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Exhibit 10.5
EMPLOYMENT AGREEMENT
AGREEMENT,
made and entered into as of this 21 st day of December,
2006, by and between, Security Capital Assurance Ltd, a Bermuda
corporation (the " Company "), and Edward B. Hubbard (the "
Executive ").
WHEREAS,
the Executive has been employed by XL Capital Assurance, Inc
("XLCA") as President & Chief Operating Officer, which has
included the business of the Company;
WHEREAS,
the Executive and the Company desire that the Executive continue to
be the President & Chief Operating Officer of XLCA on the terms
and subject to the conditions set forth herein, effective upon the
consummation of the initial public offering of the common stock of
the Company (the "IPO");
NOW,
THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the
Company, and the Executive (the " Parties ") agree as
follows:
1. EMPLOYMENT.
The
Company hereby employs the Executive, and the Executive hereby
accepts employment with the Company, for the term of this Agreement
as set forth in Section 2, below, in the position and with duties
and responsibilities set forth in Section 3, below, and upon such
other terms and conditions as are hereinafter stated.
2. TERM
OF EMPLOYMENT.
The
stated term of employment under this Agreement shall commence at
the time of consummation of the IPO (the " Date of the
Agreement ") and shall continue through the close of business
on the third anniversary of the Date of the Agreement, subject to
earlier termination as provided in Section 8, below, and extension
as provided in the next succeeding sentence. On the second
anniversary of the Date of the Agreement and on each anniversary
thereafter, the stated term of employment shall be automatically
extended for an additional one year unless the Company gives notice
in writing to the Executive or the Executive gives notice in
writing to the Company at least three months prior to such
anniversary that the term is not to be so extended.
3. POSITIONS,
DUTIES AND RESPONSIBILITIES.
(a)
General . The Executive shall be employed as President and
Chief Operating Officer of XLCA. In such positions, the Executive
shall have the duties, responsibilities and authority normally
associated with the office, position and titles of such an officer
of a financial guaranty company. In carrying out his duties and
responsibilities, the Executive shall report to the Chief Executive
Officer of XLCA or the Company. During the term of this Agreement,
the Executive shall devote his full business time to the business
and affairs of the Company and its subsidiaries, and shall use his
best efforts, skills and abilities to promote the interests of the
Company and its subsidiaries.
(b)
Performance of Services . The Executive’s services
under this Agreement, which are global in nature, shall be
performed in the greater New York City metropolitan area, as
reasonably requested by the Company, in accordance with the
guidelines established by the Company from time to time for the
location of the performance of services on behalf of the Company
and its subsidiaries. The Executive acknowledges that the Company
may require the Executive to travel to the extent such travel is
reasonably necessary to perform the services hereunder and that
such travel may be extensive. To the extent reasonably requested by
the Company, and acceptable to Executive, the Executive shall
allocate greater business time to a location other than his
principal business location, if necessary.
4. BASE
SALARY.
The
Executive shall be paid a Base Salary by the Company of not less
than US$375,000.00, payable in accordance with the Company’s
regular pay practices. Such Base Salary shall be subject to annual
review in accordance with the Company’s practices for
executives as in effect from time to time and may be increased, but
not decreased, at the discretion of the Compensation Committee of
the Board of Directors of the Company (the " Compensation
Committee ").
5. BONUSES.
In
addition to the Base Salary provided for in Section 4, above, the
Executive shall be eligible for an annual cash bonus under the
Company’s Annual Incentive Compensation Plan as in effect
from time to time, with an annual target bonus equal to 150% of the
Executive’s Base Salary. The Executive may be awarded such
annual bonuses thereunder as may be approved by the Compensation
Committee based on corporate, individual and business unit
performance measures, as appropriate, established or approved from
time to time, by the Compensation Committee. Any annual bonus shall
be paid in cash in a lump sum no later than March 15 following the
year for which the annual bonus is paid, unless deferred at the
Executive’s option in accordance with the provisions of any
applicable deferred compensation plan of the Company or it
subsidiaries in effect from time to time and in compliance with
Section 409A of the United States Internal Revenue Code of 1986, as
amended (the "Code"). Nothing in this Section 5 shall confer upon
the Executive any right to a minimum annual bonus.
6. EMPLOYEE
BENEFIT PROGRAMS.
During
the term of the Executive’s employment under this Agreement,
the Executive shall be entitled to participate in all employee
retirement, pension, welfare and benefit programs of the Company as
are in effect from time to time and in which similarly situated
senior executives of the Company are eligible to participate on the
same terms as such other similarly situation senior executives of
the Company.
7. BUSINESS
EXPENSE REIMBURSEMENT AND FRINGE BENEFITS.
During
the term of the Executive’s employment under this Agreement,
the Executive shall be entitled to participate in the
Company’s travel and entertainment expense reimbursement
programs and its executive fringe benefit plans and arrangements,
all in accordance with the terms and conditions of such programs,
plans and arrangements as in effect from time to
time as applied to the Company’s similarly
situated executives on the same terms as such other similarly
situation senior executives of the Company.
8. TERMINATION
OF EMPLOYMENT.
(a)
Termination due to Death . In the event the Executive dies
during the term of employment hereunder, the Executive’s
spouse, if the spouse survives the Executive, (or, if the
Executive’s spouse does not survive him, the estate or other
legal representative of the Executive) shall be entitled to receive
the Base Salary as provided in Section 4, above, at the rate in
effect at the time of Executive’s death, to be paid in
accordance with the Company’s regular payroll practices,
through the end of the sixth month after the month in which the
Executive dies. In addition to the above, the estate or other legal
representative of the Executive shall be entitled to:
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(i) any
annual bonus awarded in accordance with the Company’s bonus
program but not yet paid under Section 5, above, to be paid at the
time such bonus would otherwise be due under the applicable
program, and reimbursement of business expenses incurred prior to
death in accordance with Section 7(a) above,
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(ii) within
45 days after the date of death, a pro rata bonus for the year of
death in an amount determined by the Compensation Committee, but in
no event less than a pro rata portion of the Executive’s
average annual bonus for the immediately preceding three years (or
the period of the Executive’s employment with the Company, if
less),
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(iii) the
rights under any options to purchase equity securities of the
Company or other rights with respect to equity securities of the
Company, including any restricted stock or other securities, held
by the Executive determined in accordance with the terms
thereof,
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(iv) for
a period of six months following the Executive’s death,
continued medical benefit plan coverage (including dental and
vision benefits if provided under the applicable plans) for the
Executive’s immediate family members, if any, under the
Company’s medical benefit plans upon substantially the same
terms and conditions (including cost of coverage to the immediate
family members) as is then in existence for other senior executives
during the coverage period; provided , that , if the
Executive’s immediate family members cannot continue to
participate in the Company plans providing such benefits, the
Company shall otherwise provide such benefits on substantially the
same after-tax basis as if continued participation had been
permitted, and
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(v) the
vested accrued benefits, if any, under the employee benefit
programs of the Company, as provided in Section 6, above,
determined in accordance with the applicable terms and provisions
of such programs.
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(b)
Termination due to Disability . In the event the
Executive’s employment hereunder is terminated due to his
disability, as determined under the Company’s long-term
disability plan, the Executive shall be entitled to:
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(i) the
Base Salary as provided in Section 4, above, through the end of the
sixth month after the month in which the Executive’s
employment terminates due to disability, to be paid in accordance
with the Company’s regular payroll practices,
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(ii) any
annual bonus awarded in accordance with the Company’s bonus
program but not yet paid under Section 5, to be paid at the time
such bonus would otherwise be due under the applicable program, and
reimbursement of business expenses incurred prior to termination of
employment in accordance with Section 7(a) above,
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(iii) within
45 days after the date of termination, a pro rata bonus for the
year of termination in an amount determined by the Compensation
Committee, but in no event less than a pro rata portion of the
Executive’s average annual bonus for the immediately
preceding three years (or the period of the Executive’s
employment with the Company, if less),
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(iv) the
rights under any options to purchase equity securities of the
Company or other rights with respect to equity securities of the
Company, including any restricted stock or other securities, held
by the Executive, determined in accordance with the terms
thereof,
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(v) for
a period of six months following the termination of the
Executive’s employment, continued medical benefit plan
coverage (including dental and vision benefits if provided under
the applicable plans) for the Executive (and the Executive’s
immediate family members, if any) under the Company’s medical
benefit plans upon substantially the same terms and conditions
(including cost of coverage to the Executive) as is then in
existence for other executives during the coverage period;
provided , that , if the Executive cannot continue to
participate in the Company plans providing such benefits, the
Company shall otherwise provide such benefits on substantially the
same after-tax basis as if continued participation had been
permitted; provided further , however , that, in the
event the Executive becomes reemployed with another employer and
becomes eligible to receive medical benefits from such employer,
the medical benefits described herein shall immediately cease,
and
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(vi) the
vested accrued benefits, if any, under the employee benefit
programs of the Company, as provided in Section 6 above, determined
in accordance with the applicable terms and provisions of such
programs.
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(c) TERMINATION
FOR CAUSE.
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(i) The
employment of the Executive under this Agreement may be terminated
by the Company for Cause, such termination to be effective upon
the
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Company giving the Executive written notice of
termination in accordance with the provisions of this Agreement.
For this purpose, " Cause " shall mean:
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(A)
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conviction of the Executive of a felony involving
moral turpitude, dishonesty or laws to which the Company or its
Affiliates are subject in connection with the conduct of its or
their business;
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(B)
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the Executive, in carrying out his duties for the
Company under this Agreement, has been guilty of (1) willful
misconduct or (2) substantial and continual refusal by the
Executive to perform the duties assigned to the Executive pursuant
to the terms hereof; provided , however , that any
act or failure to act by the Executive shall not constitute Cause
for purposes of this Section 8(c)(i)(B) if such act or failure to
act was committed, or omitted, by the Executive in good faith and
in a manner he reasonably believed to be in the overall best
interests of the Company, as the case may be. The determination of
whether the Executive acted in good faith and that he reasonably
believed his action to be in the Company’s overall best
interest, as the case may be, will be in the reasonable and good
faith judgment of the Compensation Committee and/or the Audit
Committee; or
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(C)
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the Executive’s continued willful refusal
to obey any lawful policy or requirement duly adopted by the
Company Board and the continuance of such refusal after receipt of
written notice.
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(ii) In
the event of a termination for Cause under Section 8(c)(i), above,
the Executive shall be entitled only to:
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(A)
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Base Salary as provided in Section 4, above, at
the rate in effect at the time of his termination of employment for
Cause, through the date on which termination for Cause occurs, to
be paid in accordance with the Company’s regular payroll
practices,
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(B)
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the rights under any options to purchase equity
securities of the Company or other rights with respect to equity
securities of the Company, including any restricted stock or other
securities, held by the Executive, determined in accordance with
the terms thereof, and
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(C)
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the vested accrued benefits, if any, under
employee benefit programs of the Company, as provided in Section 6,
above, and re-imbursement of properly incurred unreimbursed
business expenses under the business expense reimbursement program
as described in Section 7, above, determined in accordance with the
applicable terms and provisions of such employee benefit and
expense reimbursement programs; provided that the Executive
shall not be entitled to any such benefits unless the terms and
provisions of such programs expressly state that the Executive
shall be entitled thereto in the event his employment is terminated
for Cause (as defined in this Agreement or otherwise).
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(d)
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TERMINATION WITHOUT CAUSE.
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(i) Anything
in this Agreement to the contrary notwithstanding, the
Executive’s employment may be terminated by the Company
without Cause as provided in this Section 8(d). A termination due
to death or disability, as described in Section 8(a) or (b), above,
or a termination for Cause, as described in Section 8(c), above,
shall not be deemed a termination without Cause under this Section
8(d). For the avoidance of doubt, if a notice of non-renewal of
this Agreement pursuant to Section 2 is issued by the Company and,
within six (6) months thereafter, a written notice is issued (x) by
the Company to the Executive of its intention to terminate the
employment relationship with Executive at the end of the Term or
(y) by the Executive to the Company of Executive’s intention
to terminate the employment relationship with the Company at the
end of the Term, the termination of the Executive’s
employment at the end of the Term shall be considered a termination
by the Company without Cause hereunder.
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(ii) In
the event the Executive’s employment is terminated by the
Company without Cause (x) prior to a Change in Control (other than
as provided in the last paragraph of Section 8(d)(iii), in which
case the provisions of Section 8(d)(iii) shall apply in lieu of
this Section 8(d)(ii)) or (y) following the Post-Change Period (as
hereinafter defined), the Executive shall be entitled
to:
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(A)
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Base Salary as provided in Section 4, above, at
the rate in effect at the time of his termination of employment
without Cause, through the date on which termination without Cause
occurs, to be paid in accordance with the Company’s regular
payroll practices,
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(B)
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provided the Executive executes and does not
revoke a reasonable general release of employment liability claims
against the Company and its affiliates in form and substance
satisfactory to the Company, a cash lump sum payment made within 30
days after termination of employment equal to (x) two times the
Executive’s annual Base Salary, at the annual rate in effect
in accordance with Section 4, above, immediately prior to such
termination and (y) one times the higher of the targeted
annual bonus for the year of such termination, if any, or the
average of the Executive’s annual bonus payable by the
Company or its subsidiaries for the three years immediately
preceding the year of termination (or such shorter period during
which the Executive has been employed by any of such
entities),
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(C)
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any annual bonus awarded in accordance with the
Company’s bonus program but not yet paid under Section 5,
above, to be paid at the time such bonus would otherwise be due
under the applicable program, and reimbursement of business
expenses incurred prior to termination of employment in accordance
with Section 7(a) above,
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(D)
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the rights under any options to purchase equity
securities of the Company or other rights with respect to equity
securities of the Company, including
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any restricted stock or other securities, held by
the Executive, or rights to any cash-based long term incentives,
determined in accordance with the terms thereof or the applicable
plan,
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(E)
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for a period of twenty-four months following the
termination of the Executive’s employment, continued medical
benefit plan coverage (including dental and vision benefits if
provided under the applicable plans) for the Executive (and the
Executive’s immediate family members, if any) under the
Company’s medical benefit plans upon substantially the same
terms and conditions (including cost of coverage to the Executive)
as is then in existence for other senior executives during the
coverage period; provided , that , if the Executive
cannot continue to participate in the Company plans providing such
benefits, the Company shall otherwise provide such benefits on
substantially the same after-tax basis as if continued
participation had been permitted; provided , however
, that, in the event the Executive becomes reemployed with another
employer and becomes eligible to receive medical benefits from such
employer, the medical benefits described herein shall immediately
cease, and
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(F)
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the vested accrued benefits, if any, under the
employee benefit programs of the Company, as provided in Section 6
above, determined in accordance with the applicable terms and
provisions of such programs.
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(iii) In
the event the Executive’s employment is terminated by (x) the
Company without Cause within the twenty-four month period following
a Change in Control (as defined in Exhibit A hereto) (the "
Post-Change Period ") or (y) the Executive terminates his
employment for " Good Reason " (as defined in Exhibit
B hereto) during the Post-Change Period, the Executive shall be
entitled to the following, paid in the case of amounts set forth in
(A), (B), (C) and (D) below within 30 days after termination of
employment:
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(A)
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Base Salary as provided in Section 4, above, at
the rate in effect at the time of his termination of employment,
through the date on which termination occurs,
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(B)
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a cash lump sum payment equal to two times the
Executive’s annual Base Salary, at the rate in effect in
accordance with Section 4, above, or immediately prior to such
termination or Change in Control, whichever is greater,
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(C)
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a cash lump sum payment equal to two times the
higher of (i) the average annual bonus awarded to the
Executive by the Company or its subsidiaries in the three years
prior to the year in which the Change in Control occurs (or shorter
period during which the Executive had been employed by any of such
entities), or (ii) the Executive’s target annual bonus,
if any, for the year of such termination,
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(D)
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an amount equal to (i) the higher of (x) the
bonus actually awarded to the Executive by the Company for the year
immediately preceding the year in which the Change in Control
occurs or (y) the targeted amount of bonus, if any, that would have
been awarded to the Executive in respect of the year in which the
termination of employment occurs, multiplied by (ii) a fraction,
the numerator of which is the number of months or fraction thereof
in which the Executive was employed by the Company in the year of
termination of employment, and the denominator of which is
12,
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(E)
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options to purchase equity securities of the
Company or other rights with respect to equity securities of the
Company held by the Executive shall immediately vest in full and
shall continue to be exercisable for three years from the date of
termination of employment, notwithstanding the Executive’s
termination of employment, or the original full term of the option
or other right, if shorter, and cash-based long term incentives in
accordance with the terms of the applicable plan,
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(F)
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for a period of twenty-four months following the
termination of the Executive’s employment, continued medical
benefit plan coverage (including dental and vision benefits if
provided under the applicable plans) for the Executive (and the
Executive’s immediate family members, if any) under the
Company’s medical benefit plans upon substantially the same
terms and conditions (including cost of coverage to the Executive)
as is then in existence for other senior executives during the
coverage period; provided , that , if the Executive
cannot continue to participate in the Company plans providing such
benefits, the Company shall otherwise provide such benefits on
substantially the same after-tax basis as if continued
participation had been permitted; provided , however
, that, in the event the Executive becomes reemployed with another
employer and becomes eligible to receive medical benefits from such
employer, the medical benefits described herein shall immediately
cease, and
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(G)
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full and immediate vesting under the
Company’s retirement plans as of the date of termination, to
the extent permitted by applicable law; provided ,
however , that if such full and immediate vesting cannot be
provided under a retirement plan under applicable law, then
economically equivalent benefits shall be provided through
arrangements outside the applicable retirement plan.
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Anything
in this Agreement to the contrary notwithstanding, the Executive
shall be entitled to the benefits described in (A)-(G) above, if
the Executive’s employment with the Company is terminated by
the Company (other than for Cause) within one year prior to the
date on which a Change in Control occurs, and it is reasonably
demonstrated that such termination (i) was at the request of a
third party who has taken steps reasonably calculated or intended
to effect the Change in Control or (ii) otherwise arose in
connection with or anticipation of the Change in Control;
provided , however , that in such event, amounts will
be payable hereunder only following the Change in Control (and
within 10 days thereafter).
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(iv) If, in situations where Section
8(d)(iii) does not apply, at any time during the term of the
Executive’s employment hereunder, duties are assigned to the
Executive that are materially inconsistent with his position, or
the Company does not cure any other material breach by it of any
provision of Sections 3 through 7, 14 and 17 of this Agreement
within 30 calendar days following written notice of same by the
Executive (which written notice must be given within 30 calendar
days after such breach), the Executive shall have the right to
terminate his employment within 30 calendar days of the
Company’s failure to rescind such assignment in accordance
with the proviso below or of such failure to cure a breach, as the
case may be, and such termination shall be deemed a termination by
the Company without Cause under Section 8(d)(ii), above,
provided , in the case of assignment of inconsistent duties,
the Executive shall have given the Company written notice of his
decision within 30 calendar days of such assignment and shall not,
within 30 calendar days thereafter, have had the assignment of
inconsistent duties rescinded.
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(e) VOLUNTARY
TERMINATION BY THE EXECUTIVE. The Executive may voluntarily
terminate his employment prior to the expiration of the term of
this Agreement upon at least three months’ prior written
notice to the Company, provided such termination shall constitute a
voluntary termination and, except as provided in Section 8(d)(iii)
or Section 8(d)(iv), above, in such event the Executive shall be
limited to the same rights and benefits as applicable to a
termination by the Company for Cause as provided in Section 8(c),
above. A voluntary termination in accordance with this Section 8(e)
shall not be deemed a breach of this Agreement. A termination of
the Executive’s employment due to disability or death as
described in Section 8(b) or 8(a), above, a termination by the
Executive which the Executive is entitled to treat as a termination
by the Company pursuant to Section 8(d), above, or a termination by
the Executive under Section 8(d)(iv), above, shall not be deemed a
voluntary termination within the meaning of this Section 8(e). For
the avoidance of doubt, a notice of non-renewal of the Agreement
pursuant to Section 2 above issued by the Executive shall not
be considered a voluntary termination within the meaning of this
Section 8(e).
9. EXCISE
TAX PAYMENTS.
(a) Anything
in this Agreement to the contrary notwithstanding, in the event it
shall be determined that (i) any payment or distribution made, or
benefit provided (including, without limitation, the acceleration
of any payment, distribution or benefit or accelerated vesting or
exercisability of any award) by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise,
but determined without regard to any additional payments required
under this Section 9) (a " Payment ") would be subject to
the excise tax imposed by Section 4999 of the Code (or any
successor provision or similar excise tax), or any interest or
penalties are incurred by the Executive with respect to such excise
tax (such excise
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