Document:

Exhibit 10.2

    EXHIBIT
      10.2

     

    

     

    EMPLOYMENT
      AGREEMENT

     

    THIS
      EMPLOYMENT AGREEMENT is made as of the 1st day of June, 2006, between Bay
      National Bank (the “Bank” or “Employer”), a national bank with a principal
      office in Baltimore County, Maryland and Richard C. Springer, a resident of
      the
      State of Maryland (the “Employee”).

     

    RECITALS:

     

    The
      Employer desires to employ the Employee as Executive Vice President of the
      Employer and the Employee desires to accept such employment.

     

    In
      consideration of the above premises and the mutual agreements hereinafter set
      forth, the parties hereby agree as follows:

     

    1. DEFINITIONS.
      Whenever used in this Agreement, the following terms and their variant forms
      will have the meaning set forth below:

     

    1.1 “Agreement”
means
      this Agreement and any exhibits incorporated herein together with any amendments
      hereto made in the manner described in this Agreement. 

     

    1.2 “Affiliate”
means
      any business entity which controls the Employer, is controlled by or is under
      common control with the Employer.

     

    1.3 “Area”
means
      the geographic area within a radius of 35 miles of any office or facility
      maintained by the Employer from time to time. It is the express intent of the
      parties that the Area as defined herein is the area where the Employee performs
      or performed services on behalf of the Employer under this Agreement as of,
      or
      within a reasonable time prior to, the termination of the Employee's employment
      hereunder.

     

    1.4 “Board”
means
      the board of directors of the Bank.

     

    1.5 “Business
      of the Employer”
means
      the business conducted by the Employer.

     

    1.6 “Cause”
means,
      any of
      the
      following events or conduct preceding a termination of employment initiated
      by
      the Employer:

     

    (a) any
      act
      that constitutes, in the reasonable judgment of the Board after consultation
      with legal counsel, fraud or dishonesty toward the Employer; toward any
      employee, officer or director of the Employer or toward any person doing
      business with the Employer on the part of the Employee;

     

    (b) the
      conviction of the Employee of a felony or crime involving moral
      turpitude;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c) the
      Employee's entering into any transaction or contractual relationship (other
      than
      this Agreement) with, or diversion of business opportunity from, the Employer
      (other than on behalf of the Employer or with the prior written consent of
      the
      Board); provided, however, such conduct will not constitute Cause unless the
      Board delivers to the Employee written notice setting forth (1) the conduct
      deemed to qualify as Cause, (2) reasonable remedial action that might
      remedy such objection, and (3) a reasonable time (not less than thirty (30)
      days) within which the Employee may take such remedial action, and the Employee
      has not taken the specified remedial action with the specified reasonable
      time;

     

    (d) the
      Employee breaches the covenants contained in Sections 5, 6, 7 or 8 hereof or
      materially breaches any other portion of this Agreement; or

     

    (e) conduct
      by the Employee that results in removal of Employee as an officer or employee
      of
      the Employer pursuant to a written order by any regulatory agency with authority
      or jurisdiction over the Employer.

     

    1.7 “Company”
means
      Bay National Corporation, the parent of the Bank.

     

    1.8 “Company
      Information”
means
      Confidential Information and Trade Secrets. 

     

    1.9 “Confidential
      Information”
means
      data and information relating to the Business of the Employer and any affiliate
      of Employer (which does not rise to the status of a Trade Secret) which is
      or
      has been disclosed to the Employee or of which the Employee became aware as
      a
      consequence of or through the Employee's relationship to the Employer and which
      has value to the Employer and is not generally known to its competitors.
      Confidential Information does not include any data or information that has
      been
      voluntarily disclosed to the public by the Employer (except where such public
      disclosure has been made by the Employee without authorization) or
      that
      has
      been independently developed and disclosed by others, or that otherwise enters
      the public domain through lawful means.

     

    1.10 “Change
      in Control”
means
      the first to occur of any one of the following events: 

     

    (a) the
      acquisition by
      any
      person, persons acting in concert or by an entity of the then outstanding voting
      securities of either the Bank or the Company, if, after the transaction, the
      acquiring person, persons or entity owns, controls or holds with power to vote
      twenty-five percent (25%) or more of any class of voting securities of the
      Bank
      or the Company, as the case may be, or such other transaction as may be
      described under 12 C.F.R. Section 225.41(b)(1) or any successor regulation
      thereto;

     

    (b) within
      any twelve-month period (beginning on or after the Effective Date) the persons
      who were directors of either the Bank or the Company immediately before the
      beginning of such twelve-month period (the “Incumbent Directors”) cease to
      constitute at least a majority of such board of directors; provided that any
      director who was not a director as of the Effective Date will be deemed to
      be an
      Incumbent Director if that director was elected to such board of directors
      by,
      or on the recommendation of or with the approval of, at least two-thirds of
      the
      directors who then qualified as Incumbent Directors;

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (c) the
      approval by the stockholders of either the Bank or the Company of a
      reorganization, merger or consolidation, with respect to which those persons
      who
      were the stockholders of either the Bank or the Company, as the case may be,
      immediately prior to such reorganization, merger or consolidation do not,
      immediately thereafter, own more than fifty percent (50%) of the combined voting
      power entitled to vote in the election of directors of the reorganized, merged
      or consolidated entities; or

     

    (d) the
      sale,
      transfer or assignment of all or substantially all of the assets of the Company
      or the Bank to any third party; provided that if giving effect to the foregoing
      definition would require the Employee to include any amount payable pursuant
      to
      this Agreement in income pursuant to Section 409A of the Code, then the
      definition shall be modified to the least extent necessary in order that a
      Change of Control is a “change in the ownership or effective control” of the
      Company for purposes of Section 409A of the Code and the regulations promulgated
      thereunder.

     

    1.11 “Effective
      Date”
means
      June 1, 2006. 

     

    1.12 “Good
      Reason”
means,
      any of the following events or conduct preceding a termination of employment
      initiated by the Employee:

     

    (a) a
      material diminution in the powers, responsibilities or duties of the Employee
      hereunder or a material change as to whom Employee reports which in the case
      of
      Employee is the President;

     

    (b) a
      material breach of the terms of this Agreement by the Employer; or

     

    (c) a
      change
      in the location of the principal office of Employee more than twenty (20) miles
      from its existing location

     

    provided,
      however, that no termination of employment which is triggered by any conduct
      or
      event described in this Section 1.12 shall constitute a termination of
      employment for Good Reason unless the Employee has first provided the Employer
      with the opportunity to cure the event or conduct by giving the Employer a
      written notice describing in sufficient detail the Employee's belief that a
      Good
      Reason exists and the Employee defers resigning until the expiration of a thirty
      (30) day cure period, beginning with the date such notice is received by the
      Employer.

    

    1.13 “Permanent
      Disability”
means
      the total inability of the Employee to perform the Employee's duties under
      this
      Agreement for a period of one
      hundred and eighty (180) consecutive days as certified by a physician chosen
      by
      the Employer and reasonably acceptable to the Employee.

     

    1.14 “Trade
      Secrets”
means
      Employer and Affiliate information including, but not limited to, technical
      or
      nontechnical data, formulas, patterns, compilations, programs, devices, methods,
      techniques, drawings, processes, financial data, financial plans, product plans
      or lists of actual or potential customers or suppliers which:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (a) derives
      economic value, actual or potential, from not being generally known to, and
      not
      being readily ascertainable by proper means by, other persons who can obtain
      economic value from its disclosure or use; and

     

    (b) is
      the
      subject of efforts that are reasonable under the circumstances to maintain
      its
      secrecy.

     

    2. DUTIES.

     

    2.1 The
      Employee is employed as Executive Vice President of the Bank, subject to the
      direction of the president of the Bank, and must perform and discharge well
      and
      faithfully the duties which may be assigned to Employee from time to time by
      the
      Employer in connection with the conduct of its business. The duties and
      responsibilities of the Employee are set forth on Exhibit A attached hereto.
      In
      addition to the duties and responsibilities specifically assigned to the
      Employee pursuant to Section 2.1 hereof, the Employee must:

     

    (a) devote
      substantially all of the Employee's time, energy and skill during regular
      business hours to the performance of the duties of the Employee's employment
      (reasonable vacations and reasonable absences due to illness excepted) and
      faithfully and industriously perform such duties;

     

    (b) diligently
      follow and implement all management policies and decisions communicated to
      Employee by the Board; and

     

    (c) timely
      prepare and forward to the Board all reports and accounting as may be requested
      of the Employee.

     

    2.2 The
      Employee must devote the Employee's entire business time, attention and energies
      to the Business of the Employer and must not during the Term of this Agreement
      be engaged (whether or not during normal business hours) in any other business
      or professional activity, whether or not such activity is pursued for gain,
      profit or other pecuniary advantage; but this will not be construed as
      preventing the Employee from:

     

    (a) investing
      the Employee's personal assets in businesses which are not in competition with
      the Business of the Employer and which will not require any services on the
      part
      of the Employee in their operation or affairs and in which the Employee's
      participation is solely that of an investor;

     

    (b) purchasing
      securities in any corporation whose securities are regularly traded provided
      that such purchase will not result in Employee collectively owning beneficially
      at any time five percent (5%) or more of the equity securities of any business
      in competition with the Business of the Employer; and

     

    (c) participating
      in civic and professional affairs and organizations and conferences, preparing
      or publishing papers or books or teaching so long as the Board approves of
      such
      activities prior to the Employee's engaging in them.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3. TERM
      AND TERMINATION.

     

    3.1  Term.
      The term
      of this Agreement will initially be set at three (3) years commencing on
      the Effective Date. Commencing on the first anniversary of the Effective Date
      and continuing on each anniversary date thereafter (in each case the
“Anniversary Date”), this Agreement shall renew for an additional year such that
      the remaining term shall be three (3) years unless written notice of non-renewal
      is provided to Employee at least ten (10) and not more than (30) days prior
      to
      such Anniversary Date. Prior to each notice period for non-renewal, the
      president of the Bank will conduct a comprehensive performance evaluation and
      review of the Employee for purposes of determining whether to extend the
      Agreement, and the results thereof shall be reported to the Board (as so
      calculated, the “Term”). 

     

    3.2 Termination.
      The
      employment of the Employee under this Agreement may be terminated prior to
      the
      expiration of the Term only as follows, subject to the conditions set forth
      below:

     

    3.2.1 By
      the
      Employer:

     

    (a) for
      Cause
      at any time, upon written notice to the Employee, including the notice provided
      for in Section 1.6(c), in which event the Employer will have no further
      obligation to the Employee except for the payment of any amounts due and owing
      under Section 4 on the effective date of the termination; or

     

    (b) without
      Cause or upon the Permanent Disability of Employee at any time, upon written
      notice to the Employee, in which event the Employer will be required to make
      the
      termination payments under Section 3.7.

     

    3.2.2 By
      the
      Employee:

     

    (a) for
      Good
      Reason at any time after notice as provided in Section 1.12, in which event
      the
      Employer will be required to make the termination payments under Section 3.7;
      or

     

    (b) without
      Good Reason or upon the Permanent Disability of the Employee, in which event
      the
      Employer will have no further obligation to the Employee except for payment
      of
      any amounts due and owing under Section 4 on the effective date of the
      termination.

     

    3.2.3 By
      the
      Employer without Cause within
      twelve (12) months following a Change in Control; provided that the Employee
      gives at least thirty (30) days' prior written notice to the Employer of the
      Employee's intention to terminate this Agreement with such resignation to be
      effective immediately at the end of such thirty (30) day period, in which event
      the Employer will be required to make a termination payment under Section 3.7
      except that if Employee is terminated for cause, Section 3.2.1(a) is applicable
      and no termination payments are due under Section 3.7; or 

     

    3.2.4 At
      any
      time upon mutual, written agreement of the parties, in which event the Employer
      will have no further obligation to the Employee except for the payment of any
      amounts due and owing under Section 4 on the effective date of termination
      unless otherwise set forth in the written agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    3.2.5 Immediately
      upon the Employee's death, in which event the Employer will have no further
      obligation to the Employee except for the payment of any amounts due and owing
      under Section 4 on the effective date of termination.

     

    3.3 Effect
      of Termination.
      Termination of the employment of the Employee pursuant to Section 3.2 will
      be
      without prejudice to any right or claim, which may have previously accrued
      to
      either the Employer or the Employee hereunder and will not terminate, alter,
      supersede or otherwise affect the terms and covenants and the rights and duties
      prescribed in this Agreement.

     

    3.4 Suspension
      With Pay.
      Nothing
      contained herein will preclude the Employer from releasing the Employee of
      the
      Employee's normal duties and suspending Employee, with pay, during the pendency
      of any investigation or examination to determine whether or not Cause exists
      for
      termination of employee.

     

    3.5 Suspension
      Without Pay.
      If
      Employee is suspended and/or temporarily prohibited from participating in the
      conduct of the Employer's affairs by a notice served under Section
      8(e)(3) or (g)(1) of the Federal Deposit Insurance Act, the Employer's
      obligations under this Agreement will be suspended as of the date of service
      thereof, unless stayed by appropriate proceedings. If the charges in such notice
      are dismissed, the Employer may in its discretion:

     

    (a) pay
      Employee all or part of the compensation withheld while its contract obligations
      were suspended; and/or

     

    (b) reinstate
      (in whole or in part) any of its obligations, which were suspended.

     

    3.6 Other
      Regulatory Requirements.
      If the
      Bank is in default, as defined in Section (3)(x)(1) of the Federal Deposit
      Insurance Act, all obligations under this Agreement will terminate as of the
      date of such default, but no vested rights of the Employee will be affected.
      Further, all obligations under this Agreement will be terminated, except, to
      the
      extent determined that continuation of the Agreement is necessary for the
      continued operation of the Bank:

     

    (a) by
      the
      Director (the “Director”) of the Federal Deposit Insurance Corporation (“FDIC”)
      or his or her designee, at the time the FDIC enters into an agreement to provide
      assistance to or on behalf of the Bank under the authority of the Federal
      Deposit Insurance Act; or

     

    (b) by
      the
      Director or his or her designee, at the time the Director or his or her designee
      approves a supervisory merger to resolve problems relating to the operation
      of
      the Bank or when the Bank is determined by the Director to be in an unsafe
      or
      unsound condition.

     

    3.7 Termination
      Payments.
      In
      the
      event and only in the event this Agreement is terminated by the Employer
      pursuant to Section 3.2.1(b) or by the Employee pursuant to Section
      3.2.2(a) and a Change in Control has not occurred, immediately following
      the effective date of such termination and continuing thereafter on the normal
      payroll dates of Employer, the 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Employer
      will pay to the Employee as severance pay and liquidated damages an amount
      equal
      to the then current Base Salary plus all benefits then received by Employee
      for
      a period equal to the remaining Term plus
      any
      Incentive Compensation that may have accrued in the calendar year in which
      Employee was terminated. Additionally
      in such event, all of Employee’s stock awards and stock options shall
      immediately vest.  In
      the
      event and only in the event this Agreement is terminated by the Employer
      pursuant to Section 3.1 by non renewal and a Change in Control has not
      occurred, then commencing with the first payroll date immediately following
      the
      end of the Term, the Employer will pay to the Employee as severance pay and
      liquidated damages an amount equal to fifty percent (50%) of Employee's Base
      Salary for the immediately preceding 12 month period payable, at the option
      of
      Employee, either in a lump sum or in six (6) equal monthly installments.
      Employer will also provide to Employee benefits substantially similar to those
      received by Employee prior to the effective date of a termination under Section
      3.1 by non renewal for six (6) months after the effective date of such
      termination. In
      the
      event and only in the event a Change in Control has occurred and this Agreement
      is terminated by Employer or by Employee pursuant to Section 3.2.3, the Employee
      shall be entitled to a lump sum payment equal to the sum of (a) to the excess
      of
      (i) 2.99 times Employee’s Average Annual Compensation over (ii) the aggregate
      present value, as determined for federal income tax purposes, of all other
      payments to the Employee in the nature of compensation that are treated for
      federal income tax purposes as contingent on the Change in Control plus (b)
      an
      annual bonus equal to the greater of target or actual bonus for the year in
      which employment terminates, pro-rated for the months elapsed in the annual
      bonus period at the time employment terminates and shall be paid such lump
      sum
      payment by Employer within ten (10) days of the effective date of termination
      of
      this Agreement. As used herein, the term “Average Annual Compensation” means the
      Employee’s average annual taxable compensation paid by the Employer during the
      most recent five (5) taxable years ending before the date the Change in Control
      occurs (or such portion of such period during which the Employee was employed
      by
      the Employer. In addition to the termination payments provided in this Section
      3.7, in the event and only in the event a Change in Control has occurred and
      this Agreement is terminated by Employer or by Employee pursuant to Section
      3.2.3: (a) all of Employee’s stock awards shall immediately vest; (b) all of
      Employee’s unexercised stock options shall become immediately exercisable and
      (c) Employer shall continue Employee’s medical coverage for up to two years at
      the same level as available to employees of the Employer.

     

    3.8 Calculation
      of Payment Amount.

     

    (a) Certain
      Adjustments of Payment Amount.
      If it
      is determined that any payment or distribution by the Employer to or for the
      benefit of the Employee (whether paid or payable or distributed or distributable
      pursuant to the terms of this Agreement or otherwise) is subject to the
      limitations of section 280G of the Internal Revenue Code (the “Code”) (a
“Parachute Payment”), the following provisions will apply:

     

    (i) If
      the
      aggregate present value of Parachute Payments is less than or equal to the
      280G
      limit, then no adjustment to the amount of such Parachute Payments shall be
      made.

    

    (ii) If
      the
      aggregate present value of Parachute Payments is greater than the 280G limit,
      but equal to or less than 110% of the 280G limit, such Parachute Payments shall
      be reduced to an amount, the present value of which maximizes the aggregate
      present value of Parachute Payments without causing such Parachute Payments
      to
      exceed the 280G limit.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

    

    (iii) If
      the
      aggregate present value of Parachute Payments is greater than 110% of the 280G
      limit, the Employee shall be entitled to receive an additional payment (a
“Gross-Up Payment”) in an amount such that after payment by the Employee of all
      taxes (including any interest or penalties imposed with respect to such taxes),
      including any excise tax imposed by Code section 4999 or any interest or
      penalties 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”) imposed upon the Gross-Up Payment, the Employee retains an amount
      of the Gross-Up Payment equal to the Excise Tax imposed upon the Parachute
      Payments.

     

    For
      purposes of this Section 3.8, “present value” shall be determined in accordance
      with Code section 280G(d)(4), and the “280G limit” is the amount that can be
      paid under this Agreement or otherwise without causing any amount to be
      nondeductible under Code section 280G or subject to excise tax under section
      4999.

    

    (b) Determinations
      made by Accounting Firm.
      All
      determinations required to be made under Section 3.8(a), including the aggregate
      present value of Parachute Payments, whether a reduction is required under
      Section 3.8a(ii) and the amount of such reduction, and whether a Gross-Up
      Payment is required under Section 3.8(a)(iii) and the amount of such Gross-Up
      Payment, shall be made by a locally recognized accounting firm selected by
      the
      Employer (the “Accounting Firm”). The Accounting Firm shall provide detailed
      supporting calculations both to the Employer and the Employee within 15 business
      days after the Employee’s termination of employment. The initial Gross-Up
      Payment, if any, as determined pursuant to Section 3.8(a)(iii), shall be paid
      to
      the Employee within 15 days after the receipt of the Accounting Firm’s
      determination. The Accounting Firm shall furnish the Employee with an opinion
      that he or she has substantial authority to complete and file his or her Federal
      income tax return in a manner consistent with the Accounting Firm’s
      determination of the appropriate amount of Parachute Payments reportable by
      the
      Employee and of the appropriate amount of Excise Tax required to be paid, if
      any. Any determination by the Accounting Firm shall be binding upon the Employer
      and the Employee.

     

    (c) Special
      Rules Applicable to Reduction of Payments.
      The
      Employee shall determine which and how much of the Parachute Payments shall
      be
      reduced consistent with the requirements of Section 3.8(a)(ii), provided that,
      if the Employee does not make such determination within 10 business days after
      the receipt of the calculations made by the Accounting Firm, the Employer shall
      elect which and how much of the Parachute Payments shall be eliminated or
      reduced consistent with the requirements of Section 3.8(a)(ii) and shall notify
      the Employee promptly of such election.

     

    (d) Special
      Rules Applicable to Gross-Up Payments.
      The
      Employee shall notify the Employer in writing of any claim by the Internal
      Revenue Service that, if successful, would require the payment by the Employer
      of the Gross-Up Payment. Such notification shall be given as soon as practicable
      but not later than ten business days after the Employee knows of such claim
      and
      shall apprise the Employer of the nature of such claim and the date on which
      such claim is requested to be paid. The Employee shall not pay such claim prior
      to the expiration of the thirty-day period following the date on which it gives
      such notice to the Employer (or such shorter period ending on the date that
      any
      payment of taxes with respect to such claim is due). If the Employer notifies
      the Employee in writing prior to the expiration of such period that it desires
      to contest such claim, the Employee shall:

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

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

    

    (ii) take
      such
      action in connection with contesting such claim as the Employer 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 Employer,

    

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

    

    (iv) permit
      the Employer to participate in any proceedings relating to such
      claim,

    

    provided,
      however, that the Employer shall bear and pay directly all costs and expenses
      (including interest and penalties) incurred in connection with such contest
      and
      shall indemnify and hold the Employee 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 Section 3.8(d), the
      Employer shall control all proceedings taken in connection with such contest
      and, at its sole option, may pursue or forgo 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 Employee to pay the
      tax claimed and sue for a refund or contest the claim in any permissible manner,
      and the Employee 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 Employer shall determine; provided, however, that
      if
      the Employer directs the Employee to pay such claim and sue for a refund, the
      Employer shall advance the amount of such payment to the Employee, on an
      interest-free basis, and shall indemnify and hold the Employee 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
      that any extension of the statue of limitations relating to payment of taxes
      for
      the taxable year of the Employee with respect to which such contested amount
      is
      claimed to be due is limited solely to such contested amount. Furthermore,
      the
      Employer’s control of the contest shall be limited to issues with respect to
      which a Gross-Up Payment would be payable hereunder and the Employee shall
      be
      entitled to settle or contest, as the case may be, and other issue raised by
      the
      Internal Revenue Service or any other taxing authority.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    If,
      after
      receipt by the Employee of an amount advanced by the Employer pursuant to this
      Section 3.8(d), the Employee becomes entitled to receive any refund with respect
      to such claim, the Employee shall (subject to the Employer’s complying with the
      requirements of this Section 3.8(d) promptly pay to the Employer the amount
      of
      such refund (together with any interest paid or credited thereon after taxes
      applicable thereto). If, after the receipt by the Employee of an amount advanced
      by the Employer pursuant to this Section 3.8(d), a determination is made that
      the Employee shall be entitled to any refund with respect to such claim and
      the
      Employer does not notify the Employee in writing of its intent to contest such
      denial of refund prior to the expiration of thirty 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.

    

    If
      the
      Employer exhausts its remedies pursuant to this Section 3.8(d) and the Employee
      thereafter is required to make a payment of any Excise Tax, the Accounting
      Firm
      shall determine the amount of the Gross-Up Payment that the Employer should
      have
      made (“Gross-Up Deficiency”). The amount of any such Gross-Up Deficiency shall
      be promptly paid by the Employer to or for the benefit of the Employee. To
      the
      extent that any Gross-Up Deficiency arises in the context of a Parachute Payment
      that was determined pursuant to Section 3.8(a)(ii), and therefore reduced to
      the
      280G limit, when in fact, the amount of such Parachute Payment should have
      been
      determined under Section 3.8(a)(iii), the amount of any Gross-Up Deficiency
      shall include the additional Parachute Payment due as a result of the
      calculation of the amount under Section 3.8(a)(iii).

    

    (e) Overpayments/Underpayments.
      As a
      result of the uncertainty in the application of Code section 280G at the time
      of
      the initial determination by the Accounting Firm hereunder, it is possible
      that
      the Parachute Payments will have been made by the Employer which should not
      have
      been made (“Overpayment”), or that additional Parachute Payments which will not
      have been made by the Employer could have been made (“Underpayment”), in each
      case consistent with the calculations required to be made hereunder.
      Overpayments and Underpayments arising in connection with Parachute Payments
      appropriately determined pursuant to Section 3.8(a)(i) or Section 3.8(a)(ii)
      are
      governed by this Section 3.8(e). Any Overpayment or Underpayment arising in
      connection with a Parachute Payment that is appropriately determined pursuant
      to
      Section 3.8(a)(iii) are governed by the provisions of Section
      3.8(d).

     

    (i) Overpayments.
      The
      provisions of this subparagraph (i) apply in connection with a Parachute Payment
      that is appropriately determined pursuant to Section 3.8(a)(ii). If the
      Accounting Firm, based upon the assertion of a deficiency by the Internal
      Revenue Service against the Employee which the Accounting Firm believes has
      a
      high probability of success, determines that an Overpayment has been made,
      any
      such Overpayment paid or distributed by the Employer to or for the benefit
      of
      the Employee shall be treated for all purposes as a loan ab
      initio
      to the
      Employee which the Employee shall repay to the Employer together with interest
      at the applicable federal rate provided for in Code section 7872(f)(2);
      provided, however, that no such loan shall be deemed to have been made and
      no
      amount shall be payable by the Employee to the Employer if and to the extent
      such deemed loan and payment would not either reduce the amount on which the
      Employee is subject to tax under Code sections 1 and 4999 or generate a refund
      of such taxes.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    (ii) Underpayments.
      The
      provisions of this subparagraph (ii) apply in connection with a Parachute
      Payment that is appropriately determined pursuant to Section 3.8(a)(i) or
      Section 3.8(a)(ii). If the Accounting Firm, based upon controlling precedent
      or
      other substantial authority, determines that an Underpayment has occurred,
      any
      such Underpayment shall be promptly paid by the Employer to or for the benefit
      of the Employee, together with interest at the applicable federal rate provided
      for in Code section 7872(f)(2).

    

    4. COMPENSATION
      AND BENEFITS.

     

    4.1 Compensation.
      The
      Employee will receive the following salary and benefits:

     

    (a) Base
      Salary.
      During
      the Term, the Employee will receive a base salary at the rate of $200,000 per
      annum, payable in substantially equal installments in accordance with the Bank's
      regular payroll practices (“Base Salary”). The Employee's Base Salary will be
      reviewed by the Board annually, and the Employee will be entitled to receive
      annually an increase in such amount, if any, as may be determined by the
      Board.

     

    (b) Incentive
      Compensation.
      

     

    (i) In
      addition to Employee's Base Salary under Section 4.1(a), the Employer may,
      in
      its sole discretion, pay the Employee a cash or non cash bonus as determined
      each year by the Board. The cash bonus may be in an amount of up to 60% of
      Employee’s Base Salary.

     

    (ii) The
      Employee will also be entitled to participate in such other bonus, incentive
      and
      other executive compensation programs as are made available to senior management
      of the Employer from time to time.

     

    (iii) Employer
      hereby grants to Employee, subject to the vesting schedule and the condition
      of
      employment described herein, 12,000 shares of common stock of Bay National
      Corporation (“BNC”). The stock grant described in this Section 4.1(b)(iii) shall
      vest as follows: 25% (3,000 shares) on the first anniversary of this Agreement;
      25% (3,000 shares) on the second anniversary of this Agreement; 25% (3,000
      shares) on the third anniversary of this agreement and 25% (3,000 shares )
      on
      the fourth anniversary of this Agreement. The vesting of shares under this
      Section 4.1(b)(iii) is subject to Employee being employed by Employer under
      this
      Agreement at each vesting date. If Employee is not employed by Employer under
      this Agreement on a vesting date, shares to have vested on such vesting date
      and
      subsequent thereto will not vest and Employer and/or BNC will have no duty
      under
      this Section 4.1(b)(iii) to issue any shares to Employee. Additional shares
      may
      be awarded from time to time to Employee subject to approval of the Board in
      its
      sole descretion. 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    The
      bonus
      amounts and stock grants to which the Employee is entitled pursuant to this
      Section 4.1(b) are referred to herein as “Incentive
      Compensation”.

     

    4.2 Additional
      Payments.
      In
      addition to the payments described in Section 4.1 hereof, Employer shall pay
      Employee $30,0000 on the Effective Date and $30,000 six months there after
      with
      such second payment being contingent upon: (1) Employee being employed by
      Employer pursuant to this Agreement or (2) if Employee is employed by Employer
      pursuant to this Agreement, Employee not being suspended by Employer pursuant
      to
      Section 3.5 of this Agreement.

     

    4.3 Business
      Expenses; Memberships.
      The
      Employer specifically agrees to reimburse the Employee for (a) reasonable
      business (including travel) expenses incurred by the Employee in the performance
      of the Employee's duties hereunder, as approved from time to time by the Board,
      and (b) the dues and business related expenditures, including initiation
      fees, associated with membership in professional associations which are
      commensurate with the Employee's position; provided, however, that the Employee
      must, as a condition of reimbursement, submit verification of the nature and
      amount of such expenses in accordance with reimbursement policies from time
      to
      time adopted by
      the
      Employer and in sufficient detail to comply with rules and regulations
      promulgated by the Internal Revenue Service.

     

    4.4 Vacation.
      On a
      non-cumulative basis the Employee will be entitled to vacation in each year
      of
      this Agreement in accordance with the Bank's vacation policy as then in effect,
      during which the Employee's Base Salary will be paid in full.

     

    4.5 Benefits.
      In
      addition to the Base Salary and Incentive Compensation, the Employee will be
      entitled to such benefits as may be available from time to time for employees
      of
      the Employer. All such benefits will be awarded and administered in accordance
      with the Employer's standard policies and practices. Such benefits may include,
      by way of example only, health, dental, vision, profit-sharing plans,
      retirement, and disability insurance benefits and such other benefits as the
      Employer deems appropriate. In addition to the benefits described in this
      Section 4.5, Employer shall provide to Employee at no cost to Employee, life
      insurance equal to the then current annual salary of Employee payable to a
      beneficiary or beneficiaries selected by Employee.

     

    4.6 Withholding.
      The
      Employer may deduct from each payment of compensation hereunder all amounts
      required to be deducted and withheld in accordance with applicable federal
      and
      state income, FICA and other withholding requirements.

     

    5. COMPANY
      INFORMATION

     

    5.1 Ownership
      of Information. All Company Information received or developed by the Employee
      while employed by the Employer will remain the sole and exclusive property
      of
      the Employer.

     

    5.2 Obligations
      of the Employee.
      The
      Employee agrees (a) to hold Company Information in strictest confidence,
      (b) not to use, duplicate, reproduce, distribute, disclose or otherwise
      disseminate Company Information or any physical embodiments thereof and (c)
      not
      to take or fail to take any action with respect to Confidential Information
      that
      would result in any Company Information losing its character or ceasing to
      qualify as Confidential Information or a Trade Secret. In the event that the
      Employee is required by law to disclose any Company Information, the Employee
      will not make such disclosure unless (and then only to the extent that) the
      Employee has been advised by the Company’s legal counsel that such disclosure is
      required by law and then only after prior written notice is given to the
      Employer when the Employee becomes aware that such disclosure has been requested
      and is required by law. This Section 5 will survive the termination of this
      Agreement with respect to Confidential Information for so long as it remains
      Confidential Information, but for no longer than three (3) years following
      termination of this Agreement, and this Section 5 will survive termination
      of
      this Agreement with respect to Trade Secrets for so long as is permitted by
      the
      then-current Maryland Trade Secrets Act.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    5.3 Delivery
      upon Request or Termination.
      Upon
      request by the Employer, and in any event upon termination of employment with
      the Employer, the Employee will promptly deliver to the Employer all property
      belonging to the Employer, including without limitation, all Company Information
      then in the Employee's possession or control.

     

    6. NON-COMPETITION.
      The Employee agrees that during the Term hereunder and, in the event of the
      Employee's termination of employment for any reason, thereafter for the period
      of time, if any the Employer is obligated to make payments under Section 3.7,
      the Employee will not (except on behalf of or with the prior written consent
      of
      the Employer), within the Area, either directly or indirectly, on the Employee's
      own behalf or in the service or on behalf of others, as a principal, partner,
      officer, director, manager, supervisor, administrator, consultant, executive
      employee or in any other capacity which involves duties and responsibilities
      similar to those undertaken for the Employer, engage in any business which
      is
      the same as or essentially the same as the Business of the Employer.
      Notwithstanding anything contained herein, it is expressly agreed that Employee
      is free to pursue employment in the financial services industry within the
      Area
      provided Employer’s obligation to make payments under Section 3.7 have been
      satisfied or have been waived by Employee.

     

    7. NON-SOLICITATION
      OF CUSTOMERS. The Employee agrees that during the Term hereunder and, in the
      event of the Employee's termination of employment for any reason, thereafter
      for
      a period equal to one (1) year, the Employee will not (except on behalf of
      or
      with the prior written consent of the Employer), within the Area, on the
      Employee's own behalf or in the service or on behalf of others, solicit, divert
      or appropriate or attempt to solicit, divert or appropriate, directly or by
      assisting others, any business from any of the Employer's customers, including
      actively sought prospective customers, with whom the Employee has or had
      material contact during the last two (2) years of the Employee's
      employment, for purposes of providing products or services that are competitive
      with those provided by the Employer.

     

    8. NON-SOLICITATION
      OF EMPLOYEES. The Employee agrees that during the Term hereunder and, in the
      event of the Employee's termination of employment for any reason, thereafter
      for
      a period equal (1) year, the Employee will not, except for Employee’s
      Administrative Assistant, within the Area, on the Employee's own behalf or
      in
      the service or on behalf of others, solicit, recruit or hire away or attempt
      to
      solicit, recruit or hire away, directly or by assisting others, any employee
      of
      the Employer or its Affiliates, whether or not such employee is a full-time
      employee or a temporary employee of the Employer or its Affiliates and whether
      or not such employment is pursuant to written agreement and whether or not
      such
      employment is for a determined period or is at will.
      

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    9. REMEDIES.
      The Employee agrees that the covenants contained in Sections 5 through 8 of
      this
      Agreement are of the essence of this Agreement; that each of the covenants
      is
      reasonable and necessary to protect the business, interests and properties
      of
      the Employer; and that irreparable loss and damage will be suffered by the
      Employer should the Employee breach any of the covenants. Therefore, the
      Employee agrees and consents that, in addition to all the remedies provided
      by
      law or in equity, the Employer will be entitled to a temporary restraining
      order
      and temporary and permanent injunctions to prevent a breach or contemplated
      breach of any of the covenants. The Employer and the Employee agree that all
      remedies available to the Employer or the Employee, as applicable, will be
      cumulative.

     

    10. SEVERABILITY.
      The parties agree that each of the provisions included in this Agreement is
      separate, distinct and severable from the other provisions of this Agreement
      and
      that the invalidity or unenforceability of any Agreement provision will not
      affect the validity or enforceability of any other provision of this Agreement.
      Further, if any provision of this Agreement is ruled invalid or unenforceable
      by
      a court of competent jurisdiction because of a conflict between the provision
      and any applicable law or public policy, the provision will be redrawn to make
      the provision consistent with and valid and enforceable under the law or public
      policy.

     

    11. NO
      SET-OFF BY THE EMPLOYEE. The existence of any claim, demand, action or cause
      of action by the Employee against the Employer, or any Affiliate of the
      Employer, whether predicated upon this Agreement or otherwise, will not
      constitute a defense to the enforcement by the Employer of any of its rights
      hereunder.

     

    12. NOTICE.
      All notices and other communications required or permitted under this Agreement
      will be in writing and, if mailed by prepaid first-class mail or certified
      mail,
      return receipt requested, will be deemed to have been received on the earlier
      of
      the date shown on the receipt or three (3) business days after the
      postmarked date thereof. In addition, notices hereunder may be delivered by
      hand, facsimile transmission or overnight courier, in which event the notice
      will be deemed effective when delivered or transmitted. All notices and other
      communications under this Agreement must be given to the parties hereto at
      the
      following addresses:

     

    

    
      	
              (i)

            	
              If
                to the Employer: 

            	
              Hugh
                W. Mohler

            
	 	 	
              President

            
	 	 	
              Bay
                National Bank

            
	 	 	
              2328
                W. Joppa Road

            
	 	 	
              Baltimore,
                Maryland 21093

            
	 	 	 
	 	
              With
                a copy to:

            	
              Frank
                C. Bonaventure, Esquire

            
	 	 	
              Ober/Kaler

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
      	 	 	
              120
                E. Baltimore St.

            
	 	 	
              Baltimore,
                MD 21202-1643

            
	 	 	 
	
              (ii)

            	
              If
                to the Employee:

            	
              Richard
                C. Springer

            
	 	 	
              13342
                Pipes Lane

            
	 	 	
              Sykesville,
                MD 21784

            

    

    

    13. ASSIGNMENT.
      Neither party hereto may assign or delegate this Agreement or any of its rights
      and obligations hereunder without the written consent of the other party
      hereto.

     

    14. WAIVER.
      A waiver by the Employer of any breach of this Agreement by the Employee will
      not be effective unless in writing, and no waiver will operate or be construed
      as a waiver of the same or another breach on a subsequent occasion.

     

    15. ARBITRATION.
      Any controversy or claim arising out of or relating to this Agreement, or the
      breach thereof, will be settled by binding arbitration in accordance with the
      Commercial Arbitration Rules of the American Arbitration Association. The
      decision of the arbitration panel will be final and binding on the parties,
      and
      judgment upon the award rendered by the arbitration panel may be entered by
      any
      court having jurisdiction thereof.

     

    16. ATTORNEYS'
      FEES. In the event that the parties have complied with this Agreement with
      respect to arbitration of disputes and litigation ensues between the parties
      concerning the enforcement of an arbitration award and the Employee must employ
      separate legal counsel, the Employer shall advance to the Employee, within
      thirty (30) days after receiving copies of invoices submitted by Employee,
      any
      and all reasonable attorneys' fees and expenses incurred with preparing,
      investigating and litigating such action, proceeding or suit. The Employee
      must
      reimburse the Employer for any and all advances that exceed the first $5,000
      advanced to the Employee for such legal expenses only if and to the extent
      that
      a final decision by a court of competent jurisdiction has determined that the
      Employee is not entitled to receive any amounts due or to enforce any of the
      rights under this Agreement.

     

    17. APPLICABLE
      LAW. This Agreement will be construed and enforced under and in accordance
      with the laws of the State of Maryland. The parties agree that any appropriate
      state court located in Baltimore County, Maryland, will have jurisdiction of
      any
      case or controversy arising under or in connection with this Agreement and
      will
      be a proper forum in which to adjudicate such case or controversy. The parties
      consent to the jurisdiction of such courts.

     

    18. INTERPRETATION.
      Words importing the singular form shall include the plural and vice versa.
      The
      terms “herein”, “hereunder”, “hereby”, “hereto”, “hereof” and any similar terms
      refer to this Agreement. Any captions, titles or headings preceding the text
      of
      any article, section or subsection herein are solely for convenience of
      reference and will not constitute part of this Agreement or affect its meaning,
      construction or effect.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    19. ENTIRE
      AGREEMENT. This Agreement embodies the entire and final agreement of the
      parties on the subject matter stated in
      the
      Agreement. No amendment or modification of this Agreement will be valid or
      binding upon the Employer or the Employee unless made in writing and signed
      by
      both parties. All prior understandings and agreements relating to the subject
      matter of this Agreement are hereby expressly terminated.

     

    20. RIGHTS
      OF THIRD PARTIES. Nothing herein expressed is intended to or will be
      construed to confer upon or give to any person, firm or other entity, other
      than
      the parties hereto and their permitted assigns, any rights or remedies under
      or
      by reason of this Agreement.

     

    21. SURVIVAL.
      The obligations of the Employee pursuant to Sections 5, 6, 7, 8 and 9 will
      survive the termination of the employment of the Employee hereunder for the
      period designated under each of those respective Sections.

     

    [Signature
      Page Follows]

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    IN
      WITNESS WHEREOF, the Employer and the Employee have executed and delivered
      this
      Agreement as of the date first shown above.

     

    
      	 	
              Employer:

            
	 	 	 
	 	
              Bay
                National Bank

            
	 	 	 
	 	 	 
	 	
              By:

            	/s/
              Hugh W. Mohler
	 	 	
              Name:
                Hugh W. Mohler

            
	 	 	
              Title:
                President

            
	 	 	 
	 	 	 
	 	 	 
	 	
              Employee:

            
	 	 	 
	 	 	 
	 	
              
                /s/
                  Richard C. Springer

              

            
	 	
              Richard
                C. Springer

            

    

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    Exhibit
      A

    

    

    BAY
      NATIONAL BANK 

    JOB
      DESCRIPTION

    

    

    

    
      	
              JOB
                TITLE:

            	
              EXECUTIVE
                VICE PRESIDENT

            
	
              FSLA:

            	
              EXEMPT

            
	
              REPORTS
                TO:

            	
              BOARD
                OF DIRECTORS

            

    

    

    

    SUMMARY:

    

    

    ESSENTIAL
      DUTIES AND RESPONSIBILITIES: 

    

    

    SUPERVISORY
      RESPONSIBILITY:

    

    

    

    CRA
      REQUIREMENT:

    

    

    

    PRODUCT
      AND KNOWLEDGE REQUIREMENT:

    

    

    QUALIFICATION
      REQUIREMENTS:

    

    

    

    EDUCATION
      AND/OR EXPERIENCE:

    

    

    

    LANGUAGE
      SKILLS:

    

    

    

    ANALYTICAL
      SKILLS:

    

    

    

    

    PHYSICAL
      DEMANDS:

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    

    

    

    PERFORMANCE
      EXPECTATIONS:

    

    

    ORGANIZATIONAL
      EXPECTATIONS:

    

    

    

    

    FINANCIAL
      EXPECTATIONS:

    

    

    

    RELATIONSHIP
      EXPECTATIONS:Exhibit 10.1

    AMENDMENT
      NO. 1

     

    TO
      NOTE
      PURCHASE AGREEMENT

     

    AMENDMENT
      NO. 1, dated as of May 31, 2006 (this “Amendment No. 1”), to the Note Purchase
      Agreement dated as of April 12, 2001 (the “Note Purchase Agreement”), among X.L.
      AMERICA, INC., a Delaware corporation (the “Company”), XL CAPITAL LTD, a Cayman
      Islands exempted limited company, XL INSURANCE (BERMUDA) LTD, a Bermuda limited
      liability company, XL RE LTD, a Bermuda limited liability company, (XL Capital
      Ltd, XL Insurance (Bermuda) Ltd. and XL Re Ltd., collectively, the “Guarantors”)
      and the holders of the notes issued thereunder (the “Noteholders”).

     

    WHEREAS,
      The Company issued $255 million of its 6.58% Guaranteed Senior Notes due
      April 12, 2011, and the Guarantors provided Guarantees of such notes,
      pursuant to the Note Purchase Agreement; and

     

    WHEREAS,
      Article 17 of the Note Purchase Agreement provides for amendments and waivers
      in
      respect of the Note Purchase Agreement, the Notes and the Guarantees with the
      written consent of the Company, the Guarantors and the Required Holders (being
      the holders of at least 66 2/3% in principal amount of the Notes at such time
      outstanding (exclusive of Notes then owned by the Company or any of its
      Affiliates));

     

    NOW,
      THEREFORE, in consideration of payment of a fee to the Noteholders in accordance
      with Section 17.2(b) of the Note Purchase Agreement, as specified by that
      certain consent solicitation statement of the Company and the Guarantors dated
      as of May 4, 2006 (as supplemented by those certain letters of X.L. America
      dated May 19, 2006 and May 24, 2006, the “Solicitation Statement”), the Company,
      the Guarantors and the Noteholders signatory hereto hereby agree as
      follows:

     

    Section
      1.  Definitions.
      Except
      as otherwise defined in this Amendment No. 1, terms defined in the Note Purchase
      Agreement are used herein as defined therein.

     

    Section
      2.  Amendments.
      Effective as of the date hereof upon the satisfaction of the conditions
      precedent set forth in Section 5 of this Amendment No. 1, the Note Purchase
      Agreement is hereby amended as follows:

     

    2.01.  References
      in the Note Purchase Agreement to “this Agreement” (and indirect references such
      as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed to be
      references to the Note Purchase Agreement as amended hereby.

     

    2.02.  Schedule
      B of the Note Purchase Agreement is hereby amended by inserting the following
      definitions (or, in the case of any of the following defined terms that are
      already defined in the Note Purchase Agreement, by amending and restating in
      its
      entirety each such term to read as set forth below) in their proper respective
      alphabetical locations:

     

    “Consolidated
      Net Worth” means, at any date, the consolidated stockholders’ equity of XL
      Capital and its Subsidiaries determined in accordance with GAAP, provided that
      no interest of XL Capital and its Subsidiaries in SCA or any of its Subsidiaries
      shall be taken into account in determining such consolidated stockholders’
equity.

     

    “SCA”
      means Security Capital Assurance Ltd, a Bermuda limited liability
      company.

     

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    “SCA
      IPO”
means the issuance or sale of common shares of SCA to the public pursuant to
      an
      effective registration statement filed under the Securities Act of 1933, as
      amended, in connection with an underwritten offering, as described in the SCA
      IPO Registration Statement.

     

    “SCA
      IPO
      Registration Statement” means the registration statement on Form S-1 filed with
      the SEC by SCA (Registration No. 333-133066). 

     

    “Significant
      Subsidiary” means, as to any Person, a Subsidiary of such Person that, as of
      such time, meets the definition of a “significant subsidiary” under Regulation
      S-X of the SEC; provided, however, that for purposes of this Agreement, from
      and
      after the consummation of the SCA IPO, neither SCA nor any of its Subsidiaries
      shall be a “Significant Subsidiary” of XL Capital.

     

    “Subsidiary”
      means, with respect to any Person (the “parent”), at any date, any corporation
      (or similar entity) of which a majority of the shares of outstanding capital
      stock normally entitled to vote for the election of directors (regardless of
      any
      contingency which does or may suspend or dilute the voting rights of such
      capital stock) is at such time owned directly or indirectly by the parent or
      one
      or more subsidiaries of the parent; provided, however, that for purposes of
      this
      Agreement, from and after the consummation of the SCA IPO, neither SCA nor
      any
      of its Subsidiaries shall be a “Subsidiary” of the Company or any
      Guarantor.

     

    2.03.  Article
      10 of the Note Purchase Agreement is hereby amended by inserting the following
      new Section 10.5(d):

     

    (d)
      Asset
      Dispositions by the Company and/or the Guarantors (together, the “Account
      Parties”) or any of their respective Subsidiaries to any other Account Party or
      their respective Subsidiaries; provided, however that, prior to the consummation
      of the SCA IPO, neither the Company nor any Guarantor nor any of their
      respective Subsidiaries will make any Asset Disposition to SCA or any Person
      that is or will become a Subsidiary of SCA other than as described and
      cross-referenced under the caption “Formation Transactions” in Amendment
      No. 1 to the SCA IPO Registration Statement filed on Form S-1/A with the
      SEC as of May 24, 2006.

     

    Section
      3.  Waiver.
      Effective as of the date hereof upon satisfaction of the conditions precedent
      set forth in Section 5 of this Amendment No. 1, notwithstanding anything in
      the
      Note Purchase Agreement to the contrary, the issuance or sale of shares of
      SCA
      pursuant to the SCA IPO shall be permitted and shall not be included as an
      “Asset Disposition” for the purposes of calculating the basket under Section
      10.5(b) of the Note Purchase Agreement available to the Company, the Guarantors
      and their respective Subsidiaries for the calendar year ending December 31,
      2006.

     

    Section
      4.  Representations
      and Warranties of the Company and the Guarantors.
      To
      induce the Noteholders to execute and deliver this Amendment No. 1 (which
      representations and warranties shall survive the execution and delivery of
      this
      Amendment No. 1), the Company and the Guarantors jointly and severally represent
      and warrant to the Noteholders (on the date hereof and on the date this
      Amendment No. 1 becomes effective) that:

     

    (a)  this
      Amendment No. 1 has been duly authorized, executed and delivered by the Company
      and each Guarantor and this Agreement (and the Note Purchase Agreement, as
      amended by this Agreement) constitutes the legal, valid and binding obligation,
      contract and 

     

    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    agreement
      of the Company and each Guarantor enforceable against each of them in accordance
      with its terms, except as enforcement may be limited by bankruptcy, insolvency,
      reorganization, moratorium or similar laws or equitable principles relating
      to
      or limiting creditors' rights generally;

     

    (b)  the
      execution, delivery and performance by the Company and each Guarantor of this
      Amendment No. 1 (i) does not require the consent or approval of any governmental
      or regulatory body or agency, and (ii) will not (A) violate (1) any provision
      of
      law, statute, rule or regulation or the certificate of incorporation, bylaws
      or
      other constitutive document of the Company or any Guarantor, (2) any order
      of
      any court or any rule, regulation or order of any other agency or government
      binding upon the Company or any Guarantor, or (3) any provision of any material
      indenture, agreement or other instrument to which the Company or any Guarantor
      is a party or by which its properties or assets are or may be bound, including,
      without limitation, the agreements described in clause (f) (including the
      agreements that have been amended as described therein) and clause (g) below,
      or
      (B) result in a breach or constitute (alone or with due notice or lapse of
      time
      or both) a default under any indenture, agreement or other instrument referred
      to in clause (ii)(A)(3) of this Section 4(b);

     

    (c)  no
      Default or Event of Default has occurred and is continuing;

     

    (d)  this
      Agreement, the Solicitation Statement and the documents and other writings
      delivered by or on behalf of the Company and the Guarantors to the Noteholders
      and their counsel in connection with the transactions contemplated hereby,
      taken
      as a whole, do not contain any untrue statement of a material fact or omit
      to
      state any material fact necessary to make the statements therein not misleading
      in light of the circumstances under which they were made;

     

    (e)  none
      of
      the equity interests of any Guarantor is owned, directly or indirectly by SCA
      or
      any of its Subsidiaries; 

     

    (f)  the
      Company and the Guarantors have entered into the following amendments of their
      credit facilities with the financial institutions party thereto in connection
      with the SCA IPO, as more fully set forth in the Forms 8-K filed by XL Capital
      with the Securities and Exchange Commission on May 11, 2006, May 19, 2006 and
      May 30, 2006: (a) Amendment No. 2 to Credit Agreement, dated as of May 5, 2006,
      amending the Three-Year Credit Agreement, dated as of June 23, 2004, with
      JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party
      thereto, (b) Amendment No. 1 to Credit Agreement, dated as of May 5, 2006,
      amending the Five-Year Credit Agreement, dated as of June 22, 2005, with
      JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party
      thereto, (c) Amendment No. 1 to Credit Agreement, dated as of May 9, 2006,
      amending the Five-Year Credit Agreement, dated as of June 22, 2005, with Bear
      Stearns Corporate Lending Inc. and the lenders party thereto, (d) Amendment
      No.
      1, dated as of May 15, 2006, to the 364-Day Credit Agreement, dated as of
      December 23, 2005, with Deutsche Bank AG New York Branch, as the Lender, (e)
      the
      Letter of Amendment, dated as of May 16, 2006, to the Letter of Credit Facility
      and Reimbursement Agreement, dated as of March 14, 2006, with Citibank
      International plc, as Agent and Security Trustee and the lenders party thereto
      and (f) the Amendment Agreement, dated as of May 26, 2006, amending the Master
      Standby Letter of Credit and Reimbursement Agreement, dated as of September
      30,
      2006, with National Australia Bank Limited, New York Branch; each of such
      amendments are in full force and effect and no fee of any kind has been or
      will
      be paid to any of such institutions in connection with such amendments and
      no
      amendment of any other agreement relating to Indebtedness of the Company or
      any
      Guarantor has been executed in connection with the SCA IPO; and

     

    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    

     

    (g)  the
      Company and the Guarantors have also entered into a Credit Agreement, dated
      as
      of May 9, 2006, with JPMorgan Chase Bank, N.A., as Administrative Agent, and
      the
      lenders party thereto; no fees of any kind were paid to the Administrative
      Agent
      or such lenders in connection therewith other than customary fees for a credit
      facility of the type described in such agreement. 

     

    Section
      5.  Conditions
      Precedent.
      Subject
      to Section 6 hereof, the amendments to the Note Purchase Agreement set forth
      in
      Section 2 of this Amendment No. 1 and the waiver set forth in Section 3 of
      this
      Amendment No. 1 shall become effective in accordance with Article 17 of the
      Note
      Purchase Agreement, as of the date hereof, upon (i) delivery to the Company
      of
      counterparts hereof executed by the Required Holders, (ii) delivery to the
      Noteholders on or prior to May 31, 2006 of counterparts hereof executed by
      the
      Company and the Guarantors, (iii) payment by the Company and the Guarantors
      of
      an amendment fee to each Noteholder by wire transfer of immediately available
      funds (in accordance with the wiring instructions for payments under the Note
      Purchase Agreement previously provided by the Noteholders to the Company) in
      an
      aggregate amount equal to 0.125% (12.5 basis points) of the aggregate principal
      amount of the Notes held by such Noteholder on the date hereof; provided that
      the representations and warranties set forth in Section 5 were true and correct
      on the date hereof and are true and correct immediately after the satisfaction
      of the last to be completed of the conditions set forth in clauses (i), (ii)
      and
      (iii) of this Section 5.

     

    Section
      6.  Termination
      of Effectiveness.
      The
      amendments set forth in Section 2 hereof and the waiver set forth in Section
      3
      hereof shall cease to be effective on March 31, 2007 if the SCA IPO has not
      been
      consummated on or prior to such date.

     

    Section
      7.  Miscellaneous.
      Except
      as herein provided, the Note Purchase Agreement shall remain unchanged and
      in
      full force and effect. This Amendment No. 1 may be executed in any number of
      counterparts, all of which taken together shall constitute one and the same
      agreement. This Amendment No. 1 shall be governed by, and construed in
      accordance with, the laws of the State of New York.

     

    [signatures
      follow]

     

    

    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    IN
      WITNESS WHEREOF, the Company, the Guarantors and the Noteholders have caused
      this instrument to be executed, all as of the day and year first above
      written.

     

    X.L.
      AMERICA, INC.

     

    By: 
      /s/
      Brian M. O’Hara                

          
      Name:  Brian
      M.
      O’Hara

          
      Title:    Director

     

    XL
      CAPITAL LTD

     

    By: /s/
      Brian M. O’Hara                

           Name: 
      Brian
      M.
      O’Hara

           Title:   
      President
      & Chief Executive Officer

     

    XL
      INSURANCE (BERMUDA) LTD

     

    By: /s/
      Fiona E. Luck                  

           Name: 
      Fiona
      E.
      Luck

          
Title:   
      Director

     

    XL
      RE LTD

     

    By: /s/
      Fiona E. Luck                  

           
Name: 
      Fiona
      E.
      Luck

           
Title:   
      Director

    

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    

     

    ING
      USA
      ANNUITY AND LIFE INSURANCE 
COMPANY (successor by merger to each of 
Golden 
American Life Insurance Company and Equitable 
Life Insurance
      Company of Iowa)

     

    ING
      LIFE
      INSURANCE & ANNUITY COMPANY 
(fka Aetna Life Insurance & Annuity
      Company)

     

    By: ING
      Investment Management LLC, as Agent

     

    By: /s/
      Paul Aronson                      

          
      Name:  Paul
      Aronson

          
      Title:    Vice
      President

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    THE
      NORTHWESTERN MUTUAL LIFE 
INSURANCE COMPANY

     

    By: /s/
      Mark E. Kishler                

          
      Name:  Mark
      E.
      Kishler

           Title:   
      Its
      Authorized Representative

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    TEACHERS
      INSURANCE AND ANNUITY 
ASSOCIATION OF AMERICA

     

    By: /s/
      Loren S. Archibald                

          
      Name:  Loren
      S.
      Archibald

           Title:   
      Managing
      Director

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    NEW
      YORK
      LIFE INSURANCE COMPANY

     

    By: /s/
      A.
      Post Howland                

          
      Name:  A.
      Post
      Howland

          
      Title:    Investment
      Vice President

     

    NEW
      YORK
      LIFE INSURANCE AND ANNUITY 
CORPORATION

     

    By: New
      York
      Life Investment Management LLC,

           
Its
      Investment Manager

     

    By: 
      /s/
      A.
      Post Howland                

           
      Name:  A.
      Post
      Howland

           
      Title:    Director

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    NATIONWIDE
      LIFE INSURANCE COMPANY

    NATIONWIDE
      MUTUAL FIRE INSURANCE 
COMPANY

    NATIONWIDE
      LIFE AND ANNUITY INSURANCE
COMPANY

    NATIONWIDE
      LIFE INSURANCE COMPANY 
SEPARATE ACCOUNT NPPVA

    NATIONWIDE
      INDEMNITY COMPANY

     

    By: 
      /s/
      Joseph P. Young                

           
      Name:  Joseph
      P.
      Young

           
      Title:    Authorized
      Signatory

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    MINNESOTA
      LIFE INSURANCE COMPANY

     

    By: Advantus
      Capital Management, Inc.

     

    By: /s/
      Robert W. Thompson                

           Name: 
      Robert
      W.
      Thompson

          
      Title:    Vice
      President

     

    AMERICAN
      REPUBLIC INSURANCE COMPANY

     

    By: Advantus
      Capital Management, Inc.

     

    By: /s/
      Robert W. Thompson                

          
      Name:  Robert
      W.
      Thompson

          
      Title:    Vice
      President

     

    GREAT
      WESTERN INSURANCE COMPANY

     

    By: Advantus
      Capital Management, Inc.

     

    By: /s/
      Robert W. Thompson                

          
      Name:  Robert
      W.
      Thompson

           Title:   
      Vice
      President

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    THRIVENT
      FINANCIAL FOR LUTHERANS

     

    By: /s/
      Alan D. Onstad                

    Name: 
      Alan
      D.
      Onstad

          
      Title:    Associate
      Portfolio Manager

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00105-of-00352.parquet"}]]