Document:

Exhibit 10.2

 

FINANCIAL SECURITY ASSURANCE
HOLDINGS LTD.

AGREEMENT EVIDENCING AN AWARD OF
PERFORMANCE SHARES

 

	
   

  	
  January [          ],
  2006

  
	
   

  	
   

  
	
  To: [            ]“Employee”

  	
   

  

 

We are pleased to notify you that by the determination
of the Human Resources Committee (the “Committee”) of the Board of
Directors of Financial Security Assurance Holdings Ltd. (together with any
successor thereto, the “Company”) an award of (Number of Shares) (           )
Performance Shares has been granted to you under the Financial Security
Assurance Holdings Ltd. 2004 Equity Participation Plan (as amended from time to
time, the “Plan”). Unless otherwise defined herein, all capitalized
terms contained herein shall have the definitions that are ascribed to them in
the Plan.

 

As described herein, the Performance Shares will be
valued based upon the Company’s return on equity during two performance cycles,
each having a term of three years. The Performance Shares will be allocated (i)
33-1/3% to the three-year performance cycle beginning January 1, 2006 and
ending December 31, 2008 (the “2006/2007/2008 Cycle”) and (ii) 66-2/3%
to the three-year performance cycle beginning January 1, 2007 and ending
December 31, 2009 (the “2007/2008/2009 Cycle”). Subject to Section 7 of
this Agreement, payouts for Performance Shares allocated to each Performance
Cycle will be made in cash and/or shares of common stock, $.01 par value per
share (the “FSA Stock”) of the Company following the end of such
Performance Cycle, or deferred as provided in this Agreement. Until such time as FSA Stock becomes publicly traded, the Company does
not expect to allow payouts with respect to Performance Shares in FSA Stock.

 

1.             Purpose
of Award.

 

The purpose of the Plan pursuant to which this award
of Performance Shares has been granted is to enable the Company to retain and
attract executives and employees who will contribute to the Company’s success
by their ability, ingenuity and industry, and to enable such executives and
employees to participate in the long-term growth of the Company and Dexia S. A.
by obtaining a proprietary interest in the Company or Dexia S. A. and/or the
cash equivalent thereof.

 

2.             Acceptance
of the Performance Shares Award Agreement.

 

Your execution of this Performance Shares award
agreement (this “Agreement”) will indicate your acceptance of, and your
agreement to be bound by, the terms set forth in this Agreement and in the
Plan.

 

3.             Performance
Cycles.

 

The Performance Shares subject to this Performance
Shares award shall be allocated to the following two Performance 

Cycles:

 

	
  Performance Cycle

  	
   

  	
  % of Performance Shares Allocated

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The 2006/2007/2008 Cycle

  (January 1, 2006 through December 31, 2008)

  	
   

  	
  33-1/3%

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  The 2007/2008/2009
  Cycle

  (January 1, 2007 through December 31, 2009)

  	
   

  	
  66-2/3%

  	
   

  

 

4.             Performance
Objectives.

 

Subject to the terms of this Agreement, you shall be
entitled to receive FSA Stock and/or cash as provided in Section 6 of this
Agreement following the end of a Performance Cycle based upon the
Company’s Return on Equity or ROE
(as defined below) during such Performance Cycle, which is the Performance
Objective designated by the Committee with respect to your Performance Shares.

 

For purpose of the foregoing:

 

“ROE” means, in respect of any Performance
Cycle, the average of:

 

(i)            the
discount rate (expressed as an annual percentage rate) such that (a) the
Adjusted Book Value per share of FSA Stock on the last day of the Performance
Cycle, adjusted to exclude the after-tax change in accumulated other
comprehensive income (unrealized gains and losses in the Company’s investment
portfolio and any other component of other comprehensive income) during such
Performance Cycle, and the dividends paid per share during such Performance
Cycle, each discounted at such discount rate to the first day of such
Performance Cycle, equals (b) the Adjusted Book Value per share of FSA Stock on
the first day of such Performance Cycle; and

 

(ii)           the
discount rate (expressed as an annual percentage rate) such that (a) the Book
Value per share of FSA Stock on the last day of the Performance Cycle, adjusted
to exclude the after-tax change in accumulated other comprehensive income
(unrealized gains and losses in the Company’s investment portfolio and any
other component of other comprehensive income) during such Performance Cycle,
and the dividends paid per share during such Performance Cycle, each discounted
at such discount rate to the first day of such Performance Cycle, equals (b)
the Book Value per share of FSA Stock on the first day of such Performance
Cycle.

 

“Adjusted Book Value”
means, as of a particular date, the Book Value on such date, subject to the
following adjustments, each of which shall have been derived from the Company’s
IFRS financial statements for the period ended on such date (or, if not
derivable from such financial statements, shall be determined in good faith by
the Company), but reduced by the amount of the federal income tax applicable
thereto:

 

(i)            add
to the Book Value the sum of (A) the unearned premiums net of prepaid reinsurance
premiums at such date, (B) the estimated present value of

 

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future installment
premiums, net of reinsurance, at such date, (C) the estimated present value of
ceding commissions to be received related to reinsured future installment
premiums at such date and (D) the estimated present value of future net
interest margin at such date, and

 

(ii)           subtract
from such total the sum of (A) the deferred acquisition costs at such date and
(B) the estimated present value of premium taxes to be paid related to future
installment premiums.

 

For
purposes hereof, Adjusted Book Value shall be determined excluding the
after-tax effect of gains or losses attributable to mark-to-market of
Investment Grade credit derivatives.

 

“Adjusted Book Value
per share” means, as of a particular date, Adjusted Book Value on such date
divided by the number of shares of FSA Stock outstanding (excluding treasury
shares other than those owned to hedge obligations under the Company’s Deferred
Compensation Plan(s) or Supplemental Executive Retirement Plan(s)) on such
date.

 

“Book Value” means, as of a particular date, the Company’s
total shareholders’ equity on such date, as derived from the Company’s IFRS
financial statements for the period ended on such date. For purposes hereof,
Book Value shall be determined excluding the after-tax effect of gains or
losses attributable to mark-to-market of Investment Grade credit derivatives.

 

“Book Value per share”
means, as of a particular date, Book Value on such date divided by the number
of shares of FSA Stock outstanding (excluding treasury shares other than those
owned to hedge obligations under the Company’s Deferred Compensation Plan(s) or
Supplemental Executive Retirement Plan(s)) on such date.

 

The effect that the ROE for a particular Performance
Cycle shall have on the value of the Performance Shares allocated to such
Performance Cycle is set forth in Section 6 below. The Committee shall
determine the extent to which the Performance Objective defined herein has been
achieved by the Company in the applicable Performance Cycle. Such determination
by the Committee shall, in the absence of bad faith or manifest error, be final
and binding on you.

 

If, any time after the date of the award made hereunder,
any change shall occur in or affect the FSA Stock or Performance Shares on
account of any increase or decrease in the number of outstanding shares of FSA
Stock resulting from payment of a stock dividend on FSA Stock, a subdivision or
combination of shares of FSA Stock, a reclassification of FSA Stock, a
recapitalization involving the Company or in the event of a merger or
consolidation in which the Company shall be the surviving corporation, then the
Committee shall make such adjustments, if any, that it deems necessary in the
number of shares of FSA Stock allocated to awards of Performance Shares then
outstanding to reflect such change. In the event of an Internal Reorganization,
as defined below, (providing for a new holding company for the FSA group of
companies), (i) the Committee shall make such adjustments to then outstanding
Performance Shares (including Performance Shares underlying outstanding
Performance Share Units) as it shall deem appropriate to reflect such Internal
Reorganization so that, with respect to your outstanding Performance Shares,
you are compensated based upon the overall performance of the reconstituted FSA
group of companies, including, without limitation, adjusting the number of
shares of FSA Stock allocated to such Performance Shares and adjusting the
Performance Objectives or manner of calculating the Performance Objectives in
respect of such Performance Shares; and (ii) the term “Company” shall be deemed
to refer to such new holding company and the term “FSA Stock” shall be deemed
to refer to the securities of such

 

3

 

new holding company for
all purposes of the Plan. For purposes hereof, “Internal Reorganization”
means the direct or indirect acquisition of all or substantially all of the
outstanding FSA Stock by a newly organized holding company established to own
the Company and other companies engaged or to be engaged in the financial
guaranty insurance business, immediately following which Dexia continues to
own, directly or indirectly, shares of capital stock of the Company entitling
Dexia to, directly or indirectly, cast more than 90% of the votes for the
election of directors of the Company.

 

To reflect a change in, or a change in the application
by the Company of, tax laws or regulations or accounting principles (including,
without limitation, by reason of any error in applying such laws, regulations
or principles), the Performance Objectives relating to Performance Cycles not
then completed under this award shall be adjusted by the Committee so as to
reflect such change to preserve the value of the Performance Shares consistent
with the intent and the purpose of the Plan, provided the Company’s independent
auditors shall have determined that such adjustments shall not result in the
Company’s loss of deductibility under Section 162(m) with respect to your
compensation if it is, in the reasonable belief of the Committee, subject
thereto. Further, if the Company’s deductibility with respect to your award of
Performance Shares will not, in the reasonable belief of the Committee, be
subject to Section 162(m) of the Code, the Committee may, in its discretion and
independent of any determination made by the Company’s independent auditors,
make adjustments to the Performance Objective hereunder in respect of
Performance Cycles not then completed so as to reflect a change in, or a change
in the application by the Company of, tax laws or regulations or accounting
principles (including, without limitation, by reason of any error in applying
such laws, regulations or principles) to preserve the value of the Performance
Shares consistent with the intent and the purpose of the Plan and, in addition,
may make adjustments to the Performance Objective hereunder and other terms
hereof that are not, in the reasonable belief of the Committee, materially
adverse to you or the value of the Performance Shares as shall allow the
Performance Shares awarded hereunder to qualify as “equity instruments”
provided in exchange for employee services within the meaning of Statement of
Financial Accounting Standards No. 123 as in effect from time to time.

 

5.             Vesting.

 

On the date hereof, you are vested in none of the
Performance Shares subject to this award. You will become vested in your
Performance Shares immediately upon completion of the Performance Cycle to
which those Performance Shares attach, subject to earlier vesting or forfeiture
as provided in this Agreement or the Plan.

 

If your employment with the Company should terminate
prior to completion of a Performance Cycle for Cause or other than by reason of
death, Disability or Retirement or termination by the Company without Cause,
you will forfeit, and will not be entitled to any distribution or payment under
Section 6 of this Agreement with respect to, Performance Shares which have not
vested on or prior to such termination of employment.

 

The Plan provides for vesting of all your Performance
Shares upon termination of employment upon your death or Disability. The Plan
provides for partial vesting of your Performance Shares upon termination of
your employment by the Company without Cause or Retirement prior to the
completion of the related Performance Cycle, with the percentage, if any, of
your Performance Shares vesting being equal to the percentage of the term of
the Performance Cycle during which you were employed by the Company (or such
greater percentage as the Committee, in its sole discretion, shall approve),
and with the unvested balance of your Performance Shares being forfeited.

 

If, after a Qualified Change in Control (as defined in
the Plan), your employment is terminated without Cause or you voluntarily
terminate your employment for Good Reason prior to completion of any
Performance

 

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Cycle for Performance
Shares outstanding at the time of the Change in Control, then the Plan provides
for accelerated vesting and payout of such Performance Shares as described in
Section 9 of this Agreement.

 

6.             Distributions
and Payments on Completion of Performance Cycle.

 

In furtherance of an election made under Section 7 of
this Agreement, and subject to the Company’s rights thereunder, distributions
of shares of FSA Stock and/or payments of cash with respect to Performance
Shares allocated to a particular Performance Cycle covered by this award shall
be made to you within one hundred twenty (120) days after the completion of
such Performance Cycle in accordance with the Committee’s determination of the
achievement of the applicable Performance Objective, unless you shall have made
a deferral pursuant to Section 8 of this Agreement. Provided you shall have
been employed by the Company through the date on which a particular Performance
Cycle shall have been completed, or your employment with the Company shall have
been terminated prior thereto by reason of death or Disability, or the
Performance Shares awarded hereunder are otherwise vested pursuant to the terms
of this Agreement or the Plan, you shall be entitled to receive with respect to
this Agreement:

 

(1)           a number
of shares of FSA Stock to be determined in accordance with the following
formula:

 

a x b = c; or

 

(2)           a cash
payment in an amount to be determined in accordance with the following formula:

 

a x b x d = e; or

 

(3)           a
combination of FSA Stock and cash in the amounts determined in accordance with
the formulae set forth in clauses (1) and (2) above, provided, however, that,
in such event, in each such formula a shall be
multiplied by the percentage that represents the portion of the Performance
Shares allocated to such Performance Cycle to be paid in FSA Stock or cash, as
the case may be;

 

where:                    a =          the number of
Performance Shares allocated to the applicable Performance Cycle under this
Agreement;

 

b
=          the
percentage (which may be more than 100%), which represents the extent to which
the Performance Objective defined herein has been achieved by the Company in
the applicable Performance Cycle; specifically, subject to Section 4 of this
Agreement, the ROE calculated for each Performance Cycle will determine such
percentage according to the following table:

 

	
  Performance 

  Cycle ROE

  	
   

  	
  Percentage
  of Performance

  Objective
  Achieved

  
	
  19% or higher

  	
   

  	
  200%

  
	
  16%

  	
   

  	
  150%

  
	
  13%

  	
   

  	
  100%

  
	
  10%

  	
   

  	
  50%

  
	
  7%

  	
   

  	
  0%

  

 

All points in
between will be interpolated using the straight line method.

 

5

 

c =           the
number of shares of FSA Stock to be distributed to you at the end of the
applicable Performance Cycle under this Agreement;

 

d =          the
Fair Market Value of a share of FSA Stock as of the day the Committee
determines the extent to which the Performance Objective has been achieved by
the Company in the applicable Performance Cycle; and

 

e =           the
amount of the cash to be paid to you at the end of the applicable Performance
Cycle under this Agreement.

 

For purposes hereof, so
long as the FSA Stock is not listed on a national securities exchange, “Fair
Market Value” of a share of FSA Stock shall equal the greater of (i) the
product of 0.85 and the Adjusted Book Value per share of FSA Stock as of the
last day of the calendar quarter ending prior to the date of determination of
Fair Market Value and (ii) the average of (a) the product of 1.15 and the
Adjusted Book Value per share of FSA Stock as of the last day of the calendar
quarter ending prior to the date of determination of Fair Market Value and (b)
the product of 14 and Operating Earnings per share of FSA Stock as of the last
day of the calendar quarter ending prior to the date of determination of Fair
Market Value. For purposes of the foregoing, “Operating Earnings” shall
mean, as of a
particular date, net income of the Company for
the first four completed calendar quarters ended on or prior to such date less the after-tax effect of gains or
losses attributable to mark-to-market of Investment Grade credit derivatives,
as determined by the Company, consistent, as applicable, with its determination
of net income from time to time under IFRS.

 

In the event you shall not have been employed by the
Company through the date on which a particular Performance Cycle covered by
this award has been completed, you shall be entitled to receive the foregoing
distribution and/or payment with respect to the number of Performance Shares,
if any, which have vested (by reason of Termination without Cause or Retirement
during such Performance Cycle or otherwise) but with respect to which a
distribution or payment had not previously been made with respect thereto.

 

7.             Election
to Receive FSA Stock or Cash.

 

Subject to the provisions of this Section 7, payouts
for Performance Shares allocated to each Performance Cycle will be made in cash
and/or shares of FSA Stock of the Company following the end of such Performance
Cycle, or deferred as provided in this Agreement. Until such
time as FSA Stock becomes publicly traded, the Company does not expect to allow
payouts with respect to Performance Shares in FSA Stock. In the
event that the Company does allow payouts with respect to Performance Shares in
FSA Stock then, subject to Section 9 hereof, prior to the date on which a
Performance Cycle shall be completed with respect to this award of Performance
Shares, you will have an opportunity to make an election to receive your
distribution, if any, following completion of such Performance Cycle, in shares
of FSA Stock and/or cash. Such election shall be made in writing and shall be
delivered to the Company’s Chief Financial Officer or General Counsel, or such
other officer as the Committee shall from time to time designate. Notwithstanding
any such election made by you, the Committee may, in its sole and absolute
discretion, satisfy the Company’s obligations to you either by delivery of FSA
Stock, subject to the availability of such FSA Stock under the Plan, or by
paying cash. If you fail to make a timely election, the Committee shall have
the sole discretion to deliver shares of FSA Stock and/or pay cash to satisfy
any such obligation.

 

In the event you elect to receive shares of FSA Stock
in satisfaction of all or part of the Company’s obligations under Section 6 of
this Agreement with respect to the completion of a particular Performance
Cycle, and the aggregate number of shares of FSA Stock subject to elections
made by all Participants exceeds the

 

6

 

maximum number of shares of FSA Stock reserved and available for
distribution under the Plan (the “Reserved Stock”), the Committee shall
have the absolute and sole discretion to satisfy such obligations by reducing
the number of shares of FSA Stock delivered pursuant to such elections to the
number of shares of FSA Stock then equal to the Reserved Stock. In such event,
the Committee shall reduce the aggregate number of shares of FSA Stock
deliverable to you pursuant to your election pro rata among all Participants
making similar elections, based upon the number of shares of FSA Stock
otherwise deliverable pursuant to such elections. The Company shall satisfy the
obligations to you, which remain unsatisfied following a distribution made
pursuant to the foregoing reduction, by paying cash in accordance with Section 6
of this Agreement.

 

8.             Election
to Defer.

 

The Committee has established procedures for deferral
of award payments under the Plan and under the Financial Security Assurance
Holdings Ltd. 2004 Deferred Compensation Plan, as amended from time to time
(the “Deferred Compensation Plan”), for eligible employees. You may elect, if
so eligible, to defer receipt of any FSA Stock and/or cash to which you may be
entitled pursuant to this Agreement, provided such election to defer shall have
been made in writing to the Committee in accordance with procedures established
by the Company pursuant to the Deferred Compensation Plan. The effect of a
timely election to defer under this Section 8 will be that the Committee shall
direct that the deferred amount be an obligation of the Company to you under
the Plan or the Deferred Compensation Plan, as the case may be, and your rights
with respect thereto will thereafter be governed by the Plan or the Deferred
Compensation Plan, as the case may be.

 

9.             Change
in Control.

 

In the event of a Change in Control, the Committee
shall make such adjustments, if any, to the Performance Objectives and/or the
method of calculating the Performance Objectives as it shall deem necessary or
appropriate to preserve the value of the Performance Shares consistent with the
intent and the purpose of the Plan.

 

If your employment is terminated by the Company
without Cause or you voluntarily terminate your employment for Good Reason (as
defined in the Plan) after a Qualified Change in Control, in either case prior
to the completion of any Performance Cycle in respect of the Performance Shares
subject to this award, then all Performance Shares subject to this award
outstanding at the time of the Change in Control and having Performance Cycles
which shall not have been completed prior to the date of termination of
employment (the “Operative Date”) shall become fully vested and shall be paid
on the date that is six months after the Operative Date (the “Six-Month Period”).
The Committee shall value all Performance Shares in respect of Performance
Cycles which shall not have been completed on or before the Operative Date
based upon the formulae set forth in Section 6 except that b shall
be equal to a percentage (the “Minimum Percentage”) equal to (i) for all
Performance Cycles that do not include at least one completed year at the
Operative Date, 100%, and (ii) for all Performance Cycles that include at least
one completed year at the Operative Date, a percentage (which may be more than
100%), which represents the extent to which the Performance Objectives set
forth in such award have been achieved by the Company in the applicable
Performance Cycle assuming that the Company achieved 100% of its Performance
Objectives for each year not completed at the Operative Date. In the case of
any Performance Cycle completed during the Six-Month Period, payment of any
amounts due shall be made in accordance with Section 6 of this Agreement,
provided that any incremental payment due pursuant to the foregoing provisions
of this Section 9 by reason of application of the Minimum Percentage shall be
payable at the end of the Six-Month Period.

 

7

 

10.           No
Rights as a Stockholder.

 

Neither you, nor any person entitled to exercise your
rights hereunder in the event of death, shall have any rights of a stockholder
with respect to any shares of FSA Stock subject to your award of Performance
Shares, except to the extent that a certificate for such shares shall have been
issued as provided for herein.

 

11.           Non-Transferability
of Performance Shares.

 

This award of Performance Shares shall not be
transferable except by will or the laws of descent and distribution.

 

12.           Subject
to Terms of the Plan.

 

This Agreement shall be subject in all respects to the
terms and conditions of the Plan and in the event of any question or
controversy relating to the terms of the Plan, or any ambiguity in interpreting
the provisions thereof, the decision of the Committee shall be conclusive.

 

13.           Miscellaneous.

 

(a)           All
decisions made by the Committee pursuant to the provisions of this Agreement
and the Plan (including without limitation any interpretation of this Agreement
and the Plan) shall be final and binding, in the absence of bad faith or
manifest error, on all persons and otherwise entitled to the maximum deference
permitted by law, including the Company and you. Any dispute, controversy or
claim between the parties hereto arising out of or relating to this Agreement
shall be settled by arbitration conducted in the City of New York, in
accordance with the Commercial Rules of the American Arbitration Association
then in force and New York law. In any dispute or controversy or claim
challenging any determination by the Committee, the arbitrator(s) shall uphold
such determination in the absence of the arbitrator’s finding of the presence
of bad faith or manifest error of the Committee. The arbitration decision or
award shall be final and binding upon the parties. The arbitration shall be in
writing and shall set forth the basis therefor. The parties hereto shall abide
by all awards rendered in such arbitration proceedings, and all such awards may
be enforced and executed upon in any court having jurisdiction over the party
against whom enforcement of such award is sought. Each party shall bear its own
costs with respect to such arbitration, including reasonable attorneys’ fees;
provided, however, that: (i) the fees of the American Arbitration Association
shall be borne equally by the parties; and (ii) if the arbitration is resolved
in your favor, your costs of arbitration (including such fees) shall be paid by
the Company.

 

(b)           All
certificates for shares of FSA Stock delivered pursuant to this Agreement shall
be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which the FSA Stock is then listed, and any applicable Federal or state securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions. The foregoing
provisions of this section shall not be effective if and to the extent that the
shares of FSA Stock delivered under the Plan and hereunder are covered by an
effective registration statement under the Securities Act of 1933, as amended,
such that application of such provisions is no longer required, or if and so
long as the Committee otherwise determines that such application is no longer
required.

 

(c)           This
Agreement shall not confer upon you any right to continued employment with the
Company, nor shall it interfere in any way with the right of the Company to
terminate your employment at any time. Notwithstanding any other provisions of
this Agreement or the Plan, if the Committee determines that any individual
entitled to take action or receive payments hereunder is an infant or incompetent
by reason of physical

 

8

 

or mental disability, it
may permit such action to be made by or cause such payments to be made to a
different individual, without any further responsibility with respect thereto
under this Agreement or the Plan.

 

(d)           The
Company shall be entitled to withhold from any distribution of FSA Stock or
cash made under this Agreement the amount of taxes the Company deems necessary
to satisfy any applicable federal, state and local income and employment tax
withholding obligations arising from the payment of the award or to make other
appropriate arrangements with you to satisfy such obligations. The Committee,
in its discretion (and giving consideration to, without limitation, Section 16
of the Securities Act of 1933, as amended), may permit you to satisfy the
obligation, in whole or in part, by irrevocably electing to have the Company
withhold FSA Stock that you already own, having a value equal to the amount
required to be withheld. The value of shares to be withheld, or delivered to
the Company, shall be based on the Fair Market Value of the shares, as
determined in accordance with procedures to be established by the Committee, on
the date the amount of tax to be withheld is to be determined.

 

(e)           Notwithstanding
any other provision of the Plan or this Agreement, the Plan and this Agreement
shall be construed or deemed to be amended as necessary to comply with the
requirements of Section 409A of the Code to avoid taxation under Section
409A(a)(1) of the Code. The Committee, in its sole discretion, shall determine
the requirements of Section 409A of the Code applicable to the Plan and this
Agreement and shall interpret the terms of the Plan and this Agreement
consistently therewith. Under no circumstances, however, shall the Company have
any liability under the Plan or this Agreement for any taxes, penalties or
interest due on amounts paid or payable pursuant to the Plan or this Agreement,
including any taxes, penalties or interest imposed under Section 409A(a)(1) of
the Code.

 

(f)            All
notices hereunder shall be in writing and, if to the Company, shall be
delivered or mailed to its principal office, addressed to the attention of the
General Counsel; and if to you, shall be delivered personally or mailed to you
at the address appearing in the records of the Company. Such addresses may be
changed at any time by written notice to the other party given in accordance
with this Section 13.

 

(g)           The
failure of you or the Company to insist upon strict compliance with any
provision of this Agreement or the Plan, or to assert any right you or the
Company may have under this Agreement or the Plan, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement or the Plan.

 

(h)           This
Agreement contains the entire agreement between the parties with respect to the
subject hereof and supersedes all prior agreements, written or oral, with
respect thereto.

 

(i)            THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW
YORK, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.

 

Sincerely yours,

 

	
   

  	
   

  	
  FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
  Sean W. McCarthy, President

  	
   

  
	
  Agreed to and accepted as of the

  	
   

  	
   

  	
   

  	
   

  
	
  date first set forth above (Please sign on the line

  	
   

  	
   

  	
   

  	
   

  
	
  below and print name in the space provided):

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  (signature)

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (print name)

  	
   

  	
   

  	
   

  	
   

  
								

 

9Exhibit
10.3

 

FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.

AGREEMENT EVIDENCING AN AWARD OF DEXIA RESTRICTED STOCK

 

	
   

  	
   

  	
  January [       ], 2006

  
	
   

  	
   

  	
   

  
	
  To: [          ]“Employee”

  	
   

  	
   

  

 

We are pleased to notify you
that by the determination of the Human Resources Committee (the “Committee”)
of the Board of Directors of Financial Security Assurance Holdings Ltd. (together with any successor thereto, the “Company”)
(Number of Shares) (                )
shares of Dexia Restricted Stock have been awarded
to you under the Financial Security Assurance Holdings Ltd. 2004 Equity Participation Plan (as amended from
time to time, the “Plan”). Unless otherwise defined herein, all
capitalized terms contained herein shall have the definitions that are ascribed
to them in the Plan.

 

As described herein, your shares of Dexia Restricted Stock will be
allocated (i) 33-1/3% to the
three-year Restricted Period scheduled to end
December 31, 2008 and (ii) 66-2/3% to the four-year
Restricted Period scheduled to end December 31, 2009. Pursuant to the terms of the Plan and this
Agreement, the restrictions on vested Dexia Restricted Stock allocated to each
Restricted Period will lapse at the end of such Restricted Period and unrestricted shares of Dexia Stock will be distributed at
that time. During the Restricted Period, your
shares of Dexia Restricted Stock will be held in custody in a securities account maintained by a
custodian designated by the Company, subject to the provisions of this Agreement and the Plan.

 

1.             Purpose of Award.

 

The purpose of the Plan
pursuant to which your shares of Dexia Restricted Stock have
been awarded is to enable the Company to retain and
attract executives and employees who will contribute to the Company’s success by their ability, ingenuity and
industry, and to enable such executives and employees to participate in the
long-term growth of the Company and Dexia by
obtaining a proprietary interest in the Company or Dexia and/or
the cash equivalent thereof.

 

2.             Acceptance of the Dexia Restricted
Stock Award
Agreement.

 

Your execution of this Dexia Restricted Stock award agreement (this “Agreement”) will indicate your acceptance of, and your
agreement to be bound by, the terms set forth in this Agreement and in the
Plan.

 

3.             Vesting Period.

 

On the date hereof, you
are vested in none of the shares of Dexia Restricted Stock subject to this
award. Subject to the provisions of this Section 3 and the Plan, your shares of
Dexia Restricted Stock shall vest according to the following schedule:

 

 

	
  Vesting Date

  	
   

  	
  % of Dexia Restricted Stock Award Vesting

  
	
  June 30,
  2008

  	
   

  	
  33-1/3%

  
	
  June 30,
  2009

  	
   

  	
  66-2/3%

  

 

The period from the date of grant of your shares
of Dexia Restricted Stock to the date such shares are scheduled to become
vested is referred to as the “Normal Vesting Period.”

 

In the event of
termination of your employment for any reason during the Normal Vesting Period,
(i) you shall forfeit all your shares of Dexia Restricted Stock that have not
become vested prior to your date of

 

 

termination,
except as specified below in this Section 3, and (ii) any shares of vested
Dexia Restricted Stock held by you (including shares that become vested as
specified below in this Section 3) will be distributed in the form of shares of
unrestricted Dexia Stock at the conclusion of the applicable Restricted Period,
subject to your right to sell such shares to the Company as described in
Section 6. The period from the date of award of your Dexia Restricted Stock to
the actual date of vesting (taking into account the earlier vesting as a result
of the events described below in this Section 3) is referred to as the “Forfeiture Period.”

 

•              Upon termination of your employment by the
Company without Cause, a portion of your shares of Dexia Restricted Stock
subject to this award that have not become vested prior to the date of such
termination shall vest as of such date, such portion to equal the ratio of (i)
the number of days in the Normal Vesting Period applicable to such shares that
have elapsed as of the date of termination, over (ii) the total number of days
in such Normal Vesting Period.

 

•              Upon becoming eligible for Retirement at
age 55 (your “Retirement
Eligibility Date”),
a portion of your shares of Dexia Restricted Stock subject to this award that
have not become vested prior to your Retirement Eligibility Date shall vest as
of such date, such portion to equal the ratio of (i) the number of days in the
Normal Vesting Period applicable to such shares that have elapsed as of the
Retirement Eligibility Date, over (ii) the total number of days in such Normal
Vesting Period. The shares of Dexia Restricted Stock subject to this award that
are still unvested following your Retirement Eligibility Date shall vest in
equal installments as of the last day of each of the Company’s fiscal quarters
ending during the remaining term of the applicable Normal Vesting Period,
provided that, in the case of each such installment, you remain employed by the
Company until the applicable vesting date.

 

•              All your unvested shares of Dexia
Restricted Stock awarded hereunder shall vest (i) upon your death or Disability
while you are employed by the Company or (ii) to the same extent that
Performance Shares vest, in the event of a Change in Control while you are
employed by the Company.

 

4.             Restricted Period.

 

From the date of award
of your Dexia Restricted Stock until 6 months following the expiration of the
Forfeiture Period (such period, the “Restricted Period”), you shall not be permitted, voluntarily
or involuntarily, to sell, transfer, pledge, anticipate, alienate, encumber or
assign your shares of Dexia Restricted Stock awarded hereunder except by will
or the laws of descent and distribution; provided that the Restricted Period
for any shares of Dexia Restricted Stock that are automatically sold to the
Company or to Dexia to satisfy withholding tax requirements in accordance with
Section 8 below shall expire at the expiration of the applicable Forfeiture
Period. The Restricted Periods set forth below shall apply to your shares of
Dexia Restricted Stock that vest at the conclusion of the Normal Vesting
Period:

 

	
  Vesting Date

  	
   

  	
  Restricted Period Ended

  	
   

  	
  % of Dexia Restricted Stock Award

  Becoming Unrestricted

  	
   

  
	
  June 30,
  2008

  	
   

  	
  December 31, 2008

  	
   

  	
  33-1/3%

  	
   

  
	
  June 30,
  2009

  	
   

  	
  December 31, 2009

  	
   

  	
  66-2/3%

  	
   

  

 

2

 

5.             Dividends and Voting Rights.

 

Other than the
restrictions on transfer during the Restricted Period, the risk of forfeiture
during the Normal Vesting Period and any other terms and conditions of your
award set forth herein and in the Plan, you shall have all of the rights of a
holder of Dexia Stock in respect of your shares of Dexia Restricted Stock,
including the right to vote the shares and the right to receive any cash
dividends; provided that any stock dividends paid, or proceeds of stock splits,
shall remain Dexia Restricted Stock subject to the same custody arrangement,
vesting provisions and Restricted Period applicable to the Dexia Restricted
Stock in respect of which such stock dividend was paid or stock split was made.
Cash dividends received with respect to your Dexia Restricted Stock shall be
converted into U. S. dollars at the then applicable exchange rates and paid to
you promptly following receipt by the custodian of such dividends but, in any
event, not later than 2 1⁄2 months following the year in which such cash
dividends are received by the custodian.

 

6.             Election to Sell Stock.

 

Prior to the date on
which the Restricted Period shall be completed with respect to vested shares of
Dexia Restricted Stock awarded to you hereunder, you shall be given an
opportunity to elect to sell to the Company all or a portion of such shares, if
any, that you would be entitled to receive following completion of such
Restricted Period. Such election shall be made in writing and shall be
delivered to the Company’s Chief Financial Officer or General Counsel, or such
other officer as the Committee shall from time to time designate. Notwithstanding
any election to sell made by you, the Committee may, in its sole and absolute
discretion, on behalf of the Company, refuse to purchase shares of unrestricted
Dexia Stock from you. If you fail to make a timely election with respect to any
vested shares of Dexia Restricted Stock prior to completion of the Restricted
Period, the Committee, in its sole discretion, may nonetheless purchase shares
of Dexia Stock that you offer for sale to the Company. Any Dexia Stock
purchased by the Company pursuant to this Section 6 shall be purchased at the
Fair Market Value of Dexia Stock as of the last day of the Restricted Period
(or if such day is not a trading day for Dexia Stock, then the first succeeding
trading day for Dexia Stock), converted into U. S. dollars using the noon buying rate published by the Federal
Reserve Bank of New York for such date (or, if such rate is no longer
published, such other rate as the Committee shall approve).

 

7.             Distributions and Payments on Completion of
Restricted Period.

 

In furtherance of an
election made under Section 6 of this Agreement, and subject to the Company’s
rights thereunder, distributions of Dexia Stock and/or payments of cash for the
purchase of shares of Dexia Restricted Stock allocated to a particular
Restricted Period covered by this award shall be made to you within ten (10)
days after the completion of such Restricted Period.

 

8.             Tax Withholding.

 

In accordance with
Section 11(d) of the Plan, you shall automatically sell to the Company a number
of whole and/or fractional shares of Dexia Stock that would otherwise be
distributed to you upon expiration of the Forfeiture Period in order to satisfy
the minimum withholding requirement for all applicable Federal, state and local
income, excise and employment taxes; provided that you may elect to satisfy any
such withholding requirement by the delivery of cash. Such election must be
made in writing and delivered to the Company’s Chief Financial Officer or
General Counsel or such other officer as the Committee shall from time to time
designate no later than thirty (30) days prior to the date of any such
withholding requirement. Any shares of Dexia Stock sold to the Company pursuant
to this Section 8 shall be valued at their Fair Market Value on the date of the
applicable

 

3

 

withholding
requirement (or if such day is not a trading day for Dexia Stock, then the
first succeeding trading day for Dexia Stock), converted into U. S. dollars
using the noon
buying rate published by the Federal Reserve Bank of New York for such date
(or, if such rate is no longer published, such other rate as the Committee
shall approve).

 

9.             Dexia Stock Ceases to be Outstanding.

 

If, as a result of any
merger, reorganization or other business combination or any other event or
occurrence (a “Realization Event”), Dexia Stock is converted or
exchanged for cash, shares or other consideration (the “Realization
Consideration”), each share of Dexia Restricted Stock awarded hereunder
outstanding immediately prior to such Realization Event shall be converted into
the Realization Consideration at the same time and on the same terms as
applicable to Dexia Stock in general and shall be subject to the terms and
conditions of Section 6(c) of the Plan applicable to the Dexia Restricted Stock
for which the Realization Consideration was paid, including the timing of payment,
transfer and forfeiture provisions applicable with respect to the remaining
term of the applicable Restricted Period and the Forfeiture Period, unless, in
any such case, waived by the Committee in its sole discretion; provided that
(i) to the extent that the Realization Consideration consists of shares, the
provisions hereof applicable to Dexia Restricted Stock shall apply to such
shares as if such shares were Dexia Restricted Stock; and (ii) to the extent
that the Realization Consideration consists of cash (the “Restricted Cash
Amount”), the Restricted Cash Amount shall be paid to you six months after
the end of the Normal Vesting Period applicable to the Dexia Restricted Stock
for which the Restricted Cash Amount was substituted. Such Restricted Cash Amount
shall be converted into U.S. dollars using the noon buying rate published by
the Federal Reserve Bank of New York for the date of receipt of such cash (or
if such rate is no longer published, such other rate as the Committee shall
approve) and credited with a rate of return equal to the Company’s ROE from the
date of conversion into cash until the date of payment. The Company’s
obligation to pay the Restricted Cash Amount, along with any deemed earnings or
losses thereon, shall be an unfunded contractual obligation that will be
satisfied out of the Company’s general assets. Participants shall have only the
rights of a general unsecured creditor of the Company with respect to such
amounts.

 

For purpose of
the foregoing:

 

“ROE”
means, in respect of any period, the average of:

 

(i)            the discount rate
(expressed as an annual percentage rate) such that (a) the Adjusted Book Value
per share of the Company’s common stock (“FSA Stock”) on the last day of
the last calendar quarter in such period, adjusted to exclude the after-tax
change in accumulated other comprehensive income (unrealized gains and losses
in the Company’s investment portfolio and any other component of other
comprehensive income) during such period, and the dividends paid per share
during such period, each discounted at such discount rate to the first day of
the first calendar quarter in such period, equals (b) the Adjusted Book Value
per share of FSA Stock on the first day of the first calendar quarter in such
period; and

 

(ii)           the discount rate
(expressed as an annual percentage rate) such that (a) the Book Value per share
of FSA Stock on the last day of the last calendar quarter in such period,
adjusted to exclude the after-tax change in accumulated other comprehensive
income (unrealized gains and losses in the Company’s investment portfolio and
any other component of other comprehensive income) during such period, and the
dividends paid per share during such period, each

 

4

 

discounted at such discount rate to the first
day of the first calendar quarter in such period, equals (b) the Book Value per
share of FSA Stock on the first day of the first calendar quarter in such
period.

 

“Adjusted Book Value” means, as of a particular date, the Book
Value on such date, subject to the following adjustments, each of which shall
have been derived from the Company’s IFRS financial statements for the period
ended on such date (or, if not derivable from such financial statements, shall
be determined in good faith by the Company), but reduced by the amount of the
federal income tax applicable thereto:

 

(i)            add to the Book Value
the sum of (A) the unearned premiums net of prepaid reinsurance premiums at
such date, (B) the estimated present value of future installment premiums, net
of reinsurance, at such date, (C) the estimated present value of ceding
commissions to be received related to reinsured future installment premiums at
such date and (D) the estimated present value of future net interest margin at
such date, and

 

(ii)           subtract from such
total the sum of (A) the deferred acquisition costs at such date and (B) the
estimated present value of premium taxes to be paid related to future
installment premiums.

 

For
purposes hereof, Adjusted Book Value shall be determined excluding the
after-tax effect of gains or losses attributable to mark-to-market of
Investment Grade credit derivatives.

 

“Adjusted Book Value per share” means, as of a particular date,
Adjusted Book Value on such date divided by the number of shares of FSA Stock
outstanding (excluding treasury shares other than those owned to hedge
obligations under the Company’s Deferred Compensation Plan(s) or Supplemental
Executive Retirement Plan(s)) on such date.

 

“Book Value” means, as of a particular date, the Company’s total shareholders’
equity on such date, as derived from the Company’s IFRS financial statements
for the period ended on such date. For purposes hereof, Book Value shall be
determined excluding the after-tax effect of gains or losses attributable to
mark-to-market of Investment Grade credit derivatives.

 

“Book Value per share” means, as of a particular date, Book
Value on such date divided by the number of shares of FSA Stock outstanding
(excluding treasury shares other than those owned to hedge obligations under
the Company’s Deferred Compensation Plan(s) or Supplemental Executive
Retirement Plan(s)) on such date.

 

10.           Subject to Terms of the Plan.

 

This Agreement shall be
subject in all respects to the terms and conditions of the Plan and in the event
of any question or controversy relating to the terms of the Plan, or any
ambiguity in interpreting the provisions thereof, the decision of the Committee
shall be conclusive.

 

5

 

11.           Miscellaneous.

 

(a)           All decisions made by the Committee pursuant
to the provisions of this Agreement and the Plan (including without limitation
any interpretation of this Agreement and the Plan) shall be final and binding,
in the absence of bad faith or manifest error, on all persons and otherwise
entitled to the maximum deference permitted by law, including the Company and
you. Any dispute, controversy or claim between the parties hereto arising out
of or relating to this Agreement shall be settled by arbitration conducted in
the City of New York, in accordance with the Commercial Rules of the American
Arbitration Association then in force and New York law. In any dispute or
controversy or claim challenging any determination by the Committee, the
arbitrator(s) shall uphold such determination in the absence of the arbitrator’s
finding of the presence of bad faith or manifest error of the Committee. The
arbitration decision or award shall be final and binding upon the parties. The
arbitration shall be in writing and shall set forth the basis therefor. The
parties hereto shall abide by all awards rendered in such arbitration
proceedings, and all such awards may be enforced and executed upon in any court
having jurisdiction over the party against whom enforcement of such award is sought.
Each party shall bear its own costs with respect to such arbitration, including
reasonable attorneys’ fees; provided, however, that: (i) the fees of the
American Arbitration Association shall be borne equally by the parties; and
(ii) if the arbitration is resolved in your favor, your costs of arbitration
(including such fees) shall be paid by the Company.

 

(b)           All certificates for shares of Dexia Stock delivered pursuant to this Agreement
shall be subject to such stock-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations, and other
requirements of the Securities and Exchange Commission, any stock exchange upon
which Dexia Stock is then listed, and any applicable
Federal, state or foreign securities
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.

 

(c)           This Agreement shall not confer upon you any right to continued employment with the
Company, nor shall it interfere in any way with the right of the Company to
terminate your employment at any
time. Notwithstanding any other provisions of this Agreement or the Plan, if
the Committee determines that any individual entitled to take action or receive
payments hereunder is an infant or incompetent by reason of physical or mental
disability, it may permit such action to be made by or cause such payments to
be made to a different individual, without any further responsibility with
respect thereto under this Agreement or the Plan.

 

(d)           All notices hereunder shall be in writing
and, if to the Company, shall be delivered or mailed to its principal office,
addressed to the attention of the General Counsel; and if to you, shall be
delivered personally or mailed to you at the address appearing in the records
of the Company. Such addresses may be changed at any time by written notice to
the other party given in accordance with this Section
11.

 

(e)           Notwithstanding any
other provision of the Plan or this Agreement, the Plan and this Agreement
shall be construed or deemed to be amended as necessary to comply with the
requirements of Section 409A of the Code to avoid taxation under Section
409A(a)(1) of the Code. The Committee, in its sole discretion, shall determine
the requirements of Section 409A of the Code applicable to the Plan and this
Agreement and shall interpret the terms of the Plan and this Agreement
consistently therewith. Under no circumstances, however, shall the Company have
any liability under the Plan or this Agreement for any taxes, penalties or
interest due on amounts paid

 

6

 

or payable pursuant to the Plan or this
Agreement, including any taxes, penalties or interest imposed under Section
409A(a)(1) of the Code.

 

(f)            The failure of you or the Company to insist
upon strict compliance with any provision of this Agreement or the Plan, or to
assert any right you or the Company may have under this Agreement or the Plan,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement or the Plan.

 

(g)           This Agreement contains the entire agreement
between the parties with respect to the subject hereof and supersedes all prior
agreements, written or oral, with respect thereto.

 

(h)           THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW YORK, WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICT OF LAWS.

 

	
   

  	
  Sincerely yours,

  
	
   

  	
   

  	
   

  
	
   

  	
  FINANCIAL SECURITY
  ASSURANCE HOLDINGS LTD.

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Sean W. McCarthy, President

  	
   

  
	
  Agreed to and accepted as
  of the

  date first set forth above (Please sign on the line

  below and print name in the space provided):

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (signature)

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
   

  
	
  (print name)

  	
   

  	
   

  
						

 

7

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