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Exhibit 10.4
EMPLOYMENT AGREEMENT
AGREEMENT,
made and entered into as of this 23 rd day of January,
2007, by and between, Security Capital Assurance Ltd, a Bermuda
corporation (the " Company "), and David P. Shea (the "
Executive ").
WHEREAS,
the Executive has been employed by XL Capital Ltd as an Executive
Vice President, Chief Financial Officer of the Financial Products
& Services operations, which has included the business of the
Company;
WHEREAS,
the Executive and the Company desire that the Executive cease to be
an employee of XL Capital Ltd and become the Chief Financial
Officer of the Company 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 third
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 Chief Financial
Officer of the Company. In such position, 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, or holding company, whose shares are publicly
traded in the United States. In carrying out his duties and
responsibilities, the Executive shall report to the Chief Executive
Officer of 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 either 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, 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 not less than
US$385,000.00, 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 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.
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.
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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 dependents, if any, under the Company’s
medical benefit plans upon substantially the same terms and
conditions (including cost of coverage to the dependents) as is
then in existence for other executives during the coverage period;
provided , that , if the Executive’s dependents
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
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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
dependents, 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 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) 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
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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 three (3) 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 any restricted stock or other
securities or other long-term cash incentives, held by the
Executive, determined in accordance with the terms
thereof,
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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
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Executive (and the Executive’s dependents,
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 , 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
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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,
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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 dependents, 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 , 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
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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 tax,
together with any such interest and penalties, are hereinafter
collectively referred to as the " Excise Tax ")
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