptly, following the Closing Time,
take all actions reasonably necessary to change the corporate names of such
Subsidiaries to other names that will not reasonably suggest or imply any
affiliation with ACE.

 

(b)           Commencing at the Closing Time,
neither the Company nor any of its Post-Closing Subsidiaries may use any marks,
designs, logos, names, words or letters that include the words “ACE” or those
that are suggestive or derivative thereof except (i) as may be required by law
and (ii) as may be necessary for the operation of its business prior to
changing its name,

 

8

 

which shall not include the use thereof in connection
with any advertising, marketing or solicitation activities.

 

(c)           The Company and ACE each agree that
neither it nor any of its Post-Closing Subsidiaries shall make any statement
that would reasonably be viewed as intended to be disparaging of the business,
reputation or good name of the other.

 

ARTICLE
III

ANCILLARY AGREEMENTS; CLOSING

 

Section
3.1             Ancillary Agreements.  As a condition precedent to the transfer of
the Subsidiaries and assets to the Company Group pursuant to Article II hereof,
the parties shall, or, in certain cases, shall cause their Affiliates to, enter
into the following Ancillary Agreements, in each case (unless otherwise
specified in this Article III or within the form of Ancillary Agreement)
effective as of the Closing Time:

 

(i)            a Quota Share Retrocession Agreement
between Assured Guarantee Re Overseas and ACE American Insurance Company
substantially in the form of Exhibit E;

 

(ii)           a Quota Share Retrocession Agreement
between Assured Guaranty and ACE American Insurance Company substantially in
the form of Exhibit F;

 

(iii)          a Quota Share Retrocession Agreement
between Assured Guaranty Re Overseas and ACE INA Overseas Insurance Company
Ltd. substantially in the form of Exhibit G;

 

(iv)          a Commutation Agreement between Assured
Guaranty Re Overseas and Westchester Fire Insurance Company substantially in
the form of Exhibit H;

 

(v)           a Quota Share Retrocession Agreement
between Assured Guaranty Re International and ACE Bermuda substantially in the
form of Exhibit I;

 

(vi)          an Assignment and Termination
Agreement among Assured Guaranty Re International, ACE Title and ACE Bermuda
substantially in the form of Exhibit J;

 

(vii)         an Assignment Agreement between Assured
Guaranty Re Overseas, ACE European Markets Insurance Ltd. and ACE Bermuda
substantially in the form of Exhibit K;

 

(viii)        an Assignment Agreement among Assured
Guaranty Re Overseas, ACE Title and ACE Bermuda substantially in the form of
Exhibit L;

 

(ix)           a Termination Agreement between
Assured Guaranty Re Overseas and ACE Insurance Ltd. in substantially the form
of Exhibit M;

 

(x)            a Transition Services Agreement
substantially in the form of Exhibit N;

 

(xi)           a Tax Allocation Agreement
substantially in the form of Exhibit O;

 

9

 

(xii)          a Bill of Sale and Assignment and
Assumption Agreement relating to that certain office space located at 1325
Avenue of the Americas, New York, New York substantially in the form of Exhibit
P;

 

(xiii)         a Registration Rights Agreement
substantially in the form of Exhibit Q;

 

(xiv)        a Services Agreement among Assured
Guaranty, Assured Guaranty Re Overseas and ACE Tempest Re USA, Inc.
substantially in the form of Exhibit R;

 

(xv)         a Services Agreement between Assured
Guaranty Finance Overseas and ACE INA Services Limited substantially in the
form of Exhibit S;

 

(xvi)        a Services Agreement between Assured
Guaranty (UK) Ltd. and ACE INA Services Limited substantially in the form of
Exhibit T;

 

(xvii)       an Assignment and Assumption Agreement
between ACE Financial Services and the Assured Guaranty assigning to Assured
Guaranty all of ACE Financial Services’ rights and obligations under the
Employment Agreement, substantially in the form of Exhibit U (notwithstanding
any other provision of this Agreement, the parties agree that this Assignment
and Assumption Agreement may be delivered promptly following the Closing Date);
and

 

(xviii)      an Artwork Lending and Furniture Leasing
Agreement between Assured Guaranty Re International and ACE Bermuda
substantially in the form of Exhibit V (notwithstanding any other provision of
this Agreement, the parties agree that this Artwork Lending and Furniture
Leasing Agreement may be delivered promptly following the Closing Date).

 

Section
3.2             Payment of Expenses.  (a) 
The Company shall pay (or, to the extent incurred by and paid for by any
member of the ACE Group prior to the Closing Time, shall, at or prior to the
Closing Time, and, if incurred on or following the Closing Time, promptly upon
receipt of an invoice therefore, reimburse such member of the ACE Group for any
and all amounts so paid) the costs, fees, disbursements and expenses set forth
in Schedule 3.2(a).

 

(b)           ACE shall pay (or, to the extent
incurred by and paid for by any member of the Company Group on or prior to the
Closing Time shall, at or prior to the Closing Time, and, if incurred following
the Closing Time, promptly upon receipt of an invoice therefore, reimburse such
member of the Company Group for any and all amounts so paid) the costs, fees,
disbursements and expenses set forth in Schedule 3.2(b).

 

Section 3.3             Separation.

 

(a)           Settlement of Intercompany
Accounts. Except as otherwise provided for in this Agreement or the
Ancillary Agreements and subject to the true-up described below, within 14 days
of the Closing Date, each member of the Company Group shall remit to the
appropriate member of the ACE Group all amounts estimated to be owing as of the
Closing Time by such member of the Company Group to such member of the ACE
Group, and each member of the ACE Group shall remit to the appropriate member
of the Company Group all amounts estimated to be owing as of the Closing Time
by such member of the ACE Group to such member of the 

 

10

 

Company Group; provided, that payments for services of
the types specified in the Transition Services Agreement shall be paid at such
times as set forth in the respective agreements or in any such case where it is
not specifically set forth, at such time as is consistent with past practice.  Notwithstanding the foregoing, there will be
a true up of the intercompany accounts through the Closing Date and subsequent
settlement of any outstanding balances due within 45 days of the Closing Date.

 

(b)           Removal of the Company from
Intercompany Agreements and Representation. Except as otherwise provided
herein and except for the Ancillary Agreements and the agreements described in
Schedule 3.3(b), effective as of the Closing Time, all agreements between or
among one or more members of the ACE Group, on the one hand, and one or more
members of the Company Group, on the other hand, shall terminate. After the
Closing Time, except as provided in Section 3.3(a), no member of the Company
Group shall have any liability under any such agreement to any member of the
ACE Group and no member of the ACE Group shall have any liability under any
such agreement to any member of the Company Group.

 

(c)           Discontinuing of
Insurance Coverage. Effective as of the Closing Time, each member of the
Company Group will cease to be covered under any insurance policy covering ACE
and any of its affiliates, including directors’ and officers’ and errors and
omissions insurance; provided, however, that employees of members of the
Company Group shall continue to be included in insurance policies and other
welfare and benefit plans of members of the ACE Group in accordance with
Article VII.  Notwithstanding the
foregoing, members of the Company Group shall continue to be covered under ACE
Group policies for claims made after the Closing in respect of acts or events
occurring up to and including the Closing Time.  In addition, until the Closing Time, ACE shall continue to
include the Company, its Subsidiaries and their respective directors (which term
shall include, without limitation, for purposes of D&O coverage, all the
proposed directors of the Company as identified in the Registration Statement),
officers, employees and agents (the “Insureds”) in ACE’s corporate insurance
program, which provides the following coverages: (i) directors’ and officers’
liability insurance, (ii) professional liability/errors and omissions
insurance, (iii) commercial general liability insurance, (iv) property
insurance, (v) workers’ compensation insurance, (vi) fidelity and surety
insurance, (vii) employment practices liability insurance, (viii) travel and
accident insurance and (ix) kidnap and ransom insurance.  ACE agrees that coverage provided under its
corporate insurance program shall include, but shall not be limited to, claims
arising out of or relating to (i) the Public Offering, (ii) any public document
connected with the Public Offering, including, but not limited to, the
prospectus for the Company and the Registration Statement or (iii) any actions
taken by the any one or more of the Insureds prior to the Closing Time.  For a minimum of six years after the Closing
Time, ACE shall structure its corporate insurance program to permit the
Insureds to submit claims for insurance coverage, at substantially the current
level of insurance coverage, with respect to acts, events or occurrences that
took place prior to the Closing Time. 
To the maximum extent permitted by law, ACE shall hold harmless and
indemnify the individuals listed in the Registration Statement as nominees for
directors from any and all liability or expense incurred in connection with the
Public Offering.

 

Section
3.4             Closing.  Subject to the terms and conditions of this
Agreement, all transactions contemplated by this Agreement shall be consummated
at a closing (the “Closing”) to be held at the offices of LeBoeuf, Lamb, Greene
& MacRae LLP, New York, New York, on

 

11

 

the date of the closing of the Public Offering, or at
such other place or at such other time or on such other date as ACE and the
Company may mutually agree upon in writing (the date and time at which the
Closing takes place being the “Closing Time”).

 

Section
3.5             Deliveries by the ACE
Group.

 

(a)           Prior to the deliveries specified in
Section 3.5(c), ACE Financial Services delivered or caused to be delivered to
Assured Guaranty US Holdings:

 

(i)            a certificate representing the
Assured Guaranty Shares, duly endorsed or accompanied by stock powers (in form
reasonably satisfactory to Assured Guaranty US Holdings); and

 

(ii)           a certificate representing the
Assured Guaranty Financial Products Shares, duly endorsed or accompanied by
stock powers (in form reasonably satisfactory to Assured Guaranty US Holdings).

 

(b)           Concurrently with the deliveries
specified in Section 3.5(a), Assured Guaranty US Holdings issued and delivered
to ACE Financial Services:

 

(i)            the Assured Guaranty US Holdings
Shares; and

 

(ii)           the Assured Guaranty US Holdings
Note.

 

(c)           On or after the Effective Date and
prior to the transfers set forth in Section 3.5(d), ACE shall deliver or cause
to be delivered to ACE Bermuda the 1,200,000 Common Shares owned by ACE.

 

(d)           On or after the Effective Date and on
or prior to the Closing Time:

 

(i)            ACE Financial Services shall deliver
or cause to be delivered to the Company:

 

(A)          the
Assured Guaranty US Holdings Shares; and

 

(B)           the
Assured Guaranty Finance Overseas Shares, duly endorsed or accompanied by share
certificates and transfer form (in form reasonably satisfactory to the
Company);

 

(ii)           ACE Bermuda shall deliver or cause to
be delivered to the Company the Assured Guaranty Re International Shares, duly
endorsed or accompanied by share certificates and transfer form (in form
reasonably satisfactory to the Company);

 

(iii)          ACE shall deliver or cause to be
delivered to Assured Guaranty title to the New York Property, in form
reasonably satisfactory to Assured Guaranty, upon payment of the purchase price
therefore; and ACE shall pay, or cause one of its subsidiaries to pay, the
purchase price for furniture and improvements being sold to a subsidiary of ACE
pursuant to the Bill of Sale and Assignment and Assumption Agreement; and

 

12

 

(iv)          ACE shall deliver or cause to be
delivered to the Company         executed
copies of all Ancillary Agreements.

 

Section
3.6             Deliveries by the
Company Group.

 

(a)           Concurrently with the deliveries
specified in Section 3.5(d)(i)(A), the Company shall issue and deliver to ACE
Financial Services:

 

(i)            35,140,889 Common Shares, registered
in the name of ACE Financial Services; and

 

(ii)           the Company Note A.

 

(b)           Concurrently with the deliveries
specified in Section 3.5(d)(i)(B), the Company shall issue and deliver to ACE
Financial Services:

 

(i)            30,111 Common Shares, registered in
the name of ACE Financial Services; and

 

(ii)           the Company Note B.

 

(c)           Concurrently with the deliveries
specified in Section 3.5(d)(ii), the Company shall issue and deliver to ACE
Bermuda:

 

(i)            38,629,000 Common Shares, registered
in the name of ACE Bermuda; and

 

(ii)           the Company Note C.

 

(d)           Concurrently with the deliveries
specified in Section 3.5(d)(iv), the Company shall deliver or cause to be
delivered to ACE executed copies of all Ancillary Agreements.

 

(e)           Concurrently with the deliveries
specified in Section 3.5(d)(iii), the Company shall deliver or cause to be
delivered to ACE Financial Services the purchase price for the New York
Property by wire transfer in immediately available funds to an account designed
by ACE; and ACE shall deliver or cause to be delivered to the Company the purchase
price for the furniture and improvements being sold to a Subsidiary of ACE
pursuant to the Bill of Sale and Assignment and Assumption Agreement.

 

Section
3.7             Other Agreements.

 

(a)           ACE Bermuda will not (i) permit ACE
Title to write any insurance or reinsurance business (other than reinsurance
assumed pursuant to reinsurance treaties in effect at the Closing Time or
facultative reinsurance entered into with clients with whom ACE Title has
reinsurance treaties in effect at the Closing Time) or (ii) sell ACE Title or
any interest therein, in each case, until such time as the Keepwell Amendment
has become effective.  ACE and the
Company will use best efforts to obtain whatever rating agency approvals may be
required in order for the Keepwell Amendment to become effective.

 

13

 

(b)           ACE Financial Services shall take all
reasonable actions necessary to enforce, and shall cooperate with the Assured
Guaranty in enforcing, all of the rights originally granted to ACE Financial
Services under the Employment Agreement, including without limitation the
rights set forth in Section 10 thereof.

 

(c)           The Company shall, or shall cause one
of its Subsidiaries to, reimburse ACE for any amounts paid by ACE or any member
of the ACE Group pursuant letters of credit issued prior to the Closing Time on
behalf of the Company or any member of the Company Group for the benefit of
Persons who have ceded business to the Company or any member of the Company
Group promptly following receipt by the Company of notice of any such payment
(regardless of whether the Company is contesting or intends to contest the
payments made under such letters of credit).

 

(d)           ACE shall permit the Company and
Assured Guaranty Re International to continue to occupy the office space and
related properties currently occupied by the Company and Assured Guaranty Re
International at 30 Woodbourne Avenue, Hamilton HM08 Bermuda, at the rental
rates in effect on the date hereof, until the earlier of (i) the date on which
the Company and/or Assured Guaranty Re International enters into a new lease
for such office space and related properties and (ii) December 31, 2004.  ACE shall also use its reasonable best
efforts to assist the Company and its Subsidiaries in obtaining a lease for
such office space and related properties on commercially reasonable terms, and
shall surrender such space and related properties (and enter into an agreement
with the lessor to effect such surrender) in connection therewith.

 

Section
3.8             Third Party Consents.

 

(a)           Each member of the ACE Group and the
Company Group shall use commercially reasonable efforts to obtain prior to the
Closing Time any consent, approval or authorization necessary for the
transactions contemplated herein or in any of the Ancillary Agreements.

 

(b)           If any consent, approval or
authorization necessary for the transactions contemplated by this Agreement has
not be obtained prior to the Closing Time, ACE shall, and shall cause the
appropriate member of the ACE Group to, and the Company shall and shall cause
the appropriate member of the Company Group to, each at its own expense,
reasonably cooperate with the appropriate members of the ACE Group or the
Company Group, as the case may be, in attempting to obtain such consents, approvals
or authorizations as promptly thereafter as practicable.

 

ARTICLE
IV

REPRESENTATIONS AND WARRANTIES OF ACE GROUP

 

ACE represents and warrants to the Company, as to
itself and each other member of the ACE Group, as of the date of this Agreement
and as of the Closing Time, as follows:

 

Section
4.1             Organization, Authority
and Qualification.

 

(a)           Each member of the ACE Group is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or the laws under which it currently

 

14

 

exists, and in good standing in all jurisdictions in
which the failure to qualify or be in good standing could materially adversely
affect the consummation or the validity of the transactions provided for in
this Agreement or any of the Ancillary Agreements.

 

(b)           Each member of the ACE Group that is
a party to this Agreement has full corporate power and authority and has taken
all corporate action necessary to execute and deliver this Agreement and each
member of the ACE Group will have taken all corporate action necessary to
execute and deliver the Ancillary Agreements to which it is a party and to
perform its obligations hereunder and thereunder.  This Agreement has been, and each of the Ancillary Agreements
will be, duly authorized, executed and delivered by each member of the ACE
Group that is a party hereto and thereto and, assuming due authorization,
execution and delivery by all other parties to such agreement, each of this
Agreement and such Ancillary Agreements constitutes or will constitute, as the
case may be, the valid and legally binding obligation of such member of the ACE
Group, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights and to general
equity principles.

 

Section
4.2             No Conflict.  The authorization, execution, delivery and
performance of this Agreement and the Ancillary Agreements by each of the
members of the ACE Group that are parties hereto and thereto do not and will
not:

 

(a)           violate, conflict with or result in
the breach of any provision of the certificate of incorporation, the memorandum
of association or by-laws (or similar organizational documents) of such member
of the ACE Group; or

 

(b)           conflict with or violate in any
material respect any law or Governmental Order applicable to such member of the
ACE Group or any of their respective assets, properties or businesses.

 

Section
4.3             Transferred Capital
Stock.

 

(a)           Assured Guaranty and Assured
Guaranty Financial Products. 
Assured Guaranty US Holdings has acquired good and marketable title to
the Assured Guaranty Shares and the Assured Guaranty Financial Products Shares,
free and clear of any Encumbrances.  The
Assured Guaranty Shares and the Assured Guaranty Financial Products Shares
constitute validly issued, fully paid and non-assessable shares of the capital
stock of Assured Guaranty and Assured Guaranty Financial Products,
respectively, and are not subject to any voting trust agreement or other
contract, agreement, arrangement, commitment or understanding, including any
such agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting, dividend rights or disposition of the Assured
Guaranty Shares or the Assured Guaranty Financial Products Shares, and there
are no options, warrants or any other rights to acquire the Assured Guaranty
Shares or the Assured Guaranty Financial Products Shares.  The Assured Guaranty Shares and the Assured
Guaranty Financial Products Shares represent all of the outstanding capital
stock of Assured Guaranty and Assured Guaranty Financial Products, respectively.

 

15

 

(b)           Assured Guaranty Finance Overseas.  ACE Financial Services has good and
marketable title to the Assured Guaranty Finance Overseas Shares, free and
clear of any Encumbrances and, upon delivery to the Company of certificates
representing the Assured Guaranty Finance Overseas Shares, duly endorsed by ACE
Financial Services for transfer to the Company, good and marketable title to
the Assured Guaranty Finance Overseas Shares shall pass to the Company, free
and clear of any Encumbrances.  The
Assured Guaranty Finance Overseas Shares constitute validly issued, fully paid
and non-assessable shares of the capital stock of Assured Guaranty Finance
Overseas and are not subject to any voting trust agreement or other contract,
agreement, arrangement, commitment or understanding, including any such
agreement, arrangement, commitment or understanding restricting or otherwise
relating to the voting, dividend rights or disposition of the Assured Guaranty
Finance Overseas Shares, and there are no options, warrants or any other rights
to acquire the Assured Guaranty Finance Overseas Shares.  The Assured Guaranty Finance Overseas Shares
represent all of the outstanding capital stock of Assured Guaranty Finance Overseas.

 

(c)           Assured Guaranty Re International.  ACE Bermuda has good and marketable title to
the Assured Guaranty Re International Shares, free and clear of any
Encumbrances and, upon delivery to the Company of certificates representing the
Assured Guaranty Re International Shares, duly endorsed by ACE Bermuda for
transfer to the Company, and registration of such transfers in the Company’s
name in the Register of Members of Assured Guaranty Re International, good and
marketable title to the Assured Guaranty Re International Shares shall pass to the
Company, free and clear of any Encumbrances. 
The Assured Guaranty Re International Shares constitute validly issued,
fully paid and non-assessable shares of the share capital of Assured Guaranty
Re International and are not subject to any voting trust agreement or other
contract, agreement, arrangement, commitment or understanding, including any
such agreement, arrangement, commitment or understanding restricting or
otherwise relating to the voting, dividend rights or disposition of the Assured
Guaranty Re International Shares, and there are no options, warrants or any
other rights to acquire the Assured Guaranty Re International Shares.  The Assured Guaranty Re International Shares
represent all of the outstanding share capital of Assured Guaranty Re International.

 

(d)           Assured Guaranty US Holdings.  ACE Financial Services shall have good and
marketable title to the Assured Guaranty US Holdings Shares on the date of the
contribution of such shares to the Company, free and clear of any Encumbrances
and, upon delivery to the Company of the Assured Guaranty US Holdings Shares,
good and marketable title to the Assured Guaranty US Holdings Shares shall pass
to the Company, free and clear of any Encumbrances.  The Assured Guaranty US Holdings Shares shall, as of such time,
constitute validly issued, fully paid and non-assessable shares of the capital
stock of Assured Guaranty US Holdings and shall not be subject to any voting
trust agreement or other contract, agreement, arrangement, commitment or
understanding, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend rights
or disposition of the Assured Guaranty US Holdings Shares, and as of such time
there shall be no options, warrants or any other rights to acquire the Assured
Guaranty US Holdings Shares.  The
Assured Guaranty US Holdings Shares represent all of the outstanding capital
stock of Assured Guaranty US Holdings.

 

Section
4.4             Tax Representations.

 

16

 

(a)           All
material Tax Returns required to be filed by applicable law have been timely
filed by, or with respect to, the Company’s Post-Closing Subsidiaries, and all
such Tax Returns are true, correct and complete in all material respects.  Each of the Company’s Post-Closing
Subsidiaries has paid (or there has been paid on its behalf) within the time
and in the manner prescribed by law all material Taxes that are due and
payable, or claimed or asserted by any Taxing authority to be due and payable,
from or with respect to it for the Pre-Closing Periods.

 

(b)           The Company’s
Post-Closing Subsidiaries have established (and until Closing will maintain) on
their books and records reserves adequate to pay all Taxes not yet due and
payable in accordance with GAAP to the extent required.

 

(c)           None of the
Company’s Post-Closing Subsidiaries has requested any extension of time within
which to file any Tax Return, which Tax Return has not since been filed.

 

(d)           ACE or a member of
the ACE Group shall pay all sales, use, transfer, real property transfer,
recording, gains, stock transfer and other similar Taxes and fees (“Transfer
Taxes”) arising out of or in connection with the transactions effected pursuant
to this Agreement, and shall indemnify, defend and hold harmless the Company
and the Company’s Post-Closing Subsidiaries with respect to such Transfer
Taxes.

 

(e)           Except
as disclosed in Schedule 4.4(e), there are no outstanding agreements, waivers,
or arrangements extending the statutory period of limitation applicable to any
claim for, or the period for the collection or assessment of, Taxes due from or
with respect to any of the Company’s Post-Closing Subsidiaries for any taxable
period.

 

(f)            Except
as disclosed in Schedule 4.4(f), none of the Company’s Post-Closing
Subsidiaries is a party to, is bound by, or has any obligation under, any Tax
allocation or sharing agreement or similar contract or arrangement.  Notwithstanding any disclosure contained in
the Schedules to the Agreement, the ACE Group represents and warrants that at
the Closing, none of the Company’s Post-Closing Subsidiaries shall be a party
to, be bound by or have any obligation under, any Tax allocation or sharing
agreement or similar contract or arrangement, other than the Tax Allocation
Agreement, the AFS Tax Sharing Agreement and the AGR Tax Sharing Agreement.

 

(g)           Each
of the Company’s Post-Closing Subsidiaries has materially complied with all
applicable laws, rule and regulations relating to the payment and withholding
of Taxes and has timely withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and paid
over.

 

(h)           There
is no deficiency, claim, lien, audit, examination, action, suit, proceeding or
investigation in progress or pending or, to the knowledge of the ACE Group,
threatened against or with respect to any of the Company’s Post-Closing
Subsidiaries in respect of any Taxes.

 

(i)            No
claim has ever been made by any taxing authority with respect to any of the
Company’s Post-Closing Subsidiaries in a jurisdiction in which such company
does not file Tax returns that any of the Company’s Post-Closing Subsidiaries
is or may be subject to taxation by that jurisdiction which has not been
resolved.

 

17

 

(j)            None
of the Company’s Post-Closing Subsidiaries has been a member of an affiliated
group filing consolidated, combined or unitary Tax Returns other than a group
for which ACE or Capital Re Corporation was the common parent.

 

(k)           Between
the date of this Agreement and the Closing Date, without the prior written
consent of the Company (such consent not to be unreasonably withheld), none of
the Company’s Post-Closing Subsidiaries will change any Tax accounting method
or change any material Tax election or settle or compromise any material Tax
liability.

 

(l)            The
Company’s Post-Closing Subsidiaries are not a party to any Tax ruling or
closing agreement with any Taxing authority that would have a continuing
material adverse effect after the Closing date.

 

Section
4.5             No Other
Representations or Warranties. 
Except for the representations and warranties contained in this
Agreement and the Ancillary Agreements, neither ACE nor any other Person makes
any express or implied representation or warranty on behalf of or with respect
to ACE or any other member of the ACE Group, and ACE hereby disclaims any
representation or warranty not contained herein or therein.

 

ARTICLE
V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY GROUP

 

The Company represents and warrants to ACE, as to
itself and each other member of the Company Group, as of the date of this
Agreement and as of the Closing Time, as follows:

 

Section
5.1             Organization, Authority
and Qualification.

 

(a)           Each member of the Company Group is
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and in good standing in all jurisdictions in
which the failure to qualify or be in good standing could materially adversely
affect the consummation or the validity of the transactions provided for in
this Agreement or any of the Ancillary Agreements.

 

(b)           Each member of the Company Group that
is a party to this Agreement has full corporate power and authority and has
taken all corporate action necessary to execute and deliver this Agreement and
each member of the Company Group will have taken all corporate action necessary
to execute and deliver the Ancillary Agreements to which it is a party and to
perform its obligations hereunder and thereunder.  This Agreement has been, and each of the Ancillary Agreements
will be, duly authorized, executed and delivered by each member of the Company
Group that is a party hereto and thereto and, assuming due authorization,
execution and delivery by all other parties to such agreement, each of this
Agreement and such Ancillary Agreements constitutes or will constitute, as the
case may be, the valid and legally binding obligation of such member of the
Company Group, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors’ rights and to general
equity principles.

 

18

 

Section
5.2             No Conflict.  The authorization, execution, delivery and
performance of this Agreement and the Ancillary Agreements by each of the
members of the Company Group that are parties hereto and thereto do not and
will not:

 

(a)           violate, conflict with or result in
the breach of any provision of the certificate of incorporation, the memorandum
of association or by-laws (or similar organizational documents) of such member
of the Company Group; or

 

(b)           conflict with or violate in any
material respect any law or Governmental Order applicable to such member of the
Company Group or any of their respective assets, properties or businesses.

 

Section
5.3             Common Shares.  The Common Shares to be issued to ACE
Financial Services and ACE Bermuda pursuant to this Agreement, upon issuance
and payment therefor as contemplated by this Agreement and registration thereof
in the Register of Members for the Company, and the Common Shares previously
issued to ACE shall, at the Closing Time, constitute all of the issued and
outstanding share capital of the Company and shall be validly authorized and
issued, fully paid and non-assessable and shall not be subject to any voting
trust agreement or other contract, agreement, arrangement, commitment or
understanding, including any such agreement, arrangement, commitment or
understanding restricting or otherwise relating to the voting, dividend rights
or disposition of the Common Shares, and as of such time there shall be no
options, warrants or any other rights to acquire Common Shares except for any
such options, warrants or other rights granted under the Company’s 2004
Long-Term Incentive Plan or the Company’s Replacement Grant Plan.

 

Section
5.4             Tax Representations.

 

(a)           The Company has no plan or intention
to enter into any transaction a significant purpose of which is to reduce the
amount of Tax benefits otherwise payable to ACE Financial Services under the
Tax Allocation Agreement.

 

(b)           The Company has no plan or intention
to enter into any transaction which may result in the disqualification or
invalidation of the election made under section 338(h)(10) of the Code, which
transactions include but are not limited to the merger, liquidation, conversion
or other corporate transactions involving any Post-Closing Subsidiary of the
Company which may result in the Internal Revenue Service (or other applicable
Tax Authority, as the case may be) disqualifying or invalidating any election
under section 338(h)(10) of the Code.

 

Section
5.5             No Other
Representations or Warranties. 
Except for the representations and warranties contained in this
Agreement and the Ancillary Agreements, neither the Company nor any other
Person makes any express or implied representation or warranty on behalf of or
with respect to the Company or any other member of the Company Group, and the
Company hereby disclaims any representation or warranty not contained herein or
therein.

 

ARTICLE
VI

THE PUBLIC OFFERING AND ACTIONS PENDING THE PUBLIC OFFERING

 

19

 

Section
6.1             Transactions Prior to
the Public Offering.  Subject to the
conditions specified in Section 6.3, the Company and ACE shall use reasonable
commercial efforts to consummate the Public Offering.  Such efforts shall include, but not necessarily be limited to,
those specified in this Section 6.1 (to the extent not previously
accomplished):

 

(a)           The Company has filed the
Registration Statement and shall use its reasonable best efforts to cause the
Registration Statement to become effective under the Securities Act, including
by filing such amendments thereto as may be necessary or appropriate,
responding to comments from the Commission and taking such other action in that
connection as may be requested by ACE. 
The Company and ACE shall also cooperate in preparing, filing with the
Commission and causing to become effective a registration statement registering
the Common Shares under the Securities Exchange Act of 1934, as amended.

 

(b)           The Company, ACE Financial Services
and ACE Bermuda shall enter into an underwriting agreement with the
underwriters named in the Registration Statement, in form and substance
reasonably satisfactory to the Company and ACE, and shall comply with their
obligations thereunder.

 

(c)           The Company and ACE shall consult
with each other and the underwriters regarding the timing, pricing and other
matters with respect to the Public Offering, it being understood that decisions
on such matters may be dictated by ACE in its sole discretion.

 

(d)           The Company shall take such action as
may be necessary or appropriate under state securities and blue sky laws of the
United States (and any comparable laws under any foreign jurisdiction) in
connection with the Public Offering.

 

(e)           The Company shall prepare, file and
seek to make effective an application for listing of the Common Shares on the
New York Stock Exchange, subject to official notice of issuance.

 

Section
6.2             Cooperation. The
Company shall, at ACE’s direction, promptly take any and all actions necessary
or desirable to consummate the Public Offering as contemplated by the
Registration Statement and the Underwriting Agreement, including filing the
prospectus relating to the Public Offering with the Registrar of Companies in
Bermuda in accordance with the Bermuda Companies Act 1981 prior to the Public
Offering or as soon as practicable after the publication of the
prospectus.  Notwithstanding anything to
the contrary contained herein, as between the Company and ACE, ACE may in its
sole discretion terminate, abandon or amend any aspect of the Public Offering
and the other transactions contemplated hereby, and the Company shall take all
actions directed by ACE in that regard.

 

Section
6.3             Conditions Precedent to
the Consummation of the Public Offering. The parties hereto shall use their
reasonable commercial efforts to satisfy the conditions listed below for the
consummation of the Public Offering as soon as practicable. The obligations of
the parties to use their reasonable commercial efforts to consummate the Public
Offering shall be conditioned on the satisfaction or waiver by the Company and
ACE of the following conditions:

 

(a)           the Registration Statement shall have
been filed and declared effective by the Commission, and there shall be no stop
order in effect with respect thereto;

 

20

 

(b)           the actions and filings with regard
to state securities and blue sky laws of the United States (and any comparable
laws under any foreign jurisdictions) described in Section 6.1(d) shall have
been taken and, where applicable, have become effective or been accepted;

 

(c)           the Common Shares shall have been
accepted for listing on the New York Stock Exchange, on official notice of
issuance;

 

(d)           the Company, ACE Financial Services,
ACE Bermuda and the underwriters shall have entered into the Underwriting
Agreement and all conditions to the obligations of the parties thereunder shall
have been satisfied or waived in accordance with the terms thereof;

 

(e)           any approvals from Governmental
Authorities necessary to consummate the Public Offering shall have been
obtained and be in full force and effect;

 

(f)            no Governmental Order or other legal
restraint or prohibition shall be in place preventing the consummation of the
Public Offering;

 

(g)           such other actions as the parties
hereto may, based upon the advice of counsel, reasonably request to be taken
prior to the Public Offering in order to assure the successful completion of
the Public Offering shall have been taken; and

 

(h)           this Agreement and all Ancillary
Agreements shall have been executed and delivered and shall not have been
terminated.

 

ARTICLE
VII

EMPLOYEE MATTERS

 

Section
7.1             ACE Restricted Shares.  On or prior to the Closing Time, ACE shall
pay to the Company $4,505,915 by wire transfer of immediately available funds
to an account designated by the Company for contribution to the trust to be
established by the Company to grant restricted share awards in replacement of
unvested restricted shares of ACE held by employees of the Company and its
Subsidiaries that will be terminated as a result of the Public Offering and the
transactions contemplated hereby.

 

Section
7.2             Other Welfare and
Benefit Plan Provisions.

 

(a)           ACE shall permit employees of Assured
Guaranty Re International to continue to participate in the welfare plans in
which they participate on the date hereof, including health and medical plans
and insurance plans, and the fringe benefit plans covering mortgage subsidies,
day care and parking, until the earlier of (i) the date on which Assured
Guaranty Re International notifies ACE that all such employees have been
provided coverage under plans maintained by Assured Guaranty Re International
and (ii) December 31, 2004.  Assured
Guaranty Re International shall reimburse ACE for costs associated with the
foregoing at the rates in effect on the date hereof, or the costs thereof shall
be billed directly by the provider to Assured Guaranty Re International.

 

(b)           In the event that any Person who will
become an employee of any member of the Company Group has balances in any
qualified or supplemental retirement or pension plans or

 

21

 

deferred compensation plans of any member of the ACE
Group, ACE shall cooperate, and cause each of its Subsidiaries to cooperate, in
transferring such balances to corresponding plans maintained by members of the
Company Group, to the extent permitted under such plans.

 

(c)           In the event that any Person who will
become an employee of any member of the ACE Group has balances in any qualified
or supplemental retirement or pension plans or deferred compensation plans of
any member of the Company Group, the Company shall cooperate, and cause each of
its Subsidiaries to cooperate, in transferring such balances to corresponding
plans maintained by members of the ACE Group, to the extent permitted under
such plans.

 

ARTICLE
VIII

INDEMNIFICATION

 

Section
8.1             General Cross
Indemnification.  (a)  Except as otherwise specifically set forth
in any provision of this Agreement, or of any Ancillary Agreement, ACE shall
indemnify, defend and hold harmless each member of the Company Group and their
respective officers, directors, employees, representatives and agents (each a
“Company Indemnified Party”) from and against any and all Losses of such
Company Indemnified Party arising out of, by reason of or otherwise in
connection with:

 

(i)            the ACE Liabilities;

 

(ii)           any untrue statement or alleged
untrue statement of material fact contained in the Registration Statement or
the prospectus that forms a part thereof, or any amendment or supplement
thereto, or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they are made, not misleading (a
“Misstatement”), made by a member of the ACE Group or any ACE Indemnified
Party; provided, that Losses under this clause shall be limited to third-party
claims by purchasers of the Common Shares in the Public Offering or thereafter
(including, without limitation, the underwriters of the Public Offering);

 

(iii)          the action currently pending in the
United States district Court for the Southern District of New York entitled
World Omni Financial Corp. v. ACE Capital Re Inc., Case No. 02 CV 0476 (RO),
and any subsequent Action arising out of or based upon the same or
substantially similar facts as the foregoing case;

 

(iv)          the action currently pending in the
Ohio State Court filed by Olympic Title Insurance Company and certain of its
principals against ACE, ACE Title, ACE Capital Re Inc., Assured Guaranty Re
Overseas, Assured Guaranty Overseas US Holdings Inc., Assured Guaranty Re
International and ACE Bermuda, and any subsequent Action arising out of or
based upon the same or substantially similar facts as the foregoing case; or

 

22

 

(v)           any breach by any member of the ACE
Group of any of their representations or warranties in, or any covenant,
commitment, obligation, agreement or undertaking to be performed or complied
with by any of them under, this Agreement or any Ancillary Agreement.

 

(b)           Except as otherwise specifically set
forth in any provision of this Agreement or any Ancillary Agreement, the
Company shall indemnify, defend and hold harmless each member of the ACE Group
and their respective officers, directors, employees, representatives and agents
(each an “ACE Indemnified Party”) from and against any and all Losses of such
ACE Indemnified Party arising out of, by reason of or otherwise in connection
with:

 

(i)            the Company Liabilities;

 

(ii)           any Misstatement made by a member of
the Company Group or any Company Indemnified Party; provided, that Losses under
this clause shall be limited to third-party claims by purchasers of the Common
Shares in the Public Offering or thereafter (including, without limitation, the
underwriters of the Public Offering); or

 

(iii)          any breach by any member of the
Company Group of any of their representations or warranties in, or any
covenant, commitment, obligation, agreement or undertaking to be performed or
complied with by any of them under, this Agreement or any Ancillary Agreement.

 

(c)           The indemnity obligations contained
in this Section 8.1 are applicable whether or not any Action or the facts or
transactions giving rise to such Action arose prior to, on or subsequent to the
date of this Agreement.

 

Section
8.2             Indemnification
Procedures.  If any Action is
brought in respect of which indemnity may be sought pursuant to this Agreement,
the Person seeking indemnification (the “Indemnified Party”) shall promptly
notify the Person against whom indemnification is sought (the “Indemnifying
Party”) in writing of the institution of such Action (but the failure so to
notify will not relieve the Indemnifying Party from any liability that it may
have to the Indemnified Party under this Article 8 to the extent the
Indemnifying Party is not materially prejudiced as a result thereof, and in no
event shall it relieve the Indemnifying Party from any liability it may have
otherwise than pursuant to this Article VIII), and the Indemnifying Party shall
assume the defense of such Action, including the employment of counsel
reasonably satisfactory to the Indemnified Party and payment of expenses.  Notwithstanding the foregoing, ACE shall
assume the defense of the Actions described in Section 8.1(a)(iii) and (iv)
without the requirement of notice from an Indemnified Party.  The Indemnified Party shall have the right
to employ its own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of Indemnified Party unless (i) the employment
of such counsel shall have been authorized in writing by the Indemnifying
Party, (ii) the Indemnifying Party shall not have employed counsel reasonably
satisfactory to the Indemnified Party within a reasonable time or (iii) such
Indemnified Party shall have reasonably concluded (based on the advice of
counsel) that there may be defenses available to it or them which are different
from or additional to those available to the Indemnifying Party and may present
a conflict for counsel representing the Indemnified Party and the Indemnifying
Party (in which case the Indemnifying Party shall not have the right

 

23

 

to direct the defense of such Action on behalf of the
Indemnified Party), in any of which events such fees and expenses shall be
borne by the Indemnifying Party and paid as incurred (it being understood,
however, that the Indemnifying Party shall not be liable for the fees and
expenses of more than one separate counsel (in addition to local counsel) for
the Indemnified Parties in any one Action or series of related Actions in the
same jurisdiction representing the Indemnified Parties).  Anything in this Section 8.2 to the contrary
notwithstanding, the Indemnifying Party shall not be liable for any settlement
effected without its written consent unless the Indemnifying Party shall have
failed to assume the defense of such Action or reimburse the Indemnified Party
for fees and expenses of counsel as contemplated by this Section 8.2 within 30
days after receipt by the Indemnifying Party of the request therefor.  An Indemnifying Party will not, without the
prior written consent of the Indemnified Party, settle or compromise or consent
to the entry of any judgment in any Action in respect of which indemnification
may be sought hereunder unless such settlement, compromise or consent includes
an unconditional release of the Indemnified Parties from all liability arising
out of the Action.

 

Section
8.3             Limitations on Indemnification
Obligations.  The amount which an
Indemnifying Party is or may be required to pay to any Indemnified Party
pursuant to Section 8.1 shall be reduced (including, without limitation,
retroactively) by any Insurance Proceeds or any other amounts actually
recovered by or on behalf of such Indemnified Party, in reduction of the
related Loss.  If an Indemnified Party
has received the payment required by this Agreement from an Indemnifying Party
in respect of any Loss and has subsequently actually received Insurance
Proceeds or other amounts in respect of such Loss, then such Indemnified Party
shall promptly pay to such Indemnifying Party a sum equal to the amount of such
Insurance Proceeds or other amounts actually received (up to but not in excess of
the amount of any indemnity payment made hereunder).  An insurer who would otherwise be obligated to pay any claim
shall not be relieved of the responsibility with respect thereto or, solely by
virtue of the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that no insurer
or any other third party shall be entitled to a “windfall” (i.e., a benefit
they would not be entitled to receive in the absence of the indemnification
provisions) by virtue of the indemnification provisions hereof.

 

Section
8.4             Remedies Cumulative.  The remedies provided in this Article VIII
shall be cumulative and shall not preclude assertion by an Indemnified Party of
any other rights at law or in equity or the seeking of any and all other
remedies against any Indemnifying Party.

 

Section
8.5             Contribution. If
any indemnification provided for in this Article VIII is unavailable to an
Indemnified Party in respect of any Loss arising out of or related to
information contained in the Registration Statement as provided in Section
8.1(a)(ii) or Section 8.1(b)(ii), then the Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such Loss, in such proportion
as is appropriate to reflect the relative fault of the Company and each other
member of the Company Group, on the one hand, and ACE and each other member of
the ACE Group, on the other hand, in connection with the Misstatements that
resulted in such Loss. With respect to any Loss relating to matters covered by
Section 8.1(a)(ii) or 8.1(b)(ii) or otherwise relating to misstatements or
omissions under securities or antifraud laws, the relative fault of a member of
the Company Group, on the one hand, and of a member of the ACE Group, on the
other hand, shall be determined by reference to, among other things, whether
the untrue or alleged untrue

 

24

 

statement of a material fact or the omission or
alleged omission to state a material fact relates to a member of the Company
Group or a member of the ACE Group and was supplied by such member.

 

Section
8.6             Mutual Release.
Effective as of the Closing Time, and except as otherwise specifically set
forth in this Agreement or any Ancillary Agreement, ACE, on behalf of itself
and the other members of the ACE Group, and the Company, on behalf of itself
and the other members of the Company Group, hereby releases and forever
discharges each Company Indemnified Party (in the case of the release by ACE)
or ACE Indemnified Party (in the case of the release by the Company), as the
case may be, in their respective capacities as such, of and from all debts,
demands, Actions, accounts, covenants, contracts, agreements, damages and
Liabilities whatsoever of every name and nature, both in law and in equity,
which the releasing party has or ever had or ever will have, which arise out of
or relate to events, circumstances or actions taken by such other party
occurring or failing to occur or any conditions existing on or prior to the
Closing Time; provided, however, that the foregoing general release shall not
apply to (i) any Liabilities or other obligations (including Liabilities
with respect to payment, reimbursement, indemnification or contribution) under
this Agreement or any Ancillary Agreement or assumed, transferred, assigned,
allocated or arising under this Agreement or any Ancillary Agreement (including
any Liability that the parties may have with respect to payment, performance,
reimbursement, indemnification or contribution pursuant to this Agreement or
any Ancillary Agreement for claims brought against the parties by third
parties) and the foregoing release will not affect any party’s right to enforce
this Agreement or any Ancillary Agreement in accordance with their respective
terms.

 

Section
8.7             Survival of Indemnities.  The obligations of the Company and ACE under
this Article VIII shall survive indefinitely.

 

Section
8.8             Other Indemnification
Provisions.

 

(a)           Notwithstanding any provision of this
Agreement to the contrary, if a member the Company Group seeks to assert any
right to indemnification hereunder from ACE and such claim may be asserted
against a Post-Closing Subsidiary of ACE, such member of the Company Group
shall first seek to recover from the such Post-Closing Subsidiary unless doing
so would materially prejudice such member of the Company Group in obtaining
relief.

 

(b)           Claims for indemnification under any
Ancillary Agreement shall be subject to the procedures set forth in this
Article VIII unless otherwise specified in the Ancillary Agreement.

 

ARTICLE
IX

ACCESS TO INFORMATION; FURTHER ASSURANCES

 

Section
9.1             Access to Information.  From and after the Closing Time, ACE shall
afford to the Company and the Company’s Post-Closing Subsidiaries and their
respective authorized accountants, counsel and other designated representatives
(collectively, “Representatives”) reasonable, and reasonably prompt, access
(including using commercially reasonable efforts to give access to Persons
possessing information) during normal business hours to all data and
information that is specifically described in writing (collectively,

 

25

 

“Information”) within the possession of ACE or any
Post-Closing Subsidiary of ACE relating to the Company or any Post-Closing
Subsidiary of the Company, insofar as such Information is reasonably required
by the Company or such Post-Closing Subsidiary, including in connection with
its preparation of regulatory reports and filings.  Similarly, from and after the Closing Time, the Company shall
afford to ACE, any Post-Closing Subsidiary of ACE and their respective
Representatives reasonable, and reasonably prompt, access (including using
commercially reasonable efforts to give access to Persons possessing
information) during normal business hours to Information within the possession
of the Company or any Post-Closing Subsidiary of the Company relating to ACE or
any Post-Closing Subsidiary of ACE, insofar as such Information is reasonably
required by ACE or such Post-Closing Subsidiary, including in connection with
its preparation of regulatory reports and filings.  Information may be requested under this Article IX for, without limitation,
audit, accounting, claims, litigation (other than any claims or litigation
between the parties hereto or their Subsidiaries) and tax purposes, as well as
for purposes of fulfilling disclosure and reporting obligations and for
performing this Agreement and the transactions contemplated hereby.

 

Section
9.2             Retention of Records.  Each of ACE and the Company and their
respective Post-Closing Subsidiaries shall retain, and shall cause their
respective Post-Closing Subsidiaries to retain, following the Closing Time, for
a period consistent with the longer of their respective document retention
policies in effect at such time or for such longer period as may be required by
applicable law or regulations, respectively, all significant information relating
to the business of the other and the other’s Subsidiaries or the obligations of
the other or the other’s Subsidiaries, and shall notify the other parties
hereto prior to disposing of such information and provide them with an
opportunity to obtain such information, at their own expense, prior to such
disposal.

 

Section
9.3             Confidential
Information.

 

(a)           Neither the Company, nor any of its
Post-Closing Subsidiaries nor any of their respective directors, officers and
agents may disclose any information of a confidential nature received from a
member of the ACE Group (“ACE Confidential Information”) and neither ACE, nor
any of its Post-Closing Subsidiaries nor any of their respective directors,
officers and agents may disclose any information of a confidential nature
received from a member of the Company Group (“Company Confidential Information”
and, together with the ACE Confidential Information, “Confidential
Information”).

 

(b)           Confidential Information shall not
include information which is or becomes generally known on a non-confidential
basis, provided that the source of such information was not bound by a
confidentiality agreement or other obligation of confidentiality.

 

(c)           If the Company or ACE or any of its
Post-Closing Subsidiaries or any of their respective directors, officers or
agents is legally requested or required under an order or subpoena issued by a
court, administrative agency or arbitration panel (through oral examination,
interrogatories, requests for information or documents, civil investigation
demand or other legal, administrative or arbitration processes) to disclose any
Confidential Information, the party being so requested or required to disclose
such Confidential Information shall give the party whose Confidential
Information is subject to such request or requirement prompt written notice of
the

 

26

 

request, requirement, subpoena or order to permit such
other party (if it so elects) to seek an appropriate protective order
preventing or limiting disclosure.  If
such party seeks such an order or takes other steps to avoid or limit
disclosure, the other party shall cooperate with such party at such party’s
expense.  If, in the absence of such
protective order, a party is compelled to disclose Confidential Information,
such party may disclose such Confidential Information without liability
hereunder.

 

(d)           Each party agrees that money damages
would not be a sufficient remedy for any breach of this Section 9.3 and that,
in addition to all other remedies, each party shall be entitled to specific
performance and injunctive or other equitable relief as a remedy for any such
breach.

 

Section
9.4             Further Assurances; No
Agency; Specific Performance.  If at
any time after the Closing Time any further action is reasonably necessary or
advisable to carry out the purposes of this Agreement or any Ancillary
Agreement, the proper officers of each party to this Agreement shall take all
such action or cause the applicable Post-Closing Subsidiaries to take all such
action.  Each of ACE and its
Post-Closing Subsidiaries and the Company and its Post-Closing Subsidiaries
shall use its commercially reasonable efforts to obtain all consents and
approvals, to enter into all amendatory agreements and to make all filings and
applications that may be required for the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements, including, without
limitation, all applicable governmental and regulatory filings.  Under no circumstances does this Agreement
or any of the Ancillary Agreements create an agency relationship between ACE
and the Company, except to the extent specified in any such Ancillary
Agreement.  The parties each agree and
acknowledge that remedies at law for any breach of their obligations under this
Section 9.4 are inadequate and that in addition thereto each party, as
applicable, shall be entitled to equitable relief, including injunction and
specific performance, in the event of any such breach.

 

ARTICLE
X

MISCELLANEOUS

 

Section
10.1           Termination.  Notwithstanding any provision of this
Agreement or any Ancillary Agreement to the contrary, this Agreement may be
terminated and the Public Offering and other transactions contemplated hereby
may be abandoned at any time prior to the Public Offering (subject to the terms
of the Underwriting Agreement) by and in the sole discretion of ACE.  In the event of such termination, no party
shall have any liability of any kind to any other party on account of such
termination.

 

Section
10.2           Survival.  All representations, covenants and
agreements contained or provided for herein shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of the
party benefiting from any such covenant or agreement, and shall survive the
execution of this Agreement.

 

Section
10.3           Governing Law; Dispute
Resolution.

 

(a)           Governing
Law.  This Agreement shall be
governed by, and construed in accordance with, the laws of the state of New
York, without regard to its conflict of laws principles.

 

27

 

(b)           Dispute
Resolution.

 

(i)            Mandatory
Arbitration.  The parties
hereto shall promptly submit any dispute, claim, or controversy arising out of
or relating to this Agreement, the Ancillary Agreements (unless they
specifically provide otherwise) and/or the transactions contemplated hereunder,
including effect, validity, breach, interpretation, performance, or enforcement
(collectively, a “Dispute”) to binding arbitration in New York, New York at the
offices of Judicial Arbitration and Mediation Services, Inc. (“JAMS”) before an
arbitrator (the “Arbitrator”) in accordance with JAMS’ Arbitration Rules and
Procedures and the Federal Arbitration Act, 9 U.S.C. Section 1, et seq. The
Arbitrator shall be a former federal judge selected from JAMS’ pool of
neutrals.  The parties agree that,
except as otherwise provided herein respecting temporary or preliminary
injunctive relief, binding arbitration shall be the sole means of resolving any
Dispute.

 

(ii)           Costs.  The costs of the arbitration proceeding and
any proceeding in court to confirm or to vacate any arbitration award or to
obtain temporary or preliminary injunctive relief as provided in paragraph
(iii) below, as applicable (including, without limitation, actual attorneys’
fees and costs), shall be borne by the unsuccessful party and shall be awarded
as part of the Arbitrator’s decision, unless the Arbitrator shall otherwise
allocate such costs in such decision.

 

(iii)          Injunctive
Relief.  Nothing herein
prevents the parties hereto from seeking or obtaining temporary or preliminary
injunctive relief in a court for any breach or threatened breach of any
provision hereof pending the hearing before and determination of the
Arbitrator.  The parties hereby agree
that they shall continue to perform, or cause their Post-Closing Subsidiaries
to perform, any and all obligations under this Agreement and the Ancillary
Agreements, including, without limitation, the Services Agreement, pending the
hearing before and determination of the Arbitrator, it being agreed and
understood that the failure to so perform will cause irreparable harm to each
party and its Affiliates and that the putative breaching party has assumed all
of the commercial risks associated with such breach or threatened breach of any
provision hereof by such party.

 

(iv)          Discovery.  The parties shall be entitled to reasonable
discovery, including a production of non-privileged documents and answers to a
reasonable number of interrogatories. 
Depositions may be ordered by the arbitrator upon a showing of need.

 

(v)           Courts.  The parties agree that the State and Federal
courts in The City of New York shall have jurisdiction for purposes of
enforcement of their agreement to submit Disputes to arbitration and of any
award of the Arbitrator.

 

Section
10.4           Notices.  All notices, requests, claims, demands and
other communications hereunder and under the Ancillary Agreements shall be in
writing and shall be deemed to have been duly given if delivered by hand (with
receipt confirmed), or by certified mail, postage prepaid and return receipt
requested, or facsimile transmission addressed as follows (or to such other
address as a party may designate by written notice to the others) and shall be
deemed given on the date on which such notice is received:

 

28

 

If to ACE:

 

ACE Limited

ACE Global Headquarters

19 Woodbourne Avenue

Hamilton HM08 Bermuda

Attention:  General Counsel

Facsimile:  (441) 296-7799

 

If to the Company:

 

Assured Guaranty Ltd.

30 Woodbourne Avenue

Hamilton HM08 Bermuda

Attention:  General Counsel

Facsimile:  (441) 296-1083

 

Section
10.5           Amendment and
Modification.  The parties may by
written agreement, subject to any regulatory approval as may be required, (a)
extend the time for the performance of any of the obligations or other acts of
the parties hereto; (b) waive any inaccuracies in the documents delivered
pursuant to this Agreement; and (c) waive compliance with or modify, amend or
supplement any of the agreements contained in this Agreement or waive or modify
performance of any of the obligations of any of the parties hereto.  This Agreement may not be amended or
modified except by an instrument in writing duly signed on behalf of the
parties hereto.

 

Section
10.6           Successors and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.

 

Section
10.7           No Third Party
Beneficiaries.  Except for Section
10.16 and the provisions of Article VIII, this Agreement is solely for the
benefit of the parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.

 

Section
10.8           Headings.  The Article and Section headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.

 

Section
10.9           Severability.  To the extent any provision of this
Agreement shall be invalid or unenforceable, it shall be considered deleted
herefrom and the remaining provisions of this Agreement shall be unaffected and
shall continue in full force and effect.

 

Section
10.10         Waiver.  No failure by any party to take any action
or assert any right hereunder shall be deemed to be a waiver of such right in
the event of the continuation or repetition of the circumstances giving rise to
such right, unless expressly waived in writing.

 

Section
10.11         Expenses.  Except as otherwise specified in this
Agreement or the Ancillary Agreements, all costs and expenses, including,
without limitation, fees and

 

29

 

disbursements of counsel, financial advisors and accountants,
incurred in connection with this Agreement, the Ancillary Agreements and the
transactions contemplated hereby shall be paid by the party incurring such
costs and expenses, whether or not the Closing Time shall have occurred.

 

Section
10.12         Public Announcement.  No party to this Agreement shall make, or
cause to be made, any press release or public announcement in respect of this
Agreement or the transactions contemplated hereby or otherwise communicate with
any news media without the prior consent of the other party and the parties
shall cooperate as to the timing and contents of any such press release or
public announcement.

 

Section
10.13         Entire Agreement.  This Agreement and the Ancillary Agreements
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede all prior agreements and
undertakings, both written and oral, between ACE and the Company with respect
to the subject matter hereof and thereof.

 

Section
10.14         Assignment of this Agreement.  No party may assign this Agreement by
operation of law or otherwise without the express written consent of the other
parties; provided, however, this Agreement may be assigned by
operation of law or otherwise without the express written consent of the other
parties hereto by ACE and/or the Company to their respective Post-Closing
Subsidiaries so long as such assignment does not relieve the assigning party of
liability hereunder.

 

Section
10.15         Counterparts.  This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.

 

Section
10.16         Limit on Recovery from
Company Directors and Officers.  In
any legal action commenced by ACE against the Company, any of its Post-Closing
Subsidiaries or the officers and/or directors of the Company or such
Post-Closing Subsidiaries, ACE will not recover from any officer or director of
the Company or its Post-Closing Subsidiaries any amount that is in excess of
the amount the Company and/or such Post-Closing Subsidiaries are able to
indemnify such officer or director, other than in the circumstance where such
indemnification of such officer or director by the Company and/or such
Post-Closing Subsidiaries is restricted due to such officer or director having
engaged in fraud, intentional misconduct or criminal acts.  ACE and the Company agree that the officers
and directors of the Company and its Post-Closing Subsidiaries are third party
beneficiaries of the agreement set forth in this Section 10.16.

 

[Intentionally
left blank]

 

30

 

IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed as of the day and year first above written.

 

	
   

  	
  ACE LIMITED

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter Mear

  	
   

  
	
   

  	
  Name:

  	
  Peter Mear

  	
   

  
	
   

  	
  Title:

  	
  General Counsel and Secretary

  	
   

  
	
   

  	
   

  
	
   

  	
  ACE FINANCIAL SERVICES INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter Mear

  	
   

  
	
   

  	
  Name:

  	
  Peter Mear

  	
   

  
	
   

  	
  Title:

  	
  Assistant Secretary

  	
   

  
	
   

  	
   

  
	
   

  	
  ACE BERMUDA INSURANCE LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Andrew M. Gibbs

  	
   

  
	
   

  	
  Name:

  	
  Andrew M. Gibbs

  	
   

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  	
   

  
	
   

  	
   

  
	
   

  	
  ASSURED GUARANTY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Robert B. Mills

  	
   

  
	
   

  	
  Name:

  	
  Robert B. Mills

  	
   

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  	
   

  
	
   

  	
   

  
									

 

 

Schedule 3.2(a)

 

Expenses Borne by the
Company

 

Expenses not specified in Schedule 3.2(b)

 

 

Schedule 3.2(b)

 

Expenses Borne by ACE

 

All expenses of the Public Offering including, without
limitation, (i) the preparation, printing and filing of the Registration
Statement (including financial statements and exhibits) as originally filed and
of each amendment thereto, (ii) the preparation, issuance and delivery of the
certificates for the Common Shares to the underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale, issuance
or delivery of the Common Shares to the underwriters or as a result of the
Formation Transactions, (iii) the fees and disbursements of the Company’s
counsel, accountants and other advisors, (iv) fees and expenses the Company is
required to reimburse the underwriters for in connection with the qualification
of the Common Shares under Blue Sky or state securities laws, (v) the printing
and delivery to the underwriters of copies of each preliminary prospectus and
the prospectus and any amendments or supplements thereto, (vi) the fees and
expenses incurred in connection with the listing of the Common Shares on the
New York Stock Exchange, and (vii) the out of pocket expenses incurred in
connection with the road show provided, however, that ACE shall not reimburse
the Company for travel expenses that would not be reimbursable under ACE’s
travel policy..

 

 

Schedule 3.3(b)

 

Intercompany Agreements

 

1.                                       Any
agreement or arrangement entered into for the purpose of transferring risk
assumed by a member of the Company Group or the ACE Group in the course or
writing insurance, reinsurance, credit derivatives, financial guaranty
insurance or reinsurance or similar business.

 

2.                                       AFS
Tax Sharing Agreement

 

3.                                       AGR
Tax Sharing Agreement

 

 

Schedule 4.4(e)

 

Agreements Extending
Statutory Period of Limitation

 

None.

 

 

Schedule 4.4(f)

 

Tax Sharing or Allocation
Agreements

 

AFS Tax Sharing Agreement

 

AGR Tax Sharing Agreement

 

 

EXHIBIT A

 

FORM OF

 

ASSURED GUARANTY US
HOLDINGS NOTE

 

THIS NOTE HAS NOT BE REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES
LAW.  THE HOLDER HEREOF AGREES FOR THE
BENEFIT OF THE MAKER THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED TO ANY PERSON.

 

ASSURED GUARANTY US HOLDINGS INC.

 

FOR VALUE RECEIVED, the undersigned, ASSURED GUARANTY
US HOLDINGS INC., hereby promises to pay ACE FINANCIAL SERVICES INC. on the
Maturity Date the sum of TWO HUNDRED MILLION DOLLARS ($200,000,000), together
with interest thereon (computed on the basis of a 360-day year of twelve 30-day
months and compounded quarterly) at the rate of 1.5% per annum from the date
hereof.

 

This Note is the “Assured Guaranty US Holdings Note”
made by Assured Guaranty US Holdings Inc. pursuant to the Master Separation Agreement to be entered into
among ACE Limited, ACE Financial Services Inc., ACE Bermuda Insurance Ltd. and
Assured Guaranty Ltd.

 

This Note may be prepaid at any time.  Any overdue principal of, or interest on,
this Note will bear interest, payable on demand, for each day until paid at a
rate per annum equal to 2% per annum plus the rate otherwise payable hereunder.

 

Payments of principal hereof and interest hereon shall
be made in lawful money of the United States of America.

 

This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
regarding choice of law.

 

As used herein, “Maturity Date” means the earlier of
(i) September 30, 2004 and (ii) the date of the closing of the offering of debt
securities with a principal amount of at least $200 million of Assured Guaranty
US Holdings Inc. to be (x) registered with the U.S. Securities and Exchange
Commission on a Registration Statement on Form S-1 or (y) offered and sold
pursuant to Rule 144A.

 

	
   

  	
  ASSURED GUARANTY US HOLDINGS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date: April 22, 2004

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

EXHIBIT B

 

FORM OF

 

COMPANY NOTE A

 

 

THIS NOTE HAS NOT BE REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES
LAW.  THE HOLDER HEREOF AGREES FOR THE
BENEFIT OF THE MAKER THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED TO ANY PERSON.

 

ASSURED GUARANTY LTD.

 

FOR VALUE RECEIVED, the undersigned, ASSURED GUARANTY
LTD., hereby promises to pay ACE FINANCIAL SERVICES INC. on the Maturity Date
the sum of NINE HUNDRED THOUSAND DOLLARS ($900,000), together with interest
thereon (computed on the basis of a 360-day year of twelve 30-day months and
compounded quarterly) at the rate of 2.0% per annum from the date hereof.

 

This Note is the “Company Note A” made by Assured
Guaranty Ltd. pursuant to the
Master Separation Agreement, dated as of April 27, 2004, among ACE Limited, ACE
Financial Services Inc., ACE Bermuda Insurance Ltd. and Assured Guaranty Ltd.

 

This Note may be prepaid at any time.  Any overdue principal of, or interest on,
this Note will bear interest, payable on demand, for each day until paid at a
rate per annum equal to 2% per annum plus the rate otherwise payable hereunder.

 

Payments of principal hereof and interest hereon shall
be made in lawful money of the United States of America.

 

This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
regarding choice of law.

 

As used herein, “Maturity Date” means April 27, 2006.

 

	
   

  	
  ASSURED GUARANTY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date: April 27, 2004

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

EXHIBIT C

 

 

FORM OF

 

COMPANY NOTE B

 

THIS NOTE HAS NOT BE REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES
LAW.  THE HOLDER HEREOF AGREES FOR THE
BENEFIT OF THE MAKER THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED TO ANY PERSON.

 

ASSURED GUARANTY LTD.

 

FOR VALUE RECEIVED, the undersigned, ASSURED GUARANTY
LTD., hereby promises to pay ACE FINANCIAL SERVICES INC. on the Maturity Date
the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000), together with interest
thereon (computed on the basis of a 360-day year of twelve 30-day months and
compounded quarterly) at the rate of 2.0% per annum from the date hereof.

 

This Note is the “Company Note B” made by Assured
Guaranty Ltd. pursuant to the
Master Separation Agreement, dated as of April 27, 2004, among ACE Limited, ACE
Financial Services Inc., ACE Bermuda Insurance Ltd. and Assured Guaranty Ltd.

 

This Note may be prepaid at any time.  Any overdue principal of, or interest on,
this Note will bear interest, payable on demand, for each day until paid at a
rate per annum equal to 2% per annum plus the rate otherwise payable hereunder.

 

Payments of principal hereof and interest hereon shall
be made in lawful money of the United States of America.

 

This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
regarding choice of law.

 

As used herein, “Maturity Date” means April 27, 2006.

 

	
   

  	
  ASSURED GUARANTY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date: April 27, 2004

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  

 

 

EXHIBIT D

 

FORM OF

 

COMPANY NOTE C

 

THIS NOTE HAS NOT BE REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER APPLICABLE SECURITIES
LAW.  THE HOLDER HEREOF AGREES FOR THE
BENEFIT OF THE MAKER THAT THIS NOTE MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED TO ANY PERSON.

 

ASSURED GUARANTY LTD.

 

FOR VALUE RECEIVED, the undersigned, ASSURED GUARANTY
LTD., hereby promises to pay ACE BERMUDA INSURANCE LTD. on the Maturity Date
the sum of ONE MILLION DOLLARS ($1,000,000), together with interest thereon
(computed on the basis of a 360-day year of twelve 30-day months and compounded
quarterly) at the rate of 2.0% per annum from the date hereof.

 

This Note is the “Company Note C” made by Assured
Guaranty Ltd. pursuant to the
Master Separation Agreement, dated as of April 27, 2004, among ACE Limited, ACE
Financial Services Inc., ACE Bermuda Insurance Ltd. and Assured Guaranty Ltd.

 

This Note may be prepaid at any time.  Any overdue principal of, or interest on,
this Note will bear interest, payable on demand, for each day until paid at a
rate per annum equal to 2% per annum plus the rate otherwise payable hereunder.

 

Payments of principal hereof and interest hereon shall
be made in lawful money of the United States of America.

 

This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
regarding choice of law.

 

As used herein, “Maturity Date” means April 27, 2006.

 

 

	
   

  	
  ASSURED GUARANTY LTD.

  
	
   

  	
   

  
	
   

  	
   

  
	
  Date: April 27, 2004

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

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