Document:

Exhibit 10.2

 

THE NEW YORK TIMES COMPANY

1991 EXECUTIVE CASH BONUS PLAN

AS AMENDED THROUGH FEBRUARY 16, 2006

 

1.             NAME AND GENERAL PURPOSE

 

The name of this plan is The New York Times Company 1991 Executive Cash
Bonus Plan (hereinafter called the “Plan”). The purpose of the Plan is to
enable the Company (as hereinafter defined) to retain and attract executives
who enhance its tradition and contribute to its success by their ability,
ingenuity and industry, and to enable them to participate in the long-term success
and growth of the Company.

 

2.             DEFINITIONS

 

(a)           “Awards”—has the meaning specified in
Section 4 hereof.

 

(b)           “Board”—means the Board of Directors of
the Company.

 

(c)           “Committee”—means the Committee referred
to in Section 3 of the Plan. If at any time no Committee shall be in office,
then the functions of the Committee specified in the Plan shall be exercised by
the non-employee members of the Board.

 

(d)           “Company”—means The New York Times
Company, a corporation organized under the laws of the State of New York (or
any successor corporation), and, unless the context otherwise requires, its
subsidiaries (as hereinafter defined) and other non-corporate entities in which
it owns directly or indirectly 20% or more of the equity interests. A “subsidiary”
means any corporation in which the Company possesses directly or indirectly 50%
or more of the combined voting power of all classes of stock.

 

(e)           “Consolidated Statement of Income”—means
the consolidated statement of income (or any comparable statement, however
designated) of the Company, audited by the independent certified public
accountants of the Company and contained in the Company’s annual report to
stockholders or proxy statement.

 

(f)            “Income Before Income Taxes”—means the
amount designated as Income Before Income Taxes for the applicable year and
shown separately on the Consolidated Statement of Income for such year.

 

(g)           “Participant”—means a key employee of the
Company who is selected by the Committee to participate in any part of the Plan
from among persons who in the judgment of the Committee are key employees of
the Company. In general, key employees are those employees who have principal
responsibility for, or who contribute substantially to, the management
efficiency, editorial achievement or financial success of the Company. Only
employees of The New York Times Company, its subsidiaries and other
non-corporate entities in which it owns directly or indirectly 40% or more of
the equity interests are eligible to participate in the Plan.

 

(h)           “Stock Plan”—means the Company’s 1991
Executive Stock Incentive Plan.

 

 

3.             ADMINISTRATION OF THE PLAN

 

The Plan shall be administered by the Board or the
Committee appointed by it and composed of two or more directors who are not
employees of the Company. The Committee shall be constituted so as to enable
the Plan to comply with the administration requirements of Section 162(m)(4)(C)
of the Internal Revenue Code of 1986, as amended. The Committee shall serve at
the pleasure of the Board and shall have such powers as the Board may from time
to time confer upon it.

 

PART I
AWARDS

 

4.             FORM OF AWARDS

 

The Plan is designed to provide incentives for
Participants by the making of awards of supplemental compensation (“Awards”). The
Committee, subject to the terms and conditions hereof, may make Awards to a
Participant in any one, or in any combination, of the following forms:

 

(a)           Cash Awards as provided in Part IA of the
Plan (“Cash Awards”);

 

(b)           Annual Performance Awards as provided in
Part IB of the Plan  (“Annual Performance
Awards”);

 

(c)           Performance Awards (“Performance Awards”)
or other forms of Awards as provided in Part IC of the Plan; and

 

(d)           Long-Term Performance Awards as provided
in Part ID of the Plan (“Long-Term Performance Awards”).

 

Awards may be made to a Participant whether or not he
or she receives an award or option under the Stock Plan. Cash Awards,
Performance Awards and other forms of Awards pursuant to Part IC will be based
on a Participant’s performance in those areas for which the Participant is
directly responsible. Performance for this purpose may be measured by the
achievement of specific management goals such as, but not limited to, an
increase in earnings or the operating cash flow of the Company, outstanding
initiative or achievement in any department of the Company, or any other
standards specified by the Committee. Annual Performance Awards will be based
exclusively on the criteria set forth in Part IB. Long-Term Performance Awards
will be based exclusively on the criteria set forth in Part ID.

 

No Award under the Plan is payable in common stock or
preferred stock of the Company.

 

5.             MAXIMUM AMOUNT
AVAILABLE FOR THE ACCRUAL OF AWARDS FOR ANY YEAR

 

(a)           No accrual for Awards shall be made
hereunder (or under the Stock Plan) for any year unless cash dividends of not
less than ten cents ($.10) per share (as adjusted as hereafter provided) have
been declared on the outstanding Class A and Class B Common Stock of the
Company during such year. If at any time the Company shall take any action, whether
by stock dividend, stock split, combination of shares, or otherwise, which
results in an increase or decrease in the number of shares of Class A and/or
Class B Common Stock theretofore issued and outstanding, or the Company
reclassifies or otherwise changes its issued and outstanding Class A and/or
Class B Common Stock (other than in par value) or the Company and one or more
corporations merge and the Company is the surviving

 

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corporation of such merger, then the Committee shall
make an equitable adjustment to the provisions of this Section 5(a) to take
account of such event.

 

(b)           In the event that the above condition is
met for any year during the continuance of this Plan, the maximum aggregate amount
that may be accrued for Awards under the Plan and the Stock Plan for such year
shall be 4% of Income Before Income Taxes. The Committee, in its sole
discretion, may make adjustments in Income Before Income Taxes to take account
of extraordinary, unusual or infrequently occurring events and transactions,
changes in accounting principles that substantially affect the foregoing, or
such other circumstances as the Committee may determine warrant such
adjustment.

 

(c)           As soon as feasible after the close of each
year, the independent certified public accountants of the Company shall
determine and report the maximum amount that may be accrued for Awards for such
year under the formula described in Section 5(b), subject to the second
sentence of such Section.

 

(d)           If amounts are accrued in any year under
the formula described in this Section 5 and are not awarded in full in such
year under the Plan and the Stock Plan, such unawarded amounts may, in the
discretion of the Committee, be carried forward and be available for Awards
under this Plan and under the Stock Plan in any future year without regard to
the provisions of Sections 5(a) or (b) of the Plan applicable to Awards made in
such year.

 

(e)           Awards under the Plan for any year may
not exceed the sum of (i) the amount accrued for such year under Section 5(b)
above, plus (ii) unawarded accrued amounts carried forward from previous years
under Section 5(d) above, plus (iii) amounts that may become available for
Awards pursuant to the last sentence of Section 7(c) hereof, minus (x) the
amount of interest equivalents allocated during such year pursuant to Section
10(b) hereof, and minus (y) the amount of awards made for such year under the
Stock Plan valued as set forth in Section 13(e) of the Stock Plan (and any interest
or dividend equivalents allocated during such year pursuant to Sections 15(c),
24 and 27A thereof).

 

6.             DETERMINATION OF AWARDS AND
PARTICIPANTS

 

(a)           As promptly as practicable after the end
of each year, the Committee may make Awards (other than Annual Performance
Awards and Long-Term Performance Awards, which are to be made exclusively as
set forth in Parts IB and ID, respectively) for such year and determine the
amounts to be carried forward for Awards in future years. The Committee may
also, in its discretion, make Awards (other than Annual Performance Awards and
Long-Term Performance Awards, which are to be made exclusively as set forth in
Parts IB and ID, respectively) prior to the end of the year based on amounts
available under clauses (ii) and (iii) of Section 5(e) and reasonable estimates
of the accrual for the year in question.

 

(b)           The Committee shall have absolute
discretion to determine the key employees who are to receive Awards (other than
Annual Performance Awards and Long-Term Performance Awards, which are to be
made exclusively as set forth in Parts IB and ID, respectively) under the Plan
for any year and to determine the amount of such Awards based on such criteria
and factors as the Committee in its sole discretion may determine, such as the
Company’s operating cash flow and overall financial performance. Recommendations
as to the key employees who are to receive Awards (including Annual Performance
Awards and Long-Term Performance Awards) under the Plan for any year and to the
amount and form of such Awards shall, however, be made to the Committee by the
chief executive officer of the Company. The fact that an employee is selected
as eligible for an Award shall not mean, however, that such employee will
necessarily receive an Award.

 

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(c)           A person whose employment terminates
during the year or who is granted a leave of absence during the year may, in
the discretion of the Committee and under such rules as the Committee may from
time to time prescribe, be given an Award with respect to the period of such
person’s service during such year.

 

7.             METHOD AND TIME OF PAYMENT OF
AWARDS

 

(a)           Awards shall be paid in full as soon as
practicable after the Award is made; provided, however, that payment of Annual
Performance Awards and Long-Term Performance Awards shall be subject to the
provisions of Parts IB and ID, respectively; and provided further, that the
payment of any or all Awards may be deferred, divided into annual installments,
or made subject to such other conditions as the Committee in its sole
discretion may authorize under such rules and regulations as may be adopted
from time to time by the Committee.

 

(b)           The Committee’s rules and regulations may
include procedures by which a Participant expresses a preference to the
Committee as to the form of Award or method of payment of an Award but the
final determination as to the form and the terms and conditions of any Award
shall rest solely with the Committee.

 

(c)           Awards deferred under the Plan shall
become payable to the Participant or, in the event of the Participant’s death,
as specified in Section 14 hereof, in such manner, at such time or times (which
may be either before or after termination of service), and subject to such
conditions as the Committee in its sole discretion shall determine. In any year
the Committee shall have the discretion to set aside, for payment in such year
or any future year, interest on any deferred Award; provided, however, that the
total amount of such interest shall be deducted from the maximum amount
available for Awards under Section 5 of the Plan. Any forfeited deferred Awards
shall be carried forward and be available for Awards in any future year without
regard to the provisions of Sections 5(a) or (b) of the Plan.

 

8.             INDIVIDUAL AGREEMENTS

 

(a)           The Committee may in its discretion
require that each Participant receiving an Award enter into an agreement with
the Company which shall contain such terms and conditions as the Committee may
in its discretion request.

 

(b)           The Committee may cancel any unexpired,
unpaid or deferred Award at any time if the Participant is not in compliance
with all applicable provisions of the agreement referred to above, if any, and
the Plan.

 

9.             STATUS OF PARTICIPANTS

 

No Participant in the Plan shall have any interest in
any specific assets of the Company by reason of the fact that deferred Awards
are to be recorded as being held for such Participant’s account to be paid in
installments in the future. The interest of all Participants shall derive from
and be determined solely by the terms and provisions of the Plan set forth
herein.

 

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PART IA
CASH AWARDS

 

10.          DETERMINATION OF CASH AWARDS

 

(a)           Each year the Committee shall designate
those Participants who shall receive Cash Awards under this part of the Plan. Cash
Awards may be paid immediately, in installments or on a deferred date, as the
Committee in its discretion may provide.

 

(b)           If the Committee determines that some
portion of a Cash Award to a Participant shall be treated as a deferred Cash
Award and be payable in annual or other periodic installments, the Participant
will be notified in writing when such deferred Cash Award shall be paid and
over what period of time. In each year the Committee shall have discretion to
provide for the payment of an amount equivalent to interest, at such rate or
rates fixed by the Committee, on any deferred Cash Award. Any amounts provided
for pursuant to the preceding sentence shall become payable in such manner, at
such time or times, and subject to such conditions as the Committee shall in
its sole discretion determine; provided, however, that the total amount of such
interest shall be deducted from the maximum amount available for Awards under
the formula described in Section 5 of the Plan.

 

PART IB
ANNUAL PERFORMANCE AWARDS

 

11.          DETERMINATION OF ANNUAL
PERFORMANCE AWARDS

 

(a)           GENERAL. Each year the Committee may make
Annual Performance Awards under this part of the Plan; provided that no Participant
may be eligible to receive an Annual Performance Award hereunder and under the
Stock Plan in the same year.

 

(b)           CERTAIN DEFINITIONS. For the purposes of
this Part IB, the following terms shall have the meanings specified:

 

“Affected Officers” shall mean those executive
officers of the Company whose compensation is required to be disclosed in the
Company’s annual proxy statement relating to the election of directors.

 

“Code Section 162(m)” shall mean Section 162(m) of the
Internal Revenue Code of 1986, as amended (or any successor provision), and “Regulations”
shall mean the regulations promulgated thereunder, as from time to time in
effect.

 

“Eligible Participants” shall have the meaning set
forth in subsection (c) below.

 

“Performance Adjustment” means, for any year, a factor
ranging from 0% to 200%, based upon the achievement of Performance Goal Targets
established by the Committee, that, when multiplied by an Eligible Participant’s
Target Award, determines the amount of such Eligible Participant’s Annual
Performance Award for such year.

 

“Performance Goal” means, for any year, the business
criteria selected by the Committee to measure the performance during such year
of the Company (or of a division, subsidiary or group thereof) from one or more
of the following:

 

(i)            earnings per share of the Company for the
year;

 

(ii)           net income of the Company for the year;

 

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(iii)          return on assets of the Company for the
year (net income of the Company for the year divided by average total assets
during such year);

 

(iv)          return on stockholder’s equity of the
Company for the year (net income of the Company for the year divided by average
stockholder’s equity during such year);

 

(v)           operating profit or operating margins of
the Company or of a division, subsidiary or group thereof for the year;

 

(vi)          cash flow of the Company or of a
division, subsidiary or group thereof for the year;

 

(vii)         increase in shareholder value as
determined at the end of each year;

 

(viii)        revenue growth of the Company or of a
division, subsidiary or group thereof for the year; and

 

(ix)           improved use of capital and/or assets of
the Company or of a division, subsidiary or group thereof for the year.

 

“Performance Goal Target” means, for any Performance
Goal, the levels of performance during a year under such Performance Goal
established by the Committee to determine the Performance Adjustment to an
Eligible Participant’s Target Award for such year.

 

“Target Award” means, for any year, with respect to an
Eligible Participant, the dollar amount set by the Committee that, when
multiplied by the applicable Performance Adjustment, determines such Eligible
Participant’s Annual Performance Award.

 

(c)           ELIGIBILITY. Annual Performance Awards
are available each year only to Plan Participants who are designated by the
Committee, prior to March 31 of such year (or prior to such later date as
permitted by Code Section 162(m) and the Regulations), as likely to be Affected
Officers for such year, whose annual salary and bonus for such year are
expected to exceed $1,000,000 and who are not designated by the Committee as
eligible for an Annual Performance Award under the Stock Plan for such year (“Eligible
Participants”).

 

(d)           DETERMINATION OF ANNUAL PERFORMANCE AWARDS.
Prior to March 31 of each year (or prior to such later date as permitted by
Code Section 162(m) and the Regulations), the Committee will determine the
Eligible Participants for such year, will designate those Eligible Participants
who will be entitled to earn an Annual Performance Award for such year under
this Plan, and will establish for each such Eligible Participant for such year:
(i) a Target Award, (ii) one or more Performance Goals, and (iii) for each such
Performance Goal, a Performance Goal Target, the method by which achievement
thereof will be measured and a schedule of Performance Adjustment factors
corresponding to varying levels of Performance Goal Target achievement. In the
event more than one Performance Goal is established for any Eligible
Participant, the Committee shall at the same time establish the weighting of
each such Performance Goal in determining such Eligible Participant’s Annual
Performance Award. Notwithstanding anything in this Part IB to the contrary,
the Annual Performance Award payable to any Eligible Participant in any year
may not exceed $3.0 million.

 

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(e)           PAYMENT OF ANNUAL PERFORMANCE AWARDS. Subject
to subsection (f) below, provided the Committee certifies the extent to which
the Performance Goal Target or Targets under the Performance Goal or Goals have
been met or exceeded, Annual Performance Awards will be paid by March 15 after
the end of the year to which they relate, unless administratively impracticable
to do so. If permitted by the Regulations and Code Section 162(m), the
Committee may determine to pay a portion of an Annual Performance Award in
December of the year to which it relates. The Committee may not increase the
amount of an Annual Performance Award that would otherwise be payable upon
achievement of the Performance Target or Targets, but it may reduce any
Eligible Participant’s Annual Performance Award in its discretion. Subject to
Section 6(c) above, no Annual Performance Award will be payable to any Eligible
Participant who is not an employee of the Company on the last day of the year
to which such Annual Performance Award relates.

 

(f)            DEFERRAL OF ANNUAL PERFORMANCE AWARDS. If
the Committee determines that some portion of an Annual Performance Award to an
Eligible Participant shall be treated as a deferred Annual Performance Award
and be payable in annual or other periodic installments, the Eligible
Participant will be notified in writing when such deferred Annual Performance
Award shall be paid and over what period of time. In each year the Committee
shall have discretion to provide for the payment of an amount equivalent to
interest, at such rate or rates fixed by the Committee, on any deferred Annual
Performance Award. Any amounts provided for pursuant to the preceding sentence
shall become payable in such a manner, at such time or times, and subject to
such conditions as the Committee shall in its sole discretion determine;
provided, however, that the total amount of such interest shall be deducted
from the maximum amount available for Awards under the formula described in
Section 5 of the Plan.

 

(g)           CODE SECTION 162(m). It is the intent of
the Company that Annual Performance Awards satisfy, and this Part IB be
interpreted in a manner that satisfies, the applicable requirements of Code
Section 162(m) and the Regulations so that the Company’s tax deduction for
Annual Performance Awards to Affected Officers is not disallowed in whole or in
part by operation of Code Section 162(m). If any provision of this Plan or of
any Annual Performance Award would otherwise frustrate or conflict with such
intent, that provision shall be interpreted and deemed amended so as to avoid
such conflict. To the extent of any irreconcilable conflict with such intent,
such provision shall be deemed void as applicable to Eligible Participants.

 

PART IC PERFORMANCE AND OTHER AWARDS

 

12.          DETERMINATION OF PERFORMANCE AND
OTHER AWARDS

 

(a)           Each year the Committee in its sole
discretion may authorize other forms of Awards such as, but not limited to,
Performance Awards, if the Committee deems it appropriate to do so in order to
further the purposes of the Plan.

 

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(b)           A “Performance Award” shall mean an Award
which entitles the Participant to receive cash or other compensation, or any
combination thereof, in an amount which depends upon the financial performance
of the Company during a stated period of more than one year. Performance for
this purpose may be measured by the growth in book value of the common stock of
the Company, an increase in per share earnings of the Company, an increase in
operating cash flow or any other indicators specified by the Committee. The
Committee shall also fix the period during which such performance is to be
measured, the value of a Performance Award for purposes of providing for the
accrual pursuant to Section 5 of the Plan and the form of payment to be made in
respect of the Performance Award.

 

PART ID LONG-TERM PERFORMANCE AWARDS

 

13.          DETERMINATION OF LONG-TERM
PERFORMANCE AWARDS

 

(a)           GENERAL. Each year the Committee shall
designate those Participants who shall be eligible to receive Long-Term
Performance Awards under this part of the Plan.

 

(b)           CERTAIN DEFINITIONS. For purposes of this
Part ID, the following terms shall have the meanings specified:

 

“Code Section 162(m)” shall mean Section 162(m) of the
Internal Revenue Code of 1986, as amended (or any successor provision), and “Regulations”
shall mean the regulations promulgated thereunder, as from time to time in
effect.

 

“Eligible Participants” shall mean certain key
business leaders and senior management of the Company as determined in the
discretion of the Committee.

 

“Long-Term Performance Goal” means, for any
Performance Period, the business criteria selected by the Committee to measure
the performance during such Performance Period of the Company (or of a
division, subsidiary or group thereof) from one or more of the following:

 

(i)            earnings per share of the Company for the
Performance Period;

 

(ii)           net income of the Company for the
Performance Period;

 

(iii)          return on assets of the Company for the
Performance Period (net income of the Company for the Performance Period
divided by average total assets for such Performance Period);

 

(iv)          return on stockholder’s equity of the
Company for the Performance Period (net income of the Company for the
Performance Period divided by average stockholder’s equity for such Performance
Period);

 

(v)           operating profit or operating margins of
the Company or of a division, subsidiary or group thereof for the Performance
Period;

 

(vi)          cash flow of the Company or of a
division, subsidiary or group thereof for the Performance Period;

 

(vii)         increase in shareholder value as
determined at the end of the Performance Period;

 

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(viii)        revenue growth of the Company or of a
division, subsidiary or group thereof for the Performance Period; and

 

(ix)           improved use of capital and/or assets of
the Company or of a division, subsidiary or group thereof for the Performance
Period.

 

“Long-Term Performance Goal Target” means, for any
Long-Term Performance Goal, the levels of performance during a Performance
Period under such Long-Term Performance Goal established by the Committee to
determine an Eligible Participant’s maximum Long-Term Performance Award.

 

“Performance Period” means the period in excess of one
year commencing on January 1 of the year in which the Committee makes the
Long-Term Performance Award to an Eligible Participant.

 

(c)           ELIGIBILITY. Long-Term Performance Awards
are available each year to Eligible Participants who are designated by the
Committee, prior to March 31 of such year (or prior to such later date as
permitted by Code Section 162(m) and the Regulations).

 

(d)           DETERMINATION OF LONG-TERM PERFORMANCE
AWARDS. Prior to March 31 of each year (or prior to such later date as
permitted by Code Section 162(m) and the Regulations), the Committee will
designate the Eligible Participants who will be entitled to earn a Long-Term Performance
Award for such Performance Period under this Plan, and will establish for each
such Eligible Participant for such Performance Period, (i) one or more
Long-Term Performance Goals, and (ii) for each such Long-Term Performance Goal,
a Long-Term Performance Goal Target and the method by which achievement thereof
will be measured. In the event that more than one Long-Term Performance Goal is
established for any Eligible Participant, the Committee shall at the same time
establish the weighting of each such Long-Term Performance Goal in determining
such Eligible Participant’s Long-Term Performance Award. Notwithstanding
anything in this Section 13 to the contrary, the Long-Term Performance Award
payable to any Eligible Participant in any Performance Period may not exceed
$3.0 million.

 

(e)           PAYMENT OF LONG-TERM PERFORMANCE AWARDS. Subject
to subsection (f) below, provided the Committee certifies the extent to which
the Long-Term Performance Goal Target or Targets under the Long-Term
Performance Goal or Goals have been met or exceeded, Long-Term Performance
Awards will be paid in cash by March 15 after the end of the year in which the
Performance Period ends, unless administratively impracticable to do so. If
permitted by the Regulations and Code Section 162(m), the Committee may
determine to pay a portion of a Long-Term Performance Award in December of the
last year of the Performance Period to which it relates. The Committee may not
increase the amount of a Long-Term Performance Award that would otherwise be
payable upon the achievement of the Long-Term Performance Goal Target or
Targets, but it may reduce any Eligible Participant’s Long-Term Performance
Award in its discretion. Subject to Sections 6(c) and 13(g), no Long-Term
Performance Award will be payable to any Eligible Participant who is not an
employee of the Company on the last day of the Performance Period to which such
Long-Term Performance Award relates.

 

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(f)            DEFERRAL OF LONG-TERM PERFORMANCE AWARDS.
If the Committee determines that some portion of a Long-Term Performance Award
to an Eligible Participant shall be treated as a deferred Long-Term Performance
Award and payable in annual or other periodic installments, the Eligible
Participant will be notified in writing when such deferred Long-Term
Performance Award shall be paid and over what period of time. In each year the
Committee shall have the discretion to provide for the payment of an amount
equivalent to interest, at such rate or rates fixed by the Committee, on any
deferred Long-Term Performance Award. Any amounts provided for pursuant to the
preceding sentence shall become payable in such manner, at such time or times,
and subject to such conditions as the Committee shall in its sole discretion
determine; provided, however, that the total amount of such interest shall be
deducted from the maximum amount available for Awards under the formula
described in Section 5 of the Plan.

 

(g)           TERMINATION OF EMPLOYMENT BECAUSE OF
DEATH, DISABILITY OR RETIREMENT. In the event that an Eligible Participant
terminates employment because of death, disability or retirement, such Eligible
Participant, or in the event of death such person as determined in accordance
with Section 14, shall be paid a pro rata portion of such Eligible Participant’s
Long-Term Performance Award that would otherwise be payable upon the
achievement of the Long-Term Performance Goal Target or Targets had the
Participant continued employment until the end of the Performance Period. Such
pro rata Long-Term Performance Award shall not be paid until the end of the
Performance Period to which such Long-Term Performance Award relates.

 

(h)           CODE SECTION 162(m). It is the intent of
the Company that Long-Term Performance Awards satisfy, and this Section 13 be
interpreted in a manner that satisfies, the applicable requirement of Code
Section 162(m) and the Regulations so that the Company’s tax deduction for
Long-Term Performance Awards to Eligible Participants is not disallowed in
whole or in part by operation of Code Section 162(m). If any provision of this
Plan or of any Long-Term Performance Award would otherwise frustrate or
conflict with such intent, that provision shall be interpreted and deemed
amended so as to avoid such conflict. To the extent of any irreconcilable
conflict with such intent, such provision shall be deemed void as applicable to
any Participant whose compensation is subject to Code Section 162(m).

 

PART
II GENERAL PROVISIONS

 

14.          NON-ALIENATION OF BENEFITS

 

Except as herein
specifically provided, no right or unpaid benefit under this Plan shall be
subject to alienation, assignment, pledge or charge and any attempt to
alienate, assign, pledge or charge the same shall be void. If any Participant
or person entitled to the benefits hereunder should attempt to alienate,
assign, pledge or charge any benefit hereunder, then such benefit shall, in the
discretion of the Committee, cease. Notwithstanding the foregoing, rights and
benefits hereunder shall pass by will or the laws of descent and distribution
in the following order: (i) to beneficiaries so designated by the Participant;
if none, then (ii) to a legal representative of the Participant; if none, then
(iii) to the persons entitled thereto as determined by a court of competent
jurisdiction. Awards so passing shall be made at such times and in such
manner as if the Participant were living.

 

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15.          WITHHOLDING OR DEDUCTION FOR
TAXES

 

If at any time specified herein for the making of any
payment to any Participant or beneficiary, any law or regulation of any
governmental authority having jurisdiction in the premises shall require the
Company to withhold, or to make any deduction for, any taxes or take any other
action in connection with the payment then to be made, such payment shall be
deferred until such withholding or deduction shall have been provided for by
the Participant or beneficiary, or other appropriate action shall have been
taken.

 

16.          ADMINISTRATION EXPENSES

 

The entire expense of administering this Plan shall be
borne by the Company.

 

17.          GENERAL CONDITIONS

 

(a)           The Board in its discretion may from time
to time amend, suspend or terminate any or all of the provisions of this Plan,
provided that the Board may not make any amendment which materially affects the
provisions of Sections 5(a) or (b) of the Plan without the consent and approval
of the holders of a majority of the outstanding shares of Class A and Class B
Common Stock of the Company entitled to vote thereon, voting together as one
class. The foregoing provisions shall not be construed to prevent the Committee
from exercising its discretion, or to limit such discretion, to adjust the
provisions of Sections 5(a) and (b) hereof as expressly permitted thereby or
otherwise to exercise any discretion to the extent expressly authorized
hereunder.

 

(b)           Nothing contained in the Plan shall
prohibit the Company from establishing incentive compensation arrangements in
addition to this Plan and the Stock Plan. Payments made under any such separate
arrangements shall not be included in or considered a part of the maximum
amount available for Awards under the Plan and Stock Plan and shall not be
charged against the amount available for Awards under the Plan and Stock Plan
for any year. In the discretion of the Committee, employees shall be eligible
to participate in such other arrangements, as well as the Plan and Stock Plan,
in the same year.

 

(c)           Nothing in this Plan shall be deemed to
limit in any way the right of the Company to terminate a Participant’s
employment with the Company at any time.

 

(d)           The Committee may promulgate rules and
regulations relating to the administration and interpretation of, and
procedures under, the Plan. Any decision or action taken by the Company, the
Board or the Committee arising out of or in connection with the construction,
administration, interpretation and effect of the Plan shall be conclusive and
binding upon all Participants and any person claiming under or through any
Participant.

 

(e)           No member of the Board or of the
Committee shall be liable for any act or action, whether of commission or
omission, taken by any other member or by any officer, agent or employee, nor
for anything done or omitted to be done by such Director except in
circumstances involving actual bad faith.

 

11

 

18.          CODE SECTION 409A

 

It is the intent of the Company that, to the extent the Plan as to any
Award constitutes a nonqualified deferred compensation plan within the meaning
of Code Section 409A, the Plan as to such Award be interpreted in a manner that
satisfies the requirements of Code Section 409A. If any provision of the Plan
or of any Award would otherwise frustrate or conflict with such intent, that
provision shall be interpreted and deemed amended so as to avoid such conflict.
Without limiting the foregoing, to the extent the Plan or Award provides the
Committee with the discretion to determine the time or form of payment of an
Award (including any earnings or interest credit), and/or defer or accelerate
the time of payment of an Award (including any earnings or interest credit),
the Committee shall exercise such discretion only at such time and in such
manner as complies with Code Section 409A. “Code Section 409A” shall mean
Section 409A of the Internal Revenue Code of 1986, as amended (or any successor
provision).

 

19.          TRANSITION

 

Upon the effectiveness of this Plan, and the Stock
Plan, such plans replaced the Company’s Executive Incentive Compensation Plan (“EICP”),
except that the EICP shall continue to govern options and awards of restricted
stock outstanding under the EICP. No further awards will be made under the
EICP, and all amounts accrued for Awards under the EICP and unawarded were
carried forward and made available for Awards under the Plan and Awards under
the Stock Plan.

 

20.          EFFECTIVE DATES

 

The Plan became
effective for periods beginning after January 1, 1991 upon the approval by the
holders of a majority of the outstanding shares of Class A and Class B Common Stock
of the Company entitled to vote thereon at the 1991 Annual Meeting, in person
or by proxy, voting together as a single class. No Awards may be granted under
the Plan after December 31, 2010, or such earlier expiration date as
may be designated by resolution of the Board.

 

12Exhibit 10.1

 

 

FINANCIAL SECURITY ASSURANCE
HOLDINGS LTD.

 

 

2004 Equity Participation Plan

 

 

As amended and restated effective as of January 1, 2005

 

 

FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.

 

2004 Equity Participation Plan

 

	
  SECTION

  	
   

  	
  CONTENTS

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 1.

  	
   

  	
  General Purpose of Plan;
  Definitions

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 2.

  	
   

  	
  Administration

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 3.

  	
   

  	
  FSA Stock Subject to Plan

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 4.

  	
   

  	
  Eligibility

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 5.

  	
   

  	
  Performance Shares

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 6.

  	
   

  	
  Dexia Restricted Stock

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 7.

  	
   

  	
  Performance Share Units

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 8.

  	
   

  	
  Transfer, Leave of Absence,
  etc.

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 9.

  	
   

  	
  Amendments and Termination

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 10.

  	
   

  	
  Compliance with Code Section 409A

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 11.

  	
   

  	
  General Provisions

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 12.

  	
   

  	
  Effective Date of Plan

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Section 13.

  	
   

  	
  Term of Plan

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 

[Approved by Board of Directors—11/18/04; as
amended on 9/15/05 and as further amended effective as of 1/1/05]

 

FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.

 

2004 Equity Participation Plan

 

Section 1.  General Purpose of Plan; Definitions.

 

The
name of this plan is the Financial Security Assurance Holdings Ltd. 2004 Equity
Participation Plan (the “Plan”). 
The purpose of the Plan 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 or the cash equivalent
thereof.  The Plan was originally adopted
on November 18, 2004 and was amended and restated on September 9,
2005.  The Plan is hereby amended and
restated, as set forth in this Plan document, effective as of January 1,
2005 to comply with the requirements of Section 409A of the Code that must
be satisfied to avoid taxation under Section 409A(a)(1) of the Code
and shall be construed in accordance with such intent.

 

The
Plan shall be unfunded.  All obligations
of the Company under the Plan shall be paid from the general assets of the
Company.

 

For
purposes of the Plan, the following terms shall be defined as set forth below:

 

a.             “Act”
means the Securities Exchange Act of 1934, as amended.

 

b.             “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.

 

c.             “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.

 

 

d.             “Board”
means the Board of Directors of the Company.

 

e.             “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.

 

f.              “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.

 

g.             “Cause”
means (i) conviction of, or plea
of nolo contendere (or similar plea) by, a Participant in a criminal proceeding
for commission of a misdemeanor or a felony that is materially injurious to the
Company; or (ii) willful misconduct by a Participant in carrying out his
or her duties with the Company which is directly and materially harmful to the
business or reputation of the Company.

 

h.             “Change
in Control” means (i) an event or series of events as a result of
which any “person” or “group” (as such terms are defined in Rule 13d-5
under the Act) is or becomes the “beneficial owner” (as defined in Rules 13d-3
and 13d-5 under the Act) of shares of capital stock entitling the holder
thereof to cast more than 50% of the votes for the election of directors of the
Company; or (ii) the approval by the Company’s shareholders of the Company’s
consolidation with or merger into another unaffiliated corporation, or another
unaffiliated corporation’s merger into the Company, or the conveyance, transfer
or lease of all or substantially all of its assets to any unaffiliated person
or (iii) unless otherwise determined by the Board, the liquidation or
dissolution of the Company.

 

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

 

j.              “Committee”
means the committee administering the Plan pursuant to Section 2.

 

k.             “Company”
means Financial Security Assurance Holdings Ltd. (and, unless required
otherwise by the context, its Subsidiaries), a corporation organized under the
laws of the State of New York (or any successor corporation).

 

l.              “Dexia”
means Dexia S.A., a limited liability company under Belgium law having its
registered office at 1000 Brussels, Square de Meeus 1, registered with the
Commercial Registry of Brussels under 604.748 (or any successor thereto).

 

m.            “Dexia
Restricted Stock” means an award of shares of Dexia Stock that are subject
to the conditions under Section 6.

 

n.             “Dexia
Stock” means ordinary shares of Dexia.

 

o.             “Disability”
means permanent and total disability as determined under the Company’s
long-term disability program or as otherwise determined by the Committee.

 

p.             “Disinterested
Person” means a person meeting the requirements, if any, to be a member of
a compensation committee prescribed by Section 16 of the Act or any rule or
regulation thereunder.

 

2

 

q.             “Division”
means any of the operating units or divisions of the Company designated as a
Division by the Committee.

 

r.              “Fair
Market Value” means, as of a particular date (i) in the case of FSA
Stock, if such shares are not then publicly traded, the greater of (A) 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 (B) 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; and (ii) in the case of
FSA Stock or Dexia Stock, if such shares are then publicly traded, the
closing sales price per share of FSA Stock on the principal national securities
exchange on which FSA Stock is then traded or, in the case of Dexia Stock, the
Euronext Brussels stock exchange (or, if not then traded on the Euronext
Brussels stock exchange, the principal stock exchange on which Dexia Stock is
then traded), in either such case, on the last preceding date (including such
particular date) (or such other date as shall be specified herein) on which
there was a sale of such shares on such exchange and, in the case of 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), provided that if
FSA Stock is not traded on a national securities exchange but is traded in an
over-the-counter market, “Fair Market Value” means the average of the closing
bid and asked prices for such shares in such over-the-counter market for the
last preceding date (including such particular date) (or such other date as
shall be specified herein) on which there was a sale of such shares in such
market.

 

s.             “FSA
Stock” means the Common Stock, $.01 par value per share, of the Company.

 

t.              “Good
Reason” means the voluntary termination by a Participant of his or her
employment with the Company, after the occurrence of any one of the following
events without the Participant’s express written consent:  (i) a
diminution of any of the Participant’s significant duties or responsibilities; (ii) a
breach by the Company of its obligations hereunder; (iii) the Company
requiring the Participant to be based at an office that is greater than twenty-five
miles from the previous location of the Participant’s office; or (iv) a
material adverse change in the Participant’s total compensation.  Notwithstanding the foregoing, a Participant
shall not be deemed to have terminated his or her employment for Good Reason
unless the Participant provides 60 days’ prior written notice to the Company
stating in reasonable detail the basis upon which “Good Reason” is asserted,
such notice is given within 120 days of the later of the occurrence of the
event or the date the Participant knows or should have known of the event which
would otherwise constitute Good Reason and, if such failure or breach is
reasonably susceptible to cure, the Company does not effect a cure within such
60-day period.

 

u.             “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.

 

v.             “Investment Grade” means exposure at
or above the investment grade category by, or in accordance with criteria of,
Standard & Poor’s Ratings Services or Moody’s Investors Service, Inc.

 

w.            “Operating Earnings” means, 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

 

3

 

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.

 

x.             “Operating
Earnings per share” means, as of a particular date, Operating Earnings for
the first four completed calendar quarters ended on or prior to 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.

 

y.             “Participant”
means any employee of the Company selected for participation in the Plan by the
Committee (as a recipient of Performance Shares, Dexia Restricted Stock or
Performance Share Units).

 

z.             “Performance
Cycle” means the time period, ending on December 31, specified by the
Committee at the time a grant of Performance Shares is made, during which the
performance of the Company, a Subsidiary or a Division will be measured.

 

aa.           “Performance
Objectives” means goals set by the Committee with respect, but not limited,
to:  (i) growth in Adjusted Book
Value per share; (ii) growth in Book Value per share; (iii) earnings
per share of FSA Stock or Dexia Stock, (iv) pre-tax profits, (v) net
earnings or net worth, (vi) absolute and/or relative return on equity or
assets, or (vii) any combination of the foregoing. Performance Objectives may be in respect
of the performance of the Company and its Subsidiaries (which may be on a
consolidated basis), a Subsidiary or a Division.

 

bb.          “Performance
Shares” means Performance Shares granted to a Participant under Section 5.

 

cc.           “Performance
Share Units” means Performance Share Units granted to a Participant under Section 7,
consisting of Performance Shares and Dexia Restricted Stock.

 

dd.          “Qualified
Change in Control” means a Change in Control that is also a change in the
ownership or effective control of the Company, or in the ownership of a
substantial portion of the Company’s assets, within the meaning of Section 409A(a)(2)(A)(v) of
the Code.

 

ee.           “Qualified
Disability” means a Disability that is also a disability within the meaning
of Section 409A(a)(2)(C) of the Code.

 

ff.            “Retirement”
means early retirement (at or after age 55) or normal retirement (after age 60)
from active employment with the Company, or as otherwise determined by the
Committee.

 

gg.          “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

 

4

 

 

(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.

 

hh.          “Subsidiary”
means any corporation (other than the Company) that is a “subsidiary
corporation” with respect to the Company under Section 424(f) of the
Code.  In the event that after the date
hereof the Company becomes a “subsidiary corporation” of another company, the
provisions hereof applicable to Subsidiaries shall, unless otherwise determined
by the Committee, also be applicable to such other company if it is a “parent
corporation” with respect to the Company under Section 424(e) of the
Code.

 

Section 2.  Administration.

 

The
Plan shall be administered by a Committee of not less than two persons, who
shall be members of and appointed by the Board and serve at the pleasure of the
Board, unless otherwise determined by the Board, and who shall be Disinterested
Persons so long as the FSA Stock is registered pursuant to Section 12 of
the Act.  Unless otherwise determined by
the Board, the Human Resources Committee of the Board shall serve as the
Committee.

 

The
Committee shall have the power and authority to grant to Participants, pursuant
to the terms of the Plan:  (a) Performance
Shares, (b) Dexia Restricted Stock and (c) Performance Share Units.

 

In
particular, the Committee shall have the authority:

 

(i)            to select
the officers and other key employees of the Company to whom Performance Shares,
Dexia Restricted Stock and/or Performance Share Units may from time to time be
granted hereunder;

 

(ii)           to
determine whether and to what extent Performance Shares, Dexia Restricted Stock
or Performance Share Units, or a combination of any of the foregoing, are to be
granted hereunder;

 

(iii)          to
determine the number of shares of FSA Stock or Dexia Stock to be covered by
each such award granted hereunder;

 

(iv)          to
determine the terms and conditions, not inconsistent with the terms of the
Plan, of any award granted hereunder (including, but not limited to, any
vesting requirements or other restrictions or performance criteria relating to
any Performance Shares, Dexia Restricted Stock or Performance Share Units
awarded hereunder and/or any shares of FSA Stock or Dexia Stock relating
thereto);

 

(v)           to
determine whether, and to what extent any one or more specified Performance
Objectives, relating to an award of Performance Shares under the Plan, have
been met by the Company over any one Performance Cycle; and

 

5

 

 

(vi)          to
determine whether, to what extent and under what circumstances FSA Stock, Dexia
Stock and other amounts otherwise payable with respect to an award under the
Plan shall be deferred either automatically or at the election of the
Participant.

 

The
Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret provisions of the Plan and any
award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.  Without limiting the generality of the
foregoing, the Committee may (subject to such considerations as may arise under
Section 16 of the Act, or under other corporate, securities and tax laws)
take any steps it deems appropriate, that are not materially substantive and
are not inconsistent with the purposes and intent of the Plan, to take into
account the provisions of Section 162(m) of the Code, and the Committee
may take any steps it deems appropriate (including amending the terms or
imposing further conditions on any award issued under the Plan), that are not
inconsistent with the purposes and intent of the Plan, to take into account any
proposed or existing legislation or regulations (whether U.S. federal, state,
or local or foreign), or to obtain or maintain favorable taxation, exchange
control or securities regulatory treatment for the Company or a Participant.

 

All
decisions made by the Committee pursuant to the provisions of the Plan shall be
final and binding, in the absence of bad faith or manifest error, on all
persons (including, without limitation, any interpretations of the Plan),
including the Company and Participants, and otherwise entitled to the maximum
deference permitted by law.

 

To the
maximum extent permitted by law, the Committee and the members thereof shall be
indemnified by the Company for all action and inaction by each of them in
connection with the administration of the Plan or otherwise in connection with
the Plan.

 

Section 3.  FSA Stock Subject to Plan.

 

The
total number of shares of FSA Stock reserved and available for distribution
under the Plan shall be 3,300,000; such shares may consist, in whole or in
part, of authorized and unissued shares, treasury shares, re-acquired shares,
or shares purchased by a grantor trust as provided for in Section 5.

 

If any
shares of FSA Stock issuable pursuant to any Performance Share or Performance
Share Unit award granted hereunder cease to be issuable thereunder, shall be
paid in cash or such award otherwise terminates, such shares shall again be
available for distribution in connection with future awards under the Plan.

 

The
Plan contemplates, but does not require, that the Committee will award
Performance Share Units each year in a number equal to approximately 1% of the
number of issued and outstanding shares of FSA Stock.  The aggregate number of shares of FSA Stock
reserved for issuance under the Plan and the number of shares of FSA Stock
issuable pursuant to outstanding Performance Shares shall be appropriately adjusted
by the Committee in the event of any increase or decrease in the number of
outstanding shares of FSA Stock resulting from payment of an FSA 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.

 

6

 

Section 4.  Eligibility.

 

Officers
and other employees of the Company (but not any person who serves only as a
director) who are responsible for or contribute to the management, growth
and/or profitability of the business of the Company are eligible to be granted
Performance Shares, Dexia Restricted Stock and/or Performance Share Units under
the Plan.  The Participants under the
Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible, and the Committee shall determine, in
its sole discretion, the number of shares covered by each award.

 

Section 5.  Performance Shares.

 

(a)           Administration
and Awards.  The Committee, in its
discretion, may grant Performance Shares to one or more Participants.  The terms and conditions of any grant of
Performance Shares shall be set forth in a written agreement between the
Company and the Participant.  Such
written agreement may permit a Participant to make elections thereunder with
respect to the Performance Objective(s) applicable thereto and/or the method(s)
of calculating such Performance Objective(s). 
Performance Shares shall be denominated in shares of FSA Stock and,
contingent upon the attainment of specified Performance Objectives within one
or more Performance Cycles and, subject to the Company’s rights as set forth in
paragraph (c) of this Section 5, represent the right to receive
a distribution of FSA Stock and/or payment of cash following the completion of
each Performance Cycle, as provided in paragraph (b) of this Section 5.  The Committee shall determine the extent to
which any one or more Performance Objectives have been achieved by the Company
in the applicable Performance Cycle.  In
the absence of bad faith or manifest error, the Committee’s determination shall
be final and binding upon a Participant.

 

Performance
Shares may be granted to a Participant prior to or during a Performance Cycle,
but distributions and payments with respect thereto may only be made following
the completion of a Performance Cycle, except as otherwise provided in
paragraph (e) of this Section 5 following a Change in Control.  The number of Performance Shares subject to
an award shall be allocated among the Performance Cycle(s) covered by such
award in such manner as the Committee shall determine.  The written agreement evidencing the award of
Performance Shares shall specify the number of Performance Shares subject to
the award, the number and duration of the Performance Cycles to which those
Performance Shares relate, the Performance Objectives, the identification of
the Performance Cycle(s) within which such Performance Objectives must be
satisfied, the number of Performance Shares allocated to each such Performance
Cycle, and the vesting provisions with respect to such Performance Shares
(i.e., the date or, if vesting is on an installment basis, the dates after
which the Participant shall have indefeasible right to the distribution and/or
payment described in paragraph (b) of this Section 5, if any, with
respect to certain or all Performance Shares subject to the award), subject to
the limitations thereon described below. 
The number of Performance Shares allocated to a Performance Cycle under
any award of Performance Shares to a Participant shall not exceed 100,000.  Unless otherwise specified by the Committee
at the time of award, the Performance Objective for each Performance Cycle
shall be the ROE during such Performance Cycle.

 

If 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, 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 (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 the

 

7

 

holders of outstanding Performance Shares 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 new holding company for all purposes of the Plan.

 

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
Committee shall make such adjustments in the Performance Objectives set forth
in all outstanding awards of Performance Shares in respect of Performance
Cycles not then completed 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 Participants whose compensation is, in the reasonable belief of
the Committee, subject thereto.  Further,
with respect to a Participant, the deductibility of whose 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, adjust the
Performance Objective(s) 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.

 

Performance
Shares shall be vested at such time or times as determined by the Committee
(taking into account, without limitation, Section 16 of the Act) at the
date of award, provided that acceleration of vesting may be granted by the
Committee after the date of award, but in no event shall the Committee provide
a vesting schedule which would vest fewer Performance Shares in a
Participant through the completion of a particular Performance Cycle than the
aggregate number of Performance Shares allocated to such Performance Cycle and
all Performance Cycles included in such award which have been previously
completed.  If the Committee provides, in
its discretion, that any award is vested only in installments, the Committee
may waive such installment vesting provisions at any time.

 

Upon
termination of a Participant’s employment by the Company without Cause and upon
Retirement, unvested Performance Shares shall vest pro-rata in proportion to
the percentage of the Performance Cycle for such Performance Shares during
which the Participant was employed by the Company.  In addition, all unvested Performance Shares
shall vest (i) upon death or Disability while employed by the Company and (ii) as
set forth in paragraph (e) of this Section 5 in the event of a Change
in Control.  Except as provided above,
Performance Shares not vested on the date of termination of employment shall be
forfeited.

 

(b)           Distributions
and Payments on Completion of Performance Cycle.  In furtherance of an election discussed in
paragraph (c) of this Section 5, distributions of shares of FSA Stock
and/or payments of cash with respect to Performance Shares allocated to a
particular Performance Cycle covered by an award shall be made to the
Participant 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 Objectives, except to the extent
deferred under the Financial Security Assurance Holdings Ltd. 2004 Deferred
Compensation Plan, as amended from time to time.  Provided a Participant
who has been granted a Performance Shares award shall have been employed by the
Company through the date on which a particular Performance Cycle shall have
been completed, or

 

8

 

such Participant’s employment with the Company shall have been
terminated prior thereto by reason of death or Disability, or such Participant’s
Performance Shares award is otherwise vested pursuant to paragraph (a) of
this Section 5, such Participant shall be entitled to receive with respect
to each such award:

 

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

 

a x b = c
; or

 

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

 

a x b x d = e;
or

 

(iii)          a
combination of FSA Stock and cash in the amounts determined in accordance with
the formulae set forth in clauses (i) and (ii) 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 granted in such award allocated to the applicable
Performance Cycle;

 

b
=          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; specifically, unless otherwise
specified by the Committee at the time of award, 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.

 

c
=           the
number of shares of FSA Stock to be distributed to a Participant at the end of
the applicable Performance Cycle pursuant to such award;

 

d
=          the
Fair Market Value of a share of FSA Stock as of the last day of the applicable
Performance Cycle or such other date as the Committee shall specify in such
award; and

 

9

 

e
=           the
amount of the cash to be paid to the Participant at the end of the applicable
Performance Cycle pursuant to such award.

 

(c)           Election
to Receive Stock or Cash.  Subject to
any deferral election made pursuant to the terms and conditions of an agreement
evidencing an award hereunder, at a date determined by the Company and notified
to each Participant prior to the date on which a Performance Cycle shall be
completed with respect to a Participant’s award of Performance Shares, such
Participant may make an election to receive such Participant’s 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, the Committee may in its sole and absolute discretion satisfy the
Company’s obligations to any Participant either by delivery of shares of FSA
Stock, subject to the availability of such FSA Stock under the Plan, or by
paying cash.  If the Participant shall
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 Participants elect to receive shares of FSA Stock in satisfaction of the
Company’s obligations under paragraph (b) of this Section 5 with
respect to the completion of a particular Performance Cycle, and the aggregate
number of shares of FSA Stock subject to such elections exceeds the maximum
number of shares of FSA Stock reserved and available for distribution under the
Plan, the Committee shall have the absolute and sole discretion to satisfy such
obligations by reducing the number of shares of FSA Stock subject to such
elections to that number which equals the maximum number of shares of FSA Stock
so reserved and available for distribution under the Plan.  In such event, the Committee shall reduce the
number of shares of FSA Stock pursuant to each Participant’s election pro rata,
based upon the number of shares of FSA Stock otherwise issuable pursuant to
such elections.  The Company shall
satisfy the obligations to such Participants, which remain unsatisfied
following a distribution made pursuant to the foregoing reduction, by paying
cash to such Participants in accordance with the formula, and within the time
period, set forth in paragraph (b) of this Section 5.

 

(d)           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 all Performance
Shares then unpaid consistent with the intent and the purpose of the Plan.

 

If,
after the occurrence of a Qualified Change in Control, a Participant’s
employment is terminated by the Company without Cause or such Participant shall
voluntarily terminate his or her employment for Good Reason, in either case
prior to the completion of a Performance Cycle in respect of any Performance
Shares awarded to the Participant, then (i) all of the Participant’s
Performance Shares outstanding at the date 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 (ii) payment
in respect of such Performance Shares shall be made on the date that is six
months after the Operative Date (the “Six-Month Period”).  The Committee shall value all such
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
paragraph (b) of this Section 5 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 as of
the Operative Date, 100%, and (ii) for all Performance Cycles that include
at least one completed year as of 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 as of the Operative
Date.  In

 

10

 

the case of any Performance Cycle completed during the Six-Month
Period, payment of any amount due shall be made in accordance with paragraph (b) of
this Section 5, provided that any incremental payment due pursuant to the
foregoing provisions of this paragraph (e) by reason of application of the
Minimum Percentage shall be payable at the end of the Six-Month Period.

 

For
purposes of this paragraph (e) of Section 5, a termination of
employment shall mean only a termination of employment that is also a “separation
from service” within the meaning of Section 409A of the Code to the extent
so required to avoid taxation under Section 409A(a)(1) of the Code.

 

(e)           Holders
of Performance Shares Not To Be Treated As Stockholders.  Neither any Participant awarded Performance
Shares hereunder, nor any person entitled to exercise a Participant’s rights
thereto in the event of death, shall have any rights of a stockholder with
respect to any share of FSA Stock subject to such Participant’s award of
Performance Shares, except to the extent that a certificate for such shares
shall have been issued as provided for herein.

 

(f)            Non-Transferability
of Performance Shares.  No
Performance Share shall be transferable by a Participant, or otherwise subject
to voluntary or involuntary sale, pledge, anticipation, alienation,
encumbrance, assignment, garnishment or attachment, other than by will or by
the laws of descent and distribution.

 

(g)           Funding.  Prior to the award of any Performance Shares,
the Committee may establish a funding vehicle to assist the Company with its
obligations under this Section 5. 
The Committee may provide that credits and allocations otherwise
provided for by this Section 5 shall be adjusted to take into account the
amount and timing of purchases and sales of, and dividends with respect to, FSA
Stock under such fund; the manner in which such fund otherwise operates; the
amount of FSA Stock in such fund from time to time; and such other factors as
the Committee may deem relevant; provided that the limitation in Section 3
hereof may not be adjusted under this sentence. 
Any fund shall be designed not to cause the plan to be considered to be
funded for tax purposes or for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended.

 

Section 6.  Dexia Restricted Stock.

 

(a)           Administration.  Shares of Dexia Restricted Stock may be
issued either alone or in addition to other awards granted under the Plan.  The Committee shall determine the officers
and key employees of the Company to whom, and the time or times at which,
grants of Dexia Restricted Stock will be made, the number of shares to be awarded,
the time or times within which such awards may be subject to forfeiture, and
all other conditions of the awards.  The
provisions of Dexia Restricted Stock awards need not be the same with respect
to each recipient.

 

(b)           Awards
and Custody Arrangement.  Each award
of shares of Dexia Restricted Stock shall be evidenced by a written agreement,
in such form as the Committee shall from time to time approve, setting forth
the terms and conditions applicable to such award, including terms relating to
the vesting, restricted period and transfer restrictions applicable
thereto.  The Participant who is the
prospective recipient of an award of Dexia Restricted Stock shall not have any
rights with respect to such award unless and until such recipient has executed
such written agreement evidencing the award and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the then
applicable terms and conditions.

 

The
shares of Dexia Restricted Stock granted to a Participant shall be held in
custody during the Restricted Period applicable to such shares in a securities
account maintained by a custodian selected by

 

11

 

the Company on behalf of the Participant.  Upon grant of an award of shares of Dexia
Restricted Stock (and subject to the Participant’s execution and delivery of
the related award agreement), Dexia shall cause the custodian to be recorded as
the record holder of such shares in the records of Dexia’s transfer agent or in
the records of holders of Dexia Stock maintained by the Depositary Trust
Company and the custodian shall credit such shares to a notional account
maintained for such Participant in the books and records of the custodian.

 

In the
event that Dexia determines that shares of Dexia Restricted Stock will be evidenced
by stock certificates, such stock certificates shall be registered in the name
of, and held in custody by, the custodian designated by the Company until the
Restricted Period with respect thereto shall have expired.  The custodian shall credit such shares to a
notional account maintained for such Participant in the books and records of
the custodian.

 

If and
when the Restricted Period expires with respect to any shares of Dexia
Restricted Stock, Dexia shall cause the Participant to be substituted for the
custodian as the record holder of such shares in the records of Dexia’s
transfer agent or in the records of holders of Dexia Stock maintained by the
Depositary Trust Company and the custodian shall make a corresponding reduction
to the number of shares credited to such Participant’s notional account in the
books and records of the custodian. 
Alternatively, any shares of Dexia Restricted Stock that have been
certificated in the name of the custodian shall be cancelled upon the
expiration of the related Restricted Period and shall be reissued in the name
of, and delivered to, the Participant and the shares evidenced by such stock
certificates shall be recorded in the name of such Participant in Dexia’s share
registry.

 

(c)           Restrictions
and Conditions.  The shares of Dexia
Restricted Stock awarded pursuant to the Plan shall be subject to the following
restrictions and conditions:

 

(i)            Subject
to the provisions of the Plan and the award agreements, during a period set by
the Committee commencing with the grant date of such award and ending on such
date or dates established by the Committee, which date or dates shall not be
less than six months following the expiration of the Forfeiture Period
applicable to any such shares of Restricted Dexia Stock (the “Restricted
Period”), the Participant shall not be permitted voluntarily or
involuntarily to sell, transfer, pledge, anticipate, alienate, encumber or
assign shares of Dexia Restricted Stock awarded under the Plan (or have such
shares attached or garnished); provided that the Restricted Period for any
shares of Dexia Restricted Stock that are automatically sold to the Company or
Dexia to satisfy withholding tax requirements in accordance with paragraph (e) of
this Section 6 shall expire at the time of such sale.

 

(ii)           Except as
otherwise provided in paragraph (c) of this Section 6, the recipient
shall have, in respect of the shares of Dexia Restricted Stock, all of the
rights of a stockholder of Dexia, 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. 
The Committee may, in its sole discretion, at the time of an award,
defer the payment of any cash dividends otherwise payable until a time specified
in the award agreement or a date following (A) the recipient’s separation
from service within the meaning of Section 409A of the Code, (B) the
recipient’s death, (C) the recipient’s Qualified Disability or (D) a
Qualified Change in Control.

 

12

 

(iii)          The
shares of Dexia Restricted Stock shall be vested at such time or times as
determined by the Committee at the date of award, provided that acceleration of
vesting may be granted by the Committee after the date of award.  The period from the date of grant of any
shares of Dexia Restricted Stock to the date such shares are scheduled to
become vested (without regard to the acceleration of the vesting of such shares
pursuant to paragraph (c)(v), (vi) or (vii) of this Section 6 or
otherwise) shall be referred to as the “Normal Vesting Period” and the
period from the date of grant of any such shares of Dexia Restricted Stock to
the date of vesting of such shares (including the vesting of any such shares
pursuant to paragraph (c)(v), (vi) or (vii) of this Section 6)
shall be referred to as the “Forfeiture Period.”  If the Committee provides, in its discretion
at the time of award, that any award is vested only in installments, the
Committee may waive such installment vesting provisions at any time.

 

(iv)          Upon
termination of employment for any reason during the Normal Vesting Period, (A) all
shares of Dexia Restricted Stock still unvested shall be forfeited by the
Participant, subject to the provisions of the award agreement and paragraphs
(c)(v), (vi) and (vii) of this Section 6, and (B) shares of
vested Dexia Restricted Stock shall be delivered to the Participant upon the
conclusion of the applicable Restricted Period in accordance with this
paragraph (c).

 

(v)           Upon
termination of a Participant’s employment by the Company without Cause, unless
the Committee shall otherwise determine at the time of award, a portion of the
shares of Dexia Restricted Stock subject to such 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 (A) the number of days in the Normal Vesting
Period applicable to such shares that have elapsed as of the date of
termination, over (B) the total number of days in such Normal Vesting
Period.

 

(vi)          Upon becoming
eligible for Retirement at age 55 (a Participant’s “Retirement Eligibility
Date”), unless the Committee shall otherwise determine at the time of
award, a portion of the shares of Dexia Restricted Stock subject to such award
that have not become vested prior to such Participant’s Retirement Eligibility
Date shall vest as of such date, such portion to equal the ratio of (A) the
number of days in the Normal Vesting Period applicable to such shares that have
elapsed as of the Retirement Eligibility Date, over (B) the total number
of days in such Normal Vesting Period. 
The shares of Dexia Restricted Stock subject to such award that are
still unvested following the Participant’s 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, the Participant
remains employed by the Company until the applicable vesting date.

 

(vii)         All
unvested Dexia Restricted Stock granted to a Participant shall vest (A) upon
the death or Disability of such Participant while employed by the Company or (B) to
the same extent that Performance Shares vest, in the event of a Change in
Control while such Participant is employed by the Company.

 

(d)           Election
to Receive Stock or Cash.  At a date
determined by the Company and notified to each Participant prior to the date on
which the Restricted Period shall be completed with respect to vested shares of
Dexia Restricted Stock granted to a Participant, such Participant may make an
election to sell to the Company all or a portion of the vested shares, if any,
that such Participant 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, the Committee, in

 

13

 

its sole and absolute discretion, may refuse to purchase shares of
Dexia Stock from a Participant.  If the
Participant shall fail to make a timely election to sell any vested shares of
Dexia Stock, the Committee, in its sole discretion, may nonetheless purchase
shares of Dexia Stock offered to it for sale by the Participant.

 

Any
Dexia Stock purchased by the Company pursuant to this paragraph (d) 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).  Distribution of shares of Dexia Stock and/or
payments of cash with respect to Dexia Stock purchased by the Company shall be
made to the Participant promptly after expiration of the applicable Restricted
Period.

 

(e)           Tax
Withholding.  In accordance with Section 11(d),
each Participant shall automatically sell to the Company a number of whole
and/or fractional shares of Dexia Stock in order to satisfy the minimum
withholding requirement for all applicable national, state and local income,
excise and employment taxes that may become due and payable in respect of any
award of Dexia Stock, the expiration of the Forfeiture Period in respect
thereof or otherwise in connection therewith; provided that the Participant 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 paragraph  (e) shall
be valued at their Fair Market Value on the date of the applicable withholding
requirement or the date of the applicable withholding, as determined by the
Company (or if such day is not a trading day for Dexia Stock, then the first
succeeding trading day for Dexia Stock).

 

(f)            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 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) 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, subject to the following terms of this Section 6(f).  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.  To the extent that the
Realization Consideration consists of cash (the “Restricted Cash Amount”),
such Restricted Cash Amount shall be paid to Participants six months after the
end of the Normal Vesting Period applicable to the Dexia Restricted Stock for
which the Restricted Cash Amount was substituted, or at such other time or
times as the Committee shall determine consistent with the requirements of Section 409A
of the Code to avoid taxation under Section 409A(a)(1) of the
Code.  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 purposes of the
foregoing, ROE means, in respect of any period, the average of:

 

14

 

(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 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 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.

 

Section 7.  Performance Share Units.

 

(a)           Administration.  Performance Share Units may be issued either
alone or in addition to other awards granted under the Plan.  The Committee shall determine the officers
and key employees of the Company to whom, and the time or times at which,
grants of Performance Share Units will be made, the number of Performance
Shares and shares of Dexia Restricted Stock to be represented by each
Performance Share Unit, and all other conditions of the awards.  The provisions of awards of Performance Share
Units need not be the same with respect to each recipient.

 

(b)           Awards.  The prospective recipient of an award of
Performance Share Units shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the
Performance Share award and Dexia Restricted Stock award comprising such
Performance Share Units, and has delivered fully executed copies thereof to the
Company, and has otherwise complied with the then applicable terms and
conditions.  Unless otherwise specified
by the Committee at the time of award, each award of Performance Share Units
shall be comprised of (i) a number of Performance Shares equal to 90% of
the number of Performance Share Units and (ii) a number of shares of Dexia
Restricted Stock equal to (A) the product of (x) 10% of the number of
Performance Share Units times (y) the Fair Market Value of one share of FSA Stock
determined as of December 31 of the year immediately preceding the year in
which the award is made divided by (B) the Fair Market Value of one share
of Dexia Stock determined as of the day preceding the date of the award.

 

Section 8.  Transfer, Leave of Absence, etc.

 

For
purposes of the Plan, the following events shall not be deemed a termination of
employment:

 

a.             a
transfer of an employee from the Company to a Subsidiary, or from a Subsidiary
to the Company, or from one Subsidiary to another; or

 

15

 

b.             a
leave of absence, approved in writing by the Committee, for military service or
sickness, or for any other purpose approved by the Company if the period of
such leave does not exceed ninety (90) days (or such longer period as the
Committee may approve, in its sole discretion).

 

Section 9.  Amendments and Termination.

 

The
Board may amend, alter, or discontinue the Plan (or any portion thereof), but
no amendment, alteration or discontinuation shall be made which would impair
the rights of any recipient with respect to any award of Performance Shares,
Dexia Restricted Stock or Performance Share Units theretofore granted, without
the recipient’s consent; provided that the Board may not make any amendment to
the Plan that would, if such amendment were not approved by the holders of FSA
Stock, cause the Plan to fail to comply with (a) Section 16 of the
Act (or Rule 16b-3 under the Act), or (b) any other requirement of
applicable law or regulation, unless and until the approval of the holders of
FSA Stock is obtained.

 

The
Committee may amend the terms of any award or option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights
of any holder without his or her consent.

 

Section 10.   Compliance with Code Section 409A.

 

Notwithstanding
any other provision of the Plan to the contrary, the terms of the Plan 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 409A of the Code applicable to
the Plan and shall interpret the terms of the Plan consistently therewith.  Under no circumstances, however, shall the
Company have any liability under the Plan to any person for any taxes,
penalties or interest due on amounts paid or payable pursuant to the Plan,
including any taxes, penalties or interest imposed under Section 409A(a)(1) of
the Code.

 

Section 11.  General Provisions.

 

a.             All
certificates for shares of FSA Stock delivered under the Plan pursuant to any
award of Performance Shares or Performance Share Units, and all certificates
for shares of Dexia Stock delivered under the Plan pursuant to any award of
Dexia Restricted Stock or Performance Share Units, 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 or Dexia
Stock, as the case may be, 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.  The foregoing provisions
of this paragraph applicable to FSA Stock and Dexia Stock shall not be
effective if and to the extent that the shares of FSA Stock or Dexia Stock
delivered under the Plan are covered by an effective and current 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.

 

b.             Subject
to paragraph (d) below, recipients of Dexia Restricted Stock or FSA Stock
in respect of Performance Shares under the Plan are not required to make any
payment or provide consideration other than the rendering of past services
and/or the commitment to render and rendering of future services.

 

16

 

c.             Nothing
contained in the Plan shall prevent the Board of Directors from adopting other
or additional compensation arrangements, subject to stockholder approval if
such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.  The adoption of the Plan shall not confer
upon any employee of the Company or any Subsidiary any right to continued
employment with the Company, nor shall it interfere in any way with the right
of the Company to terminate the employment of any of its employees at any time.

 

d.             Each
Participant shall, no later than the date as of which the value of an award
first becomes includible in the gross income of the Participant for national,
state or local income tax purposes, pay to the Company or make arrangements
satisfactory to the Committee regarding payment of any national, state or local
taxes of any kind required by law to be withheld with respect to the award;
provided, however, that such tax withholding requirement may be met by the
withholding or sale to the Company of shares of FSA Stock or Dexia Stock
otherwise deliverable to or vested in the Participant, pursuant to procedures
approved by the Committee.  The
obligations of the Company under the Plan shall be conditional on such payment
or arrangements and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to
the Participant.

 

e.             At
the time of grant, the Committee may provide in connection with any grant made
under the Plan that the shares of FSA Stock or Dexia Stock received as a result
of such grant shall be subject to a right of first refusal, pursuant to which
the Participant shall be required to offer to the Company any shares that the
Participant wishes to sell, with the price being the then Fair Market Value of
the FSA Stock or Dexia Stock, as the case may be, subject to such other terms
and conditions as the Committee may specify at the time of grant.

 

f.              Notwithstanding
any other provision of the Plan, if the Committee determines that an 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 legal guardian, custodian or
comparable party, without any further responsibility with respect thereto under
the Plan.

 

g.             THIS
PLAN SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF NEW
YORK, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICT OF LAWS.

 

Section 12.  Effective Date of Plan.

 

The
Plan shall be effective on the date it is approved by a vote of the holders of
a majority of the total outstanding Stock. 
The Plan shall not become effective unless it is so approved.

 

Section 13.  Term of Plan.

 

No
award of Performance Shares, Dexia Restricted Stock or Performance Share Units
shall be granted pursuant to the Plan on or after the tenth anniversary of the
date of the most recent stockholder approval of the Plan, but awards
theretofore granted may extend beyond that date.

 

17

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